Q4 2023 AssetMark Financial Holdings Inc Earnings Call

February 21, 2024

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Operator: Thanks for watching! Good afternoon, everyone, and welcome to AssetMark's fourth quarter 2023 EARNS conference call. Currently, all participants are in a listen-only mode.

Okay.

Good afternoon, everyone and welcome to asset marks 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 instructions will be given at the time.

Operator: 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 and stream it.

Today's call is being recorded now I'd like to turn the call over to Taylor, Hamilton and head of Investor Relations.

Please go ahead Mr. Hamilton.

Taylor Hamilton: Thank you, Victoria. Good afternoon, everyone, and welcome to AssetMark's fourth quarter 2023 earnings conference call. Joining me today 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.

Thank you Victoria Good afternoon, everyone and welcome to asset marks fourth quarter 2023 earnings Conference call. Joining me are Mark <unk>, Chief Executive Officer, Michael Kim Chief Financial Officer, Gary Zyla, David will discuss the results for the fourth quarter and introduced <unk> business outlook for 2024.

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 at <unk> Dot com.

Taylor Hamilton: 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 of 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 colleague, Michael, to take it away. Great. Thank you, Taylor.

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 non-GAAP financial information.

I'll turn the call over to my colleague Michael take it away.

Thank you Taylor good afternoon, and welcome to our fourth quarter earnings call today in my prepared remarks will focus on three topics first I will highlight our record 2023 results second I will unveil a refresh and simplified strategy and lastly, I'll provide an update on our long term priorities that I laid out during our last earnings call.

Michael Kim: 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.

Michael Kim: Second, I will unveil a 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 realize an all-time high NPS score of 72, a testament to our commitment to our clients.

Gary will then discuss our financial and operating results for the fourth quarter and introduce our 2020 for outlook.

Slide up and starting on slide three 2023 was another record year for asset Mark across many key operating and financial metrics. We ended the year with a record $109 billion platform assets. We are serving an all time high of over 254000 households, and over 9300 adviser.

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Of which 30 123 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 500.

Michael Kim: 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, up 19% year-over-year, while adjusted net income was $171 million, up 31% year-over-year. Adjusted earnings per share was $2.30 for the year, up 30% year-over-year.

45 million also up 20% year over year. These all time high topline results allowed us to achieve best ever Bottomline results, specifically adjusted EBITDA was $250 million for the year adjusted EBITDA margin was a record $35 two and was up $200.

90 basis points year over year, net income was $123 million up 19% year over year, while adjusted net income was $171 million up 31% year over year.

Adjusted earnings per share was $2 30 for the year up 30% year over year.

Michael Kim: In 2023, we also advanced our penetration into adjacent channels, such as the RIA channel with the integration of adhesion well, and the bank trust channel with our announced partnership with Akitak Cheetah. We are ready to see a meaningful contribution from Adhesion and have a 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 with 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 AssetMark story for a while, these new pillars will sound familiar. Our first pillar is offering flexible, integrated technology. Our technology suite is fully integrated with our core proprietary technology and third-party tools that help advisors get things done more efficiently and effectively, which allows them to spend more time with their clients.

In 2023, we also advanced our penetration into adjacent channels, such as RIAA channel with integration of adhesion well and the Bank Trust channel with our announced partnership with architect 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 aligned to our mission of making a difference in the lives of our advisers and their clients for those who have been following the <unk> story for a while these new pillars will sound familiar.

Our first pillar is offering a flexible integrated technology, our technology suite is 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 adviser and client.

Michael Kim: 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.

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 advisers are in the relationship business. So we are in the relationship business almost half of our employees our advisor facing with the sole mission of making a difference with our advisors.

Michael Kim: 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 their advisor business value and efficiency. The third and final pillar is our compelling wealth solution. 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 advisors and their clients in mind.

And their clients are best in class business consulting offering helps our advisors with business strategy and planning client experienced in operations marketing and other key programs to increase the advisors 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.

Michael Kim: 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 2020. Let's go into each one in further detail.

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 wealth planning solutions to empower our advisors to serve the growing needs of their clients even more effectively.

<unk> 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.

Michael Kim: Turning to slide five, we have made significant progress enhancing our technology offering in 2020. It starts with our enhanced eWaltz 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 usefulness and intuitive nature.

Turning to slide five we have made significant progress enhancing our technology offering in 2023.

It starts with our enhanced E Voss manager platform, most notably the pilot of our new advisor dashboard, which engages users and an attractive cohesive design and provides tools that allow advisors end users to be proactive and manage their experience. The advisor dashboard has received positive reviews from advisors.

And the pilot who have raved about it's useful and intuitive nature. In 2023, we also launched our mobile App, which has over 6400 downloads.

Michael Kim: 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. Buoyant launched Buoyant 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 future.

<unk> continues to focus on enhancing their adviser 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.

<unk> launched the buoyant 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.

Michael Kim: As we have said before, technology is an arms race, and in 2024, we have plans to continue to enhance our technology offerings. We will continue to advance the work on building out the next version of eWalk Manager, focusing on the rollout of the Advisor Dashboard to all Advisors and their attendees. 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're planning to add features that allow the advisors to gather more information from the process, deepening the relationship and increasing the opportunity to turn prospects into clients. In 2024, adhesion will accelerate development efforts to advance its technology and platform.

As we have said before our technology is an arms race and in 2024, we have plans to continue to enhance our technology offering we will continue to advance the 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 advisory <unk>.

Sites, 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.

In 2020 for adhesion will accelerate development efforts to advance their technology and platform. They are investing in providing the industry very best model marketplace for <unk> and focusing on enhancing their adhesion Alliance program.

Michael Kim: They are investing in providing the industry's very best model marketplace for RIAs and focusing on enhancing their adhesion alliance program. Boyan also has exciting plans for 2024 with the launch of new wealth management solutions including Social Security Optimization, Roth Conversion, and Advanced Insurance Model. They're also launching new retirement planning solutions, most notably Buoyant Longevity Risk and Buoyant Long-Term Care and Disability Program. Simply put, we are reimagining the advisor's digital. Turn to slide 6.

<unk> also has exciting plans for 2024 with the launch of a new wealth management solutions, including social security optimization, Rod conversion and advanced insurance modeling.

They are 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 advisors digital experience.

Turning to slide six our second pillar is delivering exceptional service and consulting.

Michael Kim: Our second pillar is delivering exceptional service and consulting. As I mentioned before, we believe this is a competitive advantage for Apple. In early 2023, we launched our investment consulting offering, providing select advisors direct access to the investment, 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 two and a half billion dollars 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 AdvisorLink, 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.

As I've mentioned before we believe this is a competitive advantage for <unk>.

In early 2023, we launched our investment consulting offering providing select advisors direct access to the investment the <unk> investment consulting team.

