Q1 2021 Silvercrest Asset Management Group Inc Earnings Call
Good morning, and welcome to the Silvercrest asset Management Group, Inc quarter, One 2021 earnings conference call.
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Please note this event is being recorded.
Before we begin let me remind you that during today's call statements made regarding the future performance.
Forward looking statements.
And based on the 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.
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 date hereof debt.
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.
Great. Thanks, very much for the introduction and welcome to the first quarter results from 2021 for Silvercrest, having been founded and Australia 2000 to Silvercrest has now begun its 20th year on business, which will culminate in our 20th anniversary celebration and April of 2022 next year Silvercrest founders and partners embarked.
And on an entrepreneurial journey to create the foremost wealth and asset management and boutique in the United States.
We are proud of having created and enduring firm founded on bedrock principles as well as the straw and proud culture, we remain dedicated to putting our clients first and creating a business that serves as clients and highly regarded institutional volume capabilities for generations. We concluded the first quarter of 2021 and begin our 20th year in business with new <unk>.
And our asset management revenue and adjusted EBITDA, Silvercrest discretionary AUM, which drives revenue increased six 3% from the fourth quarter of 2020 to reach $21 9 billion.
Which is an increase as well on 47% year over year from the first quarter of 2020, the firm's totally AUM grew to $29 billion by the end of the first quarter of 2021 Silvercrest concluded the first quarter of this year with $31 2 million and revenue and the firm's quarterly adjusted EBITDA was $9.
7 million.
Or and annualized adjusted EBITDA run rate of $38 8 million adjusted diluted earnings per share increased 16, 7% year over year to 42.
And that's per adjusted diluted share the firm's first quarter of 2021, adjusted EBITDA margin was 39% with strong relative performance silvercrest institutional equity and new business opportunities continue to grow across silvercrest suite of proprietary equity capabilities, our new sub advisory relationships added asked.
And the first quarter of 2021, we are optimistic about our growth prospects for this business with a robust new business pipeline Silvercrest organically built outsourced chief investment officer offering continues to grow and its pipeline of opportunities has increased as well.
That business more than doubled during 2020, and we hope to cross the important 1 billion AUM.
Threshold during 2021.
We've hired new high net worth portfolio management professionals for the wealth management business and we'll continue to add new talent, both and maintain a high level of client service and to grow the business Silvercrest has a track record of growing new talent and we'll continue to do so 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 continue to seek to effectively deploy capital and complement organic growth.
Upon launching our 20th year, we remain on insurance tested team with a long term vision intent on building a business upon a sustainable and enduring platform as with industry consolidation and 20 years ago, there's not unprecedented change and technology asset management and their wages consolidation and once again threatened and business models dedicate.
And to the best interest of the client.
We have a lot to accomplish to continue building the premier wealth and asset management and taken the nation Silvercrest has implemented a successful long term organic growth plan and we plan to continue that growth trajectory and high cash flow generation, both organically and through careful strategic acquisitions on may.
And fourth 2021, our board of directors declared a quarterly dividend of <unk> 16 per share and class a common stock and that dividend will be paid on or about June 18th of this year to shareholders of record as of the close of business on June 11.
And with those introductory remarks, I will now turn it over to Scott Gerard to review the financials and then we will open it up for questions Scott. Thanks, Greg.
As disclosed in our earnings release for the first quarter discretionary AUM.
And as of March 31, 2021, and was $21 9 billion and total AUM as of March 31, and 2021 was 29 billion revenue for the quarter was $31 2 million and reported consolidated net income for the quarter was $4 3 million.
And looking more specifically at the quarters year over year again in the first quarter revenue was approximately $31 2 million debt represented a 10% increase over revenue of approximately $28 4 million from the same period last year. This increase was driven primarily by market appreciation.
Really offset by net client outflows and discretionary AUM.
Expenses for the first quarter were $25 5 million debt represented approximately 62% increase from expenses of $15 8 million compared to same period last year. This increase was primarily attributable to increases and G&A expenses and compensation and benefits expense.
$9 million and $1 9 million respectively.
And benefits expense increased by $1 9 million or approximately 12% to $17 6 million for the three months ended March 31 this year.
And that was an increase from 15 point.
$7 million for the three months ended March 31 of last year. The increase was primarily attributable to increases and the accrual for bonuses and salaries and benefits expense, primarily as a result, and merit based increases and newly hired staff and equity based compensation expense due to an increase and the number of unvested.
