Q2 2021 Silvercrest Asset Management Group Inc Earnings Call
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Good morning, and welcome to the Silvercrest.
Asset management group incorporated second quarter, 2021 earnings conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be and 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 our filings with the SEC under the caption risk factors for all.
All such forward looking statements we claim the projections 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 obligations to.
To update them I would now like to turn the conference over to Rick Hough, Chairman and CEO of Silvercrest. Please go ahead.
Thanks, very much good morning, everyone. Silvercrest is pleased to report strong results for the second quarter of 2021 of the firm's discretionary assets under management, which drives revenue increased 4.6%.
During the quarter reached $22.9 billion, which represents a new high and a year over year increase of 32, 4% the <unk>.
Firms total AUM grew to 31 billion Silvercrest concluded the quarter with $33.1 million of revenue and the firm's adjusted EBITDA for the second quarter was $10.4 million or.
Or a year over year increase of 56, 7% adjusted diluted earnings per share for the second quarter increased 66, 7% year over year to <unk> 45 per adjusted diluted earnings per share Silvercrest, new business opportunities continue to growth. Thanks to a strong investment culture and results for high net worth and institutional clients.
It's a life.
On July 28, the company's board of directors approved of share repurchase program authorizing the company to repurchase up to $15 million of.
Of the company's outstanding class a common stock.
Also on July 28, the company's board of directors approved an increase of approximately 6% of the company's quarterly dividend from <unk>.
<unk> 16 per share of class a common stock to <unk> 17 per share.
The upcoming dividend of <unk> 17 per share of common stock represents an annual yield of approximately 4.5% based on the closing price of the Companys common stock on July 27, and the dividend will be paid on or about September 17th to shareholders of record.
Both of the business on September 10.
Does that conclude my introductory remarks, so I'll turn it over to our CFO Scott Gerard to go through the financials and then we'll take questions. Thanks Rick.
As disclosed in our earnings release for the second quarter discretionary AUM as of June 30 was 22.
And $2.9 billion and total AUM as of the end of the second quarter was 31 billion.
Revenue for the quarter was $33.1 million and reported consolidated net income for the quarter was $5.7 million looks.
Looking further into the second quarter again revenue was approximate.
The <unk> $33.1 million. This represented a 38% increase over revenue of approximately $24 million for the same period last year. This increase was driven primarily by market appreciation, partially offset by net client outflows in discretionary AUM expenses for.
For the second quarter were $25.8 million.
And this represented approximately a 14% increase from expenses of $22.7 million for the same period last year.
This increase was primarily attributable to an increase in compensation and benefits expense of $5.1 million partially.
And it by a decrease in G&A expenses of $2 million.
Comp and benefits increased by $5.1 million or approximately 38% to $18.5 million for the second quarter from.
From $13.4 million for the 3 months ended June 30 of last year.
The increase was primarily attributable to increases and the accrual for bonuses salaries and benefits expense, primarily as a result of America based increases and newly hired staff and equity based compensation expense due to an increase and the number of unvested restricted stock units and Unvested nonqualified.
The 5 stock options outstanding.
General and administrative expenses decreased by $2 million or approximately 22% to 7.3 million for the second quarter from $9.3 million for the second quarter of last year. This was primarily attributable to decreases and the fair.
Fair value of contingent consideration related to the Cortina acquisition of $2.2 million and portfolio and systems expense, partially offset by increases in sub advisory and the referral fees occupancy and related expenses and travel and entertainment and expense.
The reported consolidate.
<unk> net income was $5.7 million for the quarter as compared to <unk> 8 million and same period last year.
Reported net income attributable to silvercrest or the class a shareholders for the second quarter was approximately $3.3 million or <unk> 35 per basic and diluted class a.
Adjusted EBITDA, which we define as EBITDA without giving effect to equity based compensation expense and non core and nonrecurring items was approximately $10.4 million or 31, 5% of revenue for the second quarter compared to $6.7 million or <unk> 20.
7.7 percentage of revenue for the same period last year and.
Adjusted net income, which we define as net income without giving effect to noncore and nonrecurring items and the income tax expense, assuming a corporate rate of 26% was approximately $6.7 million for the quarter or 46.
<unk> share and send and 45 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 of.
<unk>.
And we add unvested restricted stock units and nonqualified stock options to the total shares outstanding to compute diluted adjusted EPS.