For guidance in creating customized model portfolios using strategies available in 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 have with one of the biggest obstacles facing our advisors.

Session planning through the launch of advisor link a private succession marketplace for advisors to post and search for opportunities among vetted advisors as of year end over 200 advisors, we're leveraging advisor link with approximately two thirds setup as buyers on the platform in 'twenty.

24, 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 touch less new account opening at <unk> Trust, which will accelerate the onboarding of clients through faster account setup and funding.

Michael Kim: Cohesion is also committed to elevating the advisory 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 AssetMark to drive additional scale and experience for advisors. Let's turn to slide 7 and discuss our third pillar, Compelling Wealth Solutions. As we mentioned earlier, our 2023 share of wallet survey shows that we have over $380 billion of total business opportunity for all advisors who have responded. By consistently adding to our Wealth Solutions offering, we build a better offering for our advisors and their clients while increasing the opportunity to gain ShareWallet from existing advisors and, of course, attracting new advisors.

<unk> 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 advisers' experience expanded their service team, adding seven new client service specialists and his focus on further integration with <unk> to drive additional scale and experience for advisers.

Let's turn to slide seven and discuss our third pillar compelling wealth solutions as.

As we mentioned earlier, our 2023 share of wallet survey shows that we have over $380 billion of total business opportunity for all advisors.

Who have responded by.

By consistently adding our wealth solutions offering we build a better offering for our advisers and their clients, while increasing the opportunity to gain share of wallet from existing advisers and of course, attracting new advisors.

Michael Kim: 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.

In April we launched three first struck 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 advisers and have gathered close to a $1 billion.

And assets thus far.

In September we launched the pilot of tax management services.

Michael Kim: 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 exceeded our expectations, with more than $100 million in assets already using this service. In 2023, Adhesion also executed on enhancing their compelling wall solutions, adding 88 products from 33 unique manufacturers. Of the 33 managers, 9 were new introductions to the Alliance program.

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.

Advisory adoption during the three months early access period has exceeded our expectations with more than $100 million in assets already using this service in 2023 adhesion also executed on enhancing their compelling wall solutions, adding 88 products from 33 unique managers up to 33.

<unk>, nine where new introductions to be alliance program.

Michael Kim: This year, we are focused on continuing to add and enhance our wealth solution. First and foremost, last month, we formally launched TMS to all our buyers. 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 FDIC insurance through a network of banks.

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 of our advisors.

In the first half of the year, we are launching certificate of deposit account registry services for seed ours.

<unk>, our term bank deposits and are an efficient way to access Cds with attractive rates and extended FDIC insurance through our network of banks simply put this will enhance our cash management offering making it more competitive while also meeting advisers to number one request higher rate options available.

Michael Kim: 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 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 8, 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.

For clients of all wealth levels.

Next we are focused on enhancing our donor advised fund program with lower account minimums robust reporting capabilities streamline processes for grants and ability to customize portfolios through existing platform strategies. These enhancements will help advisors attract more investors, especially in the higher network.

<unk> 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 advisers and their clients and 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 hyper growth.

Michael Kim: As I discussed last quarter, we are absolutely committed to exceeding 10% organic growth and exceeding 5,000 engaged advisors by the end of 2020. 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 at an all-time high. We are focused on projects to get our more than 800 advisors, who have between 3 and 5 million assets on our platform, to the engaged level, while also improving the time and rate of NPAs to the engaged level. Gary will provide a lot more details on this later during his prepared remarks. Second,

As I discussed last quarter, we are absolutely committed to exceeding 10% organic growth rate and exceeding 5000 5000 engaged advisers by end of 2026, we're 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 <unk> initiatives, we ended the fourth quarter with 3123 engaged advisers and all time high we are focused on projects to get our more than 800 advisers, who are between three and $5 million of assets on our platform to the engaged level while also.

Proving that time and rate of NPA to the engaged level Gary will provide lot more details on this later during his prepared remarks.

<unk>.

Michael Kim: We increased our CapEx as a percentage of total revenue to 8 to 10%, allowing us to invest more in the business, specifically into projects that drive growth and scalability, such as Acrotech Cheetah. Lastly, we are focused on scaling our business. In 2023, we expanded margins by 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 2025. 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. Thank you, Michael, and good afternoon to all those on the call. As Michael mentioned earlier to it, 2023 was another record year.

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 accurate at Cheetah.

Lastly, we are focused on scaling our business in 2023, we expanded margins 290 basis points and we will look at opportunities like our touchless new account opening initiatives 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.

Thank you Michael and good afternoon, all those on the call as Michael mentioned earlier.

2023, with another record year for asset Marc Jeremy.

Gary Zyla: During my remarks today, I will highlight our results for the fourth quarter and then introduce our 2024 outcome. So starting with slide nine, fourth quarter platform assets increased 19% year over year to $108.9 billion. Quarter-over-quarter platform assets were up 9%, driven by a market impact net of fees of $8.1 billion and quarterly net flows of $1.3 billion. Annual net flows as a percentage of beginning period assets were 0.7%. We are encouraged by strong net flows in December and early 2020. Turning to our advisor metrics, we added 154 new producing advisors, or MPAs, in the quarter and 666 MPAs for the full year. We are pleased that the quality of these advisors is much higher than it has been in the past.

During my remarks today I will highlight our results for the fourth quarter and then introduce our 2020 for outlook.

So starting on slide nine fourth quarter platform assets increased 19% year over year to $108 9 billion.

Quarter over quarter platform assets were up 9% driven by end market.

Fees of $8 1 billion and quarterly net flows of $1 3 billion.

Annual net flows as a <unk> in the beginning purion asset six 7%.

We are encouraged by strong net flows in December and early 2024.

Turning to our by the metrics, we added 154, new producing advisers of NPA in the quarter and 666 <unk> for the full year. We are pleased with the quality of the quality of these npa's is much higher than it has been in the past out of the 666 MTA adds in 2023.

Gary Zyla: Out of the 666 MTA ads in 2023, 7.5% have already achieved engaged advisor status during their first calendar year, an improvement of approximately 20% over the prior year's rate. As part of our AM5K initiative, we are actively focused on four key areas to improve our MPA to engage conversion. As part of our AM5K initiative, we are actively focused on four key areas to improve our MPAs. First, attracting more through digital lead generation, strong broker-dealer relationships, and RIA. Second, focusing on higher value MPAs, or those who initially onboard at least $1 million of assets to the platform. Third,

Seven 5% have already achieved engaged adviser status during their first calendar year, an improvement of approximately 20% over the prior year's rates.

As part of our <unk> initiative, we are actively focused on four key areas to improve our NPA to engage conversion rate.

Alright, attracting more NPA and digital lead generation strong broker dealer relationships and <unk>.

Focusing on higher value of NPA or lowest initially onboard at least $1 million of assets in the platform.

