Silvercrest Asset Management Group Inc. Reports Q1 2020 Results

NEW YORK, April 30, 2020 /PRNewswire/ -- Silvercrest Asset Management Group Inc. (NASDAQ: SAMG) (the "Company" or "Silvercrest") today reported the results of its operations for the quarter ended March 31, 2020.

Business Update

Silvercrest entered the first quarter of 2020, prior to the coronavirus pandemic and market dislocation, with successful execution of its business strategy; complete integration of its new growth equity strategies; organic growth in its Outsourced Chief Investment Officer  ("OCIO") business; and a new high in assets under management, representing a full recovery from the market lows of late 2018. In the midst of the unprecedented economic disruption of the viral pandemic, Silvercrest concluded the first quarter of 2020 with $20.6 billion in assets under management, a year-over-year decrease of $0.2 billion from the first quarter of 2019. Much greater market depreciation of $2.2 billion over that time was mostly offset by client inflows of $2.0 billion over the same period. Revenue, net income, adjusted net income and adjusted EBITDA margins¹, and GAAP and adjusted earnings per share¹ each increased substantially year over year.

Silvercrest has always maintained a high-quality balance sheet and substantial cash reserves, both to preserve flexibility for new growth opportunities and to weather market volatility inherent in the business due to severe market corrections or exogenous events such as the current pandemic. Silvercrest reported $32.8 million in cash and cash equivalents as of March 31, 2020, and carries a manageable level of debt of $15.3 million as of March 31, 2020. Silvercrest currently pays a generous quarterly dividend of $0.16, or an annual dividend of $0.64, per Class A share of common stock.  The firm anticipates that it can support the current dividend for a sustained period of time even while continuing to invest in the business.

I am pleased to report that during the first quarter of 2020, the firm seamlessly transitioned its entire business to operate remotely. The firm long prepared for disaster recovery and business continuity. Silvercrest's critical technology infrastructure was already cloud-based and operating remotely prior to the crisis. Silvercrest was unusually well-prepared. Our firm was founded in the wake of the Tech Bubble crash and post-9/11. Our partners have a long-term vision, and we experienced the Global Financial Crisis as a relatively young firm, flourishing afterward. Our firm's partners have the fortitude to guide our clients with mature, steady hands. While the current pandemic has caused great suffering, it also represents an opportunity to solidify our relationships and prove the value of our organization and its capabilities.

The first quarter of 2020 experienced net positive organic flows, which includes $163 million in new client accounts. Silvercrest has maintained a proven ability over time to continue attracting net positive asset flows, despite industry-wide trends, and we remain proud of our ability to continue growing the business, even during difficult environments. Last quarter, we announced that our first OCIO clients had provided half of Silvercrest's new client account growth. That business continues to develop new opportunities, we are proud of growing that business from scratch, and we expect continued success.

The current economic environment is stressful and the market represents a step backward for our business, as with many others, potentially slowing new business activity. Nonetheless, Silvercrest has successfully made investments—and will continue to make investments—in new high net worth portfolio management professionals: marketing its institutional-quality equity strategies, and pursuing its OCIO initiative. Regardless of the environment, Silvercrest will continue to opportunistically seek to effectively deploy capital to enhance and complement its organic growth.

On April 28, 2020, the Company's Board of Directors declared a quarterly dividend of $0.16 per share of Class A common stock. The dividend will be paid on or about June 19, 2020 to shareholders of record as of the close of business on June 12, 2020.

First Quarter 2020 Highlights

• Total Assets Under Management ("AUM") of $20.6 billion, inclusive of discretionary AUM of $14.9 billion and non-discretionary AUM of $5.7 billion at March 31, 2020.
• Revenue of $28.4 million.
• U.S. Generally Accepted Accounting Principles ("GAAP") consolidated net income and net income attributable to Silvercrest of $9.7 million and $5.5 million, respectively.
• Basic and diluted net income per share of $0.59.
• Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")¹ of $8.2 million.
• Adjusted net income¹ of $5.1 million.
• Adjusted basic and diluted earnings per share^{1, 2} of $0.36.

The table below presents a comparison of certain GAAP and non-GAAP ("adjusted") financial measures and AUM.

AUM at $20.6 billion

Silvercrest's discretionary assets under management decreased by $0.4 billion, or 2.6%, to $14.9 billion at March 31, 2020 from $15.3 billion at March 31, 2019.  The decrease was attributable to market depreciation of $2.6 billion partially offset by net client inflows of $2.2 billion.  Silvercrest's total AUM decreased by $0.2 billion, or 1.0%, to $20.6 billion at March 31, 2020 from $20.8 billion at March 31, 2019.  The decrease was attributable to market depreciation of $2.2 billion partially offset by net client inflows of $2.0 billion.