Looking at the first half of the year revenue was approximately 6 the 4.
And $4.3 million representing approximately of 'twenty.
The 3% increase over revenue of $52.4 million for the first half last year.
This increase was driven primarily by market appreciation, partially offset by net client outflows and discretionary AUM.
Expenses for the first half of $51.3 million records.
<unk> funding approximately 34% increase from expenses of $38.4 million for the first half last year.
This increase was primarily attributable to increases in comp and benefits expense of $7.1 million and G&A expenses of $5.8 million.
Compensation.
Representing increased by $7.1 million or approximately 24% to $36.1.
$1 million for the first half this year.
From $29.1 million for the first half last year. The increase again was primarily attributable to increases and the accrual for bonuses salaries and benefits expenses.
Sensational and merit based increases and newly hired staff and equity based compensation expense due to an increase and the number of unvested restricted stock units and Unvested nonqualified stock options.
General and administrative expenses increased by $5.8 billion or approximately 63%.
To $15.2 million for the first half of this year from 9.3.
And $3 million for the first half last year. This was primarily attributable to increases in the fair value of contingent consideration related to the Cortina acquisition of $6.1 million.
Occupancy and related costs professional.
Fees and insurance expense, partially offset by decreases in travel and entertainment and expense portfolio and systems expense depreciation and amortization and office expense.
Reported consolidated net income was 10 million per the first half as compared to 10 and $5 million per the first.
First half last year reported net income attributable to silvercrest or the class a shareholders.
For the first half of this year was approximately $5.9 million or <unk> 61 per basic and diluted class a share and.
Adjusted EBITDA was approximately $20.1 million or 31.
2% of revenue for the first half compared to $14.9 million or 28, 4 percentage of revenue from the same period last year.
Adjusted net income was approximately $12.9 million for the first half or <unk> 89, and.
And the 87.
For adjusted basic and diluted earnings per share respect.
Looking quickly at the balance sheet as of June 30 of this year total assets of approximately $202.8 million compared to $213.8 million as of the end of last year cash and cash equivalents were approximately $53.6 million at June 30, compared.
With respect to <unk> $2.5 million at the end of last year total borrowings as of June 30 were $10.8 million and lastly, total class a stockholders equity was approximately $73.7 million at June 30, and that concludes my remarks, I'll turn it over to Rick for Q&A. Thanks, very much Scott we will take questions.
The starting the company at this time.
We will now begin the question and answer session to ask the question you May Press Star then 1 on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Sumit Modi from Piper Sandler. Please go ahead.
Thanks, and good morning, Rick and Scott.
Just wanted to start on the repurchase authorization you know how are you guys thinking about the pace of buybacks going forward should we think about it.
From a buyback payout ratio range that you're targeting.
Or any color there would be helpful.
So that the the $15 million that we announced is somewhere in the ballpark I believe of 10% of of the outstanding class a shares.
So that was kind of of the ballpark ballpark in terms of side and.
In terms of the action.
We're getting that we will take and timeline.
No we have not determined that we view our stock and compelling value. Obviously, we wouldn't do this otherwise.
And.
So it remains to be seen.
Markets also go through weaknesses and we wanted to.
And make the best accretive purchase as possible.
Behalf of shareholders, but the short answer is no. We don't have a defined timeline. It's open ended and we will assess it as we go along here.
Okay.
Okay, and just had a.
Couple on the discretionary AUM and the quarter.
And just kind of clarify a little bit on the new client account number.
A little bit lower of.
The quarter than we've seen and a while can you can you talk about the drivers around that number.
Yeah.
Think of some of it was a little bit quieter with regards to the institutional business.
The high net worth business.
And also.
And did.
Little bit better and when you look at net flows by the way overall.
<unk>.
That number.
And I don't know what to say about of really there's really no color other than some times. When accounts are opened additional add on funds and up and our net flows because once you only count.
The amount that is put into and.
And new relationship when the account is opened any follow on AUM of course is going to be a net positive flow.
So it could just be a function of that it was just a little quieter and in general I would say in particular.
In the institutional business.
Okay, and then and then similarly on the kind of net cash inflow and outflow line I know seasonality is a big factor there with the tax related outflows and.
A little bit lighter, but I assume that's mostly just the pull forward from first quarter or.
Yeah and.
Some of that is.
And it possibly tax.
The tax may actually be bigger next year.