Sure.

Gary Zyla: Implementing a much smoother onboarding process with the rollout of Tux's new accounts, which Michael mentioned earlier. And lastly, enhancing our new product offering, which will attract more high-value advisors to our plan. Slide 10, We show our engaged advisor.

Implementing a much smoother onboarding process when the roll out of touch with new accounts, which Michael mentioned earlier, and lastly, enhancing our new product our product offering which will attract more high value advisers to our platform.

On slide 10.

We show our engaged adviser count we.

Gary Zyla: We ended the fourth quarter with a record 3,123 total engaged advisors, up from 2,995 engaged advisors in the third quarter and up 8.4% from last year. While the quarter-over-quarter increase was largely driven by the market, we did add 34 new engaged advisors organically from incremental net flow. Our engaged advisors account for 33% of all the advisors using our platform and make up 93% of our platform assets. In addition to the asset level and advisor count, a third way we measure our growth, which is non-asset based, is the number of households on our platform. The number of households is up more than 5% year-over-year to 254,000.

We ended the fourth quarter when a record 3123 total engaged advisers off from 2995 engaged advisers in the third quarter and up eight 4% from last year.

While the quarter over quarter increase was largely driven by market, we gain and 34, new engaged advisers organically from incremental net flows.

Our engaged adviser count are gauged advisors account for 33% of all the advisers using our platform and make up 93% of our platform asset.

In addition to the asset level and adviser count a third way, we measure our growth which is non acetate is the number of households on our platform.

The number of households are up more than 5% year over year to 254000.

Gary Zyla: Now let's turn to slide 11 to discuss this quarter's revenue. Before we begin, I want to call your attention to a 30.5 million dollar reclassification, Spread Based Expenses to Spread Based Revenue. This amount reflects the interest credited to customer accounts for all of 2020. Expenses related to interest credited to customer accounts were previously recorded in spread based expense. And in prior years, this was not material.

Now, let's turn to slide 11 to discuss this quarter's revenue.

Before we begin I want to call your attention to a $35 million reclassification.

Right.

Spread based revenue this amount reflects the interest credited to customer accounts for all of 2023.

Senses related to interest crediting customer counts was previously recorded in spread basis.

And in prior year and this is not material.

Gary Zyla: Part of our Technical Accounting Review for 2023, we have elected to make this adjustment to net this cost out of the gross revenue line. As noted, the adjustment equally offsets our 2023 growth revenue and spread-based expenses. There is no impact on net revenue and no impact on our earnings from this reclassification.

As part of our technical accounting review of 2023, we've elected to make this adjustment to net net cost out of the gross revenue line.

As noted the adjustment equally offset our 2023 gross revenue and steady census.

There is no impact to net revenue and no impact to our earnings from this reclassification.

For clarity shown on this page is that total revenue on a pro forma basis, reflecting the new accounting treatment as shown in the fourth quarter total revenue on a pro forma basis with $180 million up 13% year over year.

Gary Zyla: Clarity shown on this page is our total revenue on a pro-forma basis, reflecting the new accounting treatment. As shown in the fourth quarter, total revenue on this pro-forma basis was $180 million, up 13% year-over-year. As you know, we focus on our revenue net of related variable expenses. For the fourth quarter of 2023, our net revenue was $137 million, up 11% year-over-year. All four components of our revenue increased year-over-year, with subscription-based income leading the way, up 22%. Slide 12 details our year-over-year net revenue growth. Asset-based revenue is up $9.7 million year-over-year, and $12.9 million of that increase can be attributed to the $12.2 billion increase in billable assets. Excluding the adhesion of Quartette.

And as you know we focus on our revenue net of related variable expenses for the fourth quarter 2023, our net revenue was $137 million up 11% year over year.

All four components of our revenue increase year over year with subscription based income leading the way up 22%.

Slide 12 details our year over year net revenue walk.

Asset based revenue was up $9 $7 million year over year.

$12 $9 million, an increase can be attributed to the $12 $2 billion increase in billable assets, excluding the adhesion of acquired assets.

Gary Zyla: Asset-based revenue was also augmented by an incremental $1.8 million of revenue from Ritchie. These increases were partially offset by speed compression of approximately one base, which is in line with our stated expectations. Spread income was up $1.1 million year-over-year, driven by a yield improvement of 327 basis points to 405. Of this total yield, our securities-backed line-of-credit program, or SBLOC, contributed 10 base points. Excluding the contributions from S Block, the net yield for the quarter was $395.

Asset based revenue was augmented by an incremental $1 $8 million in revenue from Ricky can love.

These increases were partially offset by fee compression from approximately one basis point, which is in line with our stated expectations.

Spread income of about $1 $1 million year over year, driven by yield improvement of 327 basis points to 405 basis points.

This total yield and securities that line of credit program or <unk> block contributed 10 points 10 basis points, excluding the conservation domestic block net yield for the quarter was 395 basis points.

Gary Zyla: The subscription revenue from Voyant was up approximately 22% year-over-year driven by growth in software revenue. Lastly, other income increased $2.5 million year-over-year, driven largely by higher interest income earned on our... Now let's discuss... On slide 13, you will note that we are showing spread expenses pro forma for the accounting change noted earlier. On this pro forma basis, total adjusted expenses increased 7.8% year-over-year from $122.5 million; orderly adjusted operating expenses were up a little less than 2% year-over-year to $70.6 million, driven by an increase in the point of compensation, partially offset by a decrease in SG&A. Coin Compensation increased 2.3 million, or 5.9%, while headcount remained essentially flat year over year. SG&A decreased $1.2 million, or 3.9% year-over-year, driven by strategic and timing.

Subscription revenues from buoyant.

Approximately 22% year over year, driven by growth in software revenue.

Lastly, other income increased $2 $5 million year over year, driven largely by higher interest income earned on our corporate cash.

Now let's discuss.

Turning to slide 13, you will note that we are showing strength sensitive pro forma for the accounting change noted earlier, our net pro forma basis total adjusted expenses increased seven 8% year over year $122 5 million.

Quarterly adjusted operating expenses were up a little less than 2% year over year to $76 million driven by an increase in employee compensation, partially offset by a decrease in SG&A.

Employee compensation increased $2 3 million of assignment at five 9%, while head count remained essentially flat year over year.

SG&A decreased $1 2 million or three 9% year over year, driven by strategic and timing items.

Gary Zyla: Now I'll quickly run through our adjustments for the quarter, as we always do. In the fourth quarter, we added back approximately $12 million pre-tax, which was primarily composed of three items, for $4.1 million in non-cash share-based compensation. We anticipate approximately $4.5 million per quarter in the first half of 2024 and $5 million per quarter in the second half of 2020. The second adjustment is $4.8 million related primarily to reorganization and integration. And lastly, $2.2 million in acquisition-related averages. Now, let's turn to slide 14 to discuss our earnings. Fourth quarter adjusted EBITDA was $63.8 million, up 21% year-over-year, while our adjusted EBITDA margin, again on a pro forma basis, is 35.4%. Our reported net income for the quarter was $34.6 million, while our adjusted net income was $44 million, or 59 cents per share. This is based on the fourth quarter diluted share cap of $74.6 million. The estimated tax rate for the full year is $24,000.

