Form 10-Q AssetMark Financial Hold For: Jun 30
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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(Mark One) |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification Number) |
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(Address of principal executive offices) |
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( (Registrant’s telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
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Title of each class |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of July 31, 2022, the number of shares of the registrant’s common stock outstanding was
ASSETMARK FINANCIAL HOLDINGS, INC.
TABLE OF CONTENTS
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Page No. |
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Item 1. |
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Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 |
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Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
34 |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
56 |
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Item 3. |
56 |
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Item 4. |
57 |
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Item 5. |
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Item 6. |
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59 |
1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. For example, statements in this Form 10-Q regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “would,” “could,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of these terms and other comparable terminology that conveys uncertainty of future events or outcomes. In addition, any statements that refer to projections of our future financial performance and financial results; our anticipated growth strategies and anticipated trends in our business; our expectations regarding our industry outlook, market position, liquidity and capital resources, addressable market, investments in new products, services and capabilities; our ability to execute on strategic transactions; our ability to comply with existing, modified and new laws and regulations applying to our business; the impacts of the COVID-19 pandemic on our operations; demand from our customers and end investors; and other characterizations of future events or circumstances are forward-looking statements. These statements are only predictions based on our current expectations and projections about future events and are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and are subject to risks, uncertainties and assumptions, including those identified under “Item 1A. Risk Factors,” any of which could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. While we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. We are under no duty to update any of these forward-looking statements after the date of this Quarterly Report on Form 10-Q to conform our prior statements to actual results or revised expectations, except as required by law. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements as predictions of future events.
2
SUMMARY OF RISK FACTORS
Our business is subject to numerous risks and uncertainties, any one of which could materially adversely affect our results of operations, financial condition or business. These risks include, but are not limited to, those listed below. This list is not complete, and should be read together with the section titled “Risk Factors” in this Quarterly Report on Form 10-Q, as well as the other information in this Quarterly Report on Form 10-Q and the other filings that we make with the U.S. Securities and Exchange Commission (the “SEC”).
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Our revenue may fluctuate from period to period, which could cause our share price to fluctuate. |
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We operate in an intensely competitive industry, 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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We derive nearly all of our revenue from the delivery of investment solutions and services to clients in the financial advisory industry and our revenue could suffer if that industry experiences a downturn. |
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Investors that pay us asset-based fees may seek to negotiate lower fees, choose to use lower-revenue products or cease using our services, which could limit the growth of our revenue or cause our revenue to decrease. |
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Investors may redeem or withdraw their investment assets generally at any time. Significant changes in investing patterns or large-scale withdrawal of investment funds could have a material adverse effect on our results of operations, financial condition or business. |
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Changes in market and economic conditions (including as a result of the ongoing COVID-19 pandemic, or geopolitical conditions or events) could lower the value of assets on which we earn revenue and could decrease the demand for our investment solutions and services. |
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We may be subject to liability for losses that result from a breach of our or a third party’s fiduciary duties. |
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We are exposed to data and cybersecurity risks that could result in data breaches, service interruptions, harm to our reputation, protracted and costly litigation or significant liability. |
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Our controlling stockholder is subject to supervision by regulatory authorities in the People’s Republic of China (“PRC”) and must comply with certain PRC laws and regulations that may influence our controlling stockholder’s decisions relating to our business. |
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We are subject to extensive government regulation in the United States, and our failure or inability to comply with these regulations or regulatory action against us could adversely affect our results of operations, financial condition or business. |
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Failure to properly disclose conflicts of interest could harm our reputation, results of operations or business. |
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Control by our principal stockholder could adversely affect our other stockholders. |
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
AssetMark Financial Holdings, Inc.
Condensed Consolidated Balance Sheets
(in thousands except share data and par value)
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June 30, 2022 |
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December 31, 2021 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Investments, at fair value |
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Fees and other receivables, net |
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Income tax receivable, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Capitalized software, net |
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Other intangible assets, net |
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Operating lease right-of-use assets |
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Goodwill |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities and other current liabilities |
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Total current liabilities |
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Long-term debt, net |
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Other long-term liabilities |
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Long-term portion of operating lease liabilities |
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Deferred income tax liabilities, net |
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Total long-term liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Common stock, $ |
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Additional paid-in capital |
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Retained earnings |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
4
AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Statements of Comprehensive Income
(in thousands except share and per share data)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Revenue: |
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Asset-based revenue |
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$ |
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$ |
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$ |
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$ |
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Spread-based revenue |
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Subscription-based revenue |
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— |
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— |
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Other revenue |
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Total revenue |
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Operating expenses: |
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Asset-based expenses |
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Spread-based expenses |
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Employee compensation |
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General and operating expenses |
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Professional fees |
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Depreciation and amortization |
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Total operating expenses |
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Interest expense |
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Other expenses, net |
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( |
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Income before income taxes |
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Provision for income taxes |
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Net income |
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Net comprehensive income |
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$ |
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$ |
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$ |
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$ |
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Net income per share attributable to common stockholders: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average number of common shares outstanding, basic |
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Weighted average number of common shares outstanding, diluted |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
5
AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Statements of Stockholders’ Equity
(in thousands except share data)
For the three months ended June 30, 2022 and 2021
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Common stock |
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Additional paid-in |
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Retained |
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Total stockholders’ |
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Shares |
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Amount |
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capital |
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earnings |
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equity |
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Balance at March 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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Issuance of common stock - vesting of restricted stock units |
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— |
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— |
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Balance at June 30, 2021 |
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$ |
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$ |
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$ |
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$ |
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Balance at March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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Issuance of common stock - vesting of restricted stock units |
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— |
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— |
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— |
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— |
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Balance at June 30, 2022 |
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$ |
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$ |
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$ |
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$ |
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For the six months ended June 30, 2022 and 2021
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Common stock |
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Additional paid-in |
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Retained |
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Total stockholders’ |
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Shares |
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Amount |
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capital |
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earnings |
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equity |
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Balance at December 31, 2020 |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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Issuance of common stock - vesting of restricted stock units |
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— |
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— |
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Balance at June 30, 2021 |
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$ |
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$ |
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$ |
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$ |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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Issuance of common stock - vesting of restricted stock units |
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— |
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— |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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— |
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— |
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Balance at June 30, 2022 |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
6
AssetMark Financial Holdings, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
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Six Months Ended June 30, |
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2022 |
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2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Interest |
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Deferred income taxes |
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— |
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Share-based compensation |
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Debt acquisition write-down |
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— |
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Changes in certain assets and liabilities: |
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Fees and other receivables, net |
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( |
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Receivables from related party |
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( |
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( |
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Prepaid expenses and other current assets |
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Accounts payable, accrued liabilities and other current liabilities |
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( |
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( |
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Income tax receivable and payable, net |
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( |
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( |
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Net cash provided by operating activities |
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|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Purchase of investments |
|
|
( |
) |
|
|
( |
) |
|
Sale of investments |
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
( |
) |
|
|
( |
) |
|
Purchase of computer software |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Proceeds from revolving credit facility draw down |
|
|
— |
|
|
|
|
|
|
Proceeds from issuance of long-term debt, net |
|
|
|
|
|
|
— |
|
|
Payments on revolving credit facility |
|
|
( |
) |
|
|
— |
|
|
Payments on term loan |
|
|
( |
) |
|
|
— |
|
|
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
|
Net change in cash, cash equivalents, and restricted cash |
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash at beginning of period |
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
|
|
|
$ |
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
|
|
|
$ |
|
|
|
Interest paid |
|
$ |
|
|
|
$ |
|
|
|
Non-cash operating activities: |
|
|
|
|
|
|
|
|
|
Non-cash changes to right-of-use assets |
|
$ |
|
|
|
$ |
( |
) |
|
Non-cash changes to lease liabilities |
|
$ |
|
|
|
$ |
( |
) |
The accompanying notes are an integral part of the condensed consolidated financial statements.
7
AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
All dollar amounts presented are in thousands other than per share amounts for all notes.
Note 1. Overview
Organization and Nature of Business
These unaudited condensed consolidated financial statements include AssetMark Financial Holdings, Inc. (“AFHI” or the “Company”) and its subsidiaries. AFHI is the parent company of AssetMark, Inc., AssetMark Trust Company, AssetMark Brokerage, LLC, AssetMark Retirement Services, Inc., Global Financial Private Capital, Inc., Global Financial Advisory, LLC, Voyant, Inc., Voyant UK Limited, Voyant Financial Technologies Inc. and Voyant Australia Pty Ltd (collectively, the “Company”). We completed an internal restructuring on January 1, 2022, whereby AssetMark Financial, Inc. (formerly a direct, wholly owned subsidiary of AFHI) merged with and into AFHI, at which time AFHI automatically became the direct parent company of AssetMark, Inc., AssetMark Trust Company, AssetMark Brokerage, LLC, AssetMark Retirement Services, Inc., Global Financial Private Capital, Inc., Global Financial Advisory, LLC, Voyant, Inc., Voyant UK Limited, Voyant Financial Technologies Inc. and Voyant Australia Pty Ltd.
The Company offers a broad array of wealth management solutions to individual investors through financial advisers by providing an open-architecture product platform along with tailored client advice, asset allocation options, practice management, support services and technology to the financial adviser channel. The following is a description of the products and services offered by our primary operating subsidiaries.
AssetMark, Inc. (“AMI”) is a registered investment adviser that was incorporated under the laws of the State of California on May 13, 1999. AMI offers a broad array of wealth management solutions to individual investors through financial advisers by providing an open-architecture product platform along with tailored client advice, asset allocation options, practice management, support services and technology solutions to the financial adviser channel. AMI serves as investment adviser to the Company’s proprietary GuideMark Funds, GuidePath Funds and the Savos Dynamic Hedging Fund, each of which is a mutual fund offered to clients of financial advisers.
AssetMark Trust Company (“ATC”) is a licensed trust company and was incorporated under the laws of the State of Arizona on August 24, 1994. ATC is regulated by the Arizona Department of Insurance and Financial Institutions. ATC provides custodial recordkeeping services primarily to investor clients of registered investment advisers (including AMI) located throughout the United States.
AssetMark Brokerage, LLC (“AMB”) is a limited-purpose broker-dealer located in Concord, California and was incorporated under the laws of the State of Delaware on September 25, 2013. AMB’s primary function is to distribute the mutual funds of the Company and to sponsor the Financial Industry Regulatory Authority licensing of those AssetMark associates who provide distribution support through promotion of the AssetMark programs and strategies that employ the Company’s mutual funds.
Voyant, Inc. (“Voyant”) is a SaaS-based financial planning, wellness and client digital engagement solutions company that was originally formed in Texas on December 29, 2005 and was converted to a Delaware corporation on November 21, 2008.
Note 2. Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation have been included. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ended December 31, 2022 or any future period. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited condensed consolidated financial statements and related notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
8
AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Risks and Uncertainties
The COVID-19 pandemic continues to evolve and has adversely impacted global commercial activities. Management expects COVID-19 related changes in market and investor behaviors to continue to impact our asset- and spread-based revenue. However, given the uncertainty around the duration and extent of the COVID-19 pandemic, management cannot predict the impact on the Company’s results of operations, financial condition or liquidity in subsequent periods.
Estimates and assumptions about future events and their effects on the Company cannot be determined with certainty and therefore require the exercise of judgment. The Company is not aware of any specific events or circumstances that would require the Company to update its estimates, assumptions or judgments or revise the carrying value of its assets or liabilities. The Company will update the estimates and assumptions underlying the condensed consolidated financial statements in future periods as events and circumstances develop.
Geographic Sources of Revenue
Revenues attributable to customers outside of the United States totaled $
Recent Accounting Pronouncements – Not Yet Adopted
In August 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments in this Update require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The guidance is effective for the Company beginning in the fiscal year ending December 31, 2023 and will be applied prospectively upon adoption.
Note 3. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
|
Prepaid expenses |
|
$ |
|
|
|
$ |
|
|
|
Operating lease right-of-use assets |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
Note 4. Business Combinations
Acquisition of Voyant, Inc.
On
Acquisition of Adhesion Wealth Advisor Solutions, Inc.
On
Note 5. Goodwill and Other Intangible Assets
Goodwill
9
AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
The Company’s goodwill balance was $
Other Intangible Assets
Information regarding the Company’s intangible assets is as follows:
|
June 30, 2022 |
|
Gross carrying amount |
|
|
Accumulated amortization |
|
|
Net carrying amount |
|
|
Estimated remaining useful life |
|||
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker-dealer relationships |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
Voyant enterprise distribution channel customer relationships |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
Definite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
Broker-dealer license |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
ATC regulatory status |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
Voyant non-enterprise distribution channel customer relationships |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
GFPC adviser relationships |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
OBS adviser and trust relationships |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
Voyant trade name |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
Voyant technology |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
Voyant non-compete agreement |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
|
December 31, 2021 |
|
Gross carrying amount |
|
|
Accumulated amortization |
|
|
Net carrying amount |
|
|
Estimated remaining useful life |
|||
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker-dealer relationships |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
Voyant enterprise distribution channel customer relationships |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
Definite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
Broker-dealer license |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
ATC regulatory status |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
Voyant non-enterprise distribution channel customer relationships |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
GFPC adviser relationships |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
OBS adviser and trust relationships |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
Voyant trade name |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
Voyant technology |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
Voyant non-compete agreement |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
The weighted average estimated remaining useful life was
10
AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Estimated amortization expense for definite‑lived intangible assets for future years is as follows:
|
Remainder of 2022 |
|
$ |
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 and thereafter |
|
|
|
|
|
Total |
|
$ |
|
|
Note 6. Accrued Liabilities and Other Current Liabilities
The following table shows the breakdown of accrued liabilities and other current liabilities:
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
|
Accrued bonus |
|
$ |
|
|
|
$ |
|
|
|
Current portion of long-term debt, net |
|
|
|
|
|
|
— |
|
|
Compensation and benefits payable |
|
|
|
|
|
|
|
|
|
Current portion of operating lease liabilities |
|
|
|
|
|
|
|
|
|
Reserve for uncertain tax positions |
|
|
|
|
|
|
|
|
|
Asset-based payables |
|
|
|
|
|
|
|
|
|
Other accrued expenses |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
Note 7. Other Long-Term Liabilities
Other long-term liabilities consisted of the following:
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
|
Deferred compensation plan liability |
|
$ |
|
|
|
$ |
|
|
|
Contractor liability |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
Note 8. Fair Value Measurements
The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value in the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021, based on the three-tier fair value hierarchy:
|
|
|
June 30, 2022 |
|
|||||||||||||
|
|
|
Fair Value |
|
|
Level I |
|
|
Level II |
|
|
Level III |
|
||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities investments(1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
Assets to fund deferred compensation liability(2) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation liability(3) |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
Total liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
11
AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
|
|
|
December 31, 2021 |
|
|||||||||||||
|
|
|
Fair Value |
|
|
Level I |
|
|
Level II |
|
|
Level III |
|
||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities investments(1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
Assets to fund deferred compensation liability(2) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation liability(3) |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
Total liabilities |
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
(1) |
|
|
(2) |
|
|
(3) |
|
Note 9. Asset-Based Expenses
Asset-based expenses incurred by the Company relating to the generation of asset-based revenues are as follows:
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Strategist and manager fees |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Premier broker-dealer fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Custody fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund advisory fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing allowance |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Note 10. Debt
On December 30, 2020, the Company entered into a Credit Agreement (the “2020 Credit Agreement”) with Bank of Montreal for a senior secured credit facility in an aggregate principal amount of $
On January 12, 2022, the Company amended the 2020 Credit Agreement to, among other things, add a term loan facility (as amended and restated, the “2022 Credit Agreement”). Joint lead arrangers and joint bookrunners for the 2022 Credit Agreement are BMO Capital Markets Corp., JPMorgan Chase Bank, N.A., Truist Securities, Inc., U.S. Bank National Association and Wells Fargo Securities, LLC. The 2022 Credit Agreement provides for a senior secured credit facility in an aggregate principal amount of $
12
AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
The 2022 Term Loans bear interest at a rate per annum equal to, at the Company’s option, either (i) SOFR plus a margin based on the Company’s Total Leverage Ratio (as defined in the 2022 Credit Agreement) or (ii) the Base Rate (as defined in the 2022 Credit Agreement) plus a margin based on the Company’s Total Leverage Ratio. The margin ranges between
Interest expense was $
Note 11. Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in other current assets, operating lease right-of-use (“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 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 certain the Company will exercise the extension. Several of the Company's leases are subject to periodic rent adjustments that are not tied to an index or specific interest rate. 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 to use the practical expedient to exclude the non-lease component from the lease for all asset classes. Operating lease costs of $
Future minimum lease payments under non-cancellable leases, as of June 30, 2022, were as follows:
|
Remainder of 2022 |
|
$ |
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 |
|
|
|
|
|
2027 and thereafter |
|
|
|
|
|
Total future minimum lease payments |
|
|
|
|
|
Less: imputed interest |
|
|
( |
) |
|
Total operating lease liabilities |
|
$ |
|
|
Note 12. Share-Based Compensation
On July 3, 2019, the Company’s Board of Directors adopted, and the Company’s sole stockholder approved, the 2019 Equity Incentive Plan (the “2019 Equity Incentive Plan”), which became effective on July 17, 2019, the date of effectiveness of the Company’s initial public offering (“IPO”) registration statement on Form S-1. As of June 30, 2022,
13
AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Restricted Stock Awards
Immediately following the pricing of the IPO, the Company issued an aggregate number of restricted stock awards (“RSAs”) equal to
Share-based compensation expense related to the RSAs was $
Stock Options
In connection with the IPO, the Company issued options to certain officers to acquire an aggregate of
Share-based compensation expense related to the stock options was $
Restricted Stock Units
Periodically, the Company issues restricted stock units (“RSUs”) to officers, certain employees and independent directors of the board under the 2019 Equity Incentive Plan.
Share-based compensation expense related to the RSUs was $
Stock Appreciation Rights
Periodically, the Company issues stock appreciation rights (“SARs”) to certain officers with respect to shares of the Company’s common stock under the 2019 Equity Incentive Plan.
Share-based compensation expense related to SARs was $
14
AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 13. Commitments and Contingencies
Litigation
The Company faces the risk of litigation and regulatory investigations and actions in the ordinary course of operating the Company’s businesses, including the risk of class action lawsuits. The Company’s pending legal and regulatory actions include proceedings specific to the Company and others generally applicable to business practices in the industries in which the Company operates. The Company is also subject to litigation arising out of the Company’s general business activities such as the Company’s contractual and employment relationships. In addition, the Company is subject to various regulatory inquiries, such as information requests, subpoenas, books and record examinations and market conduct and financial examinations from state, federal and other authorities. Plaintiffs in class action and other lawsuits against the Company may seek very large or indeterminate amounts which may remain unknown for substantial periods of time. A substantial legal liability or a significant regulatory action against the Company could have an adverse effect on the Company’s business, financial condition and results of operations. Moreover, even if the Company ultimately prevails in the litigation, regulatory action or investigation, the Company could suffer significant reputational harm, which could have an adverse effect on the Company’s business, financial condition or results of operations.
In the opinion of management, after discussions with legal counsel, the ultimate resolution of the pending legal proceedings will not have a material effect on the consolidated financial condition, results of operations or cash flows of the Company.
Note 14. Income Taxes
The Company’s effective income tax rate differs from the federal corporate tax rate of
The Company’s effective tax rate was
Note 15. Related Party Transactions
As of June 30, 2022 and December 31, 2021, the Company had a receivable due from Huatai Securities Co., Ltd. (“HTSC”) of $
Note 16. Net Income Per Share Attributable to Common Stockholders
Basic net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding for the period. For the calculation of diluted net income per share, the basic weighted average number of shares of common stock outstanding is increased by the dilutive effect (if any) of stock options, restricted stock awards, restricted stock units and stock appreciation rights.
