Q1 2021 AssetMark Financial Holdings Inc Earnings Call
[music].
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 and now I'd like to turn the call over to Taylor Hamilton.
And of Investor Relations. Please go ahead Mr. Hamilton.
Thank you Celine.
And then everyone and welcome to asset marks first quarter 2021 earnings conference call.
Joining me remotely are asset marks Chief Executive Officer, Natalie Wilson, and Chief Financial Officer, Gary Xylem day.
And then will discuss the results for the first quarter and provide an update to asset marks and business outlook for the remainder of 2021.
Following our introductory remarks, we will 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 dot asset Mark Dot com.
Before we get started I would like to note that certain statements made during this conference call are forward looking statements. These forward looking statements represent only our outlook at 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 and 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 our required disclosures related and non-GAAP.
<unk> information.
And with that I'll now turn the call over to my colleagues not only 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.
And excited and honored to talk with you all today and that many of you during the IPO Roadshow back in July of 2019, but for those of you who have not had a chance to meet let me briefly introduce myself and provide some perspective about why the board has selected me to lead off the mark into the future.
And then and after Mark for about seven years, now and it's been two plus decades, and the financial services industry, helping financial advisers and their clients and have it.
<unk> understanding of how advisers and their clients zinc and what solutions tools and technology they need to be successful.
Prior to taking over as CEO in March I was asked and marks Chief Solutions officer responsible for building and executing <unk> current strategy.
Our mission and our strategy remain unchanged as a result, the leadership transition has been seamless for our associates, our advisers and their clients.
And I'm very excited to continue to set the strategic vision for the firm and to create continued value for our advisors and their clients and our shareholders.
The board and I have a shared vision on growing our technology capabilities with with buoyant, our recent announced acquisition being a Prime example.
I will look to leverage my expertise and technology investment solutions and financial wellness to further expand our entire offering.
Lastly, im deeply committed to ESG and diversity inclusion not only and aftermarket but industry wide and I'm excited to work with the leadership team here at <unk> to expand our focus in this area and.
And the coming months I look forward to re engaging with those of you I met during the road show and building relationships with those of you who I haven't met yet.
Now I'd like to transition to the heart of their interest from today's earnings presentation. Starting on slide three we're going to focus on five key messages during our earnings call today I will discuss the first three and Gary will cover the final two.
First because of our unwavering focus on our mission, making a difference and the lives of our advisers and their clients aftermarket as a strong company and has successfully delivered for our advisers and their clients and as a result, our shareholders since going public in 2019.
Second our addressable market is almost one five times larger than it was in Q2 years ago, providing a long runway for future growth.
We have also grown our market share and are now the largest tam and the industry.
Our future has never looked brighter, we're making great progress on our 2021 strategic priorities and maintain a strong financial position and will be returning to in person events and 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-19 levels net flows were up 26% quarter over quarter to $1 93 billion and all time high for us and Mark.
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 with 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 and a bit more detail.
So if you turn to slide four this slide shows the evolution of our offering over the last two years.
<unk> platform innovation allows us to attract new advisors and to capture greater share of wallet from existing advisers since going public we've added over 1300, npa's or new producing advisers and almost 500 engaged advisers 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 31.
In addition in August of last year, we introduced our enhanced securities backed line of credit offering our block program and since launch over 500, new lines of credit have been issued which is well ahead of our goal more importantly, our securities back line of credit provides long term benefits to aftermarket and to advisors and clients and the benefits aftermarket sticky.
And your assets on our platform and incremental sources of revenue.
And January we launched our advisor growth program that helps advisors establish a formal marketing plan and activates and activities to drive practice growth. This will not only help our advisors grow it will also help app and mark growth.
The improvements we've made to our platform have allowed us to attract more advisers impact more households, and grow more platform assets and on slide five youll see the dynamic the dramatic growth of our business over the last two years.
Engaged advisers have increased 23% since going public and now account for 91% of our total platform assets versus 88% and the second quarter of 2019.
Engaged adviser growth and a crucial part of the <unk> plan as these advisors exhibit stronger levels of growth and stickier assets for.
For example, engaged advisers redemptions are and the high single digits.
The number of people getting closer to reaching their financial goals and dreams, because the vast market is also growing.
Households have increased 30 by 35000 households, or 23% since going public.
Platform assets have also increased and they've increased by 41% since we went public and driven by $9 9 billion and net flows and $2 1 billion and assets from acquisition and <unk>.
Mount 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 it also translated into strong financial results.
On slide six you can see the growth of our financials since going public first.
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 and 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 when excluding spread income expansion over 600 basis points.
Last but not least we're also growing our bottom line with trailing 12 month adjusted EPS up 18%.
