Q1 2022 AssetMark Financial Holdings Inc Earnings Call
One cover how the wall of outsourcing has changed and what direction trends are heading in for financial advisors.
Mr Outsourced like a range of advantages greater access to investment solution better relationships with clients notable improvements in their businesses and personal benefit.
In fact, according to our most recent study about 83% of advisers surveyed agreed that investment management outsourcing is better enable them to strengthen client relationships up from 68% in 2019.
While 82% of advisor cited increased client retention up from 65% in 2019.
If I can also state that delegated investment management results in a tangible financial value in fact, 91% of advisors in the study, which by the way with a mix of advisors, who work with US Mark don't work with asset Mark outsource and don't help them outsource reported growth in total assets as a result of outsourcing.
While 84% was reported higher business valuation and 83% reported higher personal outcome.
The bottom line for US is the outsourcing works and aftermarket is built for advisors to make the decision to outsource its no surprise that 93% of advisors, who use aftermarkets are primary outsourcing provider are highly likely to recommend outsourcing to other advisors. This is compared to 81% of advisers to outsource with another provider.
We're focused on continuing to enhance our outsourced offering as well as expand the channels the impact with that said, let's turn to our attention to the five key components of our growth strategy.
The first component of our growth strategy highlighted on slide four is to meet advisors, where they are catering to a variety of affiliations and new growth oriented for mature advisors as.
As more and more advisers are embracing our a model aftermarket institutional our Ami is well.
To support the growth efficiency and scale.
I will split my update on Ami this quarter between a sales update and a features update.
Let's start with sales.
We continue to see strong growth within our <unk> segment with a he only are a leading the way first quarter Ams production lift was 19%.
In the first quarter, we also signed agreements with 18, new or a firm in the second quarter, we will host our second annual or a summit and we're really excited to have one on one interactions with our age we serve and those new prospects.
On the feature side, we continue to enhance our offering we are actively upgrading the adviser managed platform focused on bettering the advisor experience in.
In addition later this year, we'll begin to offer that we will begin to offer the start of a model marketplace.
With this advisers have more flexibility in terms of the models they choose to implement.
Turning to slide five the second component of our growth strategy is to deliver a holistic differentiated experience to advisors and their clients, providing an end to end easy to use platform designed to create meaningful conversations between advisors and their clients. While also saving advisors a significant amount of time.
The global market for planning and wellness have grown significantly and buoyant strategy focuses on expansion by geographic opportunity.
In the U K, where voyage drive more than 50% of their revenue and as the market leader in the enterprise and independent space. The team is focusing on client go that part of the platform to accelerate new business.
Financial Wellness is a group endeavor in the U K between the advisor and the client and client go allows end clients the ability to customize their plans on their own time.
After an in between meetings with advisors and.
In Canada financial Wellness and planning is the focal point of client engagement in all lines of business.
One is continuing to grow their enterprise thinking market share and further enhance relationships with credit unions and independent <unk>.
Lastly, in the U S and Australia, both new both new markets for <unk>. The focus is to grow by individual advisors, he intermediaries and investment solutions providers.
Feedback from our advisors using why it continues to be positive and buoyant is showing strong end user growth having added nearly 10000 enterprise consumer licenses since we acquired them in July of 2021, we're excited about <unk> future growth opportunities across multiple geographies.
The third component of our growth strategy is to enable advisors to serve more investors across the wealth spectrum varying life stages and generation.
For more on let's turn to slide six.
This month, we launched our values driven investing program, which includes new ESG strategy.
In addition to the four strategy advisors will also have access to a suite of tools to help them facilitate values driven investing conversation with our clients.
The new resources include an investor questionnaire client discovery tools tool due diligence resources, ESG and impact reporting an educational materials.
New program is in response to a rapidly increasing demand for ESG solutions from both advisors and their investors.
We look forward to continuing to provide our advisors and their investors with a wide range of personalized investment options that allow them to reflect their preferences and values in their portfolios.
More on this in quarters to come.
In addition to launching our value driven investment program. After Mark also launched our inaugural ESG report. This month, another sign of our commitment to values, driven investing and diversity and inclusion.
The fourth component of our growth strategy as seen on slide seven.
I, just grow and scale their businesses by offering turnkey advisor solutions and programs.