And stock units and Unvested nonqualified stock options outstanding.
G&A increased by $7 9 million to $7 9 million for the three months ended March 31, and this year from 43000 for three months ended March 31st of last year. This was primarily driven by increases and the fair value of contingent consideration really.
Ladies and <unk> acquisition of the $8 3 million. In addition, there were some increases in occupancy and related expenses and professional fees, which were partially offset by decreases in travel and entertainment expense as a result of the pandemic and portfolio and systems expense.
Consolidated net income was $4 $3 million per quarter as compared to $9 7 million and the same period last year.
<unk> net income attributable to silvercrest or to class a shareholders for <unk>.
First quarter of this year was approximately $2 6 million or <unk> 26 cents per basic and diluted class a share and.
Adjusted EBITDA, which we define as EBITDA without giving effect to equity based compensation expense and non core and nonrecurring items was approximately $9 7 million or 39% of revenue for the quarter compared to $8 2 million or 29% of revenue from the same period last year.
Adjusted net income, which we defined as net income without giving effect to noncore and nonrecurring items and income tax expense, assuming a corporate rate of 26% was approximately $6 2 million per quarter or <unk> 43, <unk> 42 per adjusted basic and diluted earnings per share risk.
Secondly, <unk>.
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 had unvested restricted stock units and nonqualified stock options to the total shares outstanding to compute diluted.
Adjusted EPS.
Taking a quick look at the balance sheet total assets were approximately $192 2 million as of March 31, this year compared to $213 8 million as of the end of last year cash.
Cash and cash equivalents were approximately $42 6 million at March 31, and 2021 and this compared to $62 5 million at December 31 of last year keep in mind, our cash at March 31 of this year's net in 2020 related incentive compensation paid during the first quarter.
And of 2021.
Total borrowings as of March 31 of this year were $11 7 million and total class a stockholders equity was approximately $71 8 million as of the end of the first quarter of this year that concludes my remarks, I'll turn the call over to Rick for Q&A. Thanks, very much Scott we're now.
I will take questions at this time.
Yes.
We will now begin the question and answer session to ask a question you May Press Star then one on your phone.
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At this time, we will pause momentarily to assemble our roster.
Yes.
Yes.
Our first question comes from Puneet <unk> with Piper Sandler.
Sandler. Please go ahead.
Hey, Thanks. Good morning, guys just wanted to maybe start with the institutional pipeline can you update us on that six months D. The actionable pipeline today, how much of that is related to <unk> and then can you update us on the current size of the OCI on platform and kind of your confidence level of reaching that 1 billion threshold.
Here as well.
Yeah.
We don't normally break out the pipeline for OCA and separately from all of the.
From the institutional business, but that pipeline has grown and.
I don't want to get into this every quarter I'd, rather just talk about the institutional business as a whole.
But.
And we see $800 million in reach for its climbing up towards that in terms of total AUM and.
And the pipeline has grown and I have a high confidence that we will cross the $1 billion threshold.
Got it.
And with regard to the rest of the institutional business, including <unk>. The actionable six month pipeline, which we very conservatively measure that includes invite only searches and where we're and semi finals finals.
Those.
And does have grown substantially as of the beginning of the first quarter. The pipeline was $1 34 billion and if you may.
Recall and it now stands at $1 8 billion and Thats grown completely across our product suite CIO U S value U S growth international.
That's great.
And I.
Just wanted to touch on the organic growth and the quarter as well.
Between the closed accounts and the net cash outflows it looks like about 500000 of outflows there could you unpack that a little bit.
How much was related to taxes at all and should we expect the second quarter to see more kind of a normalized tax outflow and that quarters.
Right. So that gets complicated is very hard to get our arms around the taxes may look like and when they actually flow it tends to be something that we see more and the second quarter.
And then the first we actually had a very good business development quarter in terms of our new accounts.
And and additional monies into debt for our from our high net worth clients and in fact, it was pretty good on the institutional business.
On the the negative outflow that we see this quarter is solely effectively due to debt.
The closing of the AMG and mutual fund.
Debt that we sub advised AMG as you may well know from the news decided to terminate all of this external managers. Despite a good performance silvercrest was among them and I'm really not going to comment more on that beyond and.
And of our outside counsel.
Got it Okay, and then and then last one from me and I'll hop back on the Q I noticed you guys did not increase the dividend this year and I'm wondering if you could elaborate on the strategy of the payout or you're kind of maintaining a minimum yield are kind of aiming for target and then maybe just talk about the capital allocation a little bit more broadly.