15
AssetMark Financial Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
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 June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Net income attributable to common stockholders |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common stock used in computing net income per share attributable to common stockholders, basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to common stockholders, basic |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing net income per share attributable to common stockholders, basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested RSAs |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Unvested RSUs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted number of weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to common stockholders, diluted |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The following securities were not included in the computation of diluted shares because such securities did not have a dilutive effect.
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSAs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 17. Subsequent Events
None.
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes thereto and the other financial information included in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of forward-looking statements and important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our fiscal year ends on December 31 each year.
Overview
AssetMark is a leading provider of extensive wealth management and technology solutions that power financial advisers and their clients. Our platform drives transformational value across all aspects of the adviser’s business. Through innovative digital tools, deep expertise, and hands-on service, our platform enables advisers to outsource services and capabilities that would otherwise require significant investments of time and money. Our purpose-built 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 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 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. When an adviser chooses to work with AssetMark, we recognize that their success is paramount, 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 and the success of 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. |
Financial 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.” |
Asset and Adviser Growth Trends
|
|
• |
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. |
17
Key Factors Affecting Our Performance
Expansion of Our Existing Financial Adviser Base
We are focused on attracting new advisers to our platform with our end-to-end wealth management offering, composed of a fully integrated technology platform, high-touch sales and service support and a curated investment platform. Our extensive offering is built to enhance adviser efficiency so that advisers of all sizes can compete and grow. We also strive to increase our share of wallet, or portion of an adviser’s fee-based business that is invested on our platform, by providing a holistic platform for advisers and surrounding advisers with the tools they need to better serve their clients. Our business will depend in part on our ability to drive higher usage of our platform by financial advisers and their client bases.
Increase of New Financial Advisers on Our Platform
Within the wealth management industry, the percentage of assets served by independent financial advisers is forecasted to grow from 42% in 2020 to 47% in 2025, based on our internal estimates and Cerulli data on expected industry growth. We seek to capitalize on this trend and attract new financial advisers to our platform by continuing to invest in our technology platform, sales and service standards and curated investment offering. Our business will depend in part on our ability to continue to attract new advisers to our platform.
Technology Development
We invested $37.6 million in the development of our technology and our dedicated technology team during the six months ended June 30, 2022. 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, which is influenced significantly by interest rate changes and the amount of cash held by investors at our proprietary trust company.
Acquisitions
Our success in pursuing and executing strategic transactions may impact our assets and revenue. From 2014 to 2020, we acquired the platform assets of four firms, which collectively added $9.4 billion in platform assets. In 2021, we acquired Voyant, a leading global provider of SaaS-based financial planning and client digital engagement solutions. In June 2022, we entered into an
18
agreement to acquire Adhesion Wealth Advisor Solutions, Inc. 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
Beginning 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.
Key Operating Metrics
In addition to our GAAP financials, we regularly review the following key metrics to measure performance, identify trends, formulate financial projections, compensate our employees and monitor our business. While we believe that these metrics are useful in evaluating our business, other companies may not use similar metrics or may not calculate similarly titled metrics in a consistent manner.
Key metrics for the three and six months ended June 30, 2022 and 2021 include the following:
|
|
|
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 |
|
19
Platform Assets
We believe that the amount of assets on our platform is an important indicator of the strength and growth of our business, our increased customer footprint and the market acceptance of our platform. We define platform assets as all assets on the AssetMark platform, 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 material economic difference to our financial results whether assets are considered AUM or Other Assets. We view our platform assets as reflective of our revenue growth and potential for future growth. We had platform assets of $82,127 million and $84,594 million as of June 30, 2022 and 2021, respectively. Our regulatory AUM totaled $52,877 million and $54,117 million as of June 30, 2022 and 2021, respectively. We intend to continue growing our platform assets with enhancements to our technology, services and investment solutions. We expect the growth in our platform assets will remain a significant indicator of our business momentum and results of operations as existing advisers and new advisers realize the benefits of our platform. Our platform assets in any period may continue to fluctuate as a result of several factors, including our adviser satisfaction with the functionality, features, performance or pricing of our offering, overall fluctuations in the securities markets and other factors, a number of which are beyond our control.
Net Flows, Market Impact Net of Fees and Acquisition Impact
The changes in our platform assets from period to period are driven by production, redemptions, changes in market value and acquisitions. The amount of new assets that are added to existing and new client accounts are referred to as production, and the amount of assets that are withdrawn from client accounts are referred to as redemptions. We refer to the difference between production and redemptions as net flows. Positive net flows indicate that the amount of assets added to client accounts exceeds the amount of assets that have been terminated or withdrawn from client accounts. In addition to net flows, the change in the market value of investments held in client accounts between the beginning and end of a period, which we define as market impact, also influences platform assets. For each period, we show the market impact on platform assets net of the fees paid to financial advisers, custodians and certain fees embedded in investment vehicles. Further, acquisition impact refers to the amount of assets added to our platform through acquisitions.
Net Flows Lift
Net flows lift refers to net flows over a given period divided by platform assets at the beginning of the year. Net flows lift allows us to determine the percentage return we are attaining in terms of net new assets from our asset base at the beginning of year. We use beginning-of-year platform assets to calculate net flows lift for a given quarter to eliminate market and net flows impacts from previous quarters of the calendar year, which allows for a more accurate and consistent quarterly comparison.
Advisers (at Period-End)
Adviser count reflects the total number of advisers who had at least one investor account on our platform at the end of the given period.
Engaged Advisers (at Period-End)
Engaged advisers are advisers with at least $5 million in platform assets.
Assets from Engaged Advisers (at Period-End)
Assets from engaged advisers are total platform assets attributable to engaged advisers.
Households (at Period-End)
We define a “Household” as one or more client accounts that are grouped together based on a relationship identification code as determined by the financial adviser.
New Producing Advisers
New producing advisers (“NPAs”) for a given period represents the number of advisers that invested their first client assets on our platform in that period.
20
Production Lift from Existing Advisers (Annualized)
Existing advisers for a given period are defined as those who had invested client assets on our platform as of the beginning of the period. Production lift from existing advisers for a given period is calculated by dividing production (the amount of new assets that are added to client accounts) attributable to existing advisers for such period by platform assets as of the beginning of such period and annualizing the result. This metric represents both the organic growth of these advisers as well as any incremental share of wallet of the adviser’s business that is added to our platform on an annualized basis.
Assets in Custody at ATC (at Period-End)
Assets in custody at ATC represents platform assets that are in custody at AssetMark Trust Company.
ATC Client Cash (at Period-End)
In general, all accounts with ATC are required to have cash at a minimum level ranging from of 1.5% to 5% of invested assets. In addition to this minimum amount, strategists and advisers have the discretion to hold additional invested assets in cash. We refer to the aggregate amount of cash held at ATC as ATC client cash. As of June 30, 2022 and 2021, ATC client cash accounted for 5.9% and 4.1%, respectively, of the total assets in custody at ATC. As of June 30, 2022 and 2021, 100% of the ATC client cash was placed with the ATC-insured cash deposit program and was the primary source of spread-based revenue for our business.
Total Revenue
Total revenue includes all revenue that we recognize, including asset-based revenue, spread-based revenue, subscription-based revenue and other revenue.
Net Income
Net income is defined as total revenue less total expenses and provision for income taxes.
Net Income Margin
Net income margin is defined as net income divided by total revenue.
Capital Expenditure
Capital expenditure represents the long-term investments that we make on an annual basis. Capital expenditure primarily reflects investments in technology, the development of new products and services and other intangible assets, but also includes investments in property and equipment such as technology support and office space.
Non-GAAP Financial Metrics
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA is defined as EBITDA (net income plus interest expense, income tax expense, depreciation and amortization and less interest income), further adjusted to exclude certain non-cash charges and other adjustments set forth below. Adjusted EBITDA margin is defined as adjusted EBITDA divided by total revenue. Adjusted EBITDA and adjusted EBITDA margin are useful financial metrics in assessing our operating performance from period to period because they exclude certain items that we believe are not representative of our core business, such as certain material non-cash items and other adjustments such as share-based compensation, strategic initiatives and reorganization and integration costs. We believe that adjusted EBITDA and adjusted EBITDA margin, viewed in addition to, and not in lieu of, our reported GAAP results, provide useful information to investors regarding our performance and overall results of operations for various reasons, including:
|
|
• |
non-cash equity grants made to employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time; as such, share-based compensation expense is not a key measure of our operating performance; and |
|
|
• |
costs associated with acquisitions and the resulting integrations, debt refinancing, restructuring, 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. |
21
We use adjusted EBITDA and adjusted EBITDA margin:
|
|
• |
as measures of operating performance; |
|
|
• |
for planning purposes, including the preparation of budgets and forecasts; |
|
|
• |
to allocate resources to enhance the financial performance of our business; |
|
|
• |
to evaluate the effectiveness of our business strategies; |
|
|
• |
in communications with our board of directors concerning our financial performance; and |
|
|
• |
as considerations in determining compensation for certain employees. |
Adjusted EBITDA and adjusted EBITDA margin have limitations as analytical tools, and should not be considered in isolation to, or as substitutes for, analysis of our results as reported under GAAP. Some of these limitations are:
|
|
• |
adjusted EBITDA and adjusted EBITDA margin do not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments; |
|
|
• |
adjusted EBITDA and adjusted EBITDA margin do not reflect changes in, or cash requirements for, working capital needs; |
|
|
• |
adjusted EBITDA and adjusted EBITDA margin do not reflect interest expense on our debt or the cash requirements necessary to service interest or principal payments; and |
|
|
• |
the definitions of adjusted EBITDA and adjusted EBITDA margin can differ significantly from company to company and as a result have limitations when comparing similarly titled measures across companies. |
Set forth below is a reconciliation from net income and net income margin, the most directly comparable GAAP financial measures, to adjusted EBITDA and adjusted EBITDA margin for the three and six months ended June 30, 2022 and 2021.
|
|
|
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 |
% |
22
|
|
|
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 |
% |
|
(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. |
|
(3) |
“Acquisition expenses” includes employee severance, transition and retention expenses, duplicative general and administrative expenses and other professional fees related to acquisitions. |
|
(4) |
“Business continuity plan” includes incremental compensation and other costs that are directly related to a transition to a primarily remote workforce in 2021 and transition to a hybrid workforce in 2022, and other costs due to the COVID-19 pandemic. |
|
(5) |
“Office closures” represents one-time expenses related to closing facilities. |
23
Set forth below is a summary of the adjustments involved in the reconciliation from net income and net income margin, the most directly comparable GAAP financial measures, to adjusted EBITDA and adjusted EBITDA margin for the three and six months ended June 30, 2022 and 2021, broken out by compensation and non-compensation expenses.
|
|
|
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 |
% |
|
(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. |
|
(3) |
“Acquisition expenses” includes employee severance, transition and retention expenses, duplicative general and administrative expenses and other professional fees related to acquisitions. |
|
(4) |
“Business continuity plan” includes incremental compensation and other costs that are directly related to a transition to a primarily remote workforce in 2021 and transition to a hybrid workforce in 2022, and other costs due to the COVID-19 pandemic. |
|
(5) |
“Office closures” represents one-time expenses related to closing facilities. |
24
Adjusted Net Income
Adjusted net income represents net income before: (a) share-based compensation expense, (b) amortization of acquisition-related intangible assets, (c) acquisition and related integration expenses, (d) restructuring and conversion costs and (e) certain other expenses. Reconciled items are tax effected using the income tax rates in effect for the applicable period, adjusted for any potentially non-deductible amounts. We prepared adjusted net income to eliminate the effects of items that we do not consider indicative of our core operating performance. We have historically not used adjusted net income for internal management reporting and evaluation purposes; however, we believe that adjusted net income, viewed in addition to, and not in lieu of, our reported GAAP results, provides useful information to investors regarding our performance and overall results of operations for various reasons, including the following:
|
|
• |
non-cash equity grants made to employees at a certain price and point in time do not necessarily reflect how our business is performing at any particular time; as such, share-based compensation expense is not a key measure of our operating performance; |
|
|
• |
costs associated with acquisitions and related integrations, debt refinancing, restructuring and conversions can vary from period to period and transaction to transaction; as such, expenses associated with these activities are not considered a key measure of our operating performance; and |
|
|
• |
amortization expenses can vary substantially from company to company and from period to period depending upon each company’s financing and accounting methods, the fair value and average expected life of acquired intangible assets and the method by which assets were acquired; as such, the amortization of intangible assets obtained in acquisitions is not considered a key measure of our operating performance. |
Adjusted net income does not purport to be an alternative to net income or cash flows from operating activities. The term adjusted net income is not defined under GAAP, and adjusted net income is not a measure of net income, operating income or any other performance or liquidity measure derived in accordance with GAAP. Therefore, adjusted net income has limitations as an analytical tool and should not be considered in isolation to, or as a substitute for, analysis of our results as reported under GAAP. Some of these limitations are:
|
|
• |
adjusted net income does not reflect all cash expenditures, future requirements for capital expenditures or contractual commitments; |
|
|
• |
adjusted net income does not reflect changes in, or cash requirements for, working capital needs; and |
|
|
• |
other companies in the financial services industry may calculate adjusted net income differently than we do, limiting its usefulness as a comparative measure. |
Set forth below is a reconciliation from net income, the most directly comparable GAAP financial measure, to adjusted net income for the three and six months ended June 30, 2022 and 2021.
|
|
|
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 |
|
25
|
(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. |
Components of Results of Operations
Revenue
Asset-Based Revenue
A majority of our revenue is derived from the fees we charge as a percentage of platform assets. We record this revenue as asset-based revenue. Our asset-based revenue varies based on the types of investment solutions and services that financial advisers utilize for their clients. Asset-based revenue accounted for approximately 92.1% and 97.4% of our total revenue for the three months ended June 30, 2022 and 2021, respectively and approximately 93.9% and 97.4% of our total revenue for the six months ended June 30, 2022 and 2021, respectively.
Spread-Based Revenue
Our spread-based revenue consists of the fees we earn on cash custodied at ATC, one of our wholly owned subsidiaries and one of several custodians offered on our platform. ATC’s program utilizes third-party banks to place and hold client cash and is paid interest-rate-sensitive fees calculated by reference to such deposits. Spread-based revenue increased in the second quarter of 2022, primarily as a result of the higher interest rate environment. We expect spread-based revenue to continue to increase, given the rising interest rate environment.
Subscription-Based Revenue
Subscription-based revenue consists of revenue recognized from subscription fee arrangements in connection with our financial planning and wealth management software solutions. We began recognizing revenue related to subscription fee arrangements as a result of the Voyant acquisition in July 2021.
Other Revenue
Other revenue primarily consists of income related to consulting revenue from Voyant and interest earned on our cash balance. Other one-time income items are 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.
Operating Expenses
Asset-Based Expenses
Asset-based expenses primarily relate to costs incurred directly from the generation of asset-based revenue, including strategist, investment manager and sub-advisory fees, custody fees paid to our third-party custodian partners, payments to our broker-dealer partners and business development allowance payments for our premier advisers. These expenses are typically calculated based upon a percentage of the market value of assets held in customer accounts measured as of the end of each fiscal quarter.
Spread-Based Expenses
Our spread-based expenses consist of expenses paid to ATC’s third-party administrator for administering ATC’s insured cash deposit program and interest payments to clients.
Employee Compensation
Employment and compensation expenses include salaries, commissions and bonuses, non-cash share-based compensation, benefits and employer-related taxes.
26
General and Operating Expenses
General and operating expenses include occupancy expenses and expenses relating to trading, events, communications services, research and data services, website and systems development, marketing, legal services and travel and entertainment. We expect general and operating expenses to increase in absolute dollars in future periods as a result of increased costs associated with the anticipated loss of our emerging growth company status and significant increased legal and accounting costs related to compliance with rules and regulations implemented by the SEC and the New York Stock Exchange (the “NYSE”).
Professional Fees
Professional fee expenses primarily relate to the fees associated with the outsourcing of administrative operations functions, audit and legal costs and expenses related to being a publicly traded company.
Depreciation and Amortization
Amortization expense reflects the amortization of our intangible technology assets and our other assets such as trade names, broker-dealer licenses and ATC regulatory status, from the fair value established at the date of our sale to Huatai Securities Co., Ltd. (“HTSC”) in 2016, as well as the amortization of the intangible assets we acquired through our acquisitions. Depreciation expense reflects the ongoing cost of annual usage of property and equipment.
Interest Expense
Interest expense reflects the interest paid under the 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.
Other Expense, Net
Other expense represents the expense associated with our equity security investment, along with the gains and losses from the related investments and foreign exchange fluctuations.
27
Results of Operations
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
The following discussion presents an analysis of our results of operations for the three months ended June 30, 2022 and 2021. Where appropriate, we have identified specific events and changes that affect comparability or trends and, where possible and practical, have quantified the impact of such items.
|
|
|
Three months ended 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 |
|
|
* |
Not meaningful. |
Asset-Based Revenue
Asset-based revenue increased by $14.6 million, or 11.7%, 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 related to increased platform fees and advisory fees of $14.6 million associated with higher billable assets at the beginning of the period.
Spread-Based Revenue
Spread-based revenue increased by $4.5 million, or 167.6%, from $2.7 million in the three months ended June 30, 2021 to $7.2 million in the three months ended June 30, 2022. This increase was primarily related to higher interest income attributed to higher cash assets and an increase in interest rates during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.
Subscription-Based Revenue
Subscription-based revenue increased by $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 Revenue
Other revenue increased by $0.9 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.
28
Asset-Based Expenses
Asset-based expenses increased by $4.4 million, or 12.4%, from $35.8 million in the three months ended June 30, 2021 to $40.3 million in the three months ended June 30, 2022. This increase was primarily driven by an increase in asset-based fees due to increased platform assets from the prior year.
Spread-Based Expenses
Spread-based expenses decreased by $0.2 million, or 26.2%, from $0.9 million in the three months ended June 30, 2021 to $0.6 million in the three months ended June 30, 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 gross 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 Compensation
Employee compensation increased by $0.5 million, or 1.3%, from $39.4 million in the three months ended June 30, 2021 to $40.0 million in the three months ended June 30, 2022. The increase was primarily driven by a $3.6 million increase in salaries and related expenses attributable to our ongoing growth, a $0.5 million increase in reorganization and integration costs, and a $0.5 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-related expenses.
General and Operating Expenses
General and operating expenses increased by $5.9 million, or 36.2%, from $16.3 million in the three months ended June 30, 2021 to $22.2 million in the three months ended June 30, 2022. This increase was primarily due to a $4.4 million increase in events and travel costs, a $0.9 million increase in software 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 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 Fees
Professional 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. This increase was partially offset by a $0.5 million decrease in audit fees.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased by $2.0 million, or 20.8%, from $9.7 million in the three months ended June 30, 2021 to $7.7 million in the three months ended June 30, 2022. The decrease was primarily related 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 Expense
Interest expense increased by $0.7 million, or 92.3%, from $0.8 million in the three months ended June 30, 2021 to $1.5 million in the three months ended June 30, 2022. This increase can primarily be attributed to an increase in our average outstanding debt balance during the three months ended June 30, 2022 as compared to the three months ended June 30, 2021, as a direct result of executing our 2022 Credit Agreement in January 2022.
Other Expense, net
Other expense increased by $0.1 million, or 455.1%, in the three months ended June 30, 2022 primarily due to $0.1 million in remeasurement losses from transactions denominated in foreign currencies during the three months ended June 30, 2022.
