AssetMark Financial Holdings, Inc.

Good afternoon, everyone, and welcome to the Asset Marks First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. Today's call is being recorded. Now, I'd like to turn the call over to Taylor Hamilton, Head of Investor Relations. Please go ahead, Mr. Hamilton.

Thank you, Celine. Good afternoon, everyone, and welcome to AssetMark's first quarter 2021 earnings conference call. Joining me remotely are AssetMark's Chief Executive Officer, Natalie Wolfson, and Chief Financial Officer, Gary Zyla. Today, they will discuss the results for the first quarter and provide an update to AssetMark's business outlook for the remainder of 2021. Following our introductory remarks, we'll open up the call for questions. We also have an earnings presentation that Natalie and Gary will reference during their prepared remarks. It can be accessed on our IR website at ir.assetmark.com. Before we get started, I'd like to note that certain statements made during this conference call are forward-looking statements. These forward-looking statements represent only our outlook as the date of this call, and actual results could differ materially. Additionally, during today's conference call, we'll be discussing net revenue, adjusted EBITDA, adjusted EBITDA margin, and adjusted net income, all of which are non-GAAP financial metrics. Please refer to our earnings press release and SEC filings for more information on forward-looking statements, risk factors associated with our business, and required disclosures related to non-GAAP financial information. And with that, I will now turn the call over to my colleagues. Natalie, take it away.

Thank you so much, Taylor. And good afternoon, everyone. And thank you for joining our first quarter earnings call and my very first as CEO. I'm excited and honored to talk with you all today. I met many of you during the IPO Roadshow back in July of 2019. But for those of you who I've not had a chance to meet, let me briefly introduce myself and provide some perspective about why the board has selected me to lead Athamark into the future. I've been at asset Mark for about seven years now, and I've spent two plus decades in the financial services industry, helping financial advisors and their clients. I have a deep understanding of how advisors and their clients think and what solutions tools and technology they need to be successful. Prior to taking over as CEO in March, I was asset Mark's chief solutions officer responsible for building and executing asset Mark's current strategy. Our mission and our strategy remain unchanged. As a result, the leadership transition has been seamless for our associates, our advisors, and their clients. I'm very excited to continue to set the strategic vision for the firm and to create continued value for our advisors, their clients, and our shareholders. The board and I have a shared vision on growing our technology capabilities with Voyant, our recent announced acquisition being a prime example. I will look to leverage my expertise in technology, investment solutions, and financial wellness to further expand our entire offering. Lastly, I'm deeply committed to ESG and diversity inclusion, not only at Acidmark, but industry-wide. And I'm excited to work with the leadership team here at Acidmark to expand our focus in this area. In the coming months, I look forward to re-engaging with those of you I met during the Roadshow and building relationships with those of you who I haven't met yet. Now I'd like to transition to the heart of today's earnings presentation. Starting on slide three, we're going to focus on five key messages during our earnings call today. I'll discuss the first three, and Gary will cover the final two. First, because of our unwavering focus on our mission, making a difference in the lives of our advisors and their clients, Asimark is a strong company and has successfully delivered for our advisors and their clients, and as a result, our shareholders, since going public in 2019. Second, our addressable market is almost 1.5 times larger than it was two years ago, providing a long runway for future growth. We have also grown our market share and are now the largest TAMP in the industry. Third, our future has never looked brighter. We're making great progress on our 2021 strategic priorities, maintain a strong financial position, and we'll be returning to in-person events soon. All of this will help us continue to attract new advisors, accelerate organic growth, and gain market share. Next, Gary will discuss our organic growth, which has returned to pre-COVID levels. Net flows are up 26% quarter over quarter to $1.93 billion, an all-time high for Asimark. Lastly, Gary will walk us through our financial results for the quarter, highlighted by record revenue and EBITDA. He will also update you on our expectations for the rest of the year. When I last spoke to many of you, it was two years ago during our IPO Roadshow. Since then, our strategy has progressed substantially. We have strengthened our strategic pillars to make our platform more attractive to advisors. We have grown our operating and financial metrics while adding scale to our business. And we have expanded into adjacent markets and pursued opportunistic M&A that has increased our total addressable market. Let's discuss each of these in a bit more detail. So if you turn to slide four, this slide shows the evolution of our offering over the last two years. Continual platform innovation allows us to attract new advisors and to capture greater share of wallet from existing advisors. Since going public, we've added over 1300 NPAs or new producing advisors and almost 500 engaged advisors to our platform. Let me provide a few specific examples of how platform enhancements have supported our growth. Since our