And <unk>.
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 assure that we are raising our 2021 expectations as we are expecting even stronger results. This year and 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 <unk> gained share of wallet. We have 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 and these two areas has increased double digits. Since we went public with the independent broker dealer affiliated advisor total addressable market now at $2 seven trillion.
And the retirement segment at one seven trillion.
We remain extremely committed to those channels.
In addition center IPO, we've added multiple new channel, explaining our expanding our total addressable market by approximately one eight trillion.
And 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 <unk>, which provides diversified revenue with a vast addressable market. Once closed volume will add $460 million of total revenue opportunity between its existing and expanding market expansion markets.
And just a few months ago, we launched at the Mark institutional which will help us further penetrate the RIAA market and for US. This has an addressable target market of one two 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 is measured by platform assets and we trailed the leader by more than $10 billion.
As a result of our relentless execution on our strategy and our unwavering focus on our Mitchell mission, coupled with opportunistic M&A, we took over the top spot this quarter and are now the largest tampa and the space exceeding the second competitor by $1 4 billion and assets.
As you can see aftermarket as a strong and growing company, even though we're not taking our foot off the gas and 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 and further detail there.
Turning to slide eight and the presentation. Let me provide you a midyear update on our strategic priorities, which support our growth efforts.
First and as always and we look to enhance advisor value and productivity.
We are building and financial wellness program with solutions to support meaningful wellness conversations between the advisor and their clients and.
<unk> the acquisition of why it will be a big step forward and delivering our financial wellness solutions.
And as discussed when we announced the deal we plan to integrate key features of <unk> financial planning tools and capabilities to enhance the <unk> Mark advisor experience.
Adding financial foundational financial wellness tools from voyage to R E wealth manager solution.
In addition, adding these foundational why it features to <unk> offering will also help us attract new Oregon.
We expect the deal to close we still expect the deal to close and the early summer.
Additionally, we are exploring other ways to enhance our financial wellness offering.
And we're building out a redesigned investor dashboard that will provide investors and 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 adviser investor conversations investors will you be able to easily and interactively and life events and goals to their timeline and to analyze how the timeline changes when unexpected life events are added.
The timeline. We will include both cash flows and probability of success outlooks, while also incorporating a clear view of risk comprising with capacity and risk need and addition to the traditional risk tolerance approach.
Our second strategic priority for 2021 is to attract adjacent advisers through channel expansion and our biggest opportunity right now is subscale RH.
In March we launched App, and Mark institutional or Ami, while still and the very early innings of this launch we are already seeing strong interest and Ams and are running at about 114% of our Ami production goal.
Aftermarket institutional becomes more meaningful part of our business, we intend to break out these results for all of you.
And last week, we launched after Mark alternative investments. This solution will help attract and serve high net worth clients and is a critical part of our Ams offering.
Later this month, we will also be hosting our inaugural RIAA summit, which will not only introduce many advisors to aftermarket institutional but will also help position <unk> as a thought leader and the RNA space.
Overall, we are very pleased with the early success of aftermarket institutional and I look forward to updating you as we make more progress.
Our last strategic priority for 2021 is to continue to invest and 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 seven.
<unk> of our total 2021 revenue as previously disclosed to all of you.
The next area that excites us about the future as our strong financial position highlighted by a 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 and cash from operations over the last year.
We have a revolving debt credit facility with commitments and aggregate principle 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 and 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 and two avenues consolidation M&A and capabilities M&A, while we've had great success and 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 acquisition case.
Capability M&A helps us enhance and improve our platform, which not only benefits our advisers and their clients, but also our shareholders.
Capabilities M&A has the potential to provide revenue growth and diversification as well as to accelerate R. R.
Our operations cost synergies.
M&A also has the opportunity to open new markets for asset Mark 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 <unk>, our advisers and their clients and our shareholders.
Lastly, we believe our outstanding results will only accelerate with the reopening of the economy and increased and person engagements. 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 advisers and person again and hosting small group event.
And we plan to begin hosting larger large larger live adviser events and late summer as vaccinations become more widespread.
We are excited to see our advisors and and to see each other and person in the coming months.
From a 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 and the first quarter of this year and over the past two years and very excited about our future and truly believe the best days of aftermarket ahead of us.
Because they have such a strong belief about aftermarket our mission I just wanted to let you all know in the vein of full transparency that I canceled my <unk>, one plan and have no plans to implement and other for the foreseeable future.
And with that I'll hand off to Gary.
Thank you Natalie and good afternoon to all those on the call.
Natalie discussed our results from the first quarter, our outstanding highlighted by an all time high and platform assets and a record number from net flows revenue and adjusted EBITDA.
As usual I'll start and the discussion of our platform asset and talk about our revenue.
