AssetMark Financial Holdings, Inc.

Good afternoon, everyone, and welcome to AssetMark's fourth quarter 2023 earnings conference call. Currently, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and introductions will be given at the 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, Victoria. Good afternoon, everyone, and welcome to AssetMark's fourth quarter 2023 earnings conference call. Joining me are AssetMark's chief executive officer, Michael Kim, and chief financial officer, Gary Zyla. Today, they will discuss the results for the fourth quarter and introduce AssetMark's business outlook for 2024. Following our introductory remarks, we'll open up the call for questions. We also have an earnings presentation that Michael 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'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. With that, I'll turn the call over to my colleagues. Michael, take it away.

Great. Thank you, Taylor. Good afternoon, and welcome to our fourth quarter earnings call. Today, my prepared remarks will focus on three topics. First, I will highlight our record 2023 results. Second, I will unveil our refreshed and simplified strategy. And lastly, I'll provide an update on our long-term priorities that I laid out during our last earnings call. Gary will then discuss our financial and operating results for the fourth quarter and introduce our 2024 outlook. Starting on slide three, 2023 was another record year for AssetMark across many key operating and financial metrics. We ended the year with a record $109 billion of platform assets. We are serving an all-time high of over 254,000 households and over 9,300 advisors of which 3,123 are engaged. We realized an all-time high NPS score of 72, a testament of our commitment to our clients. From a financial standpoint, total revenue in 2023 was a record $709 million, up 15% year over year, while net revenue was a record $545 million, also up 20% year over year. These all-time high top-line results allowed us to achieve best ever bottom line results. Specifically, adjusted EBITDA was $250 million for the year. Adjusted EBITDA margin was a record 35.2 and was up 290 basis points year over year. Net income was $123 million of 19% year over year, while adjusted net income was $171 million of 31% year over year. Adjusted earnings per share was $2.30 for the year, up 30% year-over-year. In 2023, we also advanced our penetration into adjacent channels, such as RIA channel with integration of Adhesion Wealth and the Bank Trust channel with our announced partnership with Acutech Cheetah. We're already seeing meaningful contribution from Adhesion and have few early wins to announce from Cheetah, including First State Bank in Texas and National Exchange Bank in Wisconsin. Turning to slide four, we are simplifying our strategy. Replacing our previous five strategic pillars are three refreshed and simplified pillars that better align to our mission of making a difference in the lives of our advisors and their clients. For those that have been following the Aston Mark story for a while, these new pillars will sound familiar. Our first pillar is offering a flexible, integrated technology. Our technology suite fully integrates with our core proprietary technology with third-party tools that help advisors get things done more efficiently and effectively, which allows them to spend more time with their clients. This fosters deeper advisor and client relationships, which in turn contributes to greater loyalty and more assets on our platform. We believe that our technology is a key differentiator and serves as a competitive advantage amongst our peers. The second pillar is delivering exceptional service and consulting. Our advisors are in the relationship business, so we're in the relationship business. Almost half of our employees are advisor-facing with the sole mission of making a difference with our advisors and their clients. Our best-in-class business consulting offering helps our advisors with business strategy and planning, client experience and operations, marketing, and other key programs to increase the advisor's business value and efficiency. The third and final pillar is our compelling wealth solutions. Our focus on asset management begins with the client. Our products and those of our partners are easy to understand and use, and they are built with the advisors and their clients in mind. We perform careful due diligence to help ensure that we offer a wide range of well suited products to help investors reach their long term goals. In addition, we are committed to a holistic suite of wealth planning solutions to empower our advisors to serve the growing needs of their clients even more effectively. 2023 was a monumental year executing on these three pillars, and we have plans to double down in 2024. Let's go into each one in further detail. Turning to slide five, we have made significant progress enhancing our technology offering in 2023. It starts with our enhanced e-wealth manager platform, most notably the pilot of our new advisor dashboard, which engages users in an attractive, cohesive design and provides tools that allow advisors and users to be proactive and manage their experience. The advisor dashboard has received positive reviews from advisors in the pilot who have raved about its useful and intuitive nature. In 2023, we also launched our mobile app, which has over 6400 downloads. Adhesion continues to focus on enhancing their advisor platform as well, including the Adhesion Tax Alpha Dashboard, which brings the ability to visualize tax alpha, not only for accounts, but also at a business unit and firm level. Voyant launched the Voyant Wellness in late 2023, a module-based solution designed for enterprise companies to offer their clients a personalized mix of self-directed tools and services that help them plan for their financial futures. As we have said before, technology is an arms race. And in 2024, we have plans to continue to enhance our technology offering. We will continue to advance to work on building out the next version of Ewok Manager, focusing on the rollout of the advisor dashboard to all advisors and their teams. Our plan is to enhance our advisor insights, allowing the advisors to see a total book view of their assets, net flows, and fees. We are planning to add features that allow the advisors to gather more information from prospects, deepening the relationship and increasing the opportunity to turn prospects into