Silvercrest Asset Management Group Inc. Reports Q4 and Year-end 2019 Results

Silvercrest Asset Management Group Inc. (NASDAQ: SAMG) (the “Company” or “Silvercrest”) today reported the results of its operations for the quarter and year ended December 31, 2019. Investments

Business Update

Total assets under management at Silvercrest grew to $25.1 billion as of December 31, 2019, of which $18.8 billion comprised the firm’s discretionary assets under management. This represents new AUM highs for the firm, driven by the firm’s largest acquisition to date, strong equity markets, and new client accounts. These results culminated in a recovery of the business from the market lows of the fourth quarter of 2018.

We experienced good new account growth during Q4 and 2019. We had announced our expectation for near-term success of Silvercrest’s Outsourced Chief Investment Officer (OCIO) initiative during the latter half of 2019. We won our first OCIO clients during the third quarter of 2019. That strength continued into Q4 2019, during which the OCIO business doubled to $300 million in AUM and drove half of Silvercrest’s new client account growth during the quarter. We are proud of Silvercrest’s internally built OCIO capability and of growing that business from scratch. Our team and performance track record are strong, our new business pipeline is growing, and we expect continued success in the OCIO business during 2020. Fintech News

Silvercrest has a proven ability to continue attracting net positive asset flows into its high-quality equity capabilities, despite the industry-wide trend toward passive investment vehicles. Silvercrest now has $6.0 billion in total institutional asset management AUM. Each of Silvercrest’s equity strategies show strong 3- and 5-year track records, vital for attracting new institutional business. We now have fully integrated our institutional marketing teams and are excited to bring our small cap growth capabilities to market.

Silvercrest has recently invested in new high net worth portfolio management professionals to support organic growth of that business and to diversify the firm’s talent. Silvercrest has a track record of growing new talent and will continue to do so. The current M&A environment for wealth management firms remains active and expensive. We believe our brand, culture, capabilities and technological innovation make Silvercrest a premier partner for select businesses and professionals. Regardless of the environment, Silvercrest will opportunistically seek to effectively deploy capital to complement our organic growth.

Fourth Quarter 2019 Highlights

• Total Assets Under Management (“AUM”) of $25.1 billion, inclusive of discretionary AUM of $18.8 billion and non-discretionary AUM of $6.3 billion at December 31, 2019.
• Revenue of $27.8 million.
• U.S. Generally Accepted Accounting Principles (“GAAP”) consolidated net income and net income attributable to Silvercrest of $4.2 million and $2.4 million, respectively.
• Basic and diluted net income per share of $0.26.
• Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)¹ of $7.3 million.
• Adjusted net income¹ of $4.5 million.
• Adjusted basic and diluted earnings per share^{1, 2} of $0.31.

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

AUM at $25.1 billion

Silvercrest’s discretionary assets under management increased by $4.6 billion, or 32.4%, to $18.8 billion at December 31, 2019 from $14.2 billion at December 31, 2018.  The increase was attributable to net client inflows of $1.7 billion in addition to market appreciation of $2.9 billion.  Silvercrest’s total AUM increased by $6.1 billion, or 32.1%, to $25.1 billion at December 31, 2019 from $19.0 billion at December 31, 2018.  The increase was attributable to net client inflows of $1.9 billion in addition to market appreciation of $4.2 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.

Fourth Quarter 2019 vs. Fourth Quarter 2018

Revenue increased by $3.0 million, or 12.1%, to $27.8 million for the three months ended December 31, 2019, from $24.8 million for the three months ended December 31, 2018. This increase was driven primarily by the acquisition of Cortina in July 2019.  Revenue for the three months ended December 31, 2019 related to the Cortina Acquisition was approximately $3.1 million.

Total expenses increased by $4.1 million, or 20.9%, to $23.7 million for the three months ended December 31, 2019 from $19.6 million for the three months ended December 31, 2018. Compensation and benefits expense increased by $3.4 million, or 23.9%, to $17.6 million for the three months ended December 31, 2019 from $14.2 million for the three months ended December 31, 2018. The increase was primarily attributable to an increase in salaries and benefits expense of $0.6 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 $3.4 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 increased by $0.8 million, or 14.8%, to $6.1 million for the three months ended December 31, 2019 from $5.4 million for the three months ended December 31, 2018. The increase was primarily attributable to an increase in depreciation and amortization expense of $0.4 million primarily related 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 $0.2 million, an increase in legal and other professional fees of $0.1 million related to the Cortina Acquisition, an increase in portfolio and systems expenses of $0.1 million due to an increase in accrued soft dollar-related research costs, an increase in travel and entertainment costs of $0.1 million, an increase in the fair value of earnout payments related to the acquisition of Jamison Eaton & Wood, Inc. (“Jamison”) of $0.2 million and an increase in the fair value of earnout payments related to the acquisition of Cortina of $0.2 million.  This was partially offset by a decrease in the fair value of earnout payments related to the acquisition of Neosho Capital, LLC (“Neosho”) of $0.3 million and a decrease in the fair value of earnout payments related to the acquisition of Cappiccille & Company, LLC (“Cappiccille”) of $0.1 million.