Now I'll quickly run through our adjustments for the quarter and we always gain in the fourth quarter, we added back a constantly $12 million pre tax which is <unk>.

Primarily comprised of three items.

$4 $1 million of noncash share based compensation, we anticipate approximately $4 $5 million per quarter in the first half of 2024 and $5 million.

Per quarter in the second half.

2024.

The second adjustment was $4 $8 million related primarily to the reorganization and integration costs, and lastly, $2 2 million of acquisition related amortization.

Now, let's turn to slide 14 to discuss our earnings for the quarter.

Fourth quarter, adjusted EBITDA was $63 8 million up 21% year over year, while our adjusted EBITDA margin again on a pro forma basis is 35, 4%.

Our reported net income for the quarter was $34 $6 million of our adjusted net income was $44 million or <unk> 59 per share.

This is basis fourth quarter diluted share count of $74 6 million.

Our estimated tax rate for the full year is 24%.

Gary Zyla: For further color, please see the Justin and Income Welcome slide. Now, let's look at the reported fourth quarter balance sheet. I would highlight two items.

For further color <unk> seen adjusted net income walk on slide 22.

Now, let's look at the reported fourth quarter balance sheet I would highlight two items first we continued to do a great job in generating cash we generated a robust $175 million in cash from operating activities in the full year of 2023.

Gary Zyla: First, we continue to do a great job of generating cash. We generated a robust $175 million in cash from operating activities for the full year of 2021. Second, our capital spend was $11.4 million, or 6% of total revenue in the fourth quarter. As we have mentioned previously, we are increasing our CapEx run rate in 2024 to 8-10% of total revenue so that we can invest in more growth and scalability projects. After slide 15, I would like to provide my quarterly update on our spread-based revenue and its drivers. First, let's discuss our cash balances. In the fourth quarter, total cash as a percentage of assets, ATC, was $3.83 million, of which ICD, or non-discretionary cash, was $3.2 billion.

Second our capital standards, $11 4 million or 6% total revenue from the fourth corner as we have mentioned previously we are increasing our capex run rate in 2024% to 8% to 10% total revenue from that we can invest in more growth and scalability projects.

Now turning to slide 15, I would like to provide a quarterly update on our strength based revenue and its drivers, but first let's discuss our cash balances in the fourth quarter total cash as a percentage of eight assets ATC was three 8%.

Often which ICD or are non discretionary cash was three 2%.

Gary Zyla: Cash as a percentage of platform assets is down slightly due to the rising market value of assets with more and more strategists putting money to work in the equity of fixed income markets. Although the Fed is predicting to take down rates in 2024, we remain well-positioned in having a portion of the insured cash deposits in fixed-rate agreements. As of December 31st, 45% of cash at APC is in a fixed rate term with an average maturity of 2.28 years and a gross rate of $4.77 billion. Also, as a reminder, our revenue mix has a natural hedge, as we would expect Fed fund reductions to have a favorable impact on our asset base. Finally, let's turn to page 16 to introduce our 2024 outlook. We are uber-excited about 2024.

<unk> as a percentage of platform assets is down slightly due to the rising market value of assets with more and more strategy is putting money to work in the equity and fixed income markets.

Although the fed is going to take down rates in 2024, we remain well, hey, and having a portion of the insured cash deposits in fixed rate agreements.

As of December 31, 45% cash and ATC is in a fixed rate term with an average maturity of two to eight years and a growth rate of 477%.

Also as a reminder, our revenue has a natural hedge as we went into that fed fund reductions to have a favorable impact on our asset based revenue.

Finally, let's turn to page 16 introduced our 2024 outlook. We are Uber exciting about 2020 for strong growth in our singular focus on serving our financial advisors.

Gary Zyla: Strong growth with a singular focus on serving our financial advisors. Our platform asset guidance is 12 plus percent as we expect to increase flows year over year by approximately 50 percent, reflecting strong growth in our core business and outside growth in our agent and in our adhesion. We will be targeting net flows as a percentage of beginning-of-period platform assets in the range of 8-10%, coupled with our annual market appreciation assumption of 3.5%. 2024 net revenue annual growth target of 10 to 14 percent as a result of strong momentum from the end of 2023. Our first quarter billing done in January was boosted by the strong year-end market, and we are encouraged by our net flows year-to-date. Our forecast shows double-digit growth across our major revenue lines. We have set operating expenses, which consist of compensation and FD&A, to increase 8 Decembers.

Our platform asset guidance is 12 plus percent as we expect to increase slowed year over year, approximately 50%, reflecting strong growth in our core business and outsized growth narrow.

In our adhesive business we.

We will be targeting net flows as a percentage of beginning of period platform assets in the range of 8% to 10% coupled with our annual market appreciation assumption of three 5%.

At 2024, net revenue annual growth target of 10% to 14% as a result of strong momentum from the end of 2023, our first quarter billing done in January was boosted by the strong year end market and we are encouraged by our net flows year to date, our forecast has double digit growth across our major.

Revenue line items.

We expect operating expenses, which consist of compensation SG&A to increased 8% to 10%.

Gary Zyla: We are confident that this level of expense growth allows us to continue to meaningfully invest in the future business while maintaining discipline so that expense growth will not outpace revenue. As always, we are focused on realizing improved margins on our revenue and growing earnings. We expect our adjusted adjusted earnings to be up 15% plus year over year, and we expect margin expansion north of 50 basis points for the year. With that, I will hand the call back to Michael for his concluding remarks.

We are confident that this level of expense growth allows us to continue to meaningfully invest in our future business, while maintaining disciplined so that expense growth will not ask case will not outpace revenue growth.

As always we are focused on realizing improved margins on our revenue and growing earnings we extended our adjusting EBITDA up 15% plus year over year, and we expect margin expansion north of 50 basis points for the year.

With that I will hand, the call back to Michael for his concluding remarks.

Michael Kim: Thank you, Gary, and thank you to everyone on the call today. I look forward to seeing you in person at the upcoming investor conference. This concludes our prepared remarks. I will now turn the call back to the operator to begin our Q&A. Of course. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If, for any reason, you would like to remove that question, please press star followed by two.

Thank you Gary and thank you to everyone on the call today I look forward to seeing you in person at the upcoming Investor conferences. This concludes our prepared remarks, I will now turn the call back to the operator to begin our Q&A.

Of course.

