Silvercrest Asset Management Group Inc. (NASDAQ:SAMG) Q3 2023 Earnings Call Transcript

Silvercrest Asset Management Group Inc. (NASDAQ:SAMG) Q3 2023 Earnings Call Transcript November 3, 2023

Operator: Good morning and welcome to the Silvercrest Asset Management Group Inc. Q3 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event 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 the filings with the SEC under the caption Risk Factors.

For all such forward-looking statements, we claim the protection 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.

An empowered woman in the boardroom leading a discussion on the company's wealth & asset management strategy.

Richard Hough: Good morning and thanks for joining us for this third quarter 2023 results of Silvercrest. The uncertain and more volatile markets during this past quarter had an outsized effect on our assets under management, with Silvercrest concluding the quarter with a total AUM of $31.2 billion and discretionary AUM of $20.5 billion. The discretionary AUM, which primarily drives our revenue, decreased by $1 billion from the second quarter, and discretionary AUM has increased by $1.1 billion or 5.7% year-over-year since the third quarter of 2022. The firm's total AUM has increased by $3.8 billion or 13.9% year-over-year from $27.4 billion to $31.2 billion. Revenue increased 2.3% year-over-year for the third quarter of 2023 compared to the same period in 2022 and our revenue decreased 6.2% for the nine months ended September 30, 2023.

Most business metrics remain down on a year-over-year and year-to-date basis. Higher expenses during the third quarter this year negatively impacted our adjusted EBITDA and the adjusted EBITDA margin, and the year-to-date decline in revenue affected adjusted EBITDA, the adjusted EBITDA margin and our adjusted diluted earnings per share. But Silvercrest adjusted EBITDA margin of 26.9% and 27.3% for the three and nine months ended September 30 remains healthy for the company. Silvercrest pipeline of new business opportunities remains solid, but we have weakened since the second quarter. This is the result of slower decision-making, not lost opportunities for the firm. We attribute this to a changing and uncertain business environment, higher interest rates and geopolitical concerns.

We're focused on these new opportunities as well as investments to drive future growth in the business, including value-added hires. On October 31st, the company's Board of Directors declared a quarterly dividend of $0.19 per share of Class A common stock and that dividend will be paid on or about December 15th, 2023. With that I'll hand it over to Scott Gerard to go through our financials and then we will take questions. Thanks.

Scott Gerard: Great. Thanks, Rick. As disclosed in our earnings release for the third quarter, discretionary AUM as of September 30th of this year was $20.5 billion and total AUM as of the same date was $31.2 billion. Revenue for the quarter was $29.7 million and reported consolidated net income for the quarter was $5.4 million. Looking further at the quarter, again, revenue of $29.7 million represented approximately a 2% increase from revenue of approximately $29 million for the same period last year. This increase was driven by an increase in the average annual management fee based on the mix of discretionary and nondiscretionary assets. Expenses for the third quarter were $23.2 million, representing approximately a 6% increase from expenses of $21.9 million for the same period last year.

This increase was primarily attributable to an increase in G&A expenses of $0.8 million and an increase in compensation and benefits expense of $0.4 million. Looking further, comp and benefits expense increased approximately 3% to $16.7 million for the third quarter from $16.3 million for the same period last year. The increase was primarily attributable to an increase in 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 $0.1 million due to the granting of additional RSUs. General and administrative expenses increased by $0.8 million to $6.5 million for the third quarter from $5.7 million for the same period last year. This was primarily attributable to an adjustment to the fair value of contingent consideration related to the Cortina Acquisition of negative $0.3 million recorded during the third quarter of 2022, in addition to increases in portfolio and systems expense, travel and entertainment expense, occupancy, marketing expense as well.

And these were partially offset by lower professional fees. Reported consolidated net income was $5.4 million for the quarter as compared to $5.6 million in the same period last year. Reported net income attributable to Silvercrest or to Class A shareholders for the third quarter of this year was approximately $3.2 million or $0.34 per basic and diluted Class A share. Adjusted EBITDA, which we define as EBITDA without giving effect to equity-based compensation expense and noncore and nonrecurring items, was approximately $8 million or 26.9% of revenue for the quarter compared to $8.2 million or 28.1% of revenue for the same period in the prior year. Adjusted net income, which we define as net income without giving effect to noncore and nonrecurring items and income tax expense assuming a blended corporate rate of 26%, was approximately $5.1 million for the quarter or $0.37 and $0.36 per adjusted basic and diluted EPS, respectively.

Adjusted EPS 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 adjusted basic EPS and to the extent dilutive, we add unvested restricted stock units and nonqualified stock options to the total shares outstanding to compute diluted adjusted EPS. Looking at the nine months, of this year, revenue was approximately $88.9 million, and this was approximately a 6% decrease from revenue of approximately $94.7 million for the same period last year. This decrease was driven by a decrease in the average annual management fee based on the mix of discretionary and nondiscretionary assets, also market impacts as well. Expenses for the nine months ended September 30th of this year were $69.1 million, representing approximately a 15% increase from expenses of $60.3 million for the same period last year.

This increase was attributable to an increase in G&A expenses of $11.7 million, partially offset by a decrease in compensation and benefits expense of $2.9 million. Looking further, compensation and benefits expense represented approximately a 6% decrease to $50 million for the nine months ended September 30th of this year, from $52.9 million for the same period last year. The decrease was primarily attributable to a decrease in the accrual for bonuses of $4.3 million partially offset by an increase in salary and benefits expense of $1.1 million and an increase in equity-based compensation expense of $0.3 million. General and administrative expenses increased by $11.7 million to $19.1 million for year-to-date September 30th this year from $7.4 million for the same period last year.

This was primarily attributable to an adjustment to the fair value of contingent consideration related to Cortina of $10.9 million, and that was a negative $10.9 million, so a reduction to expense. That was recorded during the nine months ended September 30th of 2022. Increases in portfolio and systems expense, professional fees, occupancy, marketing and depreciation and amortization expense, partially offset by a decrease in sub advisory and referral fees. Reported consolidated net income was $15.8 million for year-to-date September 30th of this year compared to $27.5 million in the same period last year. Reported net income attributable to the Class A shareholders for year-to-date September 30th of this year was approximately $9.5 million or $1.01 and $1 per basic and diluted Class A share respectively.

Adjusted EBITDA was approximately $24.3 million or 27.3% of revenue for year-to-date September 30th this year compared to $27.6 million or 29.1% of revenue for the same period last year. Adjusted net income was approximately $15.1 million for year-to-date this year or $1.08 and $1.05 per adjusted basic and diluted EPS, respectively. Looking at the balance sheet. Total assets as of September 30th of this year were $191.3 million compared to $212.7 million as of the end of last year. Cash and cash equivalents were approximately $58.9 million as of September 30th this year compared to $77.4 million at the end of 2022. Total borrowings as of September 30th of this year were $3.6 million. Total Class A stockholders' equity was approximately $83.6 million as of September 30th this year.

That concludes my remarks. So I'll turn it over to Rick for Q&A.

Richard Hough: Great. Thanks, Scott. I look forward to taking questions at this time.

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