29
Provision for Income Taxes
Provision for income taxes decreased by $2.1 million, or 20.9%, from $10.1 million in the three months ended June 30, 2021 to $8.0 million in the three months ended June 30, 2022. This decrease was primarily a result of the income tax effects of equity compensation relative to our income before income taxes.
Net Income
Net income increased by $15.4 million, or 153.8%, from $10.0 million in the three months ended June 30, 2021 to $25.3 million in the three months ended June 30, 2022.
This increase was primarily due to (i) an increase in asset-based revenue, net of asset-based expenses, of $10.1 million, (ii) a $4.7 million increase in spread-based revenue, net of spread-based expenses, (iii) a $3.3 million increase in subscription-based revenue, (iv) a $2.1 million decrease in our provision for income taxes and (v) a decrease in depreciation expense of $2.0 million.
The increase was partially offset by a $5.9 million increase in general and operating expenses, a $0.5 million increase in employee compensation, and an increase of $0.5 million in professional fees.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
The following discussion presents an analysis of our results of operations for the six months ended June 30, 2022 and 2021. 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.
|
|
|
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 |
) |
|
* |
Not meaningful. |
Asset-Based Revenue
Asset-based revenue increased by $40.8 million, or 17.0%, 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 related 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 Revenue
Spread-based revenue increased by $3.8 million, or 72.5%, from $5.3 million in the six months ended June 30, 2021 to $9.1 million in the six months ended June 30, 2022. This increase was primarily related to higher interest income as a result of higher cash balances and an increase in interest rates during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.
30
Subscription-Based Revenue
Subscription-based revenue increased by $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 Revenue
Other revenue increased by $1.2 million, or 97.5%, from $1.3 million in the six months ended June 30, 2021 to $2.5 million in the six months ended June 30, 2022. This increase was due 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 Expenses
Asset-based expenses increased by $10.0 million, or 14.0%, from $71.9 million in the six months ended June 30, 2021 to $82.0 million in the six months ended June 30, 2022. This increase was primarily driven by an increase in asset-based fees due to increased platform assets from the prior year.
Spread-Based Expenses
Spread-based expenses decreased by $0.5 million, or 32.3%, from $1.5 million in the six months ended June 30, 2021 to $1.0 million in the six months ended June 30, 2022. The decrease was primarily driven by a one-time adjustment as a result of our change in presentation of SBLOC revenue from gross to a net form of presentation in the third quarter of 2021.
Employee Compensation
Employee compensation decreased by $26.5 million, or 24.8%, from $106.7 million in the six months ended June 30, 2021 to $80.3 million in the six months ended June 30, 2022. This decrease was primarily driven by a $33.9 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 decrease 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 million increase in salaries and related expenses attributable to our ongoing growth, and a $0.9 million increase in contractor-related costs.
General and Operating Expenses
General and operating expenses increased by $10.5 million, or 31.0%, from $33.8 million in the six months ended June 30, 2021 to $44.3 million in the six months ended June 30, 2022. This increase was primarily due to a $10.4 million increase in events and travel costs, a $1.7 million increase in software and subscription costs, and a $0.5 million increase in printing-related costs. This increase was partially offset by a $2.0 million decrease in acquisition costs, and a $0.1 million decrease in reorganization and integration costs.
Professional Fees
Professional fees increased by $1.9 million, or 21.0%, from $9.3 million in the six months ended June 30, 2021 to $11.2 million in the six months ended June 30, 2022. This increase was driven by a $1.6 million increase in professional fees associated with reorganization and integration work, a $0.5 million increase in consulting fees, and a $0.4 million increase in general professional fees. This increase was partially offset by a $0.5 million decrease in audit-related fees, and a $0.1 million decrease in professional fees associated with acquisitions.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased by $4.0 million, or 20.9%, 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 related 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.
31
Interest Expense
Interest expense increased by $1.1 million, or 71.4%, from $1.5 million in the six months ended June 30, 2021 to $2.6 million in the six months ended June 30, 2022. This increase can 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, 2022 as compared to the six months ended June 30, 2021.
Other Expense, net
Other expense increased by $0.2 million, or 657.1%, 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 Taxes
Provision for income taxes increased by $13.2 million, or 664.6%, from $2.0 million in the six months ended June 30, 2021 to $15.1 million in the six months ended June 30, 2022. This increase was primarily a result of the income tax effects of equity compensation relative to our income before income taxes.
Net Income
Net income increased by $46.5 million, or 4,344.8%, from $1.1 million in the six months ended June 30, 2021 to $47.6 million in the six months ended June 30, 2022.
This increase was primarily due 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 million increase in spread-based revenue, net of spread-based expenses, and (v) a decrease of $4.0 million in depreciation and amortization expense.
The increases were partially offset by a $13.2 million increase in our provision for income taxes, and a $10.5 million increase in general and operating expenses.
Liquidity and Capital Resources
Liquidity
Since 2016, our operations have been financed primarily through cash flows from operations. In November of 2018, we also established a credit facility consisting of a $250.0 million term loan and a $20.0 million revolving credit facility with Credit Suisse AG, Cayman Islands Branch (“Credit Suisse”). 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. As of June 30, 2022, we had cash and cash equivalents of $116.5 million, and restricted cash of $13.0 million. Our material cash requirements primarily comprise operating lease obligations, purchase obligations 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 Credit Revolving Facility 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.
2020 Revolving Credit Facility
On December 30, 2020, we entered into a credit agreement with Bank of Montreal, as administrative agent; Bank of Montreal, JP Morgan Chase, N.A, US Bank National Association and Wells Fargo Bank, National Association as joint lead arrangers and joint bookrunners; 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.
The 2020 Credit Agreement provided a 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.
32
2022 Credit Agreement
On January 12, 2022, we amended the 2020 Credit Agreement with Bank of Montreal to, among other things, add a term loan facility (as amended and restated, the “2022 Credit Agreement”). Joint lead arrangers and joint bookrunners for the 2022 Credit Agreement are BMO Capital Markets Corp., JPMorgan Chase Bank, N.A., Truist Securities, Inc., U.S. Bank National Association and Wells Fargo Securities, LLC. The 2022 Credit Agreement provides for a senior secured credit facility in an aggregate principal amount of $500.0 million consisting of a revolving credit facility with commitments in an aggregate principal amount of $375.0 million (the “2022 Revolving Credit Facility”) and a term loan facility with commitments in an aggregate amount of $125.0 million (the “2022 Term Loans”), with an accordion option to increase the revolving commitments by $100.0 million.
The 2022 Term Loans bear interest at a rate per annum equal to, at our option, either (i) SOFR plus a margin based on our Total Leverage Ratio (as defined in the 2022 Credit Agreement) or (ii) the Base Rate (as defined in the 2022 Credit Agreement) plus a margin based on our Total Leverage Ratio. The margin ranges between 0.875% and 2.5% for base rate loans and between 1.875% and 3.5% for SOFR loans. We will pay a commitment fee based on the average daily unused portion of the commitments under the 2022 Revolving Credit Facility, a letter of credit fee equal to the margin then in effect with respect to the SOFR loans under the 2022 Revolving Credit Facility, a fronting fee and any customary documentary and processing charges for any letter of credit issued under the 2022 Credit Agreement. The 2022 Term Loans are subject to quarterly amortization payments and will mature on January 12, 2027.
The 2022 Credit Agreement contains customary affirmative and negative covenants, including reporting requirements and restrictions, subject to various exceptions, on the incurrence of additional indebtedness, the creation of liens, the making of acquisitions and investments, the disposal of assets and the making of restricted payments. Additionally, the 2022 Credit Agreement includes financial covenants, which provide that (i) beginning December 31, 2021, as of the last day of a fiscal quarter, the Total Leverage Ratio shall not exceed 3.5 to 1.0 and (ii) beginning December 31, 2021, as of the last day of a fiscal quarter, the interest coverage ratio shall not be less than 4.0 to 1.0. As of June 30, 2022, 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 $121.9 million as of June 30, 2022.
Cash Flows
The following table presents information regarding our cash flows, cash, cash equivalents and restricted cash for the periods indicated:
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Six months ended June 30, |
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|||||
|
(in thousands) |
|
2022 |
|
|
2021 |
|
||
|
Cash provided by operating activities |
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$ |
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 |
|
Cash Provided by Operating Activities
Cash flows provided by operating activities increased by $2.0 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 Activities
Cash used in investing activities increased by $0.7 million from $19.1 million in the six months ended June 30, 2021 to $19.8 million in the six months ended June 30, 2022. The change was primarily related to purchases of fixed assets and captalized software.
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Cash Provided by Financing Activities
Cash provided by financing activities decreased by $70.6 million from $75.0 million in the six months ended June 30, 2021 to $4.4 million in the six months ended June 30, 2022, primarily due to our draw down on the 2020 Revolving Credit Facility in the six months ended June 30, 2021.
Contractual Obligations
During the three months ended June 30, 2022, we recognized additional purchase obligations of $3.5 million and operating lease obligations of $2.1 million. There have been no other material changes to our contractual obligations and commitments as of June 30, 2022 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
Off-Balance Sheet Arrangements
As of June 30, 2022, we had no off-balance sheet arrangements.
JOBS Act Accounting Election
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued after the enactment of the JOBS Act until those standards apply to private companies. We have elected to use this extended transition period under the JOBS Act.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with 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, 2021 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 Pronouncements
See Note 2 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk
Our exposure to market risk is directly related to revenue from fees earned based upon a percentage of assets on our platform. In the six months ended June 30, 2022, 94.8% of our total revenue, was based on the market value of assets on our platform and were 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, 2022 would have caused our total revenue to decline by 1%, and would have caused our pre-tax income to decline by 3%, or $2.0 million, assuming we did not initiate additional expense measures in response to a market decline.
We manage market risk exposure through diversifying our revenue streams including 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.
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Interest Rate Risk
Changes in interest rates will impact our spread-based revenue. As of June 30, 2022, client cash assets participating in the insured cash deposit program at ATC totaled $3.7 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, 2022 would result in an increase or decrease in income before income taxes of approximately $29.3 million on an annual basis (based on total client cash assets at December 31, 2021) and subject to any changes to interest credited to the end-investor). Actual impacts may vary depending on interest rate levels and the significance of change.
Additionally, changes to interest rates will impact the cost of our borrowing under the 2022 Credit Agreement, which bears interest at a rate per annum equal to, at our option, either (i) SOFR plus a margin based on our Total Leverage Ratio (as defined in the 2022 Credit Agreement) or (ii) the Base Rate (as defined in the 2022 Credit Agreement) plus a margin based on our Total Leverage Ratio. The margin will range between 0.875% and 2.5% for base rate loans and between 1.875% and 3.5% for SOFR loans. We will pay a commitment fee based on the average daily unused portion of the commitments under the 2022 Revolving Credit Facility, a letter of credit fee equal to the margin then in effect with respect to the SOFR loans under the 2022 Revolving Credit Facility, a fronting fee and any customary documentary and processing charges for any letter of credit issued under the 2022 Credit Agreement. An increase of 100 basis points in the interest rate under the 2022 Credit Agreement would result in a decrease in income before income taxes of approximately $1.2 million on an annual basis (based on the outstanding balance under the 2022 Credit Agreement as of June 30, 2022).
We believe that increases in spread-based fees would offset the exposure of our outstanding debt to increases in interest rates.
Operational Risk
Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, improper or unauthorized execution and processing of transactions, deficiencies in our technology or financial operating systems and inadequacies or breaches in our control processes. We operate in diverse markets and are reliant on the ability of our employees and systems to process a large number of transactions. These risks are less direct and quantifiable than market risk, but managing them is critical, particularly in a rapidly changing environment with increasing transaction volumes. In the event of a breakdown or improper operation of systems or improper action by employees or advisers, we could suffer financial loss, regulatory sanctions and damage to our reputation, and in times of high market volatility the financial losses from operational risk as well as the likelihood of such losses may increase. Business continuity plans exist for critical systems, and redundancies are built into the systems as deemed appropriate. To mitigate and control operational risk, we have developed and continue to enhance specific policies and procedures that are designed to identify and manage operational risk at appropriate levels throughout our organization and within various departments. These control mechanisms attempt to ensure that operational policies and procedures are being followed and that our employees operate within established corporate policies and limits.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2022. 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, our disclosure controls and procedures were effective, at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of all possible controls and procedures. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our Company have been detected.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We are, from time to time, involved in various legal proceedings, litigation and regulatory matters that arise in the normal course of our business. Except for the matter described below, we do not believe that the resolutions of any such matters we are currently involved in, individually or in the aggregate, will have a material adverse impact on our financial condition or results of operations. However, we can provide no assurance that any pending or future matters will not have a material effect on our financial condition or results of operations in the future.
Because we operate in a highly regulated industry, we and our subsidiaries are regularly subject to examinations and enforcement inquiries by the SEC and other governmental and regulatory agencies. In July 2020, one of our SEC-registered investment subsidiaries received an examination report from the SEC’s Division of Examinations requesting that such subsidiary take certain corrective actions. Two of our subsidiaries also received related subpoenas from the SEC’s Division of Enforcement requesting the production of documents. The examination report and subpoenas primarily relate to disclosure of potential conflicts of interest among our subsidiaries, and they appear to be part 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 of the SEC staff involved and not those of 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. However, there can be no assurance as to the outcome of these matters.
Item 1A. Risk Factors
Risks Related to Our Business and Operations
Our revenue may fluctuate from period to period, which could cause our share price to fluctuate.
Our revenue may fluctuate from period to period in the future due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include the following events, as well as other factors described elsewhere in this Quarterly Report on Form 10-Q:
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• |
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; |
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• |
fluctuations in interest rates, which have a direct and proportionate impact on our spread-based revenue; |
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• |
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; |
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• |
negative public perception and reputation of the financial services industry, which could reduce demand for our investment solutions and services; |
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• |
unanticipated acceleration of client investment preferences to lower-fee options; |
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• |
downward pressure on fees we charge our investor clients, which would reduce our revenue; |
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• |
changes in laws or regulations that could impact our ability to offer investment solutions and services; |
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• |
failure to obtain new clients or retain existing clients on our platform, or changes in the mix of clients on our platform; |
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• |
failure by our financial adviser clients to obtain new investor clients or retain their existing investor clients; |
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• |
failure to adequately protect our proprietary technology and intellectual property rights; |
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• |
reduction in the suite of investment solutions and services made available by third-party providers to existing clients; |
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• |
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; |
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• |
changes in our pricing policies or the pricing policies of our competitors to which we have to adapt; or |
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• |
general domestic and international economic and political conditions that may decrease investor demand for financial advisers or investment services. |
As a result of these and other factors, our results of operations for any quarterly or annual period may differ materially from our results of operations for any prior or future quarterly or annual period and should not be relied upon as indications of our future performance.
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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.
We compete with many different types of wealth management companies that vary in size and scope. In addition, some of our adviser clients have developed or may develop the in-house capability to provide the technology or investment advisory services they have retained us to perform, obviating the need to hire us. These clients may also offer similar services to third-party financial advisers or financial institutions, thereby competing directly with us for that business.
Some of our competitors have greater name recognition or greater resources than we do, and may offer a broader range of services across more markets. These resources may allow our competitors to respond more quickly to new technologies or changes in demand for investment solutions and services, devote greater resources to developing and promoting their services and make more attractive offers to potential clients and strategic partners, which could hurt our financial performance. Further, some of our competitors operate in a different regulatory environment than we do, which may give them certain competitive advantages in the services they offer.
We compete on a number of bases including the performance of our technology, the level of fees charged, the quality of our services, our reputation and position in the industry, our ability to adapt to technological developments or unforeseen market entrants and our ability to address the complex and changing needs of our clients. Our failure to successfully compete on the basis of any of these factors could result in a significant decline in market share, revenue and net income.
We derive nearly all of our revenue from the delivery of investment solutions and services to clients in the financial advisory industry and our revenue could suffer if that industry experiences a downturn.
We derive nearly all of our revenue from the delivery of investment solutions and services to clients in the financial advisory industry, and we are therefore subject to the risks affecting that industry. A decline or lack of growth in demand for financial advisory services would adversely affect the financial advisers who work with us and, in turn, our results of operations, financial condition or business. For example, the availability of free or low-cost investment information and resources, including research and information relating to publicly traded companies and mutual funds available on the Internet or on company websites, could lead to lower demand by investors for the services provided by financial advisers. In addition, demand for our investment solutions and services among financial advisers could decline for many reasons. Consolidation or limited growth in the financial advisory industry could reduce the number of financial advisers and their potential clients. Events that adversely affect financial advisers’ businesses, rates of growth or the numbers of customers they serve, including decreased demand for their products and services, adverse conditions in the markets or adverse economic conditions generally, could decrease demand for our investment solutions and services and thereby decrease our revenue. Any of the foregoing could have a material adverse effect on our results of operations, financial condition or business.
Investors that pay us asset-based fees may seek to negotiate lower fees, choose to use lower revenue products or cease using our services, which could limit the growth of our revenue or cause our revenue to decrease.
We derive a significant portion of our revenue from asset-based fees. Individual advisers or their clients may seek to negotiate lower asset-based fees. In particular, recent trends in the broker-dealer industry towards zero-commission trading may make self-directed brokerage services comparatively less expensive and, therefore, more attractive to investors as compared to investment advisory services, which could prompt our financial adviser clients to attempt to renegotiate the fees they pay to us. In addition, clients may elect to use products that generate lower revenue, which may result in lower total fees being paid to us. For example, in the past, one of our broker-dealer clients decided to limit access to certain of our retail share class strategies, resulting in a partial shift to lower-revenue products on our platform. If other broker-dealer clients similarly limit access to certain of our strategies such that advisers shift to our lower-revenue products, we may be required to shift our service offering towards lower-revenue products, which would lead to a decline in asset-based revenue. In addition, clients may choose to invest in lower cost products on our platform or otherwise negotiate changes in pricing for these products, which would negatively impact our revenue and net income. Further, as competition among financial advisers increases, financial advisers may be required to lower the fees they charge to their end investors, which could cause them to seek lower fee options on our platform or to more aggressively negotiate the fees we charge. Any reduction in asset-based fees could persist beyond the near term given the recurring quarterly nature of our asset-based fee arrangements. Any of these factors could result in a fluctuation or decline in our asset-based revenue, which would have a material adverse effect on our results of operations, financial condition or business.
Investors may redeem or withdraw their investment assets generally at any time. Significant changes in investing patterns or large-scale withdrawal of investment funds could have a material adverse effect on our results of operations, financial condition or business.
The clients of our financial advisers are generally free to change financial advisers, forgo the advice and other services provided by financial advisers or withdraw the funds they have invested with financial advisers. These clients of financial advisers may elect to
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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 could materially adversely affect the asset-based revenue we receive.
Changes in market and economic conditions (including as a result of the ongoing COVID-19 pandemic, or geopolitical conditions or events) could lower the value of assets on which we earn revenue and could decrease the demand for our investment solutions and services.
Asset-based revenue makes up a significant portion of our revenue, representing 93.9% and 97.4% of our total revenue for the six months ended June 30, 2022 and 2021, 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 has 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 would negatively impact our asset-based revenue. Spread-based revenue accounted for 3.0% and 2.1% of our total revenue for the six months ended June 30, 2022 and 2021, respectively. Fluctuations in interest rates have 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 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.
We provide our investment solutions and services to the financial services industry. The financial markets, and in turn the financial services industry, are affected by many factors, such as U.S. and foreign economic and geopolitical conditions and general trends in business and finance that are beyond our control, and could be adversely affected by changes in the equity or debt marketplaces, unanticipated changes in currency exchange rates, interest rates, inflation rates, the yield curve, financial crises, war, terrorism, natural disasters, pandemics and outbreaks of disease or similar public health concerns 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 a severe or prolonged downturn, 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.
