Silvercrest Asset Management Group Inc. (NASDAQ:SAMG) Q4 2023 Earnings Call Transcript
Silvercrest Asset Management Group Inc. (NASDAQ:SAMG) Q4 2023 Earnings Call Transcript March 8, 2024
Silvercrest Asset Management Group Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to the Silvercrest Asset Management Group Incorporated Fourth Quarter and Full-Year 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this is being recorded. Before we begin, let me remind you that during today's call, certain statements made regarding our future performance are forward-looking statements. They are based on current expectations and projections which are subject to a number of risks and uncertainties, and many factors could cause actual results to differ materially from the statements that are made. Those factors are disclosed in our filings with the SEC under the caption Risk Factors. For all such forward-looking statements, we claim the protections provided by the Litigation Reform Act of 1995.
All forward-looking statements made on this call are made as of the date hereof, and Silvercrest assumes no obligation to update them. I would now like to turn the conference over to Rick Hough, Chairman and CEO of Silvercrest. Please go ahead.
Richard Hough: Thank you very much, and good morning to our Q4 and year-end 2023 results. After the volatile and difficult market environment of 2022, we hope 2023 would lead to improved markets, helping to recover both Silvercrest's discretionary assets under management as well as our top line revenue. The year 2023 was unusual, equity market gains were highly concentrated in a handful of large-cap technology companies as a result of such narrow leadership and economic uncertainty. During the third quarter 2023 earnings call, I had stated we could face challenging market conditions at Silvercrest for yet another year. During the fourth quarter of 2023, company participation in equity market gains broadened significantly. Progress has continued into 2024 setting the stage for a better environment for our business.
During the fourth quarter of 2023, Silvercrest's discretionary AUM rose by $1.4 billion or 6.8% to $21.9 billion and Silvercrest total AUM increased by $2.1 billion or 6.7% to $33.3 billion during the fourth quarter. For 2023, Silvercrest's discretionary AUM increased by $1 billion or 4.8%. Our total AUM increased during 2023 by 15% or $4.4 billion to $33.3 billion from $28.9 billion at the end of 2022. The total 2023 increase was attributable to market appreciation of $3.8 billion in client net inflows of $0.6 billion or $600 million. Silvercrest's revenue for the year, however, significantly lagged increases in assets under management due to broad market gains concentrated in the fourth quarter of 2023. Silvercrest primarily bills quarterly in advance.
Revenue decreased by $5.8 million or 4.7% to $117.4 million for 2023 from $123.2 million for 2022. This decrease was driven by market depreciation in prior years, partially offset by market appreciation and net inflows during 2023. Revenue for the fourth quarter of 2023 was flat year-over-year. Our financial results in the fourth quarter also were negatively affected by adjustments to total compensation for 2023 with total recurring cash compensation as a percentage of revenue rising to 59% from Silvercrest's typical interim accrual rate of 55%. Silvercrest completed the year with adjusted EBITDA of $26.9 million or 22.9% of revenue, down from $32 million or 26% revenue. Adjusted diluted earnings per share for 2023 was $1.12, down from $1.35 in 2022.
For the fourth quarter, adjusted EBITDA was $2.6 million or 9% of revenue, down from $4.4 million or 15.6% of revenue in the fourth quarter of 2022, both affected by fourth quarter adjustments. Adjusted diluted earnings per share for the fourth quarter was $0.07, down from $0.15 in the fourth quarter of 2022. With the AUM increases during the fourth quarter and so far in 2024, we expect a better environment in 2024. Silvercrest pipeline of new business opportunities have significantly improved since the fourth quarter of 2023. While the institutional search environment remains slow, Silvercrest's actionable institutional business pipeline has increased to $735 million. Silvercrest's Outsourced Chief Investment Officer or OCIO AUM has risen to $1.7 billion, which includes a new small college endowment.
The OCIO pipeline has increased to $585 million, and our consultant relationships have strengthened. Silvercrest has never been busy here with its new initiatives. We're focused on those new opportunities as well as investments to drive growth in the business, including value-added hires. Scott, that concludes my opening remarks. If you could cover financials. Thanks.
Scott Gerard : Great. Thanks, Rick. As disclosed in our earnings release for the fourth quarter, discretionary AUM as of the end of 2023 was $21.9 billion, and total AUM as of the same period was $33.3 billion. Revenue for the quarter was $28.5 million and reported consolidated net loss for the quarter was $0.6 million. Revenue for the fourth quarter was approximately $28.5 million was flat for the same period in the prior year. Expenses for the fourth quarter were $29.5 million, representing approximately a 21% increase from expenses of $24.4 million for the same period last year. This increase was primarily attributable to an increase in compensation and benefits expense of $4 million and general and administrative expenses of $1.2 million.