We will now begin the question and answer session, if you'd like to ask a question. Please press star followed by one on your telephone keypad.

Any reason you would like to remove a question. Please press star followed by two okay.

Operator: Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question. Our first question comes from the line of Dan Fannon with Jeffreys. Your line is now open.

To ask a question press star one.

Reminder, if you are using a speaker phone. Please remember to pick up your handset before asking a question.

Our first question comes from the line of Dan Fannon with Jefferies.

Your line is now open.

Daniel Thomas Fannon: Clearly, improving in January or to start the year. Just curious as to what you think are some of the drivers of that acceleration as you think about the year progressing. I think you mentioned adhesion being a part of that. I don't know if you're able to break down what you think the contribution from that platform might be versus the rest of the business. Hey there.

Clearly improving in January or to start the year.

Just curious as to what you think are some of the drivers of that acceleration as you think about the.

For the year progressing I think you mentioned adhesion being a part of that I don't know if youre able to breakdown. What you think the contribution from that platform might be versus the.

Michael Kim: Thank you for your question. You kind of cut out a little bit on the front end. But I think the real gist of your question was, you know, the contributors and the drivers for sort of our growth and really sort of thoughts around adhesion and its contributions to the overall growth. So, so, let me start here and then Gary, please chime in with additional details. So, we're absolutely seeing a renewed turnaround from advisors and their investors and their clients, and really the sentiment. You know, a couple things I would just want to mention, and we saw this, you know, obviously, with the market improvement in the fourth quarter. And certainly, we're seeing this as we start the first quarter of this year.

The rest of the business.

Hey, there.

For your question.

You kind of cut out a little bit on the front end, but I think they are.

Really the Gist of your question was there are contributors and the drivers for sort of our growth and really sort of thoughts around adhesion and his contributions to the overall growth. So so let me start here and then Gary please.

Time in with additional detail so.

So we're absolutely seeing really a renewed turnaround from the advisors and their investors and our clients. It really the sentiment you know a couple of things I would just want to mention we saw this obviously with the market improvement in the fourth quarter and certainly we are seeing this as we start the first quarter of this year.

Michael Kim: A lot of the assets that were sitting on the sidelines, you know, some of the industry surveys point to over two and a half trillion dollars of cash sitting on the sidelines. And we see a lot of that cash coming back into the market, and really advisors working very closely with their clients to help them find the appropriate solutions, you know, to meet the client's goals. And so we are seeing kind of at the macro level that sentiment is improving. Secondly, you know, from an adhesion perspective, we're absolutely seeing very accelerated momentum with adhesion. In fact, their January 2024 flows were almost double what they did last year's January.

A lot of the assets that were sitting on the sidelines some of the industry surveys.

Point to over $2 five trillion dollars.

Cash sitting on the sidelines and we see a lot of those cash coming back into the market that really advisors working very closely with their clients to help them find the appropriate solutions to meet the client's goals and so we're seeing kind of at the macro level that sentiment improving secondly.

From an adhesion perspective, we are absolutely seeing a very accelerated momentum with adhesion in fact their January of 2024 flows were almost double what they did last year's January and so we're absolutely seeing the momentum grow a big part of the adhesion story is really.

Michael Kim: And so we're absolutely seeing the momentum grow. A big part of the adhesion story is really around our commitment to bringing our world-class service and operational experience to the adhesion advisors. There's been a lot of hard work amongst the teams to really integrate the asset mark service and operation processes into the adhesion platform.

Around our commitment to bringing our world class service and operational experience to the adhesion advisors. There's been a lot of hard work amongst the teams to really integrate the asset Mark service and operation processes into the adhesion platform. So we're starting to see dividends pay off of that effort. The other asps.

Michael Kim: So we're starting to see dividends pay off from that effort. The other aspect is really the expanded executive and sales management team. One of the key things that we're focused on is working closely with the strategic clients of adhesion to not only expand their share of wallet but also help with their recruiting efforts. Many of the clients of adhesion are the strategic RIA firms out there recruiting either breakaways or other advisory firms. And so adhesion is an integral part of that recruiting process, and we're delighted to see the momentum, you know, continue with adhesion. Gary, any other thoughts to add to that question? Yeah, no. Hey Dan, how are you doing?

<unk> is really the expanded executive and sales.

Management team one of the key things that we're focused on is working closely with our strategic clients of adhesion to not only expand the share of wallet, but also help with their recruiting efforts. Many of the clients of adhesion are the strategic RIAA firms out there recruiting either breakaways <unk>.

Advisory firms and so adhesion as an integral part of that recruiting process and we are delighted to see the momentum.

<unk> with adhesion Gary any other thoughts to add onto that question, Yeah, Hey, Dan how are you doing a nice talking to you again I think.

Gary Zyla: Nice to talk to you again. You know, I think, you know, we're still not going to be breaking out adhesion results, would you say, from the rest of the business. You know, I will note that adhesion came on the platform at the end of 2022 with about $7 billion of assets. It comprises a little bit over $9 billion of assets on our platform now. And that's really indicative of the strong organic growth that Michael's talking about.

We are still not going to be breaking out <unk> results. When you say from that and then the rest of the business I won't know adhesion came on the platform in 2022 and about $7 million of asset and comprises alumina over $9 billion of assets in our platform now and Thats really indicative of strong organic growth.

Michael is talking about and its strong contribution to our business.

Gary Zyla: And it's a strong contribution to our business. So, you know, we're really excited about both the initiatives we have in the core business, new advisory acquisition, wallet share opportunities, as well as the adhesion business model. Great, thank you.

So yes, we're really excited about.

Both the initiatives, we have on the core business.

New adviser acquisition wallet share opportunity.

As well as the adhesion.

Business model.

Great. Thank you and then just as a follow up last quarter, you talked about an increased focus on M&A and partnerships.

Michael Kim: And then just as a follow-up, you know, last quarter, you talked about an increased focus on M&A and partnerships, and that was reiterated again today. So maybe talk about the current environment that you're seeing and the, you know, kind of prospects of areas that, you know, generally you're looking at to potentially, you know, fill those holes. Yeah, no, thank you again for that question.

It was reiterated again today, so maybe talk about the current environment.

But you are seeing in the kind of prospects or areas that generally youre looking at to potentially fill those holes.

Yes, no. Thank you again for that question and you're absolutely right M&A as we mentioned last quarter and certainly reiterated this quarter. It remains a very important part of our overall growth strategy.

Michael Kim: And you're absolutely right. M&A, as we mentioned last quarter and certainly reiterated this quarter, remains a very important part of our overall growth strategy. There are two areas that we're focused on in terms of key M&A opportunities. One is really the consolidation opportunities, and the second is capability.

There is two areas that we're focused on in terms of kind of key M&A opportunities what is really the consolidation opportunities and the second is capabilities.