In the first quarter, we launched wealth builder prospecting new tool designed to streamline prospecting for financial advisors and help them with insights to drive lead conversion.
Broadridge third annual financial advisor marketing studies found that there was a huge disconnect between advisory prospecting and what investors want.
Historically prospecting take the large investment in advisors time and money in a very inefficient process.
Investors want to process that is easy and flexible and they want to avoid setting up usernames and passwords and sharing personal and sensitive data.
With wealth builder prospecting the investor It allows advisors to invite leads into the planning process and effectively kickstart, a warm client engagement and a time efficient way that increases the chance of earning new business.
While we work with are prospecting launched in late January early feedback from our advisors has been extremely positive and the two months post launch advisers have already generated hundreds of beats.
Turning to slide eight the final component of our growth strategy is to pursue strategic transactions by adding capabilities in FX and improved advisers ability.
To serve investors and expand their businesses.
As I've mentioned on previous calls we are more deliberately focus on M&A than we have ever been before the oil remain a very disciplined buyer looking only to buy capability that we feel could be a strong fit for our platform.
I will now turn the call over to Gary who will take us through a deeper dive of our first quarter 2022 results and provide an updated outlook for 2020.
Thank you, Matt and good afternoon, all those on the call. It's so great to be talking to so many of them.
And now we mentioned it is great to be back in the office all of our team members and also great to see our boxes in person just last week I attended one of our 20 Premier Advisory meetings held this month and the atmosphere the bonds or even all the.
Reopening where our reopening at two years, which is great for our business and for our communities.
As usual I will start with a discussion of our platform asset and talk about our revenue.
And then I wondered.
I will conclude with an update on our outlook for 2022.
Why not just during the quarter platform assets $98 billion up 15% year over year.
This growth reflects.
No, it's $2 $1 billion.
We're off more than 10% year on year.
Offsetting our strong point of view, that's flowing four $8 billion in market loss net of fees.
Annualized net flow as a percentage of our beginning period assets nine 1% is slightly below our target.
For 2022.
Momentum is continuing to time Warner.
Near the end of April I can say it up in your spending might be slow its about $350 million, which reflects normal seasonality on a normal seasonal impact of the tax season as well as some outflows due to market volatility.
As a reminder, last year's taxes due in May which was our second lowest slowest Tibet.
Let's now turn our attention to our client mix.
Turn to slide 10.
First quarter, we added 195, new producing advisers for N P H b.
The only point out growing the number of engaged advisers on our platform is a key focus for management as it is crucial to drive further growth.
And its financials, we defined engaged as those with over $5 billion in assets in our platform.
Our total engage advisors at the end of first quarter of 2015.
This reflects 61 net new E filing, but offset by 104 by Destocking below $5 million due to market depreciation.
Our engaged advisers make up 92% of our platform.
Now, let's turn to slide 11 to discuss the sporting event, which was a record $148 million.
As you know we focus on our revenue.
These variable expense in the first quarter of 2020 twos are net revenue of $106 million was up 29% year over year.
This is driven by asset base net revenue, which is up 25% to $100 million and navigation and subscription based revenue.
On <unk>, which was $3 $3 million.
Spread based revenue for the first quarter with $1 6 million.
We expect spread based revenue begins to tick upward this year with the fed raising rates a one percentage point during our March meeting.
<unk> two <unk>, 2% on the end users.
I will provide additional detail on how we expect these rate increases will impact our financials when I discuss our 2022.
Slide 12 details our year over year net revenue walk.
The waterfall shows net revenue was up year over year money impact of our asset growth, which generated $20 million in additional net revenue.
Adding to our increase in net revenue is <unk> is a $3 $6 million reduction narrow asset based expenses. As a reminder, this is ongoing savings is primarily driven by restructured agreements with providers. We first device in the second quarter of last year.
Year over year fee compression from approximately one basis point in line with expectation.
Subscription revenue from <unk>, and a $3 3 million additional revenue avoids consulting revenues won't be increase now on the revenue line as well.
Lastly, spread based revenue decreased about $400000 year over year due to the decline in our average yield from 31 basis points to 22 basis.
Now let's discuss.
As shown on slide 30.
Although adjusted expenses increased 23% year over year to $111 million.