IPO, we have added six new investment strategies to our platform, and these new solutions account for $2.7 billion of our assets as of March 31st. In addition, in August of last year, we introduced our Enhanced Securities-backed Line of Credit Offering, or SBLOC, program. And since launch, over 500 new lines of credit have been issued, which is well ahead of our goals. More importantly, our securities-backed line of credit provides long-term benefits to AssetMark and to advisors and clients, and the benefits to AssetMark are stickier assets on our platform and incremental sources of revenue. In January, we launched our Advisor Growth Program that helps advisors establish a formal marketing plan and activities to drive practice growth. This will not only help our advisors grow, it will also help AssetMark grow. The improvements we made to our platform have allowed us to attract more advisors, impact more households, and grow more platform assets. And on slide five, you'll see the dramatic growth of our business over the last two years. Engaged advisors have increased 23% since going public and now account for 91% of our total platform assets versus 88% in the second quarter of 2019. Engaged advisor growth is a crucial part of the Asimark plan as these advisors exhibit stronger levels of growth and stickier assets. For example, engaged advisors' redemptions are in the high single digits. The number of people getting closer to reaching their financial goals and dreams because of Asimark is also growing. Households have increased by 35,000 households or 23% since going public. Platform assets have also increased and may have increased by 41% since we went public, driven by $9.9 billion in net flows and $2.1 billion in assets from acquisition. The amount of assets on our platform serves as an important indicator of the strength and growth of our business, our increased customer footprint, and the market acceptance of our platform. The evolution of our offering has not only allowed us to drive strong operating metrics, but has also translated into strong financial results. On slide six, you can see the growth of our financials since going public. First and foremost, we are growing our top line, even with the loss of revenue from our switch to lower cost mutual fund share classes and the absence of spread revenue due to declining interest rates. Trailing 12-month net revenue is up 14% to $300.3 million and up 22% when excluding the impact of spread revenue. We are investing in the future of our business while also growing EBITDA. Trailing 12-month adjusted EBITDA is up 24% to $120.8 million and up a robust 55% when excluding spread income. Our business continues to scale nicely as evidenced by our growing margins. We have realized adjusted EBITDA margin expansion of 260 basis points and one excluding spread income expansion over 600 basis points. Last but not least, we are also growing our bottom line with trailing 12-month adjusted EPS up 18% to $1.07. We remain highly focused on what we can control and our business is flexible to adjust across different market environments as we have seen over the past two years. During Gary's prepared remarks later, he will share that we are raising our 2021 expectations as we are expecting even stronger results this year than when we last spoke. In addition to adding and improving investment solutions, features, and technology on our platform, all of which help track new advisors and gain share of wallet. We've also expanded our offering, allowing us to increase our total addressable market. Let's turn to slide seven. When we went public, the majority of our clients were independent broker dealer affiliated advisors and retirement oriented advisors. The total addressable market in these two areas has increased double digits since we went public. With the independent broker dealer affiliated advisor total addressable market now at $2.7 trillion, and the retirement segment at $1.7 trillion. We remain extremely committed to those channels. In addition, since our IPO, we've added multiple new channels, expanding our total addressable market by approximately $1.8 trillion. In March of 2020, we acquired OBS Financial, allowing us to explore the bank trust opportunity, which is a total addressable market of $583 billion. In addition, in March of this year, we agreed to acquire Voyant, which provides diversified revenue with a vast addressable market. Once closed, Voyant will add $460 million of total revenue opportunity between its existing and expansion markets. And just a few months ago, we launched At-the-Mark Institutional, which will help us further penetrate the RIA market. And for us, this has an addressable target market of $1.2 trillion. So not only have we grown our addressable market, but we've also captured market share. When we went public, we were the number two TAMP as measured by platform assets, and we trailed the leader by more than 10 billion. As a result of a relentless execution on our strategy and our unwavering focus on our mission, coupled with opportunistic M&A, we took over the top spot this quarter and are now the largest TAMP in the space, exceeding the second competitor by 1.4 billion in assets. As you can see, Atomark is a strong and growing company. Even so, we're not taking our foot off the gas. We are making great progress on our 2021 strategic priorities, maintain a strong financial position, and have started returning to the road. All of this will help us to continue to gain market share, attract new advisors, and accelerate our organic growth. Let's discuss each of these in further detail. So turning to slide eight in the presentation, let me provide you a mid-year update on our strategic priorities which support our growth efforts. First, and as always, we look to enhance advisor value and