We must continue to introduce new investment solutions and services, and enhancements thereon, to address our clients’ changing needs, market changes and technological developments, and a failure to do so could have a material adverse effect on our results of operations, financial condition or business.
The market for our investment solutions and services is characterized by shifting client demands, evolving market practices and, for many of our investment solutions and services, rapid technological change, including an increased use of and reliance on web and social network properties. Changing client demands (including increased reliance on technology), new market practices or new technologies can render existing investment solutions and services obsolete and unmarketable. As a result, our future success will continue to depend upon our ability to develop, enhance and market investment solutions and services that address the future needs of our target markets and respond to technological and market changes. We may not be able to accurately estimate the impact of new investment solutions and services on our business or how their benefits will be perceived by our clients. Further, we may not be successful in developing, introducing and marketing our new investment solutions or services or enhancements on a timely and cost effective basis, or at all, our financial adviser clients may not allow certain investment solutions and services to be marketed through them, and any new investment solutions and services and enhancements may not adequately meet the requirements of the marketplace or achieve market acceptance. In addition, clients may delay purchases in anticipation of new investment solutions or services or enhancements. Any of these factors could materially adversely affect our results of operations, financial condition or business.
We could face liability or incur costs to remediate operational errors or to address possible customer dissatisfaction.
Operational risk generally refers to the risk of loss resulting from our operations, including, but not limited to, improper or unauthorized execution and processing of transactions, deficiencies in our operating systems, business disruptions and inadequacies or breaches in our internal control processes. Operational risk may also result from potential inefficiencies driven by the transition from a remote workforce during the COVID-19 pandemic to a hybrid work model in March 2022. 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 a 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 payments
38
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.
We may make future acquisitions which may be difficult to integrate, divert management resources, result in unanticipated costs or dilute our stockholders.
We have in the past, and may in the future, choose to grow our business in part through acquisitions, which could pose a number of risks to our operations. We may not be able to complete acquisitions, or integrate the operations, products, technologies or personnel gained through any such acquisition, such as our recent acquisitions of OBS and Voyant, 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 OBS and Voyant, may result in the loss of key employees or customers, particularly those of the acquired operations. Acquisitions, including our recent acquisitions of OBS and Voyant, 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.
We may be subject to liability for losses that result from a breach of our or a third-party’s fiduciary duties.
Certain of our investment advisory services involve fiduciary obligations that require us to act in the best interests of our clients, and we may face legal proceedings, liabilities, regulatory investigations or enforcement actions for actual or claimed breaches of our fiduciary duties. Because we provide investment advisory services with respect to substantial assets, we could face substantial liability to our clients if it is determined that we have breached our fiduciary duties. In certain circumstances, which generally depend on the types of investment solutions and services we are providing, we may enter into client agreements jointly with advisers and retain third-party investment money managers and strategists on behalf of clients. In many instances, we are responsible for conducting due diligence on the investment solutions and strategies offered by such third parties with whom we contract, and a failure to adequately conduct due diligence or to adequately disclose material conflicts of interest could subject us to liability for alleged inadequate due diligence or for misstatements or omissions contained in disclosures, marketing materials and other materials describing the investment solutions and strategies offered by such third parties to our investor clients. As such, we may be included as a defendant in lawsuits against financial advisers, strategists and third-party investment money managers that involve claims of breaches of the duties of such persons, and we may face liabilities for the improper actions or omissions of such advisers and third-party investment money managers and strategists. In addition, we may face claims based on the results of our investment advisory services, even in the absence of a breach of our fiduciary duty. Such claims and liabilities could therefore have a material adverse effect on our results of operations, financial condition or business.
If our reputation is harmed, our results of operations, financial condition or business could be materially adversely affected.
Our reputation, which depends on earning and maintaining the trust and confidence of our clients, is critical to our business. Our reputation is vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate. Regulatory inquiries or investigations, lawsuits initiated by our clients, employee misconduct, perceptions of conflicts of interest and rumors concerning us or our third-party service providers, among other developments, could substantially damage our reputation, even if they are baseless or satisfactorily addressed. Potential, perceived and actual conflicts of interest are inherent in our business activities and could give rise to client dissatisfaction or litigation. In particular, we offer both proprietary and third-party mutual funds, portfolios of mutual funds and custodial services on our platform, and financial advisers or their clients could conclude that we favor our proprietary investment products or services over those of third parties. In addition, any perception that the quality of our investment solutions and services may not be the same or better than that of other providers can also damage our reputation. Any damage to our reputation or that of our third-party service providers could harm our ability to attract and retain clients, which could materially adversely affect our results of operations, financial condition or business.
If our investment solutions and services fail to perform properly due to undetected errors or similar problems, our results of operations, financial condition or business could be materially adversely affected.
Investment solutions and services we develop or maintain may contain undetected errors or defects despite testing. Such errors can exist at any point in the life cycle of our investment solutions or services, but are typically found after introduction of new investment solutions and services or enhancements to existing investment solutions or services. We continually introduce new
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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 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.
Our failure to successfully execute the conversion of our clients’ assets from their existing platform to our platform in a timely and accurate manner could have a material adverse effect on our results of operations, financial condition or business.
When we begin working with a new client, or acquire new client assets through an acquisition or other transaction, we may be required to convert or transfer the new assets from the clients’ existing platform to our platform. These conversions sometimes present significant technological and operational challenges, can be time-consuming, may result in the loss of the target company’s clients and may divert management’s attention from other operational challenges. 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 less likely that prospective clients will commit to working with us. Any of these risks could materially adversely affect our results of operations, financial condition or business.
Our business relies heavily on computer equipment, electronic delivery systems and the Internet. Any failures, disruptions or other adverse impacts could result in reduced revenue and the loss of customers.
The success of our business depends upon 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 remote or hybrid work models involving remote workforces relying largely upon home broadband and internet access, and, to the extent that the Internet’s infrastructure is unable to support the demands placed on it, our business may be impacted. Similarly, the reduction in the growth of, or a decline in, broadband and Internet access poses a risk to us.
Furthermore, we rely on agreements with our suppliers, such as our current data hosting and service providers, to provide us with access to certain computer equipment, electronic delivery systems and the Internet. We are unable to predict whether a future contractual dispute may arise with one of our suppliers that could cause a disruption in service, or whether our agreements with our suppliers can be obtained or renewed on acceptable terms, or at all. An unanticipated disruption, failure or slowdown affecting our key technologies or facilities may have significant ramifications, such as data-loss, data corruption, damaged software codes or inaccurate processing of transactions. We maintain off-site back-up facilities for our electronic information and computer equipment, but these facilities could be subject to the same interruptions that may affect our primary facilities. Any significant disruptions, failures, slowdowns, data-loss or data corruption could have a material adverse effect on our results of operations, financial condition or business and result in the loss of customers.
If government regulation of the Internet changes, or if consumer attitudes towards the Internet change, we may need to change the manner in which we conduct our business or incur greater operating expenses.
We rely heavily on the Internet in conducting our business. The adoption, modification or interpretation of laws or regulations relating to the Internet 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.
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Inadequacy or disruption of our disaster recovery plans and procedures in the event of a catastrophe could adversely affect our business.
We have made a significant investment in our infrastructure, and our operations are dependent on our ability to protect the continuity of our infrastructure against damage from catastrophe or natural disaster, breach of security, cyber-attack, loss of power, telecommunications failure, or other natural or man-made events, including regional or global health events such as the COVID-19 pandemic. 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 or 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 as well as failures to provide adequate support for reasons that are outside of our direct control. These data centers and cloud services are vulnerable to damage or interruption from a variety of sources, including earthquakes, floods, fires, power loss, system failures, cyber-attacks, physical or electronic break-ins, human error or interference (including by employees, former employees or contractors), and other catastrophic events, including regional or global health events such as the COVID-19 pandemic. 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 upon our business.
We are reliant on our relationships with certain broker-dealers, strategists and enterprise clients, the loss of which could adversely affect our results of operations, financial condition or business.
We maintain relationships with certain broker-dealers and financial advisers that serve clients on our platform. The loss of these relationships would likely result in a loss of adviser and investor clients. Likewise, we engage strategists who offer certain investment products on our platform. The loss of certain strategists and their investment products could cause our investor clients to leave our platform to follow such strategists and investment products to our competitors or otherwise. We also maintain direct relationships with certain enterprise customers, the loss of which could have a material impact on our business.
Further, the engagement contracts governing our relationships with broker-dealers, financial advisers and strategists are terminable by either us or the broker-dealer, financial adviser or strategist, as applicable, upon short-notice with or without cause. Further, broker-dealers and financial advisers may substantially reduce their use of our platform without terminating their agreements with us. Loss of our investor and enterprise clients, whether due to termination of a significant number of engagement contracts or otherwise, may have a material adverse effect on our financial condition and result in harm to our results of operations, financial condition, or business.
We are dependent on third-party service providers in our operations.
We utilize numerous third-party service providers in our operations, including for the development of new product offerings, the provision of custodial, strategy and other services and the maintenance of our proprietary systems. A failure by a third-party service provider could expose us to an inability to provide contractual services to our clients in a timely manner. Additionally, if a third-party service provider is unable to provide these services, we may incur significant costs to either internalize some of these services or find a suitable alternative. We serve as the financial 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, noncompliance with relevant securities and other laws could cause us to suffer financial loss, regulatory sanctions or damage to our reputation.
We are dependent on third-party pricing services for the valuation of securities invested in our investment products.
The majority of the securities held by our investment products are valued using quoted prices from active markets gathered by external third-party pricing services. We are dependent upon those 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.
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We rely on our executive officers and other key personnel.
We depend on the efforts of our executive officers, other management team members, and employees. Our executive officers, in particular, play an important role in the stability and growth of our business, and our future success depends, in part, on our ability to continue to attract and retain highly skilled personnel. The loss of any key personnel could have a material adverse effect on our results of operations, financial condition or business.
Executive officer, employee or third-party provider misconduct could expose us to significant legal liability and reputational harm.
We are vulnerable to reputational harm because we and our financial adviser clients operate in an industry in which personal relationships, integrity and the confidence of clients are of critical importance. Our executive officers and employees, as well as the executive officers and employees at our financial adviser clients or our third-party service providers, could engage in misconduct that adversely affects our business. For example, if a member of management or an employee were to engage in illegal or suspicious activities, we or our financial adviser clients could be subject to regulatory sanctions and we could suffer serious harm to our reputation (as a consequence of the negative perception resulting from such activities), our financial position or financial advisers’ client relationships and ability to attract new clients. In addition, certain of our third-party providers may engage in illegal activities, or may be accused of engaging in such activities, which could result in disruptions to our platform or solutions, subject us to liability, fines, penalties, regulatory orders or reputational harm or require us to be involved in regulatory investigations. Specifically, we have in the past been and may in the future be made aware of SEC investigations involving the actions of third-party financial advisers (or their employees) on our platform, which could cause us to experience any of the aforementioned consequences.
Further, our business and that of our financial adviser clients often require that we deal with confidential information, personal information and other sensitive data. If executive officers, employees or third-party providers were to improperly use or disclose this information, even if inadvertently, we or our financial adviser clients could be subject to legal or regulatory investigations or action and suffer serious harm to our reputation, financial position and current and future business relationships or those of our financial adviser clients. It is not always possible to deter misconduct, and the precautions we take to detect and prevent this activity may not always be effective. Misconduct by executive officers, employees or third-party providers, or even unsubstantiated allegations of misconduct, could result in an adverse effect on our reputation and our business.
We may become subject to liability based on the use of our investment solutions and services by our clients.
Our investment solutions and services support the investment processes of our clients, which, in the aggregate, advise billions of dollars of assets. Our client agreements have provisions designed to limit our exposure to potential liability claims brought by our adviser clients, their clients or other third parties based on the use of our investment solutions and services. However, these provisions have certain exceptions and could be invalidated by unfavorable judicial decisions or by federal, state, foreign or local laws. Use of our products as part of the investment process creates the risk that clients, or the parties whose assets are managed by our clients, may pursue claims against us for significant dollar amounts. Any such claim, even if the outcome were to be ultimately favorable to us, would involve a significant commitment of our management, personnel, financial and other resources and could have a negative impact on our reputation. Such claims and lawsuits could therefore have a material adverse effect on our results of operations, financial condition or business.
Furthermore, our clients may use our investment solutions and services together with software, data or products from other companies. As a result, when problems occur, it might be difficult to identify the source of the problem. Even when our investment solutions and services do not cause these problems, the existence of these errors might cause us to incur significant costs and divert the attention of our management and technical personnel, any of which could materially adversely affect our results of operations, financial condition or business.
Lack of liquidity or access to capital could impair our business and financial condition.
We expend significant resources investing in our business, particularly with respect to our technology and service platforms. In addition, we must maintain certain levels of required capital. As a result, reduced levels of liquidity could have a significant negative effect on us. Some potential conditions that could negatively affect our liquidity include diminished access to debt or capital markets, unforeseen or increased cash or capital requirements, adverse legal settlements or judgments or illiquid or volatile markets.
The capital and credit markets continue to experience varying degrees of volatility and disruption and can be particularly sensitive in times of uncertainty. In some cases, the markets have exerted downward pressure on availability of liquidity and credit capacity for businesses similar to ours. Such market conditions may limit our ability to satisfy statutory capital requirements, generate fee and other market-related revenue to meet liquidity needs and access the capital necessary to grow our business. As such, we may be forced to delay raising capital, issue different types of capital than we would otherwise, less effectively deploy such capital or bear an unattractive cost of capital, which could decrease our profitability and significantly reduce our financial flexibility.
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In the event that our current resources are insufficient to satisfy our needs, we may need to rely on financing sources such as bank debt. The availability of additional financing will depend on a variety of factors such as market conditions, the general availability of credit, the volume of trading activities, the overall availability of credit to the financial services industry, our credit ratings and credit capacity and the possibility that our stockholders, advisers or lenders could develop a negative perception of our long- or short-term financial prospects if the level of our business activity decreases due to a market downturn. Similarly, our access to funds may be impaired if regulatory authorities or rating organizations take negative actions against us.
We may not be able to generate sufficient cash to service our indebtedness and may be forced to take other actions to satisfy our obligations under our 2022 Credit Agreement, which may not be successful.
As of June 30, 2022, we had total indebtedness of $121.9 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.
Restrictions in our existing and future debt agreements could limit our growth and our ability to engage in certain activities.
Our 2022 Credit Agreement contains a number of covenants that impose operating and financial restrictions on us, including restrictions on our ability to incur additional indebtedness, create liens, make acquisitions, dispose of assets and make restricted payments, among others. In addition, our 2022 Credit Agreement may require 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.
We are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our subsidiaries to meet our debt service and other obligations.
We have no direct operations and derive all of our cash flow from our subsidiaries. Because we conduct our operations through our subsidiaries, we depend on those entities for dividends and other payments or distributions to meet any existing or future debt service and other obligations. The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason could limit or impair their ability to pay dividends or other distributions to us. In addition, SEC and the Financial Industry Regulatory Authority (“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 AssetMark Brokerage, LLC.
Our controls and procedures may fail or be circumvented, our risk management policies and procedures may be inadequate and operational risks could adversely affect our reputation and financial condition.
We have adopted policies and procedures to identify, monitor and manage our operational risk. These policies and procedures, however, may not be fully effective. Some of our risk evaluation methods depend upon information provided by others and public information regarding markets, clients or other matters that are otherwise accessible by us. If our policies and procedures are not fully effective or we are not successful in capturing all risks to which we are or may be exposed, we may suffer harm to our reputation or be
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subject to litigation or regulatory actions that could have a material adverse effect on our results of operations, financial condition or business.
Risks Related to Intellectual Property, Data Privacy and Cybersecurity
We could face liability related to our storage of personal information about our users.
We store extensive amounts of personal investment and financial information for consumers, including portfolio holdings, on our systems. We could be subject to liability if we were to inappropriately disclose any personal information or if third parties were able to penetrate our network security or otherwise access or misappropriate any personally identifiable information or portfolio holdings. Any such disclosure, security incident or breach could subject us to regulatory investigations and enforcement actions, the imposition of fines or other significant penalties and significant remediation costs, as well as claims for financial loss, impersonation or other similar fraud claims, claims under data protection laws, claims for other misuses of personal information, such as unauthorized marketing or unauthorized access to personal portfolio information, or indemnity claims by our clients for fines, penalties or other assessments arising from third-party claims. Further, any real or perceived defects, errors or vulnerabilities in our security systems could harm our reputation or otherwise adversely impact our results of operations, financial condition or business. While we have taken extensive precautions to protect personal information, these risks and threats are heightened due to some of our workforce working remotely.
We could face liability for certain information we provide, including information based on data we obtain from other parties.
We may be subject to claims for securities law violations, negligence, breach of fiduciary duties or other claims relating to the information we provide. For example, individuals may take legal action against us if they rely on information we have provided and it contains an error. In addition, we could be subject to claims based upon content that is accessible from our website through links to other websites. Moreover, we could face liability based on inaccurate information provided to us by others. Defending any such claims could be expensive and time-consuming, and any such claim could materially adversely affect our results of operations, financial condition or business.
We are exposed to data and cybersecurity risks that could result in data breaches, service interruptions, harm to our reputation, protracted and costly litigation or significant liability.
In connection with the products and services that we provide, we collect, use, store, transmit and otherwise process certain confidential, proprietary and sensitive information, including the personal information of end-users, third-party service providers and employees. We rely on the efficient, uninterrupted and secure operation of complex information technology systems and networks to operate our business and securely store, transmit and otherwise process such information. In the normal course of business, we also share information with our service providers and other third parties. A failure to safeguard the integrity, confidentiality, availability and authenticity of personal information, client data and our proprietary data from cyber-attacks, unauthorized access, fraudulent activity (e.g., check “kiting” or fraud, wire fraud or other dishonest acts), data breaches and other security incidents that we, our third-party service providers or our clients may experience may lead to modification, destruction, loss of availability or theft of critical and sensitive data pertaining to us, our clients or other third parties. While we have taken extensive precautions to protect such confidential, proprietary and sensitive information, including personal information, these risks and threats are heightened due to some of our workforce working remotely. We have established a strategy designed to protect against threats and vulnerabilities containing preventive and detective controls including, but not limited to, firewalls, intrusion detection systems, computer forensics, vulnerability scanning, server hardening, penetration testing, anti-virus software, data leak prevention, encryption and centralized event correlation monitoring. All such protective measures, as well as additional measures that may be required to comply with rapidly evolving data privacy and security standards and protocols imposed by law, regulation, industry standards or contractual obligations, have and will continue to cause us to incur substantial expenses. Failure to timely upgrade or maintain computer systems, software and networks as necessary could also make us or our third-party service providers susceptible to breaches and unauthorized access and misuse. We may be required to expend significant additional resources to modify, investigate or remediate vulnerabilities or other exposures arising from data and cybersecurity risks.
Improper access to our or our third-party service providers’ systems or databases could result in the theft, publication, deletion or modification of confidential, proprietary or sensitive information, including personal information. Any actual or perceived breach of our security systems or those of our third-party service providers may require notification under applicable data privacy regulations or contractual obligations. The accidental or unauthorized access to or disclosure, loss, destruction, disablement, corruption or encryption of, use or misuse of or modification of our, our clients’ or other third parties’ confidential, proprietary or sensitive information, including personal information, by us or our third-party service providers could result in significant fines, penalties, orders, sanctions and proceedings or actions against us by governmental bodies and other regulatory authorities, customers or third
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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.
