AssetMark Financial Holdings, Inc.

Good afternoon, everyone, and welcome to ASTMARC's second quarter 2023 earnings conference call. Currently, 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, Hannah. Good afternoon, everyone, and welcome to ASTMARC's second quarter 2023 earnings conference call. Joining me are AssetMark's Chief Executive Officer, Natalie Wolfson, and Chief Financial Officer, Gary Zyla. Today they'll discuss results for the second quarter and provide an update to AssetMark's business outlook for 2023. 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 our outlook only as the date of this call, and actual results could differ materially. Additionally, during today's conference call, we're 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. With that, I'll turn the call over to my colleagues. Natalie, take it away.

Thank you, Taylor. I hope everyone on the call is having a great summer. Today, I want to start with a discussion of our record results for the quarter and then provide a detailed analysis of our five growth pillars, highlighting the progress we are making against each. I will then turn the call over to Gary, who will discuss our financial and operating results for the second quarter and then provide an update about our 2023 outlook. Starting on slide three, the second quarter of 2023 was another record quarter for AssetMark. We ended the quarter serving an all-time high 247,000 plus households and around 9,300 advisors, of which over 3,000 are engaged. In addition to growing the number of advisors that we serve, we just completed our 2023 Net Promoter Score Survey, which we do annually. and we received an all-time high net promoter score of 72, eclipsing the previous record set last year by five points. From a financial standpoint, total revenue was a record $183 million, up 21% year-over-year, while net revenue was a record $136 million, up 23% year-over-year. These all-time high top-line results allowed us to also achieve our best-ever bottom-line results. Specifically, adjusted EBITDA was $60 million for the quarter, and this marks the fifth straight quarter of record-setting quarterly EBITDA, a powerful testament to our diversified revenue mix and disciplined expense management. Net income was $33 million, up 30% year over year, while adjusted net income was $41 million, up 27% year over year. Adjusted earnings per share was $0.55 in the second quarter, up 25% year over year. We're extremely pleased by these results and I'm also encouraged by some of our forward-looking indicators, including organic growth and new advisor additions. Our second quarter net flows of $1.7 billion mark the highest quarter since the first quarter of 2022, while our 188 new producing advisors, or NPAs, are the highest since the second quarter of last year. At AssetMark, we continue to focus on driving new advisors to our platform while capturing share of wallet from our existing advisors. All in all, results for the second quarter were excellent, and we feel we have a lot of momentum headed into the second half of the year. Now, as I do every quarter, I want to give you an update on how we are moving the ball forward in each of our key strategic pillars. Moving to slide four, the first component of our growth strategy is to meet advisors where they are and where they are going. Adhesion Wealth had another strong quarter and continues to focus on bringing on new RIA firms while also expanding share of wallet of existing firms. Adhesion has added a total of $243 million of assets from new firms during the first half of the year. Additionally, Adhesion did an excellent job of growing share of wallet from existing firms on the platform. In fact, 88 of Adhesion's 110 firms grew during the second quarter. Adhesion also added new investment models to its model marketplace, which is currently the industry's second largest. In the second quarter, Adhesion added four new managers and 75 new models to their platform. Adhesion's future strategic focus is on the RIA and enterprise client experience through platform and product enhancements and on partner building initiatives. Adhesion is focused on five key areas. First, we are expanding their market penetration with a focus on attracting new firms and expanding wallet share with existing firms. Second, Adhesion is focused on developing the asset manager community through programs such as Adhesion Alliance, a premium program for the adhesion asset manager community. This solution provides asset managers with advisor usage and product adoption insights. In the second quarter, adhesion added six new managers to the adhesion program, which now has 290 models and 38 managers. The third area of strategic focus for adhesion is enhancing direct indexing and tax transition capabilities. Here we are specifically focused on expanding into new markets with our SMAs. In addition, we are enhancing tax transition capabilities with improved reporting and a new tax alpha insight module that shows tax impact within the context of direct indexing. Fourth, Adhesion is galvanizing partnerships through its API toolkit, which will extend Adhesion's APIs for partners, allowing expanded platform assets. This is a critical capability to support Adhesion's clients who have invested their own resources to build out their own tech stack. These tools will allow our clients to embed the capabilities of Adhesion's award-winning managed account platform while at the same time not losing the autonomy and control that they may need. Lastly, Adhesion is focused on continuing to upgrade their advisor platform, specifically the RIA desktop user experience and the manager and strategist portal. Adhesion continues to receive accolades throughout the financial services industry, most recently being named a final in the model marketplace subcategory for the 2023 WealthManagement.com Industry Award. We are excited about the advantage that Adhesion gives us in the RIA market and look forward to sharing their continued progress during future earnings calls. Now turning to slide five, the second component of our growth strategy is to deliver a holistic, differentiated experience to advisors and their clients. This quarter, I want to provide an update on Voyant. It has been two years since we have closed the acquisition of Voyant, and while their growth is slower than originally modeled, we are seeing steady growth in all of their markets. Let's discuss these geographies in a bit more detail. I'd like to start in the UK. Voyant is realizing