Michael Kim: You know, one of the key things that we bring to a potential seller in the marketplace is really the scale that we bring, our credibility and the renowned sort of service and the advisor experience that we deliver, the distribution network that we have. And so we're engaged with a number of high quality firms that would that desire to be part of the aftermarket ecosystem. And what's really unique here is that, together with those firms, we have an opportunity to bring this unique joint value to the advisors. And so we're absolutely excited and committed to accelerating our acquisitive mode that we have. And certainly, even on the capability side, we're looking at a number of different technology providers, asset management providers, and even marketing and lead generation providers for advisors to help them grow. And so, there are a lot of unique assets. Our corporate development team is heads down, working very hard, and managing a very active pipeline.

One of the key things that we bring to a potential.

Seller in the marketplace is really the scale that we bring our credibility in the retail and sort of the service and the advisor experience that we deliver the distribution network that we have and so we're engaged in a number of number of high quality firms that would.

That desire to be part of the aftermarket ecosystem.

Really what's really unique here is that together with those firms we have an opportunity to bring this unique joint value to the advisors and so we're absolutely excited and committed to accelerating our our acquisitive mode that we have and certainly even on the capability side, we're looking at a number of different technology.

Providers.

Asset management providers and event marketing and lead generation providers for advisers to help them grow and so so there's a lot of unique assets. Our corporate development team is heads down working very hard and managing a very active pipeline and so we hope to share a number of great news with.

Michael Kim: And so we hope to share a number of great news with the audience in the near future, but that is absolutely an important part of our overall strategy. Yeah, you know, and then I would just add to that, like Michael said, since over the past, let's call it six months, we've really reinvigorated these types of discussions, and of course, you know, M&A, there are a lot of ways to think about it, right? There's, like what's said, consolidation, the capabilities of what you're looking to add, but you can buy, you can partner, you can become a minority, you know, investor. There are a lot of different ways we're looking at trying to put that capital to work. You know, AccuTech Heat is one example where it's certainly not an acquisition happening there, but we're investing a lot of money to kind of create this partnership. And while that's not truly M&A, that is truly something that is an inorganic, you know, starting point for growth. Great, thank you.

With the audience in the near future, but that is absolutely a important part of our strategy there.

And then I would just add thanks, Michael centers over the past, let's call it six months really.

These types of discussions and of course M&A, there's a lot of ways to think about it right now as Michael said, the consolidation the capabilities and what Youre looking to add but you can die you can partner you can become a minority.

And Thats fair.

Sure.

<unk> been looking at trying to put that capital to work actually that heat is one example, where.

<unk> initial happening there, but we are investing a lot of money to kind of create this partnership and while that's not truly M&A and it's truly something that is inorganic.

Starting point can you kind of progressed.

Okay.

Great. Thank you.

Gary Zyla: Thanks, Ben. Thank you for your question. The next question comes from the line of Jeff Schmidt with William Blair. Your line is now open.

Thanks, Ken.

Thank you for your question.

The next question comes from the line of Jeff Schmitt with William Blair.

Your line is now open.

Jeff Schmidt: Hi, thank you. On client cash, it appears to have stabilized around $2.9 to $3 billion when you adjust for seasonality. And just regarding where that may go, you know, what are you seeing in terms of new cash coming in from organic growth? Is that kind of largely sorted already?

Hi.

Hi, Thank you.

Client cash it appears to have stabilized around $2 $93 billion when you adjust for seasonality.

And just regarding where that May go what are you seeing in terms of new cash coming in from organic growth is that kind of largely sorted already and so it is it providing much of an uplift to client cash or should we kind of expect to see some uplift from that this year.

Gary Zyla: And so isn't that providing much of an uplift to client cash? Or should we kind of expect to see some uplift from that this year? Well, that's a great question, Jeff, and nice to talk to you again. So, you know, here's how I want to start, and Michael, feel free to add any more details.

And it's a great question gap and then nice talking again so.

Here in Ireland.

Micro <unk>.

Any more details.

Gary Zyla: But here's how I frame this. Most of that cash, Jeff, right, is non-discretionary cash. This is not the end investor choosing it. This is our strategists allocating part of their strategy. And therefore, it's not really susceptible to the kind of cash sorting that some of the banks are dealing with.

I would frame that most of that cash cap rate as the non discretionary cash is not the end investor choosing it. This is our strategy allocating part of that strategy in a cash and therefore, it is not really susceptible to that kind of cash sorting out some of the banks are dealing with.

Gary Zyla: But it is a reflection, as that percent has settled, it's generally around 4% of our total AssetMark Trust assets. And as that cash, as that percentage has settled, right now, it's 3.8%. We said today that it's a reflection, actually, of the strategists putting that money to work because they're getting more confidence in the economy. Now, that being said, the cash balance grows as our asset level grows. So when we think of our overall asset level growing, that 10 to 12 percent we talked about for the upcoming year, that's going to be reflected in our cash balances at our trust company, to the extent that we have an outsized amount of money go to our trust company versus other custodians. That will even further help the growth of our cash that we will put. You know, I think maybe just to kind of build off of that, Jeff, you know, a couple of other things to consider.

But it is a reflection as <unk>.

That percent has settled ischemic around.

4% of our total <unk> assets.

As our cash as a percentage of settled right now is three 8% reset today naphtha.

And that's a reflection actually the strategy of putting that money to work because they're getting more confidence in the equity markets now that being said the cash balance grows as our asset level.

So when we think of our overall asset level growing that 10% to 12% we talked about for the upcoming year, that's going to be that's going to be reflected in our cash balances at our trust company.

The extent that we have an outsized amount of money go through our trust company versus other custodians.

That will eat that will even further help the growth of our cash that we will put to work.

Okay.

I think maybe just to kind of build off of that Jeff.

A couple of other things to consider so number one.

Michael Kim: So, number one, you know, to Gary's point, we're seeing, just given the improved sentiment and investors coming back into the equity market, that we're seeing more and more of the strategists deploying the cash into their strategies and to the equity allocation. At the same time, really, given the expansion into adjacent markets, and Gary alluded to the Accutech Cheetah, which is really our partnership that will help us expand into regional banks and regional trust companies. We believe that the new relationships that we sign on, which will also be custody at ATC, will add to the overall cash balances as well.

Gary's point, we're seeing just given the improved sentiment and the investors coming back into the equity market that we're seeing more and more of the strategists deploy the cash into into their strategies to enter the equity allocation at the same time.

Given the expansion into adjacent markets.

Hey, Gary alluded to the architect Cheetah, which is really our partnership that will help us expand into the regional banks retail trust companies, we believe that the new relationships that we sign all of which will also be custody at ATC that will add to the overall cash balances as well. So we're super excited about that new partnership.