productivity. We are building a financial wellness program with solutions to support meaningful wellness conversations between the advisor and their client. The announced acquisition of Voyant will be a big step forward in delivering our financial wellness solution. As discussed when we announced the deal, we plan to integrate key features of Voyant's financial planning tools and capabilities to enhance the Athermark Advisor experience, adding foundational financial wellness tools from Voyant to our eWealth Manager solution. In addition, adding these foundational Voyant features to Athermark RIA's offering will also help us attract new RIAs. We expect the deal to close. We still expect the deal to close in the early summer. Additionally, we are exploring other ways to enhance our financial wellness offering. We're building out a redesigned investor dashboard that will provide investors an interactive platform with a holistic view of their financial life. We are also building a new interactive investor timeline, which will create engagement and collaboration and a holistic view to facilitate advisor-investor conversations. Investors will be able to easily and interactively add life events and goals through their timeline and to analyze how the timeline changes when unexpected life events are added. The timeline will include both cash flows and probability of success outlooks, while also incorporating a clear view of risk, comprising risk capacity and risk need, in addition to the traditional risk tolerance approach. Our second strategic priority for 2021 is to attract adjacent advisors through channel expansion, and our biggest opportunity right now is subscale RIAs. In March, we launched Asimark Institutional, or AMI. While still in the very early innings of this launch, we are already seeing strong interest in AMI and are running at about 114% of our AMI production goal. As Asimark Institutional becomes a more meaningful part of our business, we intend to break out these results for all of you. And last week, we launched Asimark Alternative Investments. This solution will help RIAs attract and serve high net worth clients, and is a critical part of our AMI offering. Later this month, we'll also be hosting our inaugural RIA Summit, which will not only introduce many advisors to Asimark Institutional, but will also help position Asimark as a thought leader in the RIA space. Overall, we are very pleased with the early success of Asimark Institutional, and I look forward to updating you as we make more progress. Our last strategic priority for 2021 is to continue to invest in the platform and infrastructure to support our future growth. We are strengthening our back office, security, and trading systems, all to enhance our competitiveness. And as a reminder, these investments are already part of our planned capital expenses, and capital spend will remain about 7% of our total 2021 revenue, as previously disclosed to all of you. The next area that excites us about the future is our strong financial position, highlighted by our resilient balance sheet, ability to generate cash, and low net debt. We currently have about 86.8 million of cash on our balance sheet as of the end of the first quarter and have generated 82.4 million in cash from operations over the last year. We have a revolving debt credit facility with commitments and aggregate principal amount of about 250 million, of which we drew 75 million as of the first quarter. Due to our refinancing in 2020, the interest cost on our debt remains very low. Our strong financial position not only allows us to invest in our platform, but also to pursue opportunistic M&A, which remains a very important component of our growth strategy. We continue to view M&A in two avenues, consolidation M&A and capabilities M&A. While we've had great success in augmenting our organic growth through consolidation M&A, we are encouraged about the prospect of adding new technologies to our platform, especially given our recent announcement about our planned buoyant acquisition. Capability M&A helps us enhance and improve our platform. This not only benefits our advisors and their clients, but also our shareholders. Capabilities M&A has the potential to provide revenue growth and diversification, as well as to accelerate our operations cost synergies. M&A also has the opportunity to open new markets for AssetMark and to expand our total addressable market. We continue to leverage our deep relationships within the industry and analyze all opportunities that would be a strong fit for AssetMark. our advisors, their clients, and our shareholders. Lastly, we believe our outstanding results will only accelerate with the reopening of the economy and increased in-person engagement. While we are taking every precaution and closely monitoring case and vaccination rates, we've started to return to the road. Beginning this month, vaccinated sales associates have started meeting with advisors in person again and hosting small group events. We plan to begin hosting larger live advisor events in late summer as vaccinations become more widespread. We are excited to see our advisors and to see each other in person in the coming months. So on the last note, before I hand the call over to Gary to tackle the final two items we want to discuss with you today, I wanted to emphasize how extremely pleased I am about all we've accomplished in the first quarter of this year and over the past two years. I'm very excited about our future and truly believe the best days of Asimark are ahead of us. Because I have such a strong belief about Asimark and our mission, I just wanted to let you all know in the vein of full transparency that I canceled my 10b51 plan and have no plans to implement another for the foreseeable future. So with that, I'll hand off to Gary.