strong growth in the small business market in the UK. Driving this demand is the rollout of the Financial Conduct Authority's consumer duty regulations, which set higher and clearer standards of consumer protection across financial services and requires firms to put their customers' needs first. Robust financial planning helps advisors demonstrate that they are complying with these new regulations. Ireland also remains a valuable geography for Voyant, and we continue to see growth in small and mid-sized licenses in this country. Next, let's discuss the Canadian market. As we've discussed previously, while enterprise license expansion has been very strong, growth in Canada has been a bit delayed as it took Canada much longer to reopen post-pandemic. Accordingly, growth in this geography has been slower than originally modeled. Next, let's turn our attention to the U.S. market. Voynich continues to win approvals from broker-dealers, allowing us to market and sell our financial planning software to their advisors. Reviews of Voyant's retirement income solution is encouraging. Even so, the adoption of Voyant in the United States has been slower than we originally expected. Lastly, in Australia, Voyant is seeing excellent momentum from small and mid-sized firms. This is a newer geography for Voyant and strong word of mouth is driving our growth there. Excluding foreign language pressures, revenue from Voyant was up approximately 17% year-over-year, driven by an uptick in both enterprise and advisor consumer licenses, the former up 59% year-over-year. While we are pleased with Voyant's growth across their markets, their growth has not accelerated the pace we originally modeled before acquiring the company. We are actively working to further accelerate Voyant's growth, and currently we are investing in an expanded sales strategy a dedicated Voyant PR program, expansion of Voyant's financial well-being program, including a new well-being dashboard, and select unbundling of comprehensive financial planning tools for new financial advisors. As always, we look forward to providing you with further updates about Voyant's progress as the year continues to progress. The third component of our growth strategy is to enable advisors to serve more investors across the wealth spectrum, varying life stages and generations. Now let's turn to slide six. We recently completed our annual share of wallet study with over 900 respondents, of which more than half were engaged advisors. Expanding the share of wallet from our existing advisors is one of the many ways we can accelerate our growth. This study is invaluable as it allows us to see the assets that are held off our platform by advisors who work with us. Two key points emerged from this year's study. First, we have a total business opportunity of $380 billion across our advisor base, up from $375 billion last year. The bulk of this opportunity is with advisory assets and commission assets. And while we don't support commission assets on our platform, we have a proven history of helping advisors move from a commission-oriented to a fee-based business model. Second, we continue to do an excellent job capturing share of wallet from our engaged advisors who are those with over $5 million in assets on our platform. Our 2023 share of wallet study shows that we have 86% of our engaged advisors TAMP assets, 61% of all of their advisory assets, and 39% of their total assets. Each one of these percentages are up from our 2022 share of wallet study. This year's study underscores that we are capturing assets from our existing advisors and still have a long runway of growth opportunity ahead of us, which we believe we are well positioned to capitalize on. We are consistently evaluating our investment offerings to ensure that we provide our advisors a curated suite of investments, enabling them to serve more investors across the wealth spectrum while positioning us to capture more share of their client's wallet. Now let's turn our attention to slide seven and the fourth component of our growth strategy to help our advisors grow and scale their businesses. According to a recent Suruli study, 106,000 advisors plan to retire over the next decade, representing 37% of industry headcount and 39% of total assets. Among advisors retiring in the next 10 years, 26% are unsure of their succession plans, with 95% of those advisors surveyed citing that finding a qualified buyer is a challenge for them. We just completed our pilot AdvisorLink in response to this demand. AdvisorLink is a private succession marketplace that will help asset market advisors discover succession solutions within the asset market community. AdvisorLink provides a secure private platform for our advisors to post and search for opportunities among vetted advisors and facilitates agreements from beginning to end. making the entire process less complicated for both advisors. We believe that AdvisorLink not only solves the critical needs facing the industry, but also promotes the retention and recruitment of advisors on our platform. Numerous advisors participated in our pilot, and the feedback was very positive, highlighted by the ease of use and simple navigation. We look forward to launching the solution in the next few weeks. We take great pride in our ongoing ability to help our advisors grow and scale, and as I've said before, it is why they win and then why we win. Now turning to slide eight, the final component of our growth strategy is to pursue strategic transactions by adding capabilities and assets that improve advisors' ability to serve their investors and expand their businesses. As we've said before, we have approximately $500 million in purchasing power for future M&A opportunities, and are increasing our purchasing power each quarter because of our strong cash generation. We are proactively looking at all opportunities that will benefit our advisors and their clients and will continue to be disciplined acquirers while we search for new opportunities. Now before turning the call over to Gary, I want to circle back around to the $20 million accrual we put up last quarter. The case is still under review and we remain confident that the accrual we put up in the first quarter will be the maximum amount. We will provide further updates as we are able to share more and once the matter with the SEC is fully resolved. I will now turn the call over to Gary to take us through a deeper dive on our second quarter 2023 results and to provide an update on our 2023 outlook.