Q4 2021 Silvercrest Asset Management Group Inc Earnings Call
[music].
Good morning, everyone and welcome to the Silvercrest asset Management Group incorporated Q4 and year end 2021 earnings conference call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
Please also note today's event is being recorded.
Before we begin let me remind you that today's call.
Will contain 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 that 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.
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'd now like to turn the conference call over to Rick Hough, Chairman and CEO of Silvercrest. Please go ahead.
Very much we're pleased to report another strong quarter and year of financial results for Silvercrest with New high earnings marks the firm's discretionary assets under management, which drive our revenue increased by $2 6 billion or 11, 6% during the fourth quarter of 2021 to $25 1 billion as of December 30 <unk>.
One 2021 for the full year discretionary AUM increased by $4 5 billion or 21, 8% to $25 1 billion as of the end of the year. The firm's total AUM concluded the quarter end the year at $32 3 billion that was up 16, 2% and four 2% for the.
A year and during the fourth quarter, respectively. Those increases were driven by both strong markets as well as our net organic flows into the business.
Silvercrest also concluded our quarter with $33 $8 million in revenue and quarterly adjusted EBITDA of $13 million. We delivered 2021 revenue of $131 6 million and adjusted EBITDA of $43 4 million representing year over year increases of 21, 9%.
And 43, 4% respectively.
Our adjusted diluted earnings per share increased by 47, 7% during 2021 to $1 89 per adjusted diluted share and the firm's adjusted EBITDA margin was 33% for 2021 as compared with 28% for 2020.
Silvercrest maintained strong relative performance across all of its investment capabilities as a result of our new business opportunities remain robust for our new high net worth institutional and OCI businesses also during the fourth quarter Silvercrest repurchased approximately 6000 shares of class a common stock for approximately.
<unk> 94000 pursuant to a previously announced share repurchase program at the end of July last year.
Scott says he could start going through the financials that would be great and then we'll follow up with questions. Thanks, great. Thanks, Rick.
So closer to our earnings release for the fourth quarter discretionary AUM as of.
The end of 2021 was $25 1 billion and total AUM as.
Year ended 21 was $32 3 billion revenue for the fourth quarter was $33 8 million and reported consolidated net income for the quarter was $8 6 million.
Revenue for the fourth quarter was approximately $33 8 million. This represented approximately a 19% increase over revenue of approximately $24 million or the same period last year. This increase was driven primarily by market appreciation and net client inflows in disk.
<unk>.
Expenses for the fourth quarter were $24 5 million, representing approximately a 2% decrease from expenses of $25 1 million for the same period last year.
This increase I'm.
I'm sorry. This decrease was primarily attributable to decreases in compensation expense and general and administrative expenses of <unk> 5 million endpoints 1 billion respectively.
<unk> expense decreased by <unk> 5 billion or approximately 3% to $17 7 million for the three months ended December 31, 2021 from $18 2 million for fourth quarter of 2020. The decrease was primarily attributable to decreases in the accrual.
<unk> for bonuses and benefits expense, partially offset by increases in salary expense as a result of merit based increases and newly hired staff.
Equity based compensation expense due to an increase in the number of unvested restricted stock units and Unvested nonqualified stock options outstanding.
General and administrative expenses decreased $5 1 billion or approximately 1% to $6 8 million for the fourth quarter 2021 from $6 9 million for Q4 2020.
This was primarily attributable to decreases in the fair value adjustments to the contingent consideration related to the Cortina and Neosho acquisitions at <unk> 8 million occupancy related costs, partially offset by increases in portfolio and systems expense and travel and entertainment expense.
Reported consolidated net income was $8 6 million for the quarter as compared to $3 5 billion in 2012.
We reported net income attributable to silvercrest or the class a shareholders for the fourth quarter of 2021 was approximately $5 1 million or <unk> 53 per basic and diluted class a share.
Adjusted EBITDA, which we define as EBITDA without giving effect to equity based compensation expense and noncore nonrecurring items was approximately $13 million or 35% of revenue for the fourth quarter of 2021 compared to $7 3 million or 25, 7%.
Revenue for the fourth quarter of 2020.
Our adjusted net income, which we define as net income without giving effect to noncore and nonrecurring items and income tax expense, assuming a corporate rate of 26% was approximately $8 6 million for the fourth quarter 2021, or <unk> 59, and 58 per adjusted basic.
And adjusted diluted earnings per share 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 basic adjusted 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 earnings per share.
Looking at the full year revenue for all of 2021 was approximately $131 6 million.
Which represented approximately a 22% increase over revenue of $108 million for 2020. This increase again was driven primarily by market appreciation and net client inflows in discretionary.
<unk> expenses for 2021 were $101 1 billion. This was an 18% increase from expenses of $85 7 billion for 2020. This increase was primarily attributable to increases in compensation and benefits expense of $10 2 million in general.
Administrative expenses of $5 2 million.