And then our earnings.
And will conclude with an update on our 2021 outlook.
So starting on slide nine first quarter platform assets were a record $78 9 billion up 40.
21% year over year.
And this growth reflects first quarter net flow into $1 9 billion, the highest quarterly total and our company's history and $2 $4 billion and market gain net of fees the.
And the improvement in our net flow and quarter over quarter was driven by increased production, while redemption rates have again remained relatively stable.
And March alone, we realized net flows of nine 1 million the highest month from our company.
Annualized net flows as a percentage of our beginning period assets.
10, 3%.
Net of our 2021 guidance of 8% to 10%.
Our net flow is now has increased by at least 20% each quarter.
Second quarter of 2020, and they are now back to pre COVID-19 levels.
Yeah.
Turning to slide 10, we continue to see excellent growth and our business as we have broken out the past few quarters, our core growth, excluding recent acquisitions and even stronger first quarter 2021 core business net flows as a percentage of beginning period assets or 11, 6% ahead of our 2020.
Annualized core growth rate of 10, 3%.
And the spirit of transparency, we do expect one or two more and large advisors <unk> and a total of about $450 million of assets from our platform believe and a second or third quarter. This year and we will update you as such.
We expect organic growth to continue to be strong and the second quarter based on advisor activity metrics and our April net flows of approximately $750 million, which will be disclosed next week and our monthly AAM K reported.
Turning to advisor metrics, we added 194, new producing advisers, our NPS and the <unk>.
First quarter of 2021. This is the highest total since the first quarter of last year and.
<unk> serve as a source of our growth and the near and medium term, while still leveraging and remote business model. We are encouraged by the growing number of new advisers on our platform.
First March with one of our best months ever and a number of NPS and the best months ever for NPA production.
Year to day production from this year's cohort and is up more than 25% compared to last year's cohort.
We're also excited about our recent and launch digital lead generation capabilities are upcoming alright from it and our return to embark and engagements and our advisers.
All of these will allow us to attract new advisors and deepen relationships and our existing advisors.
Our total engaged advisers at the end of the first quarter of 2000, and 611 engaged advisers were up 22% year over year and now accounts for 91%.
Total assets and our platform.
And beginning of 2020 that and has over the five quarters. Our total number of engaged advisors is up 381.
Now, let's turn to slide 11, and discuss this quarter's revenue.
And during the fourth quarter, our assets were $74 5 billion.
Leading to reported revenue of $119 million.
And this reflects a strong increase and our asset base revenue offset by the decline and spread based revenue due to last year's rate decline.
And we focus on our revenue net of related variable expenses and the first quarter of 2021 are net revenue of $82 $2 million was up four 6% year over year.
Asset based net revenue was up 12, 9% to $79 7 million.
Recall this reflects our mid 2020 shifts and lower cost mutual fund share classes, which resulted in a revenue reduction of $3 $5 million per quarter.
And that onetime product shift our asset based revenue growth would have been about 17%.
Spread based revenue is down and of course materially at 71% year over year due to the aforementioned decline and interest rates.
Now, let's turn to slide 12, more fully discuss the drivers and the change in net yield year over year.
The waterfall shows revenue was up year over year with the increase and asset based revenue outpacing the decline and spread based revenue.
Our Warner Force flips and the impact of our asset growth.
And $14 2 million and additional revenue and the impact of the compression of net revenue yield.
Reduced revenue by $5 2 million.
Of this $5 2 million again about $3 5 million was due to the shift to lower cost mutual fund share classes.
And can remaining impact due to fee compression and so.
Important to note that the year over year fee compression and that was in line with and one basis point, we expect each year.
Moving to spread based revenue decreased $4 $7 million year over year due to the yield decline.
From 136% to three 1%.
Lastly, our other income decreased $700000 or about half a basis point driven primarily by interest related income.
On our corporate assets.
Overall net revenue as a percentage.
Our total platform assets from the first quarter 2021 was 44 basis points, and one basis point quarter over quarter and down seven basis points from 2020.
And on Slide 12 helps detailed the year over year decline in yield I think shown three one basis points and driven by these asset based revenue and of this.
About two basis points is due to the shift from lower cost mutual funds.
The decline and spread based revenue result, and declined three three basis points on our total yield.
For clarity and transparency the calculation of our annualized revenue yield net of variable expenses and as shown on slide 17, and the appendix of our earnings presentation.
So the takeaway from slides twofold first and most importantly, a strong organic growth and market gains and mitigating the revenue loss from the move to lower cost mutual fund share classes and and declining interest rates.
New compression from low interest rates and the stabilizing down only one basis point quarter over quarter.
Now, let's discuss expenses as shown on slide 13.