Despite our efforts to ensure the integrity, confidentiality, availability, and authenticity of our proprietary systems and information, it is possible that we may not be able to anticipate or 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.
Due to applicable laws and regulations or contractual obligations, we may also be held responsible for any failure or cybersecurity breaches attributed to our third-party service providers as they relate to the information we share with them. Although we generally have agreements relating to data privacy and security in place with our third-party service providers, they are limited in nature and we cannot guarantee that such agreements will prevent the accidental or unauthorized access to or disclosure, loss, destruction, disablement, corruption or encryption of, use or misuse of or modification of confidential, proprietary or sensitive information, including personal information, or enable us to obtain reimbursement from third-party service providers in the event we should suffer incidents resulting in accidental or unauthorized access to or disclosure, loss, destruction, disablement or encryption of, use or misuse of or modification of confidential, proprietary or sensitive information, including personal information. In addition, because we do not control our third-party service providers and our ability to monitor their data security is limited, we cannot ensure the security measures they take will be sufficient to protect confidential, proprietary or sensitive information (including personal information).
Regardless of whether a security incident or act of fraud involving our solutions is attributable to us or our third-party service providers, such an incident could, among other things, result in improper disclosure of information, harm our reputation and brand, reduce the demand for our products and services, lead to loss of client business or confidence in the effectiveness of our security measures, disrupt normal business operations or result in our systems or products and services being unavailable. In addition, such incidents may require us to spend material resources to investigate or correct the incident and to prevent future security incidents, expose us to uninsured liability, increase our risk of regulatory scrutiny, expose us to protracted and costly litigation, trigger indemnity obligations, result in damages for contract breach, divert the attention of management from the operation of our business and otherwise cause us to incur significant costs or liabilities, any of which could affect our financial condition, results of operations 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. Further, any adverse findings in security audits or examinations could result in reputational damage to us, which could reduce the use and acceptance of our solutions, cause our customers to cease doing business with us or have a significant adverse impact on our revenue and future growth prospects. Furthermore, even if not directed at us specifically, attacks on other financial institutions could disrupt the overall functioning of the financial system or lead to additional regulation and oversight by federal and state agencies, which could impose new and costly compliance obligations.
If we are not able to satisfy data protection, security, privacy and other government- and industry-specific requirements or regulations, our results of operations, financial condition or business could be harmed.
Personal privacy, data protection, information security and other regulations are significant 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, 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.
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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.
Recently, the most rapid development in U.S. data privacy and security laws has been at the state level. For example, on June 28, 2018, California enacted the California Consumer Privacy Act (the “CCPA”), which took effect on January 1, 2020. The CCPA increased privacy rights for California residents and imposes obligations on companies that process their personal information, including an obligation to provide certain new disclosures to such residents. Specifically, among other things, the CCPA 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 take effect in most material respects on January 1, 2023. The CPRA significantly modifies 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 resulting in further uncertainty and requiring 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 and Colorado, 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.
Additionally, in February 2022, the SEC proposed rules regarding cybersecurity which 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.
Many statutory requirements include obligations for companies to notify individuals of security breaches involving certain personal information, which could result from breaches experienced by us or our third-party service providers. For example, laws in all 50 U.S. states require businesses to provide notice to customers whose personal information has been disclosed as a result of a data breach. These laws are not consistent, and compliance in the event of a widespread data breach is difficult and may be costly. Moreover, states have been frequently amending existing laws, requiring attention to changing regulatory requirements. In addition, we may be contractually required to notify clients, end-investors or other counterparties of a security breach. Although we may have contractual protections with our third-party service providers, any security breach, or actual or perceived non-compliance with privacy or security laws, regulations, standards, policies or contractual obligations, could harm our reputation and brand, expose us to potential liability and require us to expend significant resources on data security and in responding to any such incident or actual or perceived non-compliance. Any contractual protections we may have from our third-party service providers may not be sufficient to adequately protect us from any such liabilities and losses, and we may be unable to enforce any such contractual protections.
We make public statements about our use and disclosure of personal information through our privacy policy, information provided on our website and press statements. Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so. The publication of our privacy policy and other statements that provide promises and assurances about data privacy and security can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices. In addition, from time to time, concerns may be expressed about whether our products and services compromise the privacy of clients and others. Even the perception, whether or not valid, of privacy concerns or any failure by us to comply with our posted privacy policies or with any legal or regulatory requirements, standards, certifications or orders or other privacy or consumer protection-related laws and regulations applicable to us may harm our reputation, inhibit adoption of our products by current and future customers or adversely impact our ability to attract and retain workforce talent.
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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 business, and harming our results of operations, financial condition and business.
In July 2020, the Court of Justice of the European Union (the “CJEU”) ruled the EU-US Privacy Shield Framework, one of the primary safeguards that allowed U.S. companies to import personal data from the EU to the U.S., was invalid. The CJEU’s decision also raised questions about whether the most commonly used mechanism for cross-border transfers of personal data out of the EEA, namely, the European Commission’s Standard Contractual Clauses, can lawfully be used for personal data transfers from the EU to the United States or other 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. If we are unable to implement a valid mechanism for personal data transfers from the EU, we will face increased exposure to regulatory actions, substantial fines and injunctions against processing personal data from the EU. Similar challenges could also arise in other jurisdictions that adopt regulatory frameworks of equivalent complexity.
Further, the United Kingdom’s vote in favor of exiting the EU, often referred to as “Brexit,” and ongoing developments in the United Kingdom have created uncertainty with regard to data protection regulation in the United Kingdom. As of January 1, 2021, following the expiry of transitional arrangements agreed to between the United Kingdom and the EU, data processing in the United Kingdom is governed by a United Kingdom version of the GDPR (combining the GDPR and the United Kingdom’s Data Protection Act 2018), exposing us to two parallel regimes, each of which authorizes similar fines and other potentially divergent enforcement actions for certain violations. On June 28, 2021, the European Commission adopted an adequacy decision in favor of the United Kingdom, enabling data transfers from EU member states to the United Kingdom without additional safeguards. However, the United Kingdom adequacy decision will automatically expire in June 2025 unless the European Commission re-assesses and renews or extends that decision.
Given the complexity of operationalizing data privacy and security laws and regulations to which we are subject, the maturity level of proposed compliance frameworks and the relative lack of guidance in the interpretation of the numerous requirements of the data privacy and security laws and regulations to which we are subject, we may not be able to respond quickly or effectively to regulatory, legislative and other developments, and these changes may in turn impair our ability to offer our existing or planned products and services or increase our cost of doing business. Although we work to comply with applicable laws and regulations, industry standards, contractual obligations and other legal obligations, such laws, regulations, standards and obligations are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another. In addition, they may conflict with other requirements or legal obligations that apply to our business or the features and services that our adviser clients and their investor clients expect from our products and services. As such, we cannot assure ongoing compliance with all such laws, regulations, standards and obligations. Any failure, or perceived failure, by us to adequately address privacy and security concerns, even if unfounded, or to comply with applicable laws, regulations and standards, or with employee, client and other data privacy and data security requirements pursuant to contract and our stated privacy notice(s), could result in investigations or proceedings against us by data protection authorities, governmental entities or others, including class action privacy litigation in certain jurisdictions, which could subject us to fines, civil or criminal liability, public censure, claims for damages by customers and other affected individuals, damage to our reputation and loss of goodwill (in relation to both existing and prospective clients), or we could be required to fundamentally change our business activities and practices, which may not be possible in a commercially reasonable manner, or at all. Any or all of these consequences could have a material adverse effect on our results of operations, financial condition or business.
If third parties infringe upon our intellectual property or if we were to infringe upon the intellectual property of third parties, we may expend significant resources enforcing or defending our rights or suffer competitive injury.
Our success depends in part on our proprietary technology. We rely on a combination of copyright, trademark and trade secret laws, confidentiality, nondisclosure, non-interference and invention assignment agreements and other contractual and technical security measures to establish and protect our intellectual property and proprietary rights. If we fail to successfully obtain, maintain,
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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.
We license certain trademark and web domain rights from third parties and may be subject to claims of infringement if such parties do not possess the necessary intellectual property rights. In addition, we may face 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.
In some instances, litigation may be necessary to enforce our intellectual property rights and protect our proprietary information, or to defend against claims by third parties that we have infringed, misappropriated or violated their intellectual property rights. Any litigation or claims brought by or against us, whether with or without merit, could result in substantial costs to us and divert the attention of our management, which could harm our results of operations, financial condition or business. In addition, any intellectual property litigation or claims against us could result in the loss or compromise of our intellectual property and proprietary rights, subject us to significant liabilities or require us to seek licenses on unfavorable terms or make changes to the investment services and solutions we offer, any of which could harm our results of operations, financial condition or business.
Confidentiality agreements with employees, consultants and others may not adequately prevent disclosure of trade secrets and other proprietary information.
We have devoted substantial resources to the development of our proprietary technologies, investment solutions and services. To protect our proprietary rights, we enter into confidentiality, nondisclosure, non-interference and invention assignment agreements with our employees, consultants and independent contractors. However, we cannot guarantee that we have entered into such agreements with each party that has or may have had access to our trade secrets and proprietary know-how. Further, these agreements may not effectively prevent unauthorized disclosure of confidential information or unauthorized parties from copying aspects of our technologies, investment solutions or products or obtaining and using information that we regard as proprietary. Moreover, these agreements may not provide an adequate remedy in the event of such unauthorized disclosures of confidential information and we cannot assure you that our rights under such agreements will be enforceable. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could reduce any competitive advantage we have developed and cause us to lose customers or otherwise harm our business.
The use of “open source code” in investment solutions may expose us to additional risks and harm our intellectual property rights.
We rely on code and software licensed under so-called “open source licenses” to some extent to develop our investment solutions and support our internal systems and infrastructure. While we monitor our use of open source code to attempt to avoid subjecting our investment solutions to conditions we do not intend, such use could occur. Many of the risks associated with the usage of open source software cannot be eliminated, and could, if not properly addressed, negatively impact our business. In the event that portions of our proprietary software are determined to be subject to an open source license that requires that we make available source code for modifications or derivative works we create based upon the open source software, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our technologies or otherwise be limited in the licensing of our technologies, any of which could reduce or eliminate the value of our technologies and solutions. Additionally, if a third-party software provider has incorporated certain types of open source code into software we license from such third party for our investment solutions, we could, under certain circumstances, be required to disclose the source code for our investment solutions. This could harm our intellectual property position and have a material adverse effect on our results of operations, financial condition or business.
Risks Related to Our Controlling Stockholder’s Ultimate Parent Being a PRC Company with Stock Listed in Hong Kong and Shanghai.
Our controlling stockholder is subject to supervision by regulatory authorities in the PRC and must comply with certain PRC laws and regulations that may influence our controlling stockholder’s decisions relating to our business.
As a Delaware corporation with revenue and operations exclusively within the United States, we are not subject to regulation by foreign authorities. However, because our controlling stockholder is an enterprise incorporated under the laws of the PRC, our controlling stockholder is 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,
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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:
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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 |
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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. |
In addition, PRC regulations require our controlling stockholder to ensure that our business focuses on securities, futures, asset management, broker-dealer services, financial information services, financial information technology system services, back-office support services for specific financial businesses or products or other financial-related businesses. A failure by our controlling stockholder to comply with these or other existing or future PRC laws or regulations could result in the imposition of administrative or financial sanctions against our controlling stockholder by PRC authorities. These laws and regulations could cause our controlling stockholder and its director appointees serving on our board of directors to act in a manner that may not be perceived to be in the best interests of our other stockholders. Likewise, any failure by our controlling stockholder to obtain certain approvals, make requisite filings or otherwise comply with PRC laws and regulations could materially limit our ability to raise debt financing or make certain investments, any of which could have a material adverse effect on our financial condition or business.
Our controlling stockholder is required by the stock exchanges on which its shares are listed to disclose and obtain approval from its board of directors or shareholders for certain corporate actions that we undertake.
HTSC is listed on The Shanghai Stock Exchange and The Stock Exchange of Hong Kong Limited, and is therefore subject to the Rules Governing the Listing of Stocks on The Shanghai Stock Exchange (the “SSE Listing Rules”), and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “HKEx Listing Rules”). Under the SSE Listing Rules and the HKEx Listing Rules, HTSC must obtain approval from its board of directors and/or shareholders for certain major transactions in which we, as a subsidiary of HTSC, engage, including the purchase or sale of assets, mergers and acquisitions, lending, leasing of assets, donation or acceptance of assets, debt restructuring, license agreements, research and development joint ventures, and related-party transactions, the value of which exceeds certain financial thresholds established by the applicable listing rules. In addition, the HKEx Listing Rules require our controlling stockholder to obtain shareholder approval for (i) any issuance of shares by us that results in a reduction of HTSC’s equity interest in us in excess of a specified dilution threshold, (ii) the implementation of a share option scheme involving the issuance of new shares by us and (iii) any issuance of debt by us outside the ordinary course of our business.
There can be no assurance that HTSC will obtain the requisite approvals if we desire to enter into any of the above transactions, and a failure to do so would restrict our ability to engage in such transactions. Furthermore, PRC regulators including the CSRC, The Shanghai Stock Exchange or The Stock Exchange of Hong Kong Limited could impose additional restrictions or approval requirements that could impact our ability to undertake certain corporate actions. We cannot guarantee that our controlling stockholder will be able to successfully or timely obtain any of the approvals needed to permit us to undertake any of the corporate actions described above, and the failure to do so may have a material adverse effect on our results of operations, financial condition or business.
The Committee on Foreign Investment in the United States (“CFIUS”) may modify, delay or prevent our future acquisition or investment activities.
For so long as HTSC retains a material ownership interest in us, we will be deemed a “foreign person” under the regulations relating to CFIUS. As such, acquisitions of or investments in U.S. businesses or foreign businesses with U.S. subsidiaries that we may wish to pursue may be subject to CFIUS review, the scope of which was expanded by the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), 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 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 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 CFIUS to prescribe regulations defining “foreign person” differently in different contexts, which could result in less favorable treatment for investments and acquisitions by companies from countries of “special
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concern.” If such future regulations or other actions by the U.S. government impose additional burdens on acquisition and investment activities involving PRC and PRC-controlled entities, our ability to consummate transactions that might otherwise be beneficial to us and our stockholders may be hindered.
Risks Related to Regulation and Litigation
We are subject to extensive government regulation in the United States, and our failure or inability to comply with these regulations or regulatory action against us could adversely affect our results of operations, financial condition or business.
The financial services industry is among the most extensively regulated industries in the United States. We operate investment advisory, broker-dealer, mutual fund and custodial businesses in the United States, each of which is subject to a specific and extensive regulatory scheme. In addition, we are subject to numerous state and federal laws and regulations of general application. It is very difficult to predict the future impact of the legislative and regulatory requirements affecting our business and our clients’ businesses.
AssetMark, Inc. (“AMI”), our investment adviser subsidiary, is registered with the SEC under the Investment Advisers Act of 1940 (as amended, the “Advisers Act”) and is regulated thereunder. In addition, many 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 provide advice to 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, limitations on advertising, disclosure and reporting obligations, prohibitions on fraudulent activities, restrictions on transactions between an adviser and its clients, and between a mutual fund and its advisers and affiliates, and other detailed operating requirements, as well as general fiduciary obligations.
AMI is also a commodity pool operator registered with the Commodity Futures Trading Commission (“CFTC”), and is a member of the National Futures Association (the “NFA”). As such, it is subject to regulatory requirements under the Commodity Exchange Act (the “CEA”), CFTC regulations and NFA by-laws and rules. These include 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 will rely on certain exemptions from registration provided by the CEA and the rules thereunder. The CFTC has not passed upon to the validity of AMI’s determination.
AssetMark Brokerage, LLC (“AMB”), our limited purpose broker-dealer subsidiary, is subject to regulatory restrictions and requirements imposed by applicable statutes, regulations and policies in the jurisdictions in which we operate. U.S. government agencies and self-regulatory organizations, including U.S. state securities commissions, are empowered to enforce the regulatory restrictions and requirements applicable to us 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 mutual fund distribution and underwriting, and is a member of FINRA, a securities industry self-regulatory organization that supervises and regulates the conduct and activities of its members. As a registered broker-dealer, AMB is subject to periodic examinations and investigations by FINRA. Further, broker-dealers are subject to regulations which 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.
Additionally, AssetMark Trust Company (“ATC”), our trust company subsidiary licensed with and regulated by the Arizona Department of Insurance and Financial Institutions, is one of several custodians on our platform that offers integrated custodial, brokerage and related services to clients of our adviser clients. Further, ATC is 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 and mutual funds must also implement related customer identification procedures and beneficial ownership identification procedures.
All of the foregoing laws and regulations are complex and we are required to expend significant resources to monitor and maintain our compliance with such laws and regulations. Any failure on our part to comply with 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 operator 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.
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Changes to the laws or regulations applicable to us or to our financial adviser clients could adversely affect our results of operations, financial condition or business.
We may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC or other U.S. or foreign governmental regulatory authorities or self-regulatory organizations that supervise the financial markets around the world. In addition, we may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations. For example, 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 adopt 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 is November 4, 2022. Many investment advisers 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 operations resulting from such legislation and regulations, as well as any deficiencies in our compliance with such legislation and regulation, could result in significant loss of revenue, limit our ability to pursue business opportunities in which we might otherwise consider engaging or otherwise adversely affect our businesses.
It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any current proposals will become law, and it is difficult to predict how any changes or potential changes could affect our business. Changes to laws or regulations could increase our potential liability in connection with the investment solutions and services that we provide. The introduction of any new laws or regulations could make our ability to comply with applicable laws and regulations more difficult and expensive. Any of the foregoing could have a material adverse effect on our results of operations, financial condition or business.
If we experience material weaknesses or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock.
A material weakness is a deficiency, or combination of deficiencies, in internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. Until such time as we are no longer an “emerging growth company,” our independent registered public accounting firm will not be required to attest as to our internal controls over financial reporting. If we fail to identify or remediate any material weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, if we are unable to conclude that our internal controls over financial reporting are effective or if, once required, our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected. As a result of any such failures, we could also become subject to stockholder or other third-party litigation, as well as investigations by the NYSE, the SEC or other regulatory authorities, which could result in fines, trading suspensions or other remedies, harm our reputation and financial condition or divert financial and management resources from our regular business activities.
Failure to comply with ERISA and Internal Revenue Code regulations could result in penalties against us.
We are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and Sections 4975(c)(1)(A), (B), (C) and (D) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) and to regulations promulgated thereunder, insofar as we act as a “fiduciary” under ERISA with respect to certain benefit plan clients or otherwise deal with benefit plan clients. ERISA and applicable provisions of the Internal Revenue Code impose duties on persons who are fiduciaries under ERISA, prohibit specified transactions involving ERISA plan clients (including, without limitation, employee benefit plans (as defined in Section 3(3) of ERISA), individual retirement accounts and Keogh plans) and impose monetary penalties for violations of these prohibitions. Our failure to comply with these requirements could result in significant penalties against us that could have a material adverse effect on our business (or, at worst, severely limit the extent to which we could act as a fiduciary for any plans under ERISA).
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We are subject to litigation and regulatory examinations and investigations.
The financial services industry faces substantial regulatory risks and litigation. Like many firms operating within the financial services industry, we are experiencing a difficult regulatory environment across our markets. Our current scale and reach as a provider to the financial services industry, the increased regulatory oversight of the financial services industry generally, the increase in new laws, rules and regulations (including shorter comment periods), ever-changing regulatory interpretations of existing laws and regulations and the retroactive imposition of new interpretations through enforcement actions have made this an increasingly challenging and costly regulatory environment in which to operate. These examinations or investigations could result in the identification of matters that may require remediation activities or enforcement proceedings by the regulator. The direct and indirect costs of responding to these examinations, or of defending ourselves in any litigation could be significant. Additionally, actions brought against us may result in settlements, awards, injunctions, fines and penalties. The outcome of 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.