Most of the negative was driven by rebalancing and the institutional business, we were close to being pretty nicely positive if not totally positive on the high net worth side. So.
The the taxes not as.
Biggest of drag as it would normally be it was rebalancing we continue to have very strong performance across our equity capabilities and I would say, it's more a function of that.
Okay, and then just 1 last 1 for Opex and the Q and just on the fee rate.
Seems like it's the kind of steadily creeped lower over the last year can you talk about sort of the driver there is it just kind.
And of a matter of winning larger mandates over time and how do you expect that the sort of trend going forward.
And the growth of the high net worth channel too sure we talked about this last quarter, our discretionary fee basis.
And for accounts really hasnt creeped around at all it's been within a basis point and 2 for basically 18.
18.19 years.
It may just be a function of stub period revenue, that's driving that and your calculations.
We don't see any compelling trends 1 way of the other.
And all.
On the larger mandates and institutional business as we've discussed as we grow of CIO.
Or we get a very large families, which we've gotten larger over the time is going to drive fee basis down as we win business.
But it's done on that so I'm not sure we're seeing anything other than.
Either asset allocation or.
Vagaries of stub period revenue.
Okay.
The next question comes from Sandy Mehta from evaluate research. Please go ahead.
Yes. Good morning, Congratulations on the strong result, and I was also very happy pleased to see the buyback announcement and the dividend increase.
Could you comment a little bit of.
And the the pipeline that you're seeing right now in terms of actionable pipeline and.
And any further updates on OCI L.
Sure. So the as you may recall the pipeline that we measure really really froze up last year and had dramatically reduced.
<unk> it's rebuilt.
The total pipeline for our value strategies growth strategies International <unk>, it's at 1.7.
7 billion remember those are very high quality actionable pipeline opportunities.
So that's looking quite strong and.
And.
We have.
What I would consider a lot of other kind of close to actionable activity, that's not and that pipeline yet that could well be added.
And future months and addition.
I expect that the CIO business will have some results once we get.
Pay per day, and those boards are meeting I don't really necessarily expect a lot of action on the current mandates that were competing for during the month of month of August and we'll be looking out to September October for more and more of those.
Opportunities, but it is quite strong and performance remains strong which is which.
As good as I mentioned earlier at the bigger issue and that business has been.
Recently has been rebalancing.
After growth, it's just the nature of the business, it's a high class problem with regards to <unk>.
It depending how you measure it.
The according to the metric that we used to use.
It's about 980 million now so that you have an apples to apples comparison. So it continues to grow towards that $1 billion benchmark.
There are some non traditional OCI of accounts in there and if we started to measure on that basis. It would be it would be closer to 700.
Million not a step backwards for the business just the way of looking at the kind of institutions that are in the CIO model. So I may switch to 1 and the future just as a heads up and so that you have a.
A apples to apples comparison, but the.
The the pipeline and the action around that.
Business is very strong is how I would characterize it so I remain very optimistic on the.
High net worth side, we don't keep of traditional pipeline and it doesn't really work the same way as the institutional business results have been strong. So that's of great tailwind, we have capacity with the new portfolio managers.
And.
I mentioned it was actually a pretty good quarter for high net worth and that in the second quarter of this year.
And then the the buyback and the dividend.
Does that also reflect a.
Sure of feeling in terms of acquisitions or the the possibility of acquisitions do you see less opera.
Opportunity, there and perhaps that also factors into your dividend and buyback the decision yes sure. The the available uses of cash.
The biggest would be acquisition and while we're always looking at the best use of how to allocate our capital for a return to shareholders.
As you can.
Very late 2000.
<unk>.
18, and in through 19 of course I knew that we had the possibility for use of substantial amount of cash with regards to bringing on on board, our great colleagues and Milwaukee.
We're always having conversations.
But I have said consistently that we're not seeking to do acquisitions just to get larger they have and there has to be a very compelling strategic reason.
Reason and hopefully 2 or 3 strategic reasons for.
And on acquisition, especially on the wealth management side at the core of this is a very very.
About wealth management business always has been and is the bulk of our discretionary assets. We care very deeply about the kind of culture of that a potential partner or and or their clients would be working in and vice versa, what we're bringing into our culture and at the current prices that we've seen and the kind of.
Roll ups that have been occurring.
And this business, it's been hard to find compelling opportunities that tick all of those boxes. So that we're building a really strong long term enduring business, which is the goal here and.