Michael Kim: So we're super excited about that new partnership and the additional balances that we know those relationships will drive. And then, again, just to underscore Gary's points earlier, one of the unique things about our model is just sort of this natural revenue hedge that we have. And I think we all expect that at some point, probably longer than expected, but at some point, the Fed will begin to reduce their rates.

The additional balances that we know will those relationships will drive and then the other thing that again just to underscore Gary's point earlier, one of the unique things about our model is just sort of natural revenue hedge that we have and.

I think we all expect at some point.

Probably longer than expected, but at.

Some point the fed will begin to reduce their rates.

Jeff Schmidt: In a way, we actually welcome that, and given our revenue model, we know that that is going to create a tailwind for the asset-based revenue stream as well. So one of the key and really unique aspects of our revenue model is that there's this natural hedge built in between the subscription, between the spread revenue, and the asset-based revenue. And so we're fully prepared for those changes that are forthcoming. Okay, yeah, that's very helpful. And then I guess that takes me to the next question, just looking at how I think you have 45% of cash getting fixed right now. Average maturity is still fairly low, 2.3 years.

In a way, we actually welcome that and that be given our revenue model.

We know that that is going to create a tailwind for the asset based revenue stream as well so.

One of the key in really the unique aspects of our revenue model is that there is this natural hedge built in between the subscription between the spread revenue and the asset based revenue and so we're fully prepared for those changes that are forthcoming.

Okay. Yes, that's very helpful. And then I guess that takes me to the next question just looking at 45% of cash getting fixed right now.

Average maturity is still fairly low to three years.

Gary Zyla: Is there potential, you know, could we expect to see you roll that over into, you know, four or five-year contracts? You know, especially with the Fed likely to cut at some point here? And like, what type of rate, I guess, could you get for that?

Is there potentially could we expect to see roll that over into.

Four or five year contracts.

Especially with the with the fed likely to cut at some point here.

What type of rate I guess could you could you get for that if you are if you are looking at that.

Gary Zyla: If you're If you are looking at that, so that's a great point, Jeff. And we actually have just started that. So I believe, you know, previously when we talked, we had like a one, two, and three year ladder in terms of our contracts. We did just recently add one contract for a four-year and one contract for a five-year to kind of extend it. I think it was just we extended the term from like two to 2.2 or whatever it is now.

Yes.

So that's a great point, Jeff and we actually have just started that so I believe payments genomic talk we had like a one two and three year ladder in terms of our contracts. We did get recently at one contract for four year on one contract in our five year to kind of extended I think it was.

Extending the term by two to $2 two or whatever it is now so we absolutely are focused on extending that.

Gary Zyla: So we absolutely are focused on extending that. Now, you know, there's the trade-off and rate and whatnot. And I can't actually tell you what those rates are now on the four and five-year treasury notes off the top of my head, but that is our consideration to make sure that we are not giving up too much value in extending it. You know, the goal of having the fixed rates, Jeff, is to give us a good glide path, 18, 24, you know, 32 and a half years, 30 months or so, that good glide path where Yeah, I mean, Jeff, the only thing I would add is that, you know, our product team does an excellent job. We have a, we have a monthly pricing committee meeting. And, you know, it is really our way.

Now.

The trade off in rate and whatnot and I can't actually tell you what those rates are now in the form of five year of top my head, but that is our consideration to make sure that we are not giving up too much value in extending it.

The goal of having the need the fixed rate gas into gave us a good glide path.

<unk> 24.

<unk> 32, and a half years 30 months or so that could glide path, where Michael pointed out we haven't natural hedge if rates come down equity markets should rebound that glide path should help us match the revenue offsets effectively.

Yeah, I mean, Jeff the only thing I would add is that our product team. They do an excellent job we have a.

We have a monthly pricing committee meeting.

It is really our way and the process that that team is incorporated as a way for us to actively monitor and make the appropriate adjustments, we want to make sure that we put.

Michael Kim: And the process that that team is incorporated into is a way for us to actively monitor and make the appropriate adjustments. We want to make sure that we put really the liquidity and the client experience that, you know, is our first principle, but really, there's a very stringent process in place to have regular and active monitoring of the fixed terms and make sure that we're optimizing the cash balances at a. Okay, great. Thank you. Thank you. Thank you for your question. The next question comes from the line of Patrick O'Shaughnessy with Raymond James. Raymond James, apologies. Your line is now open.

Really the the liquidity and the client experience at the as our first principle, but really there is a very stringent process in place to have regular enacted monitoring of the fixed terms and make sure that we're optimizing the cash balances at ATC today.

Okay.

Okay, great. Thank you.

Thanks, Jeff.

Thank you. Thank you for your question.

The next question comes from the line of Patrick O'shaughnessy with Raymond James Raymond James Apologies.

Your line is now open.

Patrick O'Shaughnessy: Hey, good afternoon. In December, Bloomberg reported that Watai was exploring strategic options for its investment in AssetMark. I'm sure you can't or don't want to speak for them directly, but what have they communicated to you guys about this process? Yeah, I mean, obviously, I think we've seen all those different articles as well.

Hey, good afternoon. So in December Bloomberg reported that <unk> was exploring strategic options for its investment and asset Mark Im sure you cant or don't want to speak for them directly but why have they communicated to you guys about this process.

Hey, Patrick Thank you for the question.

Yes, I mean, obviously I think we've seen all of those different articles as well and as you mentioned our positions that we.

Michael Kim: And as you mentioned, you know, our position is that we don't comment on these rumors and these types of articles. What we can tell you, Patrick, is that we have regular conversations with our majority shareholder, as well as the entire board. I guess they remain very, very supportive of the business and the entire management team. You know, with that in mind, one of the key things that we talk about on a very regular basis as a management team is really thinking about the three key areas of our focus, organic growth. We talk nonstop about getting back to that 10 percent plus organic growth rate.

We don't comment on these rumors in these types of articles what we can tell you Patrick is that we have regular conversations with our majority shareholder as well as the entire board.

They remain very very supportive of the business and the entire management team with that in mind, one of the key things that we talked about on a very regular basis as a management team is really thinking about the three key areas of our focus the organic growth, we talk non-stop about getting back to.

That 10% plus organic growth rate as we've talked about number two let's make sure that we deploy the capital in a right way and focus and have that really targeted focus on the right M&A opportunities. We believe that we have an opportunity to really win in a strategic way leveraging all of the financial resources that we can bring.

Michael Kim: As we talked about, number two, let's make sure that we deploy the capital in the right way and focus and have that really targeted focus on the right M&A opportunities. We believe that we have an opportunity to really win in a strategic way, you know, leveraging all of the financial resources that we can bring, as well as our position in the market. And then the third area of focus is really driving scale.

As well as our position in the market and then a third area of focus is really driving scale, we talked about a number of the automation initiatives that touch less new accounting opening initiative as an example, and our goal is to really remove up to about $25 million up.