Compensation expense increased by $10 2 billion or approximately 16% to $72 6 million for 2021 from 62 4 million for 2020. The increase was primarily attributable to increases in the accrual for bonuses salaries and benefits expense.
Primarily as a result of merit based increases and newly hired staff and equity based compensation expense due to an increase in the number of unvested restricted stock units and Unvested nonqualified stock options outstanding.
General and administrative expenses increased by $5 2 million or approximately 22% to $28 5 million for 2021 from 'twenty three.
$3 billion for 2020.
This was primarily attributable to increases in the fair value of contingent consideration related to the court Gina acquisition.
A $4 6 million in portfolio and systems expense, partially offset by a decrease of <unk> 3 million in the fair value of contingent consideration related to the <unk> acquisition and lower occupancy and related costs were.
Reported consolidated net income was $24 9 million for 2021 as compared to $17 5 million for 2020 reported net income attributable to silvercrest or to class a shareholders for 2021 and was approximately $14 7 million or $1 52 per basic.
Diluted class a share and adjust.
Adjusted EBITDA was approximately $43 4 million or 33% of revenue for 2021 compared to $30 3 million or 21% of revenue for 2020.
Net income was approximately $28 1 million for 2021.
Dollars 95, and $1 89 per adjusted basic and diluted EPS, respectively.
Quickly looking at the balance sheet total assets were approximately $229 3 million as of December 31, 2021, compared to $213 8 million as of year end 2020 cash and cash equivalents at the end of 2021 were approximately 85.
$7 million and as compared to $62 5 million at the end of 2020 total borrowings as of the end of 2021 were $9 million.
Lastly, total class a stockholders equity was approximately $80 4 million at the end of 2021 that concludes my remarks, I'll turn it over to Rick for Q&A. Thanks, Scott We are now ready for some questions at this time.
Ladies and.
Gentlemen at this time, we'll begin the question and answer session to ask a question you May Press Star and then one on your Touchtone telephone. If you are using a speaker phone. We do ask you. Please pick up the handset before pressing the keys to ensure the best sound quality.
So withdraw your question you May press star into.
Once again that is star and then wanted to join the question queue.
Momentarily to assemble the roster.
Our first question today comes from <unk> <unk> from Piper Sandler. Please go ahead with your question.
Good morning, Rick Good morning, Scott Congrats on the quarter.
I just wanted to start with a question regarding the discretionary AUM inflows from existing clients in the quarter can you break down that 684 million in net cash inflows for us what drove that activity in the quarter, there and maybe talk about expectations around tax season. This year, how you expect that to impact the flows in the first or second quarter.
Sure So with regards to the fourth quarter it was pretty balanced between our different.
Segments of the business, both institutional and high net worth.
We had some new institutional mandates that to either started funding or were funded in the fourth quarter. We had some some nice high net worth inflows. So fair fairly balanced overall with that helps with both the year and this quarter towards overall towards high net worth certainly if you look at the complete and total year I would say this.
Tilted towards high net worth versus the institutional business, which is nice to see that kind of balance with regards to upcoming taxes of course, we often see.
Outflows, depending on what kind of gains have been realized with strong markets. It's a little hard for us to project its very lumpy.
We didn't see as much as I would've expected necessarily last year.
<unk> mean that we have meaningful outflows for taxes.
In this year I don't know that but we've had a sustained periods of good markets meaningful capital gains.
And income for people also keep in mind people claim quarterly estimated.
Taxes.
Have some outflows also in September but it is a double tax period.
And I would I would suggest that there could be some meaningful outflows this year.
Okay, Great. That's helpful. Thanks, and just kind of following up on that on on the strong flows in the quarter I know it was balanced but on the institutional side can you maybe update us on the on the actionable pipeline today I know you guys ended last quarter at $1 8 billion, but just wondering if you can talk about the progress there given that kind of a yes sure. So yes, that's right I think.
It was.
Just about 177 billion last time I updated you currently stands at $1 76 billion keep in mind that doesn't mean.
A lack of progress the fact that it's the same.
It means that we've refilled the pipeline after we've made some wins right. So some of those things we actually came in the door organically recently, so the pipeline remains very strong and stable. That's a good thing because this is a highly actionable pipeline. Its final semi finals or invite only where we feel we have a strong chance of winning a.
So youre seeing it stay the same because we won mandates and I expect that going.
Forward in particular it should be noted I think you may have in your research note yesterday that we had strong investment returns across all of our capabilities and our long term track record track record as well as a result remains very strong so that bodes well for for that institutional.
<unk> also bodes well for the high net worth clients.
This firm is investment firms and asset management company, 70% of the business may be well up but you've got to deliver to your clients at the end of the day. These two shuttle clients keep us really honest there in the high net worth.
Can go anywhere.
It's a business with very low barrier to entry and so the strong performance across the board is extremely helpful. In both businesses.
Okay, Great and then just one last one I could sneak in here on the on the cash comp ratio kind of came in a little bit below our expectations for the quarter and here I think 53, 6% for the year that was over 300 basis points below 2020.