Failure to properly disclose conflicts of interest could harm our reputation, results of operations or business.
We are party to certain compensation arrangements pursuant to which we receive payments based on client assets invested in certain investment products, including ETFs, 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 an investment adviser; our status as a registered investment adviser 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 conflicts of interest, become subject to retroactive determinations that past disclosures 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.
In the event of a change of control of our Company, we may be required to obtain FINRA approval and the consent of our advisory clients to the change of control, and any failure to obtain these consents could adversely affect our results of operations, financial condition or business.
As required by the Advisers Act, the investment advisory agreements entered into by AMI provide that an “assignment” of the agreement may not be made without the client’s consent. Under the 1940 Act, advisory agreements with registered funds provide that they terminate automatically upon “assignment” and the board of directors and the shareholders of the registered funds must approve a new agreement for advisory services to continue. Under both the Advisers Act and the 1940 Act, a change of ownership may constitute such an “assignment” if it is a change of control. For example, under certain circumstances, an assignment may be deemed to occur if a controlling block of voting securities is transferred, if any party acquires control, or, in certain circumstances, if a controlling party gives up control. Under the 1940 Act, a 25% voting interest is presumed to constitute control. HTSC, through its indirect subsidiary Huatai International Investment Holdings Limited (“HIIHL”), held a 69.0% voting interest in us as of June 30, 2022. 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’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.
Risks Related to Ownership of Our Common Stock
Control by our principal stockholder could adversely affect our other stockholders.
HTSC, through its indirect subsidiary HIIHL, owned approximately 69.0% of our outstanding shares of common stock as of June 30, 2022, 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 of directors and the approval of mergers or other extraordinary transactions), regardless of whether or not other stockholders believe that the transaction is in their own best interests. Such concentration of voting power could also have the effect of delaying, deterring or preventing a change of control or other business combination that might otherwise be beneficial to our stockholders, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our Company and might ultimately affect the market price of our common stock.
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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 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 will remain 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 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 stockholders.
Our stock price may be volatile, and the value of our common stock may decline.
The market price of our common stock may be highly volatile and may fluctuate or decline substantially as a result of a number of factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance. In addition, the limited public float of our common stock tends to increase the volatility of its trading price, in particular during times of high volatility in the broader stock market. Factors that could cause fluctuations in the market price of our common stock include the following:
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market conditions in the broader stock market in general, or in our industry in particular; |
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changes in the interest rate environment; |
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actual or anticipated fluctuations in our quarterly financial and operating results; |
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introduction of new products and services by us or our competitors; |
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issuance of new or changed securities analysts’ reports or recommendations; |
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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; |
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additions or departures of key personnel; |
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regulatory developments, litigation and governmental investigations; and |
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economic, political and geopolitical conditions or events, including public health concerns or epidemics such as the COVID-19 pandemic. |
These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have often instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial defense costs. Such a lawsuit could also divert the time and attention of our management from our business.
An active market for our common stock may not be sustained, which may inhibit the ability of our stockholders to sell shares of our common stock.
Although we have listed our common stock 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. 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.
Future sales of a substantial number of shares of our common stock in the public market could cause the price of our common stock to decline.
Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that sales may have on the prevailing price of our common stock.
Specifically, HIIHL, the holder of 50,873,799 shares of our common stock as of June 30, 2022, 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 shares
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becoming freely tradable without compliance with Rule 144 upon effectiveness of the applicable registration statement. In addition, the shares of our common stock already issued to employees or reserved for future issuance under our 2019 Equity Incentive Plan will become eligible for sale in the public market once such shares are issued, subject to various vesting arrangements and Rule 144, as applicable. A total of 4,887,691 shares of common stock have been reserved for issuance under our 2019 Equity Incentive Plan.
The market price of shares of our common stock may drop significantly if HIIHL exercises its registration rights, or if the market perceives that such exercise is likely to occur. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities. In the future, we may also 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 issuance of additional securities in connection therewith may result in additional dilution to our stockholders.
We are a “controlled company” within the meaning of the NYSE listing standards and, as a result, qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
HTSC, through its indirect subsidiary HIIHL, controls a majority of the voting power of our common stock. As a result, we are a “controlled company” within the meaning of the NYSE listing standards. Under these rules, a company of which more than 50% of the voting power is held by an individual, a group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements of the NYSE, including (1) the requirement that a majority of the board of directors consist of independent directors, (2) the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities and (3) the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. We rely on some or all of these exemptions. As a result, we do not have a majority of independent directors and our compensation and nominating and corporate governance committees do not consist entirely of independent directors. Accordingly, our stockholders do not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.
We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company” as defined in the JOBS Act, and we have elected to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly after we are no longer an “emerging growth company.”
As a public company, we are required to comply with various regulatory and reporting requirements, including those required by the SEC. Complying with these reporting and other regulatory requirements is time-consuming and may result in increased costs to us and could have a negative effect on our results of operations, financial condition or business.
We are subject to the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act, as well as the corporate governance requirements of the NYSE. Expenses incurred by public companies for reporting and governance purposes have generally been increasing and may continue to increase, and these requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To comply with our periodic reporting requirements and to maintain and improve the effectiveness of our disclosure controls and procedures, we have committed and will continue to commit significant resources, hire additional staff and provide additional management oversight. We have implemented and will continue to implement additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. Sustaining our growth will also require us to commit additional management, operational and financial resources to identify new professionals to join our Company and to maintain appropriate operational and financial systems to adequately support expansion. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our results of operations, financial condition or business.
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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 statements. 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.
When these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with them. 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 timing of such costs.
Our management has limited experience managing a public company, and 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 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.
Some provisions of Delaware law and our certificate of incorporation and bylaws may deter third parties from acquiring us.
Our amended and restated certificate of incorporation and our amended and restated bylaws provide for, among other things:
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a staggered board and restrictions on the ability of our stockholders to fill a vacancy on the board of directors; |
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the authorization of undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval; |
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advance notice requirements for stockholder proposals; |
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certain limitations on convening special stockholder meetings; and |
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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. |
These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our Company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take other corporate actions than you desire.
Delaware law may delay or prevent a change in control, and may discourage bids for our common stock at a premium over its market price.
We are subject to the provisions of Section 203 of the Delaware General Corporation Law (the “DGCL”). These provisions prohibit large stockholders, in particular a stockholder owning 15% or more of the outstanding voting stock, from consummating a merger or combination with a corporation unless such stockholder receives board approval for the transaction or 66 2/3% of the shares of voting stock not owned by such stockholder approve the transaction. These provisions of Delaware law may have the effect of delaying, deferring or preventing a change in control, and may discourage bids for our common stock at a premium over its market price.
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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.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is, to the fullest extent permitted by applicable law, the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees, agents or trustees to us or our stockholders, (iii) any action asserting a claim against us or any director or officer or other employee of ours arising pursuant to any provision of the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws or (iv) any action asserting a claim against us or any director or officer or other employee of ours that is governed by the internal affairs doctrine, in each such case subject to such Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. This provision does not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction.
Our amended and restated certificate of incorporation provides that, to the fullest extent permitted by law, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States are the sole and exclusive forum for resolving any complaint asserting a cause of action arising under the federal securities laws of the United States. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented to, the provisions of our amended and restated certificate of incorporation described in the preceding sentences.
These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and such persons. If any court of competent jurisdiction were to find either exclusive-forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our results of operations or financial condition.
General Risk Factors
Our insurance coverage may be inadequate or expensive.
We maintain voluntary and required insurance coverage, including, among others, general liability, property, director and officer, errors and omissions, network cybersecurity and privacy, employee practices liability, fidelity bond and fiduciary liability insurance and insurance required under ERISA. Recently in the insurance industry, premiums and deductible costs associated with certain insurance coverage have increased, and the number of insurers has decreased. If such trends continue, our insurance costs may increase, which may affect our financial condition. Further, while we endeavor to purchase coverage that is appropriate to our assessment of our risk, we are unable to predict with certainty the frequency, nature or magnitude of claims for direct or consequential damages. Our business may be negatively affected if in the future our insurance proves to be inadequate or unavailable. In addition, insurance claims may harm our reputation or divert management resources away from operating our business.
If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.
The trading market for our common stock may be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or describe us or our business in a negative manner, our stock price would likely decline. If one or more of these analysts cease coverage of our Company or fails to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. In addition, if we fail to meet the expectations and forecasts for our business provided by securities analysts, our stock price could decline.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
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Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.
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Item 6. Exhibits.
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Exhibit Description |
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Form |
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File No. |
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Exhibit |
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Filing Date |
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Filed Herewith |
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3.1 |
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Amended and Restated Certificate of Incorporation of the Company |
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S-1/A |
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333-232312 |
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3.1 |
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July 8, 2019 |
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3.2 |
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8-K |
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001-38980 |
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3.1 |
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July 22, 2019 |
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4.1
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S-1 |
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333-232312 |
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4.2 |
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June 24, 2019 |
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10.1 |
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10.2 |
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10.3 |
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31.1 |
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31.2 |
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32.1* |
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32.2* |
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101.INS |
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Inline XBRL Instance Document |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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* The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates them by reference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized, in Concord, California, on the day of August 8, 2022.
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ASSETMARK FINANCIAL HOLDINGS, INC. |
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By: |
/s/ Natalie Wolfsen |
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Natalie Wolfsen |
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Chief Executive Officer |
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(Principal Executive Officer) |
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By: |
/s/ Gary Zyla |
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Gary Zyla |
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Chief Financial Officer |
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(Principal Financial Officer) |
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Exhibit 10.1
ASSETMARK FINANCIAL HOLDINGS, INC.
NOTICE OF RESTRICTED STOCK UNIT AWARD
Except as otherwise indicated, any capitalized term used but not defined in this Notice of Restricted Stock Unit Award (this “Notice”) shall have the meaning ascribed to such term in the AssetMark Financial Holdings, Inc. 2019 Equity Incentive Plan (as it may be amended from time to time, the “Plan”).
###PARTICIPANT_NAME###
###HOME_ADDRESS###
The undersigned Participant has been granted an Award of Restricted Stock Units or RSUs (the “Award”) under the Plan, subject to the terms and conditions of the Plan, this Notice and the attached Restricted Stock Unit Award Agreement.
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Number of RSUs: |
###TOTAL_AWARDS### |
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Date of Grant: |
###GRANT_DATE### |
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Dividend Equivalents: |
Not Included |
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Vesting Commencement Date: |
###ALTERNATIVE_VEST_BASE_DATE### |
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Vesting Schedule: |
Subject to Section 2 of the Restricted Stock Unit Award Agreement, the Award will vest in accordance with the following schedule: |
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The Award shall become vested as to one-fourth of the RSUs constituting the Award on each of the first four anniversaries of the Vesting Commencement Date, subject to the Participant’s continued employment or service with the Company on each such date. |
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By signing where indicated below, AssetMark Financial Holdings, Inc. (the “Company”) grants the Award to the Participant upon the terms and conditions set forth in this Notice and the Restricted Stock Unit Award Agreement, and the applicable provisions of the Plan, and the Participant acknowledges receipt of the Award and agrees to observe and be bound by the terms and conditions of the Plan, this Notice and the Restricted Stock Unit Award Agreement. |
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Participant: |
AssetMark Financial Holdings, Inc. |
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____________________________ |
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Name: Ted Angus |
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###ACCEPTANCE_DATE### |
Title: EVP and General Counsel |
By: ____________________________
1
#93305964v6
ASSETMARK FINANCIAL HOLDINGS, INC.
2019 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
This Restricted Stock Unit Award Agreement (this “Agreement”) is made and entered into as of Grant Date (the “Grant Date”) set forth in the Notice of Restricted Stock Unit Award to which this Agreement is attached (the “Notice”) by and among AssetMark Financial Holdings, Inc. (the “Company”) and the Participant (the “Participant”) set forth in the Notice.
WHEREAS, the Company has adopted the AssetMark Financial Holdings, Inc. 2019 Equity Incentive Plan (as it may be amended from time to time, the “Plan”), pursuant to which Awards of Restricted Stock Units may be granted; and
WHEREAS, the Company has determined that it is in the best interests of the Company and its shareholders to grant the Award of Restricted Stock Units or RSUs provided for herein; and
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows:
1.Grant of Restricted Stock Award; Consideration. Pursuant to Section 9 of the Plan, the Company hereby issues to the Participant on the Grant Date an Award of RSUs on the terms and conditions and subject to the restrictions set forth in the Notice, this Agreement and the Plan (the “Award”). The number of RSUs granted pursuant to the Award is set forth in the Notice. Each RSU shall represent the right to receive one Share upon the vesting of such RSU, as determined in accordance with and subject to the terms of this Agreement, the Plan and the Notice. The Award is made in consideration of the services to be rendered by Participant to the Company and to any Affiliate of the Company that the Participant serves as an Employee, Consultant or Director (the Company and each such Affiliate, as applicable, the “Employer”).
2.Restricted Period; Vesting. Except as otherwise provided herein, provided that the Participant does not experience a Termination of Service prior to the applicable vesting date subject to Section 3, the Award shall vest according to the vesting schedule set forth in the Notice (the “Vesting Schedule”). The “Restricted Period” shall mean the period during which the Award remains outstanding and not fully vested. Notwithstanding the foregoing:
(a)in the event of the Participant’s Termination of Service as a result of the Recipient’s death or Disability, 100% of any then unvested RSUs shall vest as of the date of such Termination of Service;
(b)in the event of the Participant’s Termination of Service as a result of the Recipient’s retirement that occurs at a time when the Recipient has attained an age of 60 years or higher and has provided service to the Company or Affiliates for at least 10 years (“Retirement”), a prorated portion of any then unvested RSUs scheduled to vest on the first vesting date following the Termination of Service described in the Vesting Schedule shall vest as of the date of such Termination of Service, with such proration based on the number of days of service during the period ending on such vesting date and beginning
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on the most recent prior vesting date described in the Vesting Schedule (or, if none, the Vesting Commencement Date set forth in the Notice).
3.Termination of Service. In the event of the Participant’s Termination of Service for any reason, any RSUs that are not vested as of the date of such Termination of Service will be forfeited.
4.Change in Control; Adjustments. In the event of a Change in Control while the RSUs remain outstanding and unvested, the RSUs will be treated in accordance with Section 12(c) of the Plan; provided that, in the event of the Participant’s involuntary Termination of Service, including a termination by the Company (or a successor) without Cause or by the Participant for Good Reason (as defined below), on or within one year following the effective date of a Change in Control, 100% of any then unvested RSUs shall vest as of the date of such Termination of Service. If any change is made to the outstanding Common Stock or the capital structure of the Company, the Committee may make adjustments in the terms and conditions of, and the criteria included in, the RSUs in any manner as contemplated by Section 14(c) of the Plan.
For purposes of this Section 4 only, “Good Reason” shall mean (a) If the Participant is a party to an employment or service agreement with the Company or its Affiliates and such agreement provides for a definition of Good Reason, the definition contained therein; or (b) If no such agreement exists or if such agreement does not define Good Reason, the occurrence of one or more of the following without the Participant’s express written consent, which circumstances are not remedied by the Company within thirty (30) days of its receipt of a written notice from the Participant describing the applicable circumstances (which notice must be provided by the Participant within ninety (90) days of the Participant’s knowledge of the applicable circumstances): (i) any material, adverse change in the Participant's duties, responsibilities, authority, title, status or reporting structure or (ii) a material reduction in the Participant's base salary or bonus opportunity.
5.Restrictions. Subject to any exceptions set forth in this Agreement or the Plan or as otherwise permitted by the Committee, during the Restricted Period and until such time as the RSUs are settled in accordance with Section 7, neither the RSUs nor any rights relating thereto may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Participant other than by will or pursuant to the laws of descent and distribution. Any attempt to assign, alienate, pledge, attach, sell or otherwise transfer or encumber the RSUs or any rights relating thereto in contravention of this Agreement or the Plan shall be wholly ineffective. This provision shall not apply to any portion of the Award that has been vested and fully settled and shall not preclude forfeiture of any portion of the Award in accordance with the terms herein.
6.No Rights as a Shareholder. The Participant shall have no voting rights, rights to dividends or dividend equivalents or any other rights as a shareholder of the Company with respect to the RSUs unless and until such time as the RSUs are settled in accordance with Section 7.
7.Distribution of Shares. Subject to the provisions of this Agreement, upon the vesting of any of the RSUs, the Company shall, as soon as reasonably practicable (and in no
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event later than 30 days) after the applicable Vesting Date, (a) issue and deliver to the Participant one Share for each such RSU, and (b) make a cash payment to the Participant equal to the amount of any Dividend Equivalents credited with respect to such RSUs and any interest credited thereon or, at the discretion of the Committee, Shares having a Fair Market Value equal to such amount. Upon delivery, all such Shares shall be fully assignable, alienable, saleable and transferrable by the Participant; provided that any such assignment, alienation, sale, transfer or other alienation with respect to such Shares shall be in accordance with applicable securities laws and any applicable Company policy. Notwithstanding the foregoing, the Committee in its sole discretion may choose to settle any RSU in any form permitted by the Plan.
8.Responsibility for Taxes.
(a)The Participant shall be required to pay to the Company, and the Company shall have the right to deduct from any compensation paid to the Participant pursuant to the Plan, the amount of any required withholding taxes in respect of the RSUs and to take all such other action as the Committee deems necessary to satisfy all obligations for the payment of such withholding taxes. The Committee may (but is not obligated to) permit the Participant to satisfy any federal, state or local tax withholding obligation by any of the following means, or by a combination of such means:
(i)tendering a cash payment.
(ii)authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable or deliverable to the Participant as a result of the immediate vesting of the RSUs; provided, however, that no shares of Common Stock shall be withheld with a value exceeding the maximum amount of tax required to be withheld by law.
(iii)delivering to the Company previously owned and unencumbered shares of Common Stock.
(b)Notwithstanding any action the Company takes with respect to any or all income tax, social insurance, payroll tax, or other tax-related withholding (“Tax-Related Items”), the ultimate liability for all Tax-Related Items is and remains the Participant’s responsibility and the Company (i) makes no representation or undertakings regarding the treatment of any Tax-Related Items in connection with the grant, or vesting or settlement of the RSUs or the subsequent sale of any shares; and (ii) does not commit to structure the Award or the RSUs to reduce or eliminate the Participant’s liability for Tax-Related Items.
9.Not Salary, Pensionable Earnings or Base Pay. The Participant acknowledges that the Award shall not be included in or deemed to be a part of (a) salary, normal salary or other ordinary compensation, (b) any definition of pensionable or other earnings (however defined) for the purpose of calculating any benefits payable to or on behalf of the Participant under any pension, retirement, termination or dismissal indemnity, severance benefit, retirement indemnity or other benefit arrangement of the Company or any Affiliate (including the Employer) or (c) any calculation of base pay or regular pay for any purpose.
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10.Cancellation/Clawback. The Participant hereby acknowledges and agrees that the Participant and the Award are subject to the terms and conditions of Section 18 of the Plan.
11.Provisions of Plan Control. This Agreement is subject to all the terms, conditions and provisions of the Plan, including the amendment provisions thereof, and to such rules, regulations and interpretations relating to the Plan as may be adopted by the Committee and as may be in effect from time to time. The Plan is incorporated herein by reference. If and to the extent that this Agreement conflicts or is inconsistent with the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly.