Michael Kim: We talked about a number of the automation initiatives, the touchless new accounting opening initiative as an example. And our goal is to really remove up to about twenty five million dollars of operational costs over the next few years. And so those are the key areas that we're super focused on, Patrick. Look, obviously, there are a lot of distractions and rumors and talk.

<unk> costs over the next few years and so those are the key areas that we're super focused on Patrick look obviously, there is a lots of distractions that rumors and talk.

Michael Kim: You know, one of the key things that we as a leadership team talk a lot about is that we should focus on what's within our control and not get hung up on the different articles and the rumors that are floating out there. And again, going back to the board, they are just super supportive of the entire team and the business. And so we're excited by the opportunity that really the momentum that we have in the business here today. Yeah, Patrick, I would just add that, you know, we've got our thousand thousand employees and our nine thousand advisors here, and we are focused on a great twenty twenty four. You know, we talked a little about the outlook already, and the board has been so supportive of the investment that Michael has stepped up for twenty, twenty-four and for our technology spend, et cetera. And so we've got our mission clear for ourselves, and that mission is constant, and that motivates all our employees and our service to the body. Okay, fair enough.

One of the key things that we have the leadership team. We talk a lot about is the less focus on what's within our control and not get hung up on the different articles and the rumors that are floating out there and again going back to the board. They are just super supportive of the entire team and the business and so so we're excited by the opportunity that really the momentum that we have.

And the business here today.

Yes, I would just add we've got a thousand employees and our 9000 advisors here and we are focused on.

A great 2024 level about the outlook already and the board has been supported by the investment that Michael has stepped up for 2024 for our technology spend et cetera. So.

We've got our mission is clear for ourselves and.

That that that is constant and that motivates all our employees and.

Our service to our new advisors.

Okay Fair enough I appreciate that and then what's your tax management services solution is that an incremental monetization opportunity for you guys.

Patrick O'Shaughnessy: Appreciate that. And then, with your tax management services solution, is that an incremental monetization opportunity for you guys? Yeah, absolutely. I'll start.

Yeah, absolutely I'll start and then Gary please share some specifics on the financial value there, so tax management services or Tms.

Michael Kim: And then Gary, please share some specifics on the financial value there. So tax management services, or TMS, is an incremental service with an incremental revenue opportunity of 10 basis points gross in terms of what we charge our clients. And, Patrick, I gotta tell you, I mean, you know, I've been with the firm for over 13 years now, and over 13 years now, and this is one of the most exciting, this is one of the most exciting initiatives that we've launched, and it is being received so well by our advisors, and they see the value. They are super excited by it.

Is the incremental service with an incremental revenue opportunity.

10 basis points growth.

In terms of what we charge to our clients and.

Patrick I can tell you I mean, either with the FERC for over 13 years now.

And over.

Over 13 years now and.

This is one of the most exciting because one of the most exciting initiatives that we've launched in that it is.

It is being received so well by our advisors and they see the value.

They are <unk>.

Michael Kim: As I mentioned earlier, we are getting more assets enrolled into this program than ever before. And so this is one of those unique programs where we know that it's responding. And while the, you know, the end clients, they're engaged with their advisors and understanding and wanting to understand kind of different portfolio construction strategies and all the nuances about the portfolio.

Super excited by it as I mentioned earlier, we are getting more assets being enrolled into this program than ever before and so this is one of those unique programs, where we know that it's resonating and while the end clients, they're engaged with their advisors and understanding and wanting to understand kind of differ.

Portfolio construction strategies and all the nuances about the portfolio, but it day to day the end clients investors they understand taxes and they they view they look to their advisers as really be there.

Michael Kim: But at the end of the day, the end clients, the investors, understand taxes, and they view, they look to their advisors as really the stewards of not only meeting the financial goals but tax management. And so I can't say enough about the opportunities that TMS is creating, not only from a revenue and tax point of view, but also to really attract new producing advisors onto the platform. And one of the big upticks that we're seeing from an MPA perspective is really related to the excitement around TMS. Gary, you know how much I'm excited about TMS, and why don't we share with Patrick some of the financial value that TMS will bring to the firm? Sure. You know, Patrick, this is a great opportunity for us to, you know, normally we, most of our pricing, the wrap pricing, this isn't, like Michael said, income, 10 basis points. You know, so many folks at AssetMark have spent a good 18 months building this system, you know, a significant capital spend to set this up and the partnership we have. And it's a nice example of where it's just win, win, win all around. Clients should be realizing material, you know, improvements in their tax positions. Advisors now have another tool in their quiver, another arrow in their quiver to serve their clients, and we were able to capture some of that economics.

Stuart not only the meeting the financial goals, but tax management is so I can't say enough about the opportunities that Tms is creating.

Not only from a revenue and tax point of view, but also to really attract new producing advisers onto the platform and one of the big upticks that we are seeing from an NPA perspective is really related to the excitement around Tms and so Gary you know how much I'm excited about CMS and what do we share with.

Patrick some of the financial value that CMS will bring to the Permian.

Patrick and this is a great opportunity for us to.

Normally we most of our pricing the rack pricing isn't like Michael said income 10 basis points.

So many folks that asset mark.

The good 18 months building a system.

A significant capital spend to setting us up in the partnership we have and it's a nice example of where it was win win win all around clients to be.

Realizing material.

Movements in there in their tax position.

<unk> now have another tool in their quiver another arrow in their quiver to service their clients and we were able to capture some of those economics.

Gary Zyla: Great, thank you. Thank you for your question. There are currently no questions to rise or shift, so as a reminder, it is star number one to ask a question. There are no additional questions waiting at this time. I would now like to pass the conference back to Michael Kim for any closing remarks.

Great. Thank you.

Thank you for your question.

There are currently no questions registered so as a reminder, it is star one to ask a question.

Okay.

There are no additional questions waiting at this time I would now like to pass the conference back to Michael Kim for any closing remarks.

Great. Thank you, let me just wrap up with a big big. Thank you to all of you that have joined US here today as well as everyone that is supporting asset Mark we truly value the partnership and your continued support and we're excited about 2024, and a big big Shout out to all of the Ampa employees, who make it happen every single day.

Michael Kim: Let me just wrap up with a big, big thank you to all of you that have joined us here today, as well as everyone that is supporting AssetMark. We truly value the partnership and your continued support, and we're excited about 2024. And a big, big shout out to all of the AMK employees who make it happen every single day.

Operator: So with that, thank you, everybody, and we will call it a wrap. See you, everybody. Goodbye. That concludes today's call. Thank you for your participation, and enjoy the rest of your day.

So with that thank you everybody and we will call it a rep.

Hi, everybody.

Goodbye.

That concludes today's call. Thank you for your participation and enjoy the rest of your day.

Q4 2023 AssetMark Financial Holdings Inc Earnings Call

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