Compensation and benefits again, increased by $4 million or approximately 21% to $22.7 million for the fourth quarter from $18.7 million for the same period last year. The increase was primarily attributable to increases in bonuses of $3.5 million, salaries and benefits of $0.3 million, primarily as a result of merit-based increases and newly hired staff, and an increase in equity-based compensation of $0.2 million due to the granting of additional restricted stock units. General and administrative expenses increased by $1.1 million or approximately 20.8% to $6.8 million for the fourth quarter from $5.7 million for the same period in the prior year. This was primarily attributable to an adjustment to the fair value of contingent consideration related to the Cortina Acquisition of $0.8 million recorded during the three months ended December 31, 2022, an increase in the adjustment to the fair value of contingent consideration related to the Neosho acquisition of $0.3 million and also increases in occupancy and related costs and charitable donations, partially offset by a decrease in professional fees.
Reported consolidated net loss was $0.6 million for the quarter as compared to $3.3 million of net income in the same period in the prior year. Reported net loss attributable to Silvercrest or the Class A shareholders for the fourth quarter of 2023 was approximately $0.4 million or $0.05 and $0.04 per basic and diluted Class A share, respectively. Adjusted EBITDA, which we define as EBITDA without giving effect to equity-based compensation expense and non-core and non-recurring items, was approximately $2.6 million or 9% of revenue for the fourth quarter compared to $4.4 million or 15.6% of revenue for the same period in the prior year. Adjusted net income, which we define as net income without giving effect to non-core and non-recurring items and income tax expense assuming a corporate rate of 26%, was approximately $1 million for the quarter or $0.08 and $0.07 per adjusted basic and diluted earnings per share, respectively.
Adjusted earnings per share is equal to adjusted net income divided by the actual Class A and Class B shares outstanding as of the end of the reporting period for basic adjusted EPS. And to the extent dilutive, we add unvested RSUs and non-qualified stock options to the total shares outstanding to compute diluted adjusted EPS. Looking at the full year, revenue for the year was approximately $117.4 million, and that represented a 4.7% decrease from revenue of $123.2 million for the same period last year. This decrease was driven by market depreciation in prior years, partially offset by market appreciation and net client inflows during 2023. Expenses for the year ended December 31, 2023, were $98.6 million, representing approximately a 16% increase from expenses of $84.7 million for the same period last year.
This increase was primarily attributable to increases in compensation and benefits expense of $1 million and general and administrative expenses of $12.9 million. Compensation and benefits expense was approximately 1% higher at $72.6 million for 2023 compared to $71.6 million in 2022. The increase was primarily attributable to increases in equity-based compensation expense of $0.5 million due to an increase in the number of unvested restricted stock units and unvested non-qualified stock options outstanding and an increase in salaries and benefits expense of $1.3 million, primarily, again, as a result of merit-based increases and newly hired staff, partially offset by a decrease in the accrual for bonuses of $0.8 million. General and administrative expenses increased by $12.9 million to $26 million for 2023 compared to $13 million in 2022.
The increase was primarily attributable to increases in the fair value of contingent consideration related to the Cortina and the Neosho acquisitions of $11.8 million and $0.3 million, respectively, also increases in portfolio and systems expense, occupancy and related costs, marketing costs, depreciation and amortization and office expense. These increases were partially offset by lower professional fees, sub-advisory and referral fees and telephone and internet costs. Reported consolidated net income was $15.2 million for 2023 compared to $30.8 million in the same period in the prior year. Reported net income attributable to Silvercrest for the year ended 12/31/23 was approximately $9.1 million or $0.96 per basic and diluted Class A share.
Adjusted EBITDA was approximately $26.9 million or 22.9% of revenue for 2023 compared to $32 million or 26% of revenue for 2022. Lastly, adjusted net income was approximately $16.1 million for 2023 or $1.16 and $1.12 per adjusted basic and diluted EPS, respectively. Quickly looking at the balance sheet, total assets as of the end of 2023 were $199.6 million compared to $212.7 million at the end of 2022. Cash and cash equivalents were approximately $70.3 million at the end of '23 compared to $77.4 million at the end of 2022. Total borrowings as of the end of 2023 were $2.7 million. Total Class A stockholders' equity was approximately $82.7 million at the end of 2023. That concludes my financial remarks. I'll turn over to Rick for Q&A.
Richard Hough: Great. Thank you, Scott. Look forward to talking to anyone on the call. Thanks.
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