12.Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or by courier, or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the party concerned at the address indicated below or to such changed address as such party may subsequently by similar process give notice of:
If to the Company:
AssetMark Financial Holdings, Inc.
1655 Grant Street, 10th Floor
Concord, California 94520
Attention: General Counsel
Email: [email protected]
If to the Participant, to the address of the Participant on file with the Company.
13.No Right to Continued Service. Neither the Plan, the Notice or this Agreement shall be construed as giving the Participant any right to be retained in the employ of, or to continue to provide services to, the Company or any Affiliate (including the Employer).
14.No Right to Future Awards. Any Award granted under the Plan shall be a one-time Award that does not constitute a promise of future grants. The Company, in its sole discretion, maintains the right to make available future grants under the Plan.
15.Entire Agreement. This Agreement, the Plan, the Notice and any other agreements, schedules, exhibits and other documents referred to herein or therein constitute the entire agreement and understanding between the parties in respect of the subject matter hereof and supersede all prior and contemporaneous arrangements, agreements and understandings, both oral and written, whether in term sheets, presentations or otherwise, between the parties with respect to the subject matter hereof.
16.Severability. If any provision of this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or this Agreement under any law deemed applicable by the Board, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Board, materially altering the intent of this
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Agreement, such provision shall be stricken as to such jurisdiction, and the remainder of this Agreement shall remain in full force and effect.
17.Amendment; Waiver. No amendment or modification of any provision of this Agreement that has a material adverse effect on the Participant shall be effective unless signed in writing by or on behalf of the Company and the Participant; provided that the Company may amend or modify this Agreement without the Participant’s consent in accordance with the provisions of the Plan or as otherwise set forth in this Agreement. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature. Any amendment or modification of or to any provision of this Agreement, or any waiver of any provision of this Agreement, shall be effective only in the specific instance and for the specific purpose for which such amendment, modification or waiver is made or given.
18.Assignment. Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by the Participant.
19.Successors and Assigns; No Third-Party Beneficiaries. This Agreement shall inure to the benefit of and be binding upon the Company and the Participant and their respective heirs, successors, legal representatives and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer on any Person other than the Company and the Participant, and their respective heirs, successors, legal representatives and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.
20.Dispute Resolution. All controversies and claims arising out of or relating to this Agreement, or the breach hereof, shall be settled by the Company’s or the Employer’s mandatory dispute resolution procedures, if any, as may be in effect from time to time with respect to matters arising out of or relating to the Participant’s employment with the Company or the Employer.
21.Governing Law; Venue. All matters arising out of or relating to this Agreement and the transactions contemplated hereby, including its validity, interpretation, construction, performance and enforcement, shall be governed by and construed in accordance with the internal laws of the State of Delaware, without giving effect to its principles of conflict of laws. For purposes of any action, lawsuit or other proceedings brought to enforce this Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts of Santa Clara County, California, or the federal courts for the United States for the Northern District of California, and no other courts.
22.Imposition of other Requirements and Participant Undertaking. The Company reserves the right to impose other requirements on the Participant’s participation in the Plan, on the Award and on any Shares to be issued upon settlement of the Award, to the extent the Company determines it is necessary or advisable for legal or administrative reasons. The Participant agrees to take whatever additional action and execute whatever additional documents the Company may deem necessary or advisable to accomplish the foregoing or to carry out or give effect to any of the obligations or restrictions imposed on either the Participant or the RSU pursuant to this Agreement.
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23.References. References herein to rights and obligations of the Participant shall apply, where appropriate, to the Participant’s legal representative or estate without regard to whether specific reference to such legal representative or estate is contained in a particular provision of this Agreement.
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ASSETMARK FINANCIAL HOLDINGS, INC.
NOTICE OF RESTRICTED STOCK UNIT AWARD
Except as otherwise indicated, any capitalized term used but not defined in this Notice of Restricted Stock Unit Award (this “Notice”) shall have the meaning ascribed to such term in the AssetMark Financial Holdings, Inc. 2019 Equity Incentive Plan (as it may be amended from time to time, the “Plan”).
###PARTICIPANT_NAME###
###HOME_ADDRESS###
The undersigned Participant has been granted an Award of Restricted Stock Units or RSUs (the “Award”) under the Plan, subject to the terms and conditions of the Plan, this Notice and the attached Restricted Stock Unit Award Agreement.
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By signing where indicated below, AssetMark Financial Holdings, Inc. (the “Company”) grants the Award to the Participant upon the terms and conditions set forth in this Notice and the Restricted Stock Unit Award Agreement, and the applicable provisions of the Plan, and the Participant acknowledges receipt of the Award and agrees to observe and be bound by the terms and conditions of the Plan, this Notice and the Restricted Stock Unit Award Agreement. |
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Participant: |
AssetMark Financial Holdings, Inc. |
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____________________________ |
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Name: Ted Angus |
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###ACCEPTANCE_DATE### |
Title: EVP and General Counsel |
By: ____________________________
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ASSETMARK FINANCIAL HOLDINGS, INC.
2019 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
This Restricted Stock Unit Award Agreement (this “Agreement”) is made and entered into as of Grant Date (the “Grant Date”) set forth in the Notice of Restricted Stock Unit Award to which this Agreement is attached (the “Notice”) by and among AssetMark Financial Holdings, Inc. (the “Company”) and the Participant (the “Participant”) set forth in the Notice.
WHEREAS, the Company has adopted the AssetMark Financial Holdings, Inc. 2019 Equity Incentive Plan (as it may be amended from time to time, the “Plan”), pursuant to which Awards of Restricted Stock Units may be granted; and
WHEREAS, the Company has determined that it is in the best interests of the Company and its shareholders to grant the Award of Restricted Stock Units or RSUs provided for herein; and
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows:
1.Grant of Restricted Stock Award; Consideration. Pursuant to Section 9 of the Plan, the Company hereby issues to the Participant on the Grant Date an Award of RSUs on the terms and conditions and subject to the restrictions set forth in the Notice, this Agreement and the Plan (the “Award”). The number of RSUs granted pursuant to the Award is set forth in the Notice. Each RSU shall represent the right to receive one Share upon the vesting of such RSU, as determined in accordance with and subject to the terms of this Agreement, the Plan and the Notice. The Award is made in consideration of the services to be rendered by Participant to the Company and to any Affiliate of the Company that the Participant serves as an Employee, Consultant or Director (the Company and each such Affiliate, as applicable, the “Employer”).
2.Restricted Period; Vesting. Except as otherwise provided herein, the Award shall vest according to the vesting schedule set forth in the Notice (the “Vesting Schedule”). The “Restricted Period” shall mean the period during which the Award remains outstanding and not fully vested. Notwithstanding the foregoing:
(a)in the event of the Participant’s Termination of Service as a result of the Recipient’s death or Disability, 100% of any then unvested RSUs shall vest as of the date of such Termination of Service;
(b)in the event of the Participant’s Termination of Service as a result of the Recipient’s retirement that occurs at a time when the Recipient has attained an age of 60 years or higher and has provided service to the Company or Affiliates for at least 10 years (“Retirement”), a prorated portion of any then unvested RSUs scheduled to vest on the first vesting date following the Termination of Service described in the Vesting Schedule shall vest as of the date of such Termination of Service, with such proration based on the number of days of service during the period ending on such vesting date and beginning
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on the most recent prior vesting date described in the Vesting Schedule (or, if none, the Vesting Commencement Date set forth in the Notice).
3.Change in Control; Adjustments. In the event of a Change in Control while the RSUs remain outstanding and unvested, the RSUs will be treated in accordance with Section 12(c) of the Plan; provided that, in the event of the Participant’s involuntary Termination of Service, including a termination by the Company (or a successor) without Cause or by the Participant for Good Reason (as defined below), on or within one year following the effective date of a Change in Control, 100% of any then unvested RSUs shall vest as of the date of such Termination of Service. If any change is made to the outstanding Common Stock or the capital structure of the Company, the Committee may make adjustments in the terms and conditions of, and the criteria included in, the RSUs in any manner as contemplated by Section 14(c) of the Plan.
For purposes of this Section 3 only, “Good Reason” shall mean (a) If the Participant is a party to an employment or service agreement with the Company or its Affiliates and such agreement provides for a definition of Good Reason, the definition contained therein; or (b) If no such agreement exists or if such agreement does not define Good Reason, the occurrence of one or more of the following without the Participant’s express written consent, which circumstances are not remedied by the Company within thirty (30) days of its receipt of a written notice from the Participant describing the applicable circumstances (which notice must be provided by the Participant within ninety (90) days of the Participant’s knowledge of the applicable circumstances): (i) any material, adverse change in the Participant's duties, responsibilities, authority, title, status or reporting structure or (ii) a material reduction in the Participant's base salary or bonus opportunity.
4.Restrictions. Subject to any exceptions set forth in this Agreement or the Plan or as otherwise permitted by the Committee, during the Restricted Period and until such time as the RSUs are settled in accordance with Section 6, neither the RSUs nor any rights relating thereto may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by the Participant other than by will or pursuant to the laws of descent and distribution. Any attempt to assign, alienate, pledge, attach, sell or otherwise transfer or encumber the RSUs or any rights relating thereto in contravention of this Agreement or the Plan shall be wholly ineffective. This provision shall not apply to any portion of the Award that has been vested and fully settled and shall not preclude forfeiture of any portion of the Award in accordance with the terms herein.
5.No Rights as a Shareholder. The Participant shall have no voting rights, rights to dividends or dividend equivalents or any other rights as a shareholder of the Company with respect to the RSUs unless and until such time as the RSUs are settled in accordance with Section 6.
6.Distribution of Shares. Subject to the provisions of this Agreement, upon the vesting of any of the RSUs, the Company shall, as soon as reasonably practicable (and in no event later than 30 days) after the applicable Vesting Date, (a) issue and deliver to the Participant one Share for each such RSU, and (b) make a cash payment to the Participant equal to the amount of any Dividend Equivalents credited with respect to such RSUs and any interest credited thereon or, at the discretion of the Committee, Shares having a Fair Market Value equal
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to such amount. Upon delivery, all such Shares shall be fully assignable, alienable, saleable and transferrable by the Participant; provided that any such assignment, alienation, sale, transfer or other alienation with respect to such Shares shall be in accordance with applicable securities laws and any applicable Company policy.
7.Responsibility for Taxes.
(a)The Participant shall be required to pay to the Company, and the Company shall have the right to deduct from any compensation paid to the Participant pursuant to the Plan, the amount of any required withholding taxes in respect of the RSUs and to take all such other action as the Committee deems necessary to satisfy all obligations for the payment of such withholding taxes. The Committee may (but is not obligated to) permit the Participant to satisfy any federal, state or local tax withholding obligation by any of the following means, or by a combination of such means:
(i)tendering a cash payment.
(ii)authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable or deliverable to the Participant as a result of the immediate vesting of the RSUs; provided, however, that no shares of Common Stock shall be withheld with a value exceeding the maximum amount of tax required to be withheld by law.
(iii)delivering to the Company previously owned and unencumbered shares of Common Stock.
(b)Notwithstanding any action the Company takes with respect to any or all income tax, social insurance, payroll tax, or other tax-related withholding (“Tax-Related Items”), the ultimate liability for all Tax-Related Items is and remains the Participant’s responsibility and the Company (i) makes no representation or undertakings regarding the treatment of any Tax-Related Items in connection with the grant, or vesting or settlement of the RSUs or the subsequent sale of any shares; and (ii) does not commit to structure the Award or the RSUs to reduce or eliminate the Participant’s liability for Tax-Related Items.
8.Not Salary, Pensionable Earnings or Base Pay. The Participant acknowledges that the Award shall not be included in or deemed to be a part of (a) salary, normal salary or other ordinary compensation, (b) any definition of pensionable or other earnings (however defined) for the purpose of calculating any benefits payable to or on behalf of the Participant under any pension, retirement, termination or dismissal indemnity, severance benefit, retirement indemnity or other benefit arrangement of the Company or any Affiliate (including the Employer) or (c) any calculation of base pay or regular pay for any purpose.
9.Cancellation/Clawback. The Participant hereby acknowledges and agrees that the Participant and the Award are subject to the terms and conditions of Section 18 of the Plan.
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10.Provisions of Plan Control. This Agreement is subject to all the terms, conditions and provisions of the Plan, including the amendment provisions thereof, and to such rules, regulations and interpretations relating to the Plan as may be adopted by the Committee and as may be in effect from time to time. The Plan is incorporated herein by reference. If and to the extent that this Agreement conflicts or is inconsistent with the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly.
11.Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or by courier, or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the party concerned at the address indicated below or to such changed address as such party may subsequently by similar process give notice of:
If to the Company:
AssetMark Financial Holdings, Inc.
1655 Grant Street, 10th Floor
Concord, California 94520
Attention: General Counsel
Email: [email protected]
If to the Participant, to the address of the Participant on file with the Company.
12.No Right to Continued Service. Neither the Plan, the Notice or this Agreement shall be construed as giving the Participant any right to be retained in the employ of, or to continue to provide services to, the Company or any Affiliate (including the Employer).
13.No Right to Future Awards. Any Award granted under the Plan shall be a one-time Award that does not constitute a promise of future grants. The Company, in its sole discretion, maintains the right to make available future grants under the Plan.
14.Entire Agreement. This Agreement, the Plan, the Notice and any other agreements, schedules, exhibits and other documents referred to herein or therein constitute the entire agreement and understanding between the parties in respect of the subject matter hereof and supersede all prior and contemporaneous arrangements, agreements and understandings, both oral and written, whether in term sheets, presentations or otherwise, between the parties with respect to the subject matter hereof.
15.Severability. If any provision of this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or this Agreement under any law deemed applicable by the Board, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Board, materially altering the intent of this Agreement, such provision shall be stricken as to such jurisdiction, and the remainder of this Agreement shall remain in full force and effect.
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16.Amendment; Waiver. No amendment or modification of any provision of this Agreement that has a material adverse effect on the Participant shall be effective unless signed in writing by or on behalf of the Company and the Participant; provided that the Company may amend or modify this Agreement without the Participant’s consent in accordance with the provisions of the Plan or as otherwise set forth in this Agreement. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature. Any amendment or modification of or to any provision of this Agreement, or any waiver of any provision of this Agreement, shall be effective only in the specific instance and for the specific purpose for which such amendment, modification or waiver is made or given.
17.Assignment. Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by the Participant.
18.Successors and Assigns; No Third-Party Beneficiaries. This Agreement shall inure to the benefit of and be binding upon the Company and the Participant and their respective heirs, successors, legal representatives and permitted assigns. Nothing in this Agreement, express or implied, is intended to confer on any Person other than the Company and the Participant, and their respective heirs, successors, legal representatives and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.
19.Dispute Resolution. All controversies and claims arising out of or relating to this Agreement, or the breach hereof, shall be settled by the Company’s or the Employer’s mandatory dispute resolution procedures, if any, as may be in effect from time to time with respect to matters arising out of or relating to the Participant’s employment with the Company or the Employer.
20.Governing Law; Venue. All matters arising out of or relating to this Agreement and the transactions contemplated hereby, including its validity, interpretation, construction, performance and enforcement, shall be governed by and construed in accordance with the internal laws of the State of Delaware, without giving effect to its principles of conflict of laws. For purposes of any action, lawsuit or other proceedings brought to enforce this Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts of Santa Clara County, California, or the federal courts for the United States for the Northern District of California, and no other courts.
21.Imposition of other Requirements and Participant Undertaking. The Company reserves the right to impose other requirements on the Participant’s participation in the Plan, on the Award and on any Shares to be issued upon settlement of the Award, to the extent the Company determines it is necessary or advisable for legal or administrative reasons. The Participant agrees to take whatever additional action and execute whatever additional documents the Company may deem necessary or advisable to accomplish the foregoing or to carry out or give effect to any of the obligations or restrictions imposed on either the Participant or the RSU pursuant to this Agreement.
22.References. References herein to rights and obligations of the Participant shall apply, where appropriate, to the Participant’s legal representative or estate without regard to
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whether specific reference to such legal representative or estate is contained in a particular provision of this Agreement.
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Exhibit 10.2
ASSETMARK FINANCIAL HOLDINGS, INC. 2019 EQUITY INCENTIVE PLAN
STOCK APPRECIATION RIGHT AWARD NOTICE AND AGREEMENT
This Stock Appreciation Right Award Notice and Agreement (the “Notice and Agreement”) is made as of the Date of Grant set forth below, by and between AssetMark Financial Holdings, Inc. (the “Company”) and the individual recipient (the “Recipient”) named in the Stock Appreciation Right Award Notice in Part I of this Notice and Agreement (the “Notice”). Except as otherwise indicated, any capitalized term used but not defined in this Notice and Agreement shall have the meaning ascribed to such term in the AssetMark Financial Holdings, Inc. 2019 Equity Incentive Plan (as it may be amended from time to time, the “Plan”).
I.STOCK APPRECIATION RIGHT AWARD NOTICE
Recipient:###PARTICIPANT_NAME###
Address:###HOME_ADDRESS###
The Company has awarded to the Recipient a number of Stock Appreciation Rights (“SARs”) with respect to the Company’s common stock, $0.001 par value per share, (the “Common Stock”) subject to the terms and conditions of the SAR Agreement attached hereto, as follows:
Date of Grant:###GRANT_DATE###
Vesting Commencement Date:###ALTERNATIVE_VEST_BASE_DATE###
Strike Price per SAR:###GRANT_PRICE###
Total Number of SARs:###TOTAL_AWARDS###
Form of Payment:###PAYMENT METHOD###
Expiration Date:###EXPIRY_DATE###
Vesting Schedule:
The SARs will vest and become exercisable, in whole or in part, according to the following vesting schedule:
The SARs shall become vested and exercisable as to one-fourth of the SARs on each of the first four anniversaries of the vesting commencement date, subject to optionee’s continued employment or service with the Company on each such date.
###VEST_SCHEDULE_TABLE###
II.AGREEMENT
1.Award of SARs.
(a)The Board of Directors of the Company hereby awards to the Recipient named in the Stock Appreciation Right Award Notice in Part I of this Notice and Agreement (the “Notice”), the total number of Stock Appreciation Rights (the “SARs”) set forth in the Notice with respect to shares of Common Stock, effective as of the Date of Grant set forth in the Notice (the “Grant Date”), at the exercise price per SAR set forth in the Notice (the “Exercise Price”), and subject to the terms and conditions of this Agreement in Part II of this Notice and Agreement (the “Agreement”). Each SAR entitles the Recipient to receive, upon exercise, an amount equal to the excess of (a) the Fair Market Value of a share of Common Stock on the date of exercise, over (b) the Exercise Price set forth above (such excess per SAR, the “Appreciation Value”). The SARs are being granted pursuant to the terms of the AssetMark Financial Holdings, Inc. 2019 Equity Incentive Plan (as it may be amended from time to time, the “Plan”).
(b)Consideration. The grant of the SARs is made in consideration of the services to be rendered by the Recipient to the Company.
(c)Rights as Stockholder. Until the issuance of any shares of Common Stock (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the SARs. Any shares of Common Stock to be issued hereunder shall be issued to Recipient as soon as practicable after the SARs are exercised in accordance with this Agreement. No adjustment shall be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section 10(c)(vi) below.
2.Exercise; Vesting.
(a)Right to Exercise. These SARs shall vest and become exercisable during their term in accordance with the Vesting Schedule set out in the Notice and with the applicable provisions of this Agreement.