And the absence of that and the continue building up of cash why not 1 more of 1 of the best wealth management business and the U S which is.
Strong silvercrest.
And just acquisition by another means you might consider it.
It's a good use of capital to own more of a great business and so that's what was driving our decision.
We are very conservatively managed we have light leverage we will still have plenty of cash. So we just felt.
To say is that we can do all of the above we can we can pay a handsome dividend and make sure our shareholders are getting a great yield on the stock.
We have a policy of of increasing it on a regular basis. When we can we sustain that we do it and when we know we can sustain the dividend even in the wake of market downturns, we feel that this.
And as conservative and we can do that.
And we feel that given the balance sheet and.
And growing cash position that we can afford.
To own more of a great business, while still having the opportunity to make an acquisition when 1 compelling comes along.
Great. Thank you very much.
That's the bottom.
Again, if you have a question. Please press Star then 1.
The next question comes from Chris Sakai from singular research. Please go ahead.
Yes, hi, good morning, and.
Good morning, and good morning, most of my questions.
I had been asked already I just.
And wanted to get a feel the I guess the environment and.
And on the high net worth side as far as the acquiring new business 1 of the C.
And if anything how is the how is the delta there.
Closing on on the environment no.
I'm not sure I.
I understood that question Chris.
Could you read of trade well you know maybe Thats 1 question.
Okay.
Do you see.
Continued growth.
How is the growth and and the high net worth.
As we head into the back half of the year.
Okay, Oh and it was delta.
What are you referring to the virus not adult meaning a statistical.
Statistical measure of something I understand that sorry about that.
On the high net worth side, we've got a great team.
It has been very long, serving very sticky personnel and client base, it's very very.
And so very wrong compelling business, 1 of the best and the United States I think Barton on us.
So as we have grown in size and profile in general we get more and more of those opportunities. So I remain bullish on having built a great.
The foundation here with my partners for continued growth and the high net worth business.
<unk> said as well, we invested and new portfolio managers just prior to the outbreak of coronavirus, we're talking to more so we have capacity, which is really important and this business and we have worked very hard to maintain capacity as well as to mentor and bring up younger professionals.
In this business.
And the silvercrest wet that all bodes well for good future growth and that business and finally <unk>.
Just as we have a good investment results driving the institutional business that of course benefits the high net worth of business, It's a great symbiotic relationship.
And I don't know how to put any kind of.
Any kind of metric on the Delta variant of Corona virus.
And we've largely been coming back in.
Here in New York, most of our other offices or are back in.
And.
I'm not I'm, not a epidemiologists or doctor, so I hesitate to present any view on the delta variant and what that might mean.
I guess I would just say so far I'm not seeing that having an effect and I don't know whether do you expect on or not.
Yeah.
Okay, alright, well thanks.
Youre welcome Chris.
The next question comes from Christopher Merrimack from Janney Montgomery Scott. Please go ahead.
Hey, Chris Hey, good morning.
I wanted to ask about the EBITDA margin as it relates to expenses would expenses kind of have any seasonality of the second half of this calendar.
And so the EBITDA margin kind of post all of the same as it has been on.
And I'm going to let Scott answer that Chris and I, just want to give 1 color I think the.
And I have consistently mentioned in the past which is debt.
I do believe that this this EBITDA margin is on the high and.
Slight.
Year of different market reaction against our fixed costs could pull that down just a bit and historically.
We have hit this EBITDA margin when we had performance fees at the end of the year. We don't project those are budget around them.
Effectively what it means is that.
We've got cash the high.
Slightly channel portfolio managers and make investments and the business.
And I fully intend to do that and the regardless of the reasons for why it's 31 and a half right now, which I'll, let Scott get into I do want to use that healthy cash flow to invest.
And and new intellectual capital on the business as we have consistently.
Higher down and so we can grow the high net worth future into the future I just I just have not had.
Excuse me of the high net worth business into the future I have not.
<unk> had.
Really compelling recent hires that I want to make during the lockdown and we also hired some people just before the locked.
And we've done I think it's important to give them an opportunity to integrate into the firm the debt they could in this environment and to make progress.
We're still a boutique firm of small firm and we're going to make a personal selections very very carefully Scott, yes couple of things to.
What about for the second half of the year, obviously travel and entertainment and expense has been running low as the environment.