On July 1, 2019, Silvercrest acquired $1.7 billion of assets under management in connection with the acquisition of certain assets of Cortina Asset Management, LLC ("Cortina" and the "Cortina Acquisition"), which is included in net client inflows.

First Quarter 2020 vs. First Quarter 2019

Revenue increased by $5.8 million, or 25.7%, to $28.4 million for the three months ended March 31, 2020, from $22.6 million for the three months ended March 31, 2019. This increase was driven by net client inflows in discretionary assets under management, including $1.7 billion in assets under management acquired on July 1, 2019 in connection with the Cortina Acquisition, partially offset by net client outflows and market depreciation. Cortina revenue for the three months ended March 31, 2020 was $2.9 million. Revenue for the quarter ended March 31, 2020 is primarily based on market values as of the end of the prior quarter, and as such was not affected by declines in the financial markets caused by the coronavirus (COVID-19) pandemic during the quarter ended March 31, 2020. 

Total expenses decreased by $2.8 million, or 15.2%, to $15.8 million for the three months ended March 31, 2020 from $18.6 million for the three months ended March 31, 2019. Compensation and benefits expense increased by $2.4 million, or 17.5%, to $15.7 million for the three months ended March 31, 2020 from $13.4 million for the three months ended March 31, 2019. The increase was primarily attributable to an increase in salaries and benefits expense of $0.9 million primarily as a result of merit-based increases and newly hired staff, including the addition of Cortina staff and an increase in the accrual for bonuses of $2.2 million, partially offset by a decrease in equity based compensation expense of $0.7 million due to a decrease in the number of unvested restricted stock units and unvested non-qualified stock options outstanding.  General and administrative expenses decreased by $5.2 million, or 99.2%, to $43 thousand for the three months ended March 31, 2020 from $5.2 million for the three months ended March 31, 2019. The decrease was primarily attributable to a decrease in the fair value of contingent consideration related to the Cortina Acquisition of $6.0 million partially offset by an increase in professional fees of $0.1 million due to an increase in acquisition-related professional fees resulting from the Cortina Acquisition, an increase in depreciation and amortization expense of $0.5 million related mainly to the amortization of intangible assets related to the Cortina Acquisition and to the renovation of our office space in New York City, an increase in occupancy and related expenses of $0.1 million and an increase in the fair value of contingent consideration related to our acquisition of certain assets of Cappiccille & Company, LLC in January 2016 (the "Cappiccille Acquisition") of $0.1 million.

Consolidated net income was $9.7 million or 34.2% of revenue for the three months ended March 31, 2020 as compared to $3.0 million or 13.5% of revenue for the same period in the prior year.  Net income attributable to Silvercrest was $5.5 million, or $0.59 per basic and diluted share for the three months ended March 31, 2020.   Our Adjusted Net Income¹ was $5.1 million, or $0.36 per adjusted basic and diluted share² for the three months ended March 31, 2020.

Adjusted EBITDA¹ was $8.2 million or 29.0% of revenue for the three months ended March 31, 2020 as compared to $5.8 million or 25.5% of revenue for the same period in the prior year.

Liquidity and Capital Resources

Cash and cash equivalents were $32.8 million at March 31, 2020, compared to $52.8 million at December 31, 2019.  As of March 31, 2020, there was $15.3 million outstanding under our term loan with City National Bank, and nothing outstanding on our revolving credit facility with City National Bank. 

Total Silvercrest Asset Management Group Inc.'s equity was $69.8 million at March 31, 2020.  We had 9,505,765 shares of Class A common stock outstanding and 4,855,131 shares of Class B common stock outstanding at March 31, 2020.

Non-GAAP Financial Measures

To provide investors with additional insight, promote transparency and allow for a more comprehensive understanding of the information used by management in its financial and operational decision-making, we supplement our consolidated financial statements presented on a basis consistent with GAAP with Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Earnings Per Share which are non-GAAP financial measures of earnings.  These adjustments, and the non-GAAP financial measures that are derived from them, provide supplemental information to analyze our operations between periods and over time. Investors should consider our non-GAAP financial measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.