We continue to do an excellent job of maintaining our ex defense base, even as we have grown our company significantly over the past year total adjusted expenses decreased 1% year over year to $90 million operating expenses were down three 2% year over year with $48 $1 million driven by a $2 million increase.
And compensation expense offset by a $3 $6 million decrease and SG&A.
The increase and compensation expenses, largely driven by our variable sales and incentive comp as a result of our strong sales and the quarter.
Strong sales results increased our compensation expense, we of course will realize the revenue benefits from it.
Coming quarters.
Also driving the increase year over year compensation.
One the fact and our head count increased two 2%.
The decrease in SG&A is largely driven by our new business environment, driven by lower <unk> costs and travel costs and <unk>.
Successfully held our annual client event gold form entirely on line in February January and material savings for 2020.
As discussed previously we are eager to get back and the ROE and and meet clients and person that said there are permanent changes we've made to our business model and we have always expected to absorb the increased spend related to travel and our operating expenses, we have learned to become a much more efficient and effective and a virtual environment and will not lose that competitive.
<unk> advantage.
And let me run through our expense adjustments, which were unusually large due to the acceleration and share based compensation costs. As a result of our February investing and the CEO change.
And the first quarter, we added back a total of $46 million pre tax and this is comprised of four items.
First.
$33 4 million of noncash share based compensation due again to the acceleration of amortization of the pre IPO grants.
Of our total equity charge of $33 4 million and the first quarter $36 million was it related to these pre IPO restricted stock rewards and $2 9 million was due to our ongoing equity incentive program.
Largest defense related to the pre IPO grants German and park.
And part due to the large vesting event in February and wells the accelerated recognition of costs as a result from the CEO change.
As a result, and the remainder of the year, we'll see far less expense related mystic block grants.
To set expectations for you you should expect to see.
Equity cost drop from the rest of the year between five and $8 million per quarter.
Looking ahead to 2022, our quarterly equity costs will reflect one maybe ongoing programs and settle into the $4 million to $5 million per quarter range. We've previously discussed.
Second adjustment to our expenses was $5 1 million of amortization expense related to the 2016 sale.
Hi, Ken.
<unk> equity charges and missile defense will be fully amortized also by the end of 2021.
Third and $4 $7 million related primarily to reorganization and integration costs and majority of this cost latest and the CEO transition.
And lastly, $2 $8 million and acquisition related expenses associated with our announced acquisition of <unk> and the integration and <unk> seen and lbs.
For additional color and adjusted expense reconciliation table for income statement line item and we found on slide 18, and the appendix and our earnings presentation.
Now, let's turn to slide 14, and discuss the earnings for the quarter.
We view adjusted EBITDA as an important measure of our company's health and our first quarter 2000, and 2021 adjusted EBITDA was a record $34 1 million up 22% year over year.
Adjusted EBITDA margin for the quarter was 28, 6% up 390 basis points year over year, this improvement and margin year over year. Despite the decline and the spread based income a testament to our management team and management team's ability to focus on expense management, while investing and future growth.
Our adjusted net income for the quarter was $22 $2 million 30 per share. This is based on our first quarter diluted share count of $72 9 million.
Now, let's look at the report and the reported first quarter balance sheet I would highlight two items.
We ended the quarter with $86 8 million and cash now and we mentioned in her prepared remarks, our cash position and ability to generate cash and low debt positions allow.
Positioning us well to pursue opportunistic M&A.
Our expectation is.
Is that we will use about $50 million of our corporate cash plus $70 million from our revolving credit facility. When we closed our acquisition of <unk> later.
Later this year.
Second capital expenditures, primarily reflect our long term investments and technology to create new capabilities increase scale and improve service and the first quarter, our capital spend was $8 2 million or six 9% and total revenue.
And now and the previously mentioned, we are expecting our capital expenditures to be about 7% 2021 total revenue and we continue to invest and the future of this day.
Now, let me update you on our expectations for 2021.
Before I get into those numbers I want to be clear. These expectations do not include the impact of <unk>, given the enzyme and the unknown timing of the close.
Let's turn to slide 15, we are increasing our net revenue outlook growth outlook to 18% to 21% for the year compared to our previous expectation of 16% to 19% driven by strong momentum from the first quarter net flows and market gains.
We continue to expect our operating expenses, which consist of compensation and SG&A to increase mid teens due to increased investment in 2020, one and it's important to note that we will maintain discipline and our expense growth and whats cannot outpace revenue growth.
As noted earlier and on previous calls this is defense outlook assumes.
And as fully reopens by mid year.
As a result, we are revising our 2021 adjusted EBITDA growth expectation range to 22% to 26%, which is above our previously guided range of 15% to 25%.