And as the focus still kind of targeted hiring and and team lift outs or you're kind of having some more positive conversations on the M&A side at all.
Yes, thanks, and excuse the lack of perhaps this answer so.
We didnt raise the dividend again, we said and reached the yield on our stock that we think is highly favorable.
And that it might be pushing on our strength to continue increasing that dividend.
And therefore distributions at this time.
We have had a policy of both consistently Inc.
Increasing the dividend and the past as well as being very conservative with the amount of cash flow or upstream Inc. In order to pay that dividend.
And.
While cash flow is a very robust and as you've seen we're reaching all time highs with regards to that.
So the company, we've just feel like the the amount that we're paying out and dividends is highly favorable and.
We have other uses for the capital instead at this time and so.
We do have conversations going on force.
And for us on the M&A front, and that's always been a constant here.
And no prediction on one one could fall, but you may recall in 2019, all of a sudden we had a tremendous amount of cash to put to use when we joined with our great colleagues and Milwaukee and.
That can happen at any time, and it's pretty important for our company.
This side so yes.
GAAP net potential use of cash that we're keeping our eye on it.
In terms of obviously hires do.
Do affect our cash flow, but not necessarily the large cash reserves that we have on the balance sheets and so we are looking strongly at other alternatives for use of cash.
Include ways of returning capital to shareholders, including buybacks.
And instead of just the dividend and that's a conversation that the board has on a regular basis and.
And is considering as part of our capital allocation strategy.
Okay, great. Thanks rich.
Our next question is going to come from Sandy Mehta with evaluate research. Please go ahead.
Good morning, congratulations on the strong results.
And in.
In terms of some of the you mentioned a new portfolio management professionals were hired could you give some more color in terms of are they more on the client relationship side marketing side or are they are.
On the new strategy side possible, new products and strategies.
Yeah, Thanks, Andy so.
It's actually on both fronts.
You may recall that we launched a new large cap and multi cap growth strategy with our great colleagues and Milwaukee.
And we felt that they have a robust analysts team that has been proven to provide really great results and we see the opportunity to go up and the market cap spectrum. So we hired a very talented senior portfolio manager to lead that product development with the team there and large and multi cap.
And Andy Young and.
And.
That higher was towards the end of last year again, we opened that strategy up for investing as of January one both multi cap and large cap.
On the other side more of the hires and occurred both at the junior.
Level mid career kind of.
Early career level to become full fledged portfolio managers.
On the high net worth side or at our firm. We don't have people. We just call relationship managers are portfolio managers.
Have a lot of responsibility from the actual investment work on behalf of our clients they are investment professionals.
They are not.
I'd like to say, they and not show ponies, who are good and taking people that launch so we called and portfolio managers, because they deserve that title.
More of the hiring has been occurring on that side.
We hired.
A few over the past year year, and a half we have more and that we're speaking to and.
I would expect more hires this year.
It should be noted that despite those hires to growth of the firm has allowed us to.
B B pretty conservative.
With regards to the percentage of revenue that we're paying out and compensation.
Despite the growth and head count we've been able to maintain that ratio pretty on a pretty stable basis and so on my comments earlier. This morning had to do with those those hires over the past year.
Year, maybe a bit longer depending who you look at and.
The prospects for more occurring this year.
The growth in the first quarter ex what happened with AMG was actually pretty good and some of that growth of course was due to the fact that we've got new talent, who are marketing to new high net worth clients.
So it's a broad statement across the firm, but the weight of it was to the high net worth side, especially considering that we acquired new portfolio management from the from the equity analysis side on the eight year and a half a day.
So.
So the hiring of Andy Yeung and the other people in Milwaukee, you mentioned large cap growth would that be a new strategy then.
So the the Milwaukee hiring was was.
And basically Andy Yeung.
Because we already have at the analyst team to support the effort, but yes, it's a new strategy. We launched in January one of this year.
Great. Okay. Thank you.
You're welcome Sandy.
And again, if you have a question. Please press star and then one to join the queue and the next question comes from Christopher <unk> of Janney Montgomery Scott. Please go ahead.
Thanks, Good morning, Rick and Scott and just wanted to cover the EBITDA on the EBITDA margin and to what extent there was any seasonal factors and that just made sense from strong this quarter.
Yes, I'll, let Scott take that.