What are the offerings were up 28% year over year to $61 $7 million driven by $5 $5 million increase in compensation expense.
$8 $2 million increase in SG&A.
Let me quickly run through our adjustments for the quarter, we added back a total of $8 $1 million pre tax which is comprised of three items.
First $3 1 million of noncash share based compensation.
This is $30 million lower than the first quarter 'twenty, one and represents the first quarter without the equity charges, resulting from our IPO.
That's an adjustment to expenses $1 7 million of amortization expense related to prior acquisitions.
That gives the number to be our quarterly run rate in 2022.
Lastly, the $3 $3 million related primarily to reorganization and integration costs and one time cost related to dependent.
Now, let's turn to slide 14, and discuss our earnings.
First quarter 2000, <unk> adjusted EBIT was $44 $5 million.
<unk>, 3% year over year, and our second highest quarterly adjusted EBITDA in our company's history.
We're extremely pleased with our adjusted EBITDA this quarter, especially given that includes a rather sizable expense.
Related to our annual interest in Golar warmer event.
Missed events last year was much less than it was held virtually.
Adjusted EBITDA margin quarter, 30% up 140 basis points year over year.
Our reported net income for the quarter was $22 2 million.
Compared to $25 7 million for the full year of 2021 on adjusted net income for first quarter 2008 and $8 million.
39 cents per share.
Based on first quarter diluted share count of $73 7 million.
Our adjusted effective tax rate for the full year is unchanged at 23, 5%.
Further color. Please see the adjusted net income walk on slide 19.
Turning to slide 15, I want to spend some time this quarter, highlighting our cash balance and cash generation both of which I believe are key partners.
We ended the first quarter, we had just under $100 million of cash in our balance sheet and had $375 million of available credits.
<unk>.
Binding us plenty of dry powder for future M&A opportunities.
Cash generation also remained strong we continued to generate more cash each year, and we expect to generate between 85 and $100 million of cash this year.
The strong cash balance in addition to our ability to generate cash we feel to be a great mixed for M&A and investing further in a minute.
Let's turn to slide 16 to provide an update our 2022 expertise.
We have flexibility in our business model given that we bill in advance and have a strong track record of expense management.
Market volatility I am pleased to announce that we are reaffirming our earnings outlook as well as our EBITDA margin expansion targets for the year.
Let me share with you what gives us these costs.
Let's start with our revenue.
As a result of ongoing advance we have already collected revenue for about half of the year based on any platform actually Paul on December 31, 2021, now on March 31 2022.
Our 2022 revenue outlook once impacted about $17 million or had been impacted about $17 million due to the market volatility another $5 million related to timing issues.
With <unk> and the results of global macroeconomic and navigation.
Partially offsetting this is a forecasted increase in spread income with a 25 basis point increase March and signals from the fed and we look to raise rates to about 3% by year end.
We expect an additional $9 million of spread revenue.
Reminder, our last outlook did not forecast any rate increase from 2022.
As a result of the Mark called Gnome enterprise demand environment.
We're revising our revenue growth expectations from and range of 18% to 22%.
Down two 6% to 20 years.
Turning to our expense outlook, our model is flexibility in our country and we remain disciplined so as to not outpaced revenue growth and our revenue is coming down slightly due to the market volatility from the timing point contract. We are also revising our expense growth outlook from a range of 16% to 20% 14 to 18.
By doing so we look to take about $9 million.
<unk> from our forecast from 2022.
Doctors are surgical related to travel and event costs timing of new hires and delays in non growth essentially.
Non growth nonessential projects.
We remain incredibly excited about 2019, and <unk> ability to thrive and grow we are reaffirming our outlook for 2020% plus adjusted EBITDA growth for the year and model and EBITDA margin expansion of 100 basis.
With that I'll hand, the old analogy for concluding remarks, thanks, Gary and thank you everyone on the call today, we look forward to seeing you in person sometime soon this concludes our prepared remarks, and I will turn the call back to the operator to begin question and answers.
Thank you.
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There are no questions waiting at this time, so I'll pass the call.
Back over to the management team for closing remarks.
Alright. Thank you everyone. We appreciate you joining us on the call today and look forward to meeting with you soon.
Goodbye.
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