This outlook reflects the strong momentum from the first quarter, our confidence in top line growth and our ability to find ways to scale our business.
And just on the revised growth outlook, we've laid out we expect margin expansion of about 150 basis points for the year much harm and our previous expectation of 100 basis points and the 50 to 75 basis points goal, we have targeted previous years.
Is phenomenal given we are still investing significantly carpets.
With that I'll hand, it over to Natalie for her concluding remarks.
Thank you. Thank you Gary and thank you everyone from.
On the call today I am extremely pleased with all we've accomplished and feel we are well positioned to create further value for advisors and their clients as well as our shareholders.
Look forward to sharing future updates at upcoming conferences and on subsequent earnings call.
And this concludes our prepared remarks, I will turn the call back to the operator to begin Q&A.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad again that as Darren and then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Our first question coming from the line of Ryan Bailey with Goldman Sachs. Your line is open.
Hi, good afternoon.
And I'm just wondering if we can get a quick update on the adviser managed portfolio. I know you said youll start breaking out the assets once it becomes a bit more meaningful, but if you could give us Kevin and indication of.
And maybe how many advisors on the platform now how many and using it.
And whether you've seen a wallet share gains from news advisers, and then how youre thinking about.
Pricing and sort of how those conversations going.
Thanks, Ryan and I. Appreciate I appreciate the question about Aramark managed portfolios and some are finished portfolios as you know they're a subset of the offering that we've put in place for RNA and so a subset of the aftermarket institutional offering and.
And as I said in my prepared remarks, we're really happy with how the asset Mark institutional offering is going and are tracking.
14 points ahead of plan, which is fantastic and.
And what we're focused on is we're focused on attracting to our platform and providing the services that those are as need.
From asset Mark and a piece of that is aftermarket managed portfolios the ability to trade their own suite of our portfolio and our platform, but by no means is that the only piece that community.
<unk>.
Access to investment solutions.
The ability to participate and our growth programs all of those things are important too.
And specifically subscale areas, even though within as Mark institutional and we have seen adoption of our asset Mark managed portfolios.
Particularly from the larger Ria's that are on our platform and the conversations are going well as it relates to pricing and our approach to pricing.
Is it specific pricing for the technology itself, but to look at the whole relationship and make sure.
The whole relationship price works for us and our margins and then also for the advisor and what they're trying to achieve.
And so I would say that the pricing conversations and pricing negotiations are going well because what attracts.
And to our platform isn't just asset Mark managed portfolios, but the entirety of the solutions. We can offer how much we can help them outsourced their business and then refocus that time on growth.
And so while I Didnt give you Ryan any specific numbers on the number of advisers using pathmark managed portfolios and know that the top line metric, we use which is the growth of the number of advisors.
And how many are attracted to our platform. It is growing quite nicely right now and the first two months.
Got it okay. Thank you from.
And then maybe you mentioned that and.
And alternative investments offering thats sort of coming through as well and I was wondering maybe specifically for that.
And there are way, we should think about revenue contribution from that overtime.
So as it relates to aftermarket pathmark institutional.
And a investment platform, we announced a partnership with <unk> capital and.
And to provide our advisers with access to an array of alternative investments offering that have been diligent and that are.
Easier for them to administer then it would be if they go direct.
Because we are partnering for that offering it does contribute revenue, but it's immaterial.
Really more important is the holistic relationship with the <unk>.
And our advisor.
Got it thank you I'll jump back and thank you.
Sure. Thanks, Brian.
We have our next question coming from the line of Brian <unk> with Credit Suisse. Your line is open.
Hey, it's Ken.
And here with Brian.
And congratulations donlin.
Finally, and Gerry a quick question.
Gary and I am wondering can you give us a sense.
We should think about the revenue impact from the stepped up investment.
The work force gave and opportunities that from some of the invesco, but how are you thinking about that from a revenue perspective as it relates to 'twenty, one and just wanted to.
Thanks, So much for the question, Kevin Gerry do you want to take that one.
And that alone.
Sure Hey, Kevin how are you doing.
Hey, Gary.
So look.
We are we are.
And sounds like assortment, if and in context for you Kevin right. So.
And.
We're focused on.
The investment resulting in net.
That.
Double digit top line growth with margin expansion, creating the double digit mid teens EBITDA growth that we target every year.
And what we're trying to do with our investment and broaden our offering both for existing advisors select from grab share of wallet as well as to bring a new advisors.
So.
And we're not going to him and give you a phone and alike.
IRR on the rest and that we're bringing in the investment all the reference we're making are designed to attract.
Assets from existing advisers, as well and it's being new volume, particularly Ari.
Okay, and they're a whack and Greg.
Yes.