clients. In 2024, Adhesion will accelerate development efforts to advance their technology and platform. They are investing in providing the industry's very best model marketplace for RIAs and focusing on enhancing their Adhesion Alliance program. Buoyant also has exciting plans for 2024 with the launch of new wealth management solutions, including social security optimization, Roth conversion, and advanced insurance modeling. They're also launching new retirement planning solutions, most notably Buoyant longevity risk and Buoyant long-term care and disability programs. Simply put, we are re-imagining the advisor's digital experience. Turning to slide six, Our second pillar is delivering exceptional service and consulting. As I mentioned before, we believe this is a competitive advantage for AssetMark. In early 2023, we launched our investment consulting offering, providing select advisors direct access to the AssetMark investment consulting team for guidance in creating customized model portfolios using strategies available on our platform. Our investment consulting team worked on 60 different opportunities in 2023 with over $2.5 billion in asset commitments. Also in 2023, we tackled one of the biggest obstacles facing our advisors, succession planning, through the launch of AdvisorLink, a private succession marketplace for our advisors to post and search for opportunities among vetted advisors. As of year end, over 200 advisors were leveraging advisor link with approximately two-thirds set up as buyers on the platform. In 2024, we will continue to focus on building out our service and consulting strategy to further distance ourselves from the competition. The biggest highlight is introducing the touchless new account opening at AssetMark Trust, which will accelerate the onboarding of clients through a faster account setup and funding. Adhesion is also committed to elevating the advisor experience to new heights. To do that, Adhesion has expanded their executive leadership team to focus on enhancing the advisor's experience, expanded their service team, adding seven new client service specialists, and is focused on further integration with Astemark to drive additional scale and experience for advisors. Let's turn to slide seven and discuss our third pillar, compelling wealth solutions. As we mentioned earlier, Our 2023 share wallet survey shows that we have over $380 billion of total business opportunity for all advisors who have responded. By consistently adding our wealth solutions offering, we build a better offering for our advisors and their clients while increasing the opportunity to gain share wallet from existing advisors and, of course, attracting new advisors. In April, we launched three First trust strategies that span the investment spectrum from core to satellite. In October, we launched Kensington Managed Income Strategy to provide investors with the potential to generate stable, above average total returns with low drawdowns. These new strategies have been used by over 650 advisors and have gathered close to a billion dollars in assets thus far. In September, we launched the pilot of tax management services. Early TMS users have celebrated the intuitive user experience, client-facing proposals, and informative reports. The value provided by the service relative to its cost is particularly compelling. Advisor adoption during the three-month early access period has exceeded our expectations with more than $100 million in assets already using this service. Adhesion also executed on enhancing their compelling wealth solutions, adding 88 products from 33 unique managers. Of the 33 managers, nine were new introductions to the Alliance program. This year, we are focused on continuing to add and enhance our wealth solutions. First and foremost, last month we formally launched TMS to all our advisors. In the first half of the year, we are launching certificate of deposit account registry services, or CDARs. CDARs are termed bank deposits and are an efficient way to access CDs with attractive rates and extended FTIC insurance through a network of banks. Simply put, this will enhance our cash management offering, making it more competitive while also meeting advisors' number one request, higher rate options available for clients of all wealth levels. Next, we are focused on enhancing our donor advised fund program with lower account minimums, robust reporting capabilities, streamlined processes for grants, and ability to customize portfolios through existing platform strategies. These enhancements will help advisors attract more investors, especially in the higher net worth segment, while strengthening relationships with existing clients. As you can see, we have accomplished a lot in 2023 and we will continue to enhance and add to our platform in 2024 to give our advisors and their clients an industry-leading experience. Turning to slide eight, I want to provide a brief update on how we are progressing on our long-term goals that we implemented last quarter with the goal of enhancing shareholder value. First, hypergrowth. As I discussed last quarter, we are absolutely committed to exceeding 10% organic growth rate and exceeding 5,000 engaged advisors by end of 2026. We are continuing to see green shoots that organic growth is coming back. In December, we realized net flows north of 625 million and saw net flows north of 430 million in January of this year. Regarding our AM5K initiative, we ended the fourth quarter with 3,123 engaged advisors, an all-time high. We are focused on projects to get our more than 800 advisors who are between 3 and 5 million of assets on our platform to the Engage level, while also improving the time and rate of NPAs to the Engage level. Gary will provide a lot more details on this later during his prepared remarks. Second, we increased our CapEx as a percentage of total revenue to 8% to 10%, allowing us to invest more into the business specifically into projects that drive growth and scalability, such as AccuTech Cheetah. Lastly, we are focused on scaling our business. In 2023, we expanded margins 290 basis points, and we'll look at opportunities like our touchless new account opening initiative, as discussed earlier, to drive further scale into the business. Specifically, we are focused on reducing the cost per account by over 30% by 2026. With that, I will now turn the call over to Gary to take us through a deeper dive on our fourth quarter results and introduce our 2024 outlook.