(b)When to Exercise. Except as otherwise provided in the Plan or this Agreement, the Recipient (or in the case of exercise after the Recipient’s death or incapacity, the Recipient’s executor, administrator, heir or legatee, as the case may be) may exercise his or her vested SARs, in whole or in part, at any time after vesting and until the Expiration Date or earlier termination pursuant to Section 3 hereof, by following the procedures set forth in this Section 2. If partially exercised, the Recipient (or his or her executor, administrator, heir or legatee) may exercise the remaining unexercised portion of the SARs at any time after vesting and until the Expiration Date or earlier termination pursuant to Section 3 hereof. In no event shall the SARs be exercisable after the Expiration Date set forth in the Notice (the “Expiration Date”), at which time the SARs (whether vested or unvested) shall immediately terminate.
(c)Method of Exercise. These SARs shall be exercisable by (i) delivery of an exercise notice in the form attached as Exhibit A (the “Exercise Notice”) which sets forth the number of SARs being exercised (the “Exercised SARs”), together with any additional documents the Company may require or (ii) such other manner and pursuant to such procedures as the Committee or the Company may provide. Each exercise must satisfy whatever then-current procedures apply to the SARs and must contain such representations as the Company requires. The number of SARs indicated in the Exercise Notice shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice, together with any applicable tax withholding.
(d)Documentation of Right to Exercise. If someone other than the Recipient exercises the SARs, then such person must submit documentation reasonably acceptable to the Company verifying that such person has the legal right to exercise the SARs.
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(e)Date of Exercise. The SARs shall be deemed to be exercised on the business day that the Company receives a fully executed exercise notice. If the notice is received after business hours on such date, then the SARs shall be deemed to be exercised on the business date immediately following the business date such notice is received by the Company.
(f)Compliance with Law. No Shares shall be issued pursuant to the exercise of a SAR unless such issuance and such exercise comply with all applicable law. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to Recipient on the date on which the SARs are exercised with respect to such Shares.
3.Termination of Service.
(a)Termination for Reasons Other Than Cause, Death, Disability, Retirement or a Qualifying Termination in connection with a Change in Control. If the Recipient experiences a Termination of Service for any reason other than Cause, death, Disability, Retirement (as defined below) or a Qualifying Termination (as defined below) in connection with a Change in Control, then (i) any portion of the SARs that is not vested as of the date of such Termination from Service shall terminate upon such Termination from Service and (ii) the Recipient may exercise the vested portion of the SARs, but only within such period of time ending on the earlier of: (A) the date 90 (ninety) days following the Termination of Service or (B) the Expiration Date.
(b)Termination for Cause. If the Recipient experiences a Termination of Service for Cause, the SARs (whether vested or unvested) shall immediately terminate and cease to be exercisable.
(c)Termination due to Disability. If the Recipient experiences a Termination of Service as a result of the Recipient’s Disability, 100% of any then unvested portion of the SARs shall vest as of the date of such Termination of Service and the Recipient may exercise any then outstanding portion of the SARs, but only within such period of time ending on the earlier of: (i) the date 12 months following the Termination of Service or (ii) the Expiration Date.
(d)Termination due to Death. If the Recipient experiences a Termination of Service as a result of the Recipient’s death, 100% of any then unvested portion of the SARs shall vest as of the date of such Termination of Service and any then outstanding portion of the SARs may be exercised by the Recipient’s estate, by a person who acquired the right to exercise the SARs by bequest or inheritance or by the person designated to exercise the SARs upon the Recipient’s death, but only within the time period ending on the earlier of: (i) the date 12 months following the Termination of Service or (ii) the Expiration Date.
(e)Termination due to Retirement. If the Recipient experiences a Termination of Service as a result of the Recipient’s retirement that occurs at a time when the Recipient has attained an age of 60 years or higher and has provided service to the Company or Affiliates for at least 10 years (“Retirement”), then (i) a prorated portion of any then unvested SARs scheduled to vest on the first vesting date following the Termination of Service described in the Vesting Schedule shall vest as of the date of such Termination of Service, with such proration based on the number of days of service during the period ending on such vesting date and beginning on the most recent prior vesting date described in the Vesting Schedule (or, if none, the Vesting Commencement Date set forth in the Notice), (ii) any portion of the SARs that is not vested as of the date of such Termination from Service shall terminate upon such Termination from Service and (iii) the Recipient may exercise the vested portion of the SARs, but only within such period of time ending on the earlier of: (A) the date 90 (ninety) days following the Termination of Service or (B) the Expiration Date.
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(f)Termination due to Qualifying Termination in connection with a Change in Control. If the Recipient experiences a Termination of Service as a result of the Recipient’s involuntary Termination of Service, including a termination by the Company (or a successor) without Cause or by the Recipient for Good Reason (as defined below) on or within one year following the effective date of a Change in Control (either, a “Qualifying Termination”), then 100% of any then unvested portion of the SARs shall vest as of the date of such Termination of Service and any then outstanding portion of the SARs may be exercised by the Recipient, but only within such period of time ending on the earlier of: (A) the date 90 (ninety) days following the Termination of Service or (B) the Expiration Date.
For purposes of this Section 3 only, “Good Reason” shall mean (a) If the Recipient is a party to an employment or service agreement with the Company or its Affiliates and such agreement provides for a definition of Good Reason, the definition contained therein; or (b) If no such agreement exists or if such agreement does not define Good Reason, the occurrence of one or more of the following without the Recipient’s express written consent, which circumstances are not remedied by the Company within thirty (30) days of its receipt of a written notice from the Recipient describing the applicable circumstances (which notice must be provided by the Recipient within ninety (90) days of the Recipient’s knowledge of the applicable circumstances): (i) any material, adverse change in the Recipient’s duties, responsibilities, authority, title, status or reporting structure or (ii) a material reduction in the Recipient’s base salary or bonus opportunity.
4.Lock-Up Period. Recipient hereby agrees that Recipient shall not offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any Common Stock (or other securities) of the Company or enter into any swap, hedging or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any Common Stock (or other securities) of the Company held by Recipient (other than those included in the registration) for a period specified by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred and eighty (180) days following the effective date of any registration statement of the Company filed under the Securities Act (or such other period as may be requested by the Company or the underwriters to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and (ii) analyst recommendations and opinions, including, but not limited to, the restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto).
Recipient agrees to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriters that are consistent with the foregoing or necessary to give further effect thereto. In addition, if requested by the Company or the representative of the underwriters of Common Stock (or other securities) of the Company, Recipient shall provide, within ten (10) days of such request, such information as may be required by the Company or such representative in connection with the completion of any public offering of the Company’s securities pursuant to a registration statement filed under the Securities Act of 1933 (the “Securities Act”). The obligations described in this Section 4 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a Securities Exchange Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred and eighty (180) day (or other) period. Recipient agrees that any transferee of the SARs or any shares acquired pursuant to the SARs shall be bound by this Section 4.
5.Form of Payment. Upon the exercise of all or a portion of the SARs, the Recipient shall be entitled to a payment in the form of payment set forth in the Notice, with a value equal to the Appreciation Value of the SARs being exercised, less any amounts withheld pursuant to Section 9. Notwithstanding the
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foregoing, the Committee in its sole discretion may choose to pay the SAR amount in any other form as permitted by the Plan.
6.Restrictions on Exercise. These SARs may not be exercised and paid in shares of Common Stock until such time as the issuance of any such shares upon such exercise and the method of payment of consideration for such shares would not constitute a violation of any applicable law.
7.Non-Transferability of SARs. These SARs may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Recipient only by Recipient. The terms of this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of Recipient.
8.Term. These SARs may be exercised only within the term set out in the Notice, and may be exercised during such term only in accordance with the terms of this Agreement.
9.Tax Obligations.
(a)Tax Withholding. Recipient agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or retaining Recipient) for the satisfaction of all Federal, state, local and foreign income and employment tax withholding requirements applicable to the exercise of the SARs. Recipient acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver the Shares if such withholding amounts are not delivered at the time of exercise. The Recipient may satisfy any federal, state or local tax withholding obligation relating to the exercise of the SARs by (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Recipient as a result of the immediate exercise of the SARs; provided, however, that no shares of Common Stock are withheld with a value exceeding the maximum amount of tax required to be withheld by law; or (iii) delivering to the Company previously owned and unencumbered shares of Common Stock.
(b)Code Section 409A. Notwithstanding any provision of this Agreement to the contrary, these SARs are intended to be exempt from Code Section 409A; provided, that the Company does not guarantee to Recipient any particular tax treatment of the SARs. In no event whatsoever shall the Company be liable for any additional tax, interest or penalties that may be imposed on Recipient by Code Section 409A or any damages for failing to comply with Code Section 409A.
10.Entire Agreement; Governing Law. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Recipient with respect to the subject matter hereof, and may not be modified adversely to the Recipient’s interest except by means of a writing signed by the Company and Recipient. This Agreement is governed by the internal substantive laws but not the choice of law rules of the State of Delaware.
11.No Guarantee of Continued Service. RECIPIENT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SARS PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING RECIPIENT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THESE SARS OR ACQUIRING SHARES HEREUNDER. RECIPIENT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
-5-
INTERFERE IN ANY WAY WITH THE RIGHT OF THE RECIPIENT OR THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING RECIPIENT) TO TERMINATE RECIPIENT’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
Recipient hereby accepts the SARs subject to all of the terms and provisions of this Agreement. RECIPIENT HAS REVIEWED THIS AGREEMENT IN ITS ENTIRETY, HAS HAD AN OPPORTUNITY TO OBTAIN THE ADVICE OF COUNSEL PRIOR TO EXECUTING THIS AGREEMENT AND FULLY UNDERSTANDS ALL PROVISIONS OF THIS AGREEMENT. Recipient hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under this Agreement. Recipient further agrees to notify the Company upon any change in the residence address indicated below.
RECIPIENTASSETMARK FINANCIAL HOLDINGS, INC.
______________________By: _____________________
Signature
______________________Name: Ted Angus
Print NameTitle: EVP and General Counsel
###HOME_ADDRESS###
Address
_____________________
Email Address
###ACCEPTANCE_DATE###
-6-
EXHIBIT A
ASSETMARK FINANCIAL HOLDINGS, INC.
SARS EXERCISE NOTICE
AssetMark Financial Holdings, Inc.
1655 Grant Street, 10th Floor
Concord, CA 94520
Attention: Corporate Secretary
1.Exercise of SARs. Effective as of today, ________________, ____, the undersigned (“Recipient”) hereby elects to exercise ________________ shares of Recipient’s SARs (the “SARs”) with respect to the common stock, par value $0.001 per share (the “Common Stock”) of AssetMark Financial Holdings, Inc. (the “Company”) under and pursuant to the Stock Appreciation Right Award Notice and Agreement by and between the Company and the Recipient dated as of _____________ (the “SAR Notice and Agreement”).
2.Delivery of Payment. Recipient herewith delivers to the Company any and all withholding taxes due in connection with the exercise of the SARs.
3.Representations of Recipient. Recipient acknowledges that Recipient has received, read and understood the SAR Notice and Agreement and agrees to abide by and be bound by its terms and conditions.
4.Tax Consultation. Recipient understands that Recipient may suffer adverse tax consequences as a result of Recipient’s purchase or disposition of shares of Common Stock, if any, in connection with the exercise of the SARs. Recipient represents that Recipient has consulted with any tax consultants Recipient deems advisable in connection with the purchase or disposition of any such shares and that Recipient is not relying on the Company for any tax advice.
5.Successors and Assigns. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this Exercise Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein set forth, this Exercise Notice shall be binding upon Recipient and his or her heirs, executors, administrators, successors and assigns.
6.Interpretation. Any dispute regarding the interpretation of this Exercise Notice shall be submitted by Recipient or by the Company forthwith to the Committee, which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Committee shall be final and binding on all parties.
7.Governing Law; Severability. This Exercise Notice is governed by the internal substantive laws, but not the choice of law rules, of the State of Delaware. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Exercise Notice shall continue in full force and effect.
8.Entire Agreement. The SAR Notice and Agreement is incorporated herein by reference. This Exercise Notice and the SAR Notice and Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Recipient with respect to the subject matter hereof, and may not be modified adversely to the Recipient’s interest except by means of a writing signed by the Company and Recipient.
Submitted by:Accepted by:
RECIPIENTASSETMARK FINANCIAL HOLDINGS, INC.
SignatureBy
Print NamePrint Name
Title
###HOME_ADDRESS###Address:
Date Received
Exhibit 10.3
AssetMark Financial Holdings, Inc.
Long Term Cash Incentive Award Agreement
###MONTH_YEAR###
This Long Term Cash Incentive Award Agreement (“Agreement”) is effective as of ###GRANT_DATE### (the “Effective Date”), by and between AssetMark Financial Holdings, Inc. ("Company") and ###PARTICIPANT_NAME### ("Employee").
The Board of Directors (“Board”) of the Company has approved the grant to Employee of a cash award of up to an aggregate amount of $###TOTAL_AWARDS### (the “Award”), as and on the terms described in this Agreement and subject to the fulfilment of certain conditions as set forth in this Agreement.
1. Award; Vesting. Employee is granted the Award, which shall vest and become payable in four equal installments on the payroll cycle following each of ###DATE1###, ###DATE2###, ###DATE3###, and ###DATE4### (each, a “Vesting Date”, subject to Employee’s continuing to be employed by or provide service to the Company through each such Vesting Date. For the avoidance of doubt, ###MONTH_DAY### of each year shall be considered the vesting date for purposes of this Agreement.
2. Effect of Termination of Service or a Change in Control. The Board may
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(a) |
provide, by rule or regulation, or may determine in any individual case, the circumstances in which, and the extent to which, an Award may be paid or forfeited in the event of Employee’s termination of service prior to the end of a Vesting Date of such Award; |
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(b) |
determine, in its discretion, whether, and the extent to which, (i) an Award will vest during a leave of absence, (ii) a reduction in service level (for example, from full-time to part-time employment) will cause a reduction, or other change, to an Award and (iii) a leave of absence or reduction in service will be deemed a termination of service; |
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(c) |
upon a Change in Control (as defined in the AssetMark Financial Holdings, Inc. 2019 Equity Incentive Plan), in its sole discretion, and on such terms and conditions as it deems appropriate, take any one or more of the following actions with respect to any outstanding Award, which need not be uniform with respect to all Employees and/or Awards: |
(i) continuation or assumption of such Award by the Company (if it is the surviving corporation) or by the successor or surviving corporation or its parent;
(ii) substitution or replacement of such Award by the successor or surviving corporation or its parent with cash, securities, rights or other property to be paid or issued, as the case may be, by the successor or surviving corporation (or a parent or subsidiary thereof), with substantially the same terms and value as such Award (including any applicable performance targets or criteria with respect thereto);and
1655 Grant Street, 10th Floor, Concord, CA 94520
(iii) acceleration of the vesting of such Award and the lapse of any restrictions thereon either (A) immediately prior to or as of the date of the Change in Control or (B) upon a Employee’s involuntary termination of service (including upon a termination of a Employee’s employment by the Company (or a successor corporation or its parent) without “cause”, by Employee for “good reason” and/or due to Employee’s death or “disability”, or within a specified period following the Change in Control.
4. Withholding; Taxes. All payments of the Award pursuant to this Agreement shall be subject to applicable federal (including FICA), state and local tax withholding requirements. The Company shall have the right to deduct from all such payments any federal, state or local taxes required by law to be withheld with respect to such payments. Employee shall be solely responsible for any tax consequences arising from the grant or payment of the Award, and Employee is hereby advised to should consult with his personal tax and/or financial advisors regarding the tax effects of the Award and this Agreement.
5. Not Salary, Pensionable Earnings or Base Pay. Employee acknowledges that, notwithstanding the terms of the AssetMark Financial 401(k) Plan and AssetMark Financial Deferred Compensation Plan, the Award and any payments thereunder (1) shall not be included in or deemed to be a part of (a) salary, normal salary or other ordinary compensation, (b) any definition of pensionable or other earnings (however defined) for the purpose of calculating any benefits payable to or on behalf of the Employee under any pension, retirement, termination or dismissal indemnity, severance benefit, retirement indemnity or other benefit arrangement of the Company or any affiliate or (c) any calculation of base pay or regular pay for any purpose and (2) shall not be subject to deferral or part of any contribution to any defined contribution or deferred compensation plan.
6. No Right to Continued Service. This Agreement shall not be construed as giving the Employee any right to be retained in the employ of, or to continue to provide services to, the Company or any affiliate.
7. No Right to Future Awards. This Award shall be a one-time award that does not constitute a promise of future grants.
8. Assignment. Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by the Employee.
9. Unfunded Arrangement. Employee’s rights to receive payments under this Agreement shall be no greater than the right of an unsecured general creditor of the Company. All payments shall be made from the general assets of the Company, and no special or separate fund shall be established and no segregation of assets shall be made to assure payment.
10. Governing Law; Venue. All matters arising out of or relating to this Agreement and the transactions contemplated hereby, including its validity, interpretation, construction, performance and enforcement, shall be governed by and construed in accordance with the internal laws of the State of Delaware, without giving effect to its principles of conflict of laws. For purposes of any action, lawsuit or other proceedings brought to enforce this Agreement, relating to it, or arising from it, the parties hereby submit to and consent to the sole and exclusive jurisdiction of the courts of Santa Clara County, California, or the federal courts for the United States for the Northern District of California, and no other courts.
11. Imposition of other Requirements and Employee Undertaking. The Company reserves the right to impose other requirements on the Award to the extent the Company determines it is necessary or advisable for legal or administrative reasons. Employee agrees to take whatever additional action and execute whatever additional documents the Company may deem necessary or advisable to accomplish the foregoing or to carry out or give effect to any of the obligations or restrictions imposed on either the Employee or the Award pursuant to this Agreement.
12. Severability. If any provision of this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or would invalidate this Agreement under any law deemed applicable by the Board, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Board, materially altering the intent of this Agreement, such provision shall be stricken as to such jurisdiction, and the remainder of this Agreement shall remain in full force and effect.
13. Amendment and Waiver. No amendment or modification of any provision of this Agreement that has a material adverse effect on the Employee shall be effective unless signed in writing by or on behalf of the Company and the Employee; provided that the Company may amend or modify this Agreement without the Employee’s consent as set forth in this Agreement. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature. Any amendment or modification of or to any provision of this Agreement, or any waiver of any provision of this Agreement, shall be effective only in the specific instance and for the specific purpose for which such amendment, modification or waiver is made or given.
14. Entire Agreement. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Employee with respect to the subject matter hereof, and may not be modified adversely to the Recipient’s interest except by means of a writing signed by the Company and Employee.
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AssetMark Financial Holdings, Inc. |
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Name: Ted Angus |
____________________________
Participant:
###PARTICIPANT_NAME###
###ACCEPTANCE_DATE###
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Natalie Wolfsen, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2022 of AssetMark Financial Holdings, Inc. (the “Company”); |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
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4. |
The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
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(d) |
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
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5. |
The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the Audit and Risk Committee of the Company’s Board of Directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
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Date: August 8, 2022 |
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By: |
/s/ Natalie Wolfsen |
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Natalie Wolfsen |
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Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gary Zyla, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2022 of AssetMark Financial Holdings, Inc. (the “Company”); |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
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4. |
The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
|
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(d) |
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
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5. |
The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the Audit and Risk Committee of the Company’s Board of Directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
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Date: August 8, 2022 |
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By: |
/s/ Gary Zyla |
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Gary Zyla |
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Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AssetMark Financial Holdings, Inc. (the “Company”) on Form 10-Q for the quarter ending June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and § 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
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Date: August 8, 2022 |
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By: |
/s/ Natalie Wolfsen |
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Natalie Wolfsen |
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Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AssetMark Financial Holdings, Inc. (the “Company”) on Form 10-Q for the quarter ending June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and § 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
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Date: August 8, 2022 |
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By: |
/s/ Gary Zyla |
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Gary Zyla |
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Chief Financial Officer |
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