<unk> back to normal or at least closer to normal I would've expect travel and entertainment and expense to go up other.
And I think of that impact year, and we typically have.
Some various year and related G&A expenses do you think about the professional fees line.
Or implied in our G&A as we get into the interim water procedures towards the end of.
Things are and Deloitte spend significantly more time.
And with more and debt procedures, we tend to incur more expense related to that so those are a couple of highlights and things to think about as we get through the second half.
Great. Thank you.
Of the year and then just a quick follow up I mean, as you know 31 billion of of the U N W. And law of large does the law of large numbers of kick in and about the organic growth rate just backs off a little bit or just cash.
Curious, how you think about that.
You know, it's obviously, even when you have strong nominal flows your organic growth rate.
Ticks down if you strip away.
And of <unk>.
Lot of the business and look at Ultra high net worth businesses in general around the U S and boutique ria's. They really struggled to half of the organic growth rate quite frankly, which is 1 of the issues with with the what I see and the M&A market.
I think I can growth.
Growth something fantastic the.
And you have to you have to see the path to do that and a lot of businesses have been reinvested and personnel or their networks and we're going to do so and our referral based business.
We've always been able to maintain that but you know the industry is growing but when you look at an individual firm.
We often quite flat and the theory low single digits, I think youre familiar with that phenomenon.
We have consistently been a you know on the higher end of that when you compare us to.
Peer firms ex acquisitions ex inorganic growth, it's definitely come down just because of the size.
And their favorite base as you pointed out.
But with the investment of new personnel and also the visibility of the firm you can also drive some of the additional referrals of business that you didn't get up before so I haven't changed my outlook on the organic growth I'm still pretty bullish on it and then that was just talking about behind the ore side of the business the.
<unk>, the very healthy pipeline on the other side and the institutional.
Business, which which would lead to compelling organic growth numbers.
Great. Thank you Brad of both very much Yep sure and welcome.
The next question is a follow on from Sumit Moody from Piper Sandler. Please go ahead.
Hey, Thanks for the can follow up just a follow up on the on the hiring commentary.
On a high level between asset and wealth management more broadly we're seeing reports from bolt bracket firms sort of increasing base pay and the other journal article a couple of days go of highlighting retention issues and increased competition for talent and tech.
From.
The very dynamic and.
And you guys are more and more small compared to those comps, but have you found the conversations with potential targets.
And our different than pre pandemic or experience any shifts from from now on.
The employees, Okay, no I have to say and the.
The conversations we have and the market there.
Similar they have.
Of not shifted or changed.
A lot of that commentary around the bulge bracket firms of our trading.
And within their broker dealers and people who are like baseball players and create into the re up every 5 years 7.8 years and and we're just not and that game.
We know the market and.
And the Penny in fact, when we talk to targets have a very compelling value proposition that we don't have to tweak. So no. It has not changed.
Okay, great. Thanks.
Yeah.
Okay.
And the next question is on a follow up from Sandy Mehta from.
We evaluate research. Please go ahead.
Yeah, just 1 quick follow up in terms of the new hires are you looking possibly at some new strategies.
You had the higher and the on the new growth strategy on January of this year, but any other possibilities in.
New product strategies going forward. Thank you.
Yes Youre welcome.
No.
I would say debt this is going to be more any of our future hires just as the hires we made just pre pandemic are are going to be more focused on the core high net worth of business and or <unk>.
Managing.
Terms of that business for growth.
As we get to the larger firm with more personnel.
I think for now on the on the product side for whether it's equity or fixed income.
We're in a really good position.
Some of our specialized fixed income.
From us.
It's done well and Mike might grow by a person or so that's not a needle mover.
This is really about the high net worth of business, we need to make hay with the with the capabilities that we have.
And make those of the success before we try to expand further and frankly.
And we have a very good suite of.
Of of capabilities debt that we liked and.
We're not going to try to do at all we're going to try to do what we can do well. So high net worth is where the focus is at least for the highest when we get around to that.
Great. Thank you.
Welcome.
There are no more questions and the queue. This concludes our question and answer session and I'd like to turn the conference back over to Rick Hough for any closing remarks.
Well, thanks very much for the good questions and the discussion this morning about silvercrest and the.
The second quarter and the of course of the first half of of this year, we look forward.
And we're talking to you and 3 months or so to discuss the third and plans for the business. Thanks. So much.
Yes.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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