• EBITDA represents net income before provision for income taxes, interest income, interest expense, depreciation and amortization.
• We define Adjusted EBITDA as EBITDA without giving effect to the Delaware franchise tax, professional fees associated with acquisitions or financing transactions, gains on extinguishment of debt or other obligations related to acquisitions, impairment charges and losses on disposals or abandonment of assets and leaseholds, client reimbursements and fund redemption costs, severance and other similar expenses, but including partner incentive allocations, prior to our initial public offering, as an expense. We feel that it is important to management and investors to supplement our consolidated financial statements presented on a GAAP basis with Adjusted EBITDA, a non-GAAP financial measure of earnings, as this measure provides a perspective of recurring earnings of the Company, taking into account earnings attributable to both Class A and Class B shareholders.
• Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by total revenue. We feel that it is important to management and investors to supplement our consolidated financial statements presented on a GAAP basis with Adjusted EBITDA Margin, a non-GAAP financial measure of earnings, as this measure provides a perspective of recurring profitability of the Company, taking into account profitability attributable to both Class A and Class B shareholders.
• Adjusted Net Income represents recurring net income without giving effect to professional fees associated with acquisitions or financing transactions, losses on forgiveness of notes receivable from our principals, gains on extinguishment of debt or other obligations related to acquisitions, impairment charges and losses on disposals or abandonment of assets and leaseholds, client reimbursements and fund redemption costs, severance and other similar expenses, but including partner incentive allocations, prior to our initial public offering, as an expense. Furthermore, Adjusted Net Income includes income tax expense assuming a blended corporate rate of 26%. We feel that it is important to management and investors to supplement our consolidated financial statements presented on a GAAP basis with Adjusted Net Income, a non-GAAP financial measure of earnings, as this measure provides a perspective of recurring income of the Company, taking into account income attributable to both Class A and Class B shareholders.
• Adjusted Earnings Per Share represents 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 Earnings Per Share, and to the extent dilutive, we add unvested restricted stock units and non-qualified stock options to the total shares outstanding to compute diluted Adjusted Earnings Per Share. As a result of our structure, which includes a non-controlling interest, we feel that it is important to management and investors to supplement our consolidated financial statements presented on a GAAP basis with Adjusted Earnings Per Share, a non-GAAP financial measure of earnings, as this measure provides a perspective of recurring earnings per share of the Company as a whole as opposed to being limited to our Class A common stock.

Conference Call

The Company will host a conference call on May 1, 2020, at 8:30 am (Eastern Time) to discuss these results. Hosting the call will be Richard R. Hough III, Chief Executive Officer and President and Scott A. Gerard, Chief Financial Officer. Listeners may access the call by dialing 1-877-317-6789 or for international listeners the call may be accessed by dialing 1-412-317-6789.  An archived replay of the call will be available after the completion of the live call on the Investor Relations page of the Silvercrest website at http://ir.silvercrestgroup.com/.

Forward-Looking Statements and Other Disclosures

This press release may contain forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, each as amended. In some cases, you can identify these statements by forward-looking words such as "may", "might", "will", "should", "expects", "intends", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue", the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions, may include projections of our future financial performance, future expenses, anticipated growth strategies, descriptions of new business initiatives and anticipated trends in our business or financial results. These statements are only predictions based on our current expectations and projections about future events. Important factors that could cause actual results, level of activity, performance or achievements to differ materially from those indicated by such forward-looking statements include but are not limited to: declines in the financial markets and/or disruption in our operations caused by the coronavirus (COVID-19) pandemic, incurrence of net losses, fluctuations in quarterly and annual results, adverse economic or market conditions, our expectations with respect to future levels of assets under management, inflows and outflows, our ability to retain clients from whom we derive a substantial portion of our assets under management, our ability to maintain our fee structure, our particular choices with regard to investment strategies employed, our ability to hire and retain qualified investment professionals, the cost of complying with current and future regulation coupled with the cost of defending ourselves from related investigations or litigation, failure of our operational safeguards against breaches in data security, privacy, conflicts of interest or employee misconduct, our expected tax rate, and our expectations with respect to deferred tax assets,  adverse economic or market conditions, incurrence of net losses, adverse effects of management focusing on implementation of a growth strategy, failure to develop and maintain the Silvercrest brand and other factors disclosed under "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2019 which is accessible on the SEC's website at www.sec.gov.  We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

About Silvercrest

Silvercrest was founded in April 2002 as an independent, employee-owned registered investment adviser. With offices in New York, Boston, Virginia, New Jersey, California and Wisconsin, Silvercrest provides traditional and alternative investment advisory and family office services to wealthy families and select institutional investors. For more information, visit http://silvercrestgroup.com/.

SOURCE Silvercrest Asset Management Group Inc.