Yes, no that's helpful. Gary I guess I would say good morning is there any way to think about how much revenue.
It was associated with the incremental investment whether it's.
Percentage associated with it because obviously, what's nice as you've been able to step up the investment but also.
Rather maintain the investment, but then also drive some incremental adjusted EBITDA, which is a nice outcome for you folks.
Yes.
Yes.
You're absolutely right and I mean, that's exactly it.
Way to think about it.
We characterize it as lumpy.
Our new App is coming and particularly on our managed platform.
And you have very high when you recall and your incremental margin right and so we view it more as we have me relative to bring and the asset so that we and.
Recognize that revenue and a much better margin and our overall book right and that's how you create net margin expansion.
That's helpful. And then just real quick Gary and he is it too early to start thinking about.
The impact of interest rates as it relates to maybe 22 or just any shift in thinking around rates just given some of the recent activity.
Janet Yellen, and saying today net rates might go up so that was exciting.
So I do think as low early to talk about it we always disclose our cash.
And what we're earning we earned 31 basis points on the cash right now so we're not baking into and near term outlook for ourselves and so the numbers, we talk about 2021 and non assume any interest rate improvement.
But one can hope that in 2022 or <unk>.
By 2023, we'd see some movement now and do you have and demand on that.
No other than to say that as we've disclosed in the past.
For every 25 ish increase and rates, we capture just shy of 20 basis points of it and <unk>, what we've done in the past clear.
Clearly passed and then.
Exactly equal to what will happen and the future, but for modeling purposes that might be a way to handle it.
That's awesome. Thank you all.
We have our next question coming from the line of Patrick O'shaughnessy with Raymond James Your line is open.
Hey, good afternoon, guys and let of your proxy been filed last week I wanted to touch base on asset marks board composition and ownership I believe that five of your directors are affiliated with what day, which still owned around 70% of your shares can you provide and update on how close as of March relationship with water is and whether there is any update on.
And what is ownership plans.
And I'll take that one so patrick thanks, so much for the question. So you are correct that five of our board members are.
Employed by our tight.
And one in the U S and the others outside of the U S.
Couple of things to note on that the first is that.
They are majority shareholder as you mentioned they own about 70, a little over 70% of us and they believe and <unk> for the long term.
And our.
Remain.
Very pleased with the phenomenal results that aftermarket is delivered for them.
And as our top shareholder.
They are excited about the results that we just shared with you and our strategy and our mission and our strong operating and financial performance.
With that said both.
And I tie and I agree that our strong fundamentals are not really reflected in our stock price stock price right now and the underlying drivers of this involves improving investor demand and improving the relatively low trading volume and fixing these issues as one of the boards, including what ties top priorities as well as <unk>.
And Gary for this year.
And then finally I'm, having great dialogue with the board and our controlling shareholder right now about their ownership plans and the status of the shelf offering.
And we know we need to provide incremental clarity to you and to our shareholders and that's something we're working on right now so I guess.
A summary of that is we understand the question and given where aftermarket is right now in terms of its fundamentals. We're incredibly excited about the company and know that we need to provide clarity as it relates to the shelf filing and are working on that.
Got you I really appreciate that detail. Thank you.
And then okay.
Question on your share of wallet for your engaged advisers, where would you guys estimate that stands today, and maybe where was it a year ago and where do you realistically think that it can go over time.
So why don't I start that one Gary and then you can provide more details.
So our share of wallet for our engaged advisers.
It varies depending on the level of engagement.
So it ranges, we have the lowest level of engagement, which is over $5 million and at the highest level of engagement, which is above 75 million and we actually have many clients on our platform that are well above that and at the higher tiers, our share of wallet ranges from 80% to 100% and at the lower tiers.
It can be much smaller.
The great news about that is there's potential.
And relationship share of wallet growth potential from our advisers and it's one of the main reasons that we look to add new types of solutions to our platform like alternative investments. So that formerly unaddressed, both share of wallet becomes addressable and we did that with our <unk>.
Managed portfolios offering we've done it with alternative investments by adding some fixed income solutions to our offering all of that sort of expands the addressable wallet.
But know that the.
The share of wallet ranges are quite wide, depending on the level of engagement and Gary maybe I'll hand off to you if you have more specifics.
Sure So I.
I would say.
We reiterate with now and you're saying about high and those advisors at the largest amount of that naturally they have the highest share of wallet.
I would say generally speaking now if you look at the 2006 hundred engaged advisers and shallow and their share of wallet with us on average following somewhere and that sort of 40% to 50% low blood.
Thank you and from Patrick Franco and touch us.