We've been consistently bumping offer maybe at our best growing just over 30.
And I'll, let Scott addressed the seasonality and the 98 address and more broadly afterwards, yeah. How are you.
For the first quarter of this year there are certain expense benefits that we've had such as travel and entertainment and expense and other client related expenses that have been.
Continue the superficially low due to the pandemic, so on and incremental basis, those definitely helped the margin.
And sometimes there is some other seasonality regarding and the first quarter regarding our audit expense because it's based on the level of provision of service and the lion's share of our annual audit takes place during the first quarter. So that will definitely have an impact to some extent, but this year.
And it was consistent through 2020 as well there are a lot of client related expenses and travel expense.
And at really low levels because of the environment.
And just generally and just generally speaking about our EBITDA margin if you look historically.
Our best margins tend to just go over 30% often driven by performance fees and the fourth quarter.
Because thats just a great Guinea with no associated expenses I have long said that in this business of your reinvest investing and growing the business.
It's hard to maintain much above <unk> 30, or <unk> 30 on an ongoing basis and that if you're really investing and the business you might not debt down a few clicks.
Used to say.
And the past Hey, maybe we have to have a 24, 25% EBITDA margin as we make investments in future growth of that more than pays for itself.
Given the growth of the company over time since I first started saying that it's probably not four or five basis points and maybe only a couple of that because just.
Just the size.
The cash flow was that much larger.
I would consider this.
Trending towards the high side for us and I wouldn't be surprised to see that cycle down just a bit as we make investments, especially personnel, yes, just to state the obvious.
Yes, the country opens up more and we have greater access to meet with clients and <unk>.
<unk>.
And more travel.
And as those types of expenses I would expect to increase and more normalized levels and that leads to growth suites. It's very important that we get out there and seeing new prospects.
I Didnt mentioned, the high net worth pipeline, but we've seen more and more activity.
Towards the end of this first quarter, leading into the second quarter and I think it's partly a reflection of people opening up and and thinking about things.
And as their lives change with the rest of the country.
Great. That's super helpful. Thanks, very much and I guess one question I had is given sort of recent events system and general asset management industry and the first quarter share.
Greater focus on compliance when some external events happen and therefore that actually supports the Ci.
And <unk> business that you are trying to do.
So.
I think I don't know.
It's a real change and compliance that's driving it but there is definitely a long term trend.
Board members, who are acting as fiduciaries on behalf of either institutions, whether thats, an endowment and nonprofit pension fund to be much more aware of their fiduciary duties to their clients and to outsource the investment function and professionals.
And so that they have somebody to hold accountable for.
The performance and actions that are being undertaken on behalf of.
The investment pool or or clients and and that trend is is not just.
And one that's been with US now for quite some time I would argue it's accelerating.
And it's accelerating and part because I think with technological tools.
And the ability for.
Sophistication for these kinds of portfolios to be much more profound I think more and more boards are finding that they can't do it on their own quite frankly or engage the kinds of professionals internally that are required to compete in this marketplace and are therefore, and looking more and more debt outside people with proof.
And track Records.
On the.
And the compliance burdens on our business itself.
And and separate from the CIO business.
And it's always been a backdrop. Thank goodness, we've always had the critical mass and professional team here to handle that.
And you don't like to have a competitive advantage due to that but.
And a boutique driven world.
World that we compete in.
And is one for us because we can we have the scale and take that on a more easily than others and of course, we're watching very carefully with the change in administration on on what that might mean.
And Mike IMAX South from on the Executive Committee and the investment Advisory Association, which is the industry group.
For <unk> and and that's a very important component of what we do but I wouldn't say, that's driving our business one way or the other in may at the margins pushed some smaller firms to seek a larger hall like Silvercrest, that's always day in the background I would say that's not a new.
For accelerating trend either.
Got it great. Thanks for taking my questions I appreciate it yes, absolutely our time.
Again, if you would like to ask a question. Please press Star then one.
This concludes our question and answer session I would like to turn the conference back over to Rick Hough for any closing remarks.
Great. Thanks, very much for joining us today and for the good questions.
Overall, the business is quite strong and the first quarter of course bolstered by very strong markets as well and as we see.
The country open back up and our ability to get back into the field meeting with either consultants or families about our business, we're pretty optimistic about the pipeline. We see this year as we begin our 20th year in business.
Thanks, so much for joining us.
The conference has now concluded. Thank you for attending today's presentation you may now.
Correct.