Consolidated net income was $4.2 million or 15.1% of revenue for the three months ended December 31, 2019 as compared to $5.2 million or 21.1% of revenue for the same period in the prior year.  Net income attributable to Silvercrest was $2.4 million, or $0.26 per basic and diluted share for the three months ended December 31, 2019.   Our Adjusted Net Income¹ was $4.5 million, or $0.31 per adjusted basic and diluted share² for the three months ended December 31, 2019.

Adjusted EBITDA¹ was $7.3 million or 26.3% of revenue for the three months ended December 31, 2019 as compared to $8.6 million or 34.6% of revenue for the same period in the prior year.

Year Ended December 31, 2019 vs. Year Ended December 31, 2018

Revenue increased by $3.5 million, or 3.5%, to $102.2 million for the year ended December 31, 2019, from $98.7 million for the year ended December 31, 2018. This increase was driven by net client inflows in discretionary assets under management, including $1.7 billion of assets under management in connection with the acquisition of certain assets of Cortina, and an increase in family office services.

Total expenses increased by approximately $5.8 million, or 7.4%, to $83.3 million for the year ended December 31, 2019 from $77.5 million for the year ended December 31, 2018. Compensation and benefits expense increased by $2.1 million, or 3.6%, to $60.0 million for the year ended December 31, 2019 from $57.9 million for the year ended December 31, 2018. The increase was primarily attributable to an increase in salaries and benefits expenses of $2.5 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 $0.6 million, partially offset by a decrease in equity based compensation expense of $1.0 million due to a decrease in the number of unvested restricted stock units and unvested non-qualified stock options outstanding.  General and administrative expenses increased by $3.6 million, or 18.7%, to $23.2 million for the year ended December 31, 2019 from $19.6 million for the year ended December 31, 2018. This increase was primarily due to an increase in occupancy and related costs of $0.7 million mainly due to an increase in rent expense associated with the extension of the lease for our office space in New York City, an increase in the fair value of earnout payments related to the acquisition of Jamison of $0.2 million, an increase in the fair value of earnout payments related to the acquisition of Cortina of $0.2 million, an increase in professional fees of $1.3 million due to an increase in acquisition-related legal fees, an increase in portfolio and systems expenses of $0.5 million due to an increase in accrued soft dollar-related research costs, an increase in depreciation and amortization of $0.8 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 moving and storage costs of $0.4 million related to the renovations of our office space in New York City, an increase in travel and entertainment related expense of $0.4 million and an increase in office expense of $0.1 million.  This was partially offset by a decrease in recruiting costs of $0.4 million, a decrease in the fair value of earnout payments related to the acquisition of Neosho of $0.3 million, a decrease in the fair value of earnout payments related to the acquisition of Cappiccille of $0.1 million and a decrease in sub-advisory and referral fees of $0.1 million.

Consolidated net income was $15.4 million or 15.1% of revenue for the year ended December 31, 2019 as compared to $17.4 million or 17.6% of revenue for the same period in the prior year.  Net income attributable to Silvercrest was $8.6 million, or $0.98 per basic and diluted share for the year ended December 31, 2019.   Our Adjusted Net Income¹ was $16.9 million, or $1.18 per adjusted basic share and $1.17 per adjusted diluted share² for the year ended December 31, 2019.

Adjusted EBITDA¹ was $28.6 million or 28.0% of revenue for the year ended December 31, 2019 as compared to $29.6 million or 30.0% of revenue for the same period in the prior year.

Liquidity and Capital Resources

Cash and cash equivalents were $52.8 million at December 31, 2019, compared to $69.3 million at December 31, 2018.  As of December 31, 2019, there was $16.2 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 $65.0 million at December 31, 2019.  We had 9,329,879 shares of Class A common stock outstanding and 5,031,017 shares of Class B common stock outstanding at December 31, 2019.

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 March 6, 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 report contains, and from time to time our management may make, forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. 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: 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, 2018 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.