One was a self fulfilling thing we are focused on let's say low to use those 2006 hundred and focus on the share of wallet. How can you help loans and advisors and more assets to our platform at the same time, you have and the new producing advisers coming on and the new class of engaged advisers, starting out and the lower and and so on.
Raw percentage has moved along.
And that lets call $30 $40, 50% range.
And Youre seeing when we talk to you about the growth of engaged advisers and their percentage on our platform and the evidence that we.
The existing advisors and moving up the ladder and we're replacing them with <unk>.
New advisors, who gave us more runway for growth and the future growth.
That's very helpful. Thank you.
We have our next question coming from the line of Kenneth Worthington with Jpmorgan. Your line is open.
Hey, good afternoon.
So net sales recovered.
Above your target organic growth rate I wanted to dig into a bit more of the factors that might influence the growth over the next few quarters. So I guess number one.
And over this I think sort of fast mentioned, another handful of departures and maybe $450 million of outflows that might take place and I thought it might be <unk> as a result, so just a little more flavor there.
I'm curious to see if you thought that either stimulus checks or tax refunds might've had any noticeable positive impact on net sales and <unk>.
And then when you talk about the migration back to face to face meetings.
It seems like asset Mark and your advisors have both.
<unk> did well to the remote work environment.
So maybe to what.
And then as face to face.
Might that just be a marshalls positive or does it have the likelihood of being.
More significant so thanks.
Sure. Thank you so much Ken and I appreciate those questions. Gary why don't you take the question about outflows and more detail on outflows and then I'll take the question on stimulus checks and refunds and the impact on <unk> results.
And then as it relates to the return to the road and the sales impact.
And we'll share that one yes.
Yes.
And how are you doing and hope you're doing well.
Yes, what we said was.
Two advisors.
And <unk> offices and how.
About $40 million to $50 million of assets, we do believe and most of that will go and <unk> could lead over the <unk>.
And we mentioned that Ken because back from quarter ago, We actually thought those were going to happen in first quarter.
It was delayed a thing often are and whatnot.
And so we.
We'll break those out if they do happen and QQ.
And we do feel that and Mary.
And kind of a one time thing and certainly as part of our core numbers, but on the part of our our numbers and not part of our core and so that'll.
And I'll hopefully that gave you the color.
Again, we believe that will be the last time, we talk about these kind of one off from the acquisition is basically a closed story, but we again, we thought we would go out and the first quarter it's been delayed.
Got it thank you.
And then as it relates to stimulus checks and tax refunds and the first quarter and their impact on our first quarter results.
Well I can't say, specifically how much of the first quarter results are.
Related to either one of those two things what I can say is that.
Typically the assets on our platforms are transferred and the transfer of other assets rather than cash and.
So we didn't see any.
Unusual increased and.
New accounts opened with cash and so and in fact, we saw instead kind of broad.
And improvement of our broad increases and contributions from accounts of all sizes from advisors, who are engaged with us.
And from various different places meeting various different farmer suppliers are providers of our advisors.
Our clients, so growth and contributions from existing clients and advisors cash non cash at the same rate that there has always been a growth of advisors and I'm, attracting more clients to the platform and then transferring assets to us and and growth from new advisors, and specifically attracting new adds.
Rogers that are larger than the advisers that we've attracted in the past.
And then Gary I didn't know if there's anything you wanted to add to that before I get to the sales impact of returning to the road.
And you got it.
So as far as the sales impact of returning to erode goes a few things.
We are returning to the road and a and a.
Very careful and measured way.
Obviously, the safety of our associates as well as their clients is the most important thing to us and.
So it will be seeing sort of a waved approach to the return to the road as each of these associates completes their second vaccine and scheduled meetings with their clients so and the second quarter. The return to the road is gradual and then we expect it to accelerate and the third quarter.
Vaccinations progress and we gain experience and our sales teams and our clients are incredibly excited to see each other and to work on.
To work together on initiatives that are more complex and.
And then also to re engage with new advisors, who were a little hesitant to completely change their outsource provider without meeting.
Members of the team and person and so we're very hopeful that this will have.
A positive impact.
And we clearly can't say anything because we don't know what the exact rate of vaccinations will be.
Both for our associates as well as our clients.
Great. Thank you so much.
Thanks, Ken Nice hearing from you.
We have our next question coming from the line of Gerald O'hara with Jefferies. Your line is open.
Great. Thanks, maybe just a quick one from me curious to kind of hear your thoughts on the Bank Trust channel highlighted here and you're kind of addressable market slide but.
And are you kind of highlight talking about and low risk entry into this channel and.
Obviously feel free.
Example, through obs, but.
And you could talk a little bit more about how you see that kind of playing out and perhaps what resources you might put behind it too to accelerates some of that wallet share. Thank you.
And so much for the question. So you are correct that the reason we.
Talk about that as a low risk entry is because bank trust was the channel that Obs served and one day after Mark we want to serve and so what we're what we have done and the transition process is we've learned a lot about bank trust clients potential existing bank trust clients and potential Bank Trust clients.
And the technologies, they use and how.
The services that they like to see from an outsource provider like asset Mark and we successfully successfully transitioned several of the bank trust clients from obs over onto our platform.
And we're learning from.
And those relationships. In addition, we've hired sales specialist to work on the Bank Trust channel and to help us attract new Bank Trust.
We think trust opportunities to ask Mark.
And as we are with aftermarket institutional where and the early innings of our bank trust offering and very much learning and determining what types of incremental investments will need to make.
And so no no real specifics at this time other than to say that.
The transitions have.
Many of the transitions are completed and.
And we're happy with where we are.
And I suppose I suppose a follow up staying on the same slide for a moment.
Do you anticipate sort of as you kind of get that more advisors out on the road or more associates on the road meeting with advisors. There is there is an expectation for kind of an uptick and assets in motion or have people have.
Advisers sort of gotten comfortable with and others.
Current work from home environment, or what have you over the past six months and then it will just be sort of more and more incremental growth opportunity for you all.
I'm, sorry would you mind repeating that.
And I didn't quite understand you were asking sure I mean, I think there's sort of a thesis whereby as as you know.
You're out in front of advisors, a little bit more there is an opportunity to do a little bit more recruiting of Rs broker dealers otherwise block.
Blocks of business might be might be willing to move or on the flip side of that what was what was going to move has already moved and and it'll just be sort of regular regular way type of type of recruiting.
Yeah. So we think it is.
It's a combination of those that we absolutely know of and can see and our sales funnels.
<unk> opportunities that have stalled because the advisor or broke the RIAA our broker dealer affiliated advisor wed like to meet.
The team and person before they make a big decision to outsource. In addition, we've gotten very effective in our remote recruiting.
And so we've seen we've.
We've seen.
Our success.
The larger the business transition.
And the more important it is to meet in person and so I know I speak for our entire sales team when I say how excited they are to begin meeting folks and person.
And they believe that that will help them attract new advisors and the and the medium term.
Okay, great. Thanks for taking my questions.
We have our next question coming from the line of Michael Young with <unk> Securities. Your line is open.
Hey, Thanks for taking my question I wanted to start with.
Growth outlook for the year, Gary that you laid out.
And does the guidance contemplate some macro impacts from maybe lower savings rates lower stimulus.
Those sorts of things as well could you maybe just talk about that qualitatively.
Yes, So I think the quick answer is no Mike.
The outlook contemplates a kind of average market growth of about three 5% right and so.
And that's kind of unknown, what's going to happen with these stimulus cycle.
And that $2 billion, two trillion with a T right.
And to the economy, and what that's going to do for savings and whatnot. So our outlook and I think low more on the conservative side, we assume a steady three and 5% annualized growth rate and the market.
Morning.
<unk> first quarter, and what we're forecasting going forward.
We feel good about our outlook because we built the beginning of the quarter right and so as the standing right now today, we've already recognized almost half by collective actually half of our revenue for the year, because we didn't have huge filming and April right and so.
And when you have and market appreciation and other depreciation to assets and the second half of the year, that's going to give you a great tailwind the following year as opposed to the current year.
Great that makes sense and.
I guess, maybe just another bigger picture question.
And kind of potentially a higher tax rate higher capital gains tax rate have you all done any sort of.
Review or thought process kind of around that whether it be new products or impacts to your current business et cetera that you would.
And look to take advantage of if something like that changed.
Yes, so clearly as we think about the solutions that our advisors will need from their clients.
Understanding macro trends like that is incredibly important already on our roadmap for 2021 to begin working on and 2021.
Is enhanced tax services.
And so expanding and to offer separately managed accounts, where there can be individual tax services provided with the account at the advisors distract direction.
In addition to that tax transition services.
And become even more important as and if taxes and.
Kris.
And so we're working on expanding our services to include tax outsourcing.
And then clearly.
And our compliance and regulatory department are keeping our eye on.
Any emerging trends or any emerging themes to make sure that we're delivering thought leadership, we're delivering consulting support.
And services to our advisers so they can answer their clients' questions.
And they feel well prepared for whatever changes might come.
Okay, great. Thank you.
And again in order to ask a question simply press Star then the number one on your telephone keypad.
And there are no further questions at this time I will now turn the call back over to Natalie.
Thank you so much and I just wanted to say thank you to all of you for joining the call today and I'm looking forward to getting to know all of you in the coming months and talking to you again and the third quarter. Thanks.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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