Blow that previous expected run rate of around 55%. So just wondering if you could update us on expectations for this year, you would expect to cruise something maybe in the range of 2021 levels or kind of all else equal should we kind of expect a reversion back to that 55% range.
Alright so.
Sure.
I would look towards revision it may not be 55, but that is what we model ourselves. We've long said, that's our general target for the company. Some some years, we go a bit over as we did.
Last year, partly due to <unk>.
Markets of 2020 that decline that affected the year revenue later.
The the.
Firm has consistently.
Made sure to not economics.
In total when we do grow the company beyond what it takes to support the personnel here and we just had a super strong year, and we're able to move well ahead of what.
What we really need to pay in comp. So that's we're going to do that as we have in the past.
The other thing I would point out is that.
<unk> consistently said, we will continue to make investments in the business, which primarily means personnel people who can grow the business. We did that we have been doing that.
IHOP projected hitting EBITDA little harder than I have and we did.
We've just been able to grow faster than the cost.
Expanding our opportunities.
Obviously, that's something we also hope to do.
So I think you've got a reasonable target there I do think it would not be reasonable to think that we're going to run 53, 6% over the next calendar year.
Some years, we gave a little some years, we get a little and this was a big give a little so.
I hope that helps if there are any more questions around that and happy to talk further.
Great. Thanks for taking my questions.
Our next question comes from Chris Sakai from singular research. Please go ahead with your question.
Hi, good morning.
Just a question I guess heading into 2020 two.
What's your what's your view on acquisitions.
It's the same that I've had in the past.
Patient years honestly we.
We have plenty of opportunities we are very particular about the kind of culture, we're going to bring into this firm and the reasons for bringing together a business.
We are not going to engage in pure financial engineering, we have to do deals that we think will have long term accretive value to the firm and to our shareholders and thats been very hard to do in this current market.
We want to see synergies with our company, we want to see cultural compatibility we want to have.
A clear understanding.
How we're going to grow that business into the future all of those things in order to continue the strong organic growth of this company are very important and it's been very challenging to find that in this current marketplace. We are talking to companies all the time and continue to do so and when the opportunity is right just as it was with a great Milwaukee colleagues when we have.
<unk> Cortina in 2019, we will we will jump on the opportunity.
Okay great.
And then could you comment on I guess.
The amount of hiring as far as portfolio managers go.
In the fourth quarter.
We did no hiring in the fourth quarter of new portfolio managers.
Hiring I referred to that could potentially affected.
<unk> revenue comp.
In compensation.
As well as its effect on of course, our EBITDA margin was a reference to hiring we've done over the past few years, we continue to look and we will do more.
We've just been able to grow faster than those investments.
Okay, great well thanks.
You're welcome.
And our next question comes from Arnold <unk> from who is a private investor. Please go with your question.
Good morning, and thank you for taking my question you just mentioned potential acquisitions are there asset categories.
You have you feel you need or would like to expand your overall portfolio and then as a quick follow up you mentioned you'd like them to be long term accretive how much dilution or.
Earnings per share impact are you willing to take over one or two year period.
On your first question the firm as a hybrid model, where not a pure open architecture firm like many of our wealth management RIAA competitors, which is to say.
We're choosing outside managers for their clients, we have both that model, which is entirely what our <unk> business is based on it's also used in order to complete a total asset allocation on behalf of our clients and then of course, we have the internal capabilities.
We deliver across both the value and growth spectrum at the firm.
We're an asset management firm as our named said Silvercrest asset management. The fact that we are delivering institutional quality asset management to our high net worth clients is extremely important and is a differentiator for the firm.
So I appreciate the question about what else we may be looking for honestly at this time I think we've got a pretty full suite of capabilities.
That we need to do we're not going to pretend to try to do everything well.
Finally, we have fixed income tax.
Taxable munis, we have high yield fixed income.
We have value equity across the market cap spectrum, we have.
Growth now with our Milwaukee colleagues, which was.
Long term objective for this firm and we just found just the right high quality group, we have international.
And we've got plenty of capacity in those capabilities and they are still the main asset allocation buckets that we're concerned about.
There's a lot of other potential capabilities out there, but we're not going to go off and a whole lot of different branches. So its unlikely we look for more asset management capabilities.
I think if we find the right acquisitions, it's going to be on the on the high net worth side at this time.
With regards to <unk>.
Earnings per share and yet I look to make our deals fairly accretive in a fairly short period of time as you saw with our Milwaukee deal as it is accretive right away. If you looked at the last couple of wealth management deals. We did they were accretive within a couple of years.
And it really depends on the nature of the company and what we see in terms of its total value.
I would hesitate to give you a specific number around that earnings hit.
Thank.
There are too many moving parts for me to directly targeted at in that comment.
I applaud you for using earn outs for at least a portion of the compensation of the companies you acquire.
Another question you had a modest decrease in net adds but what caught my eye is you had about $6 billion of departures is there a common thread on the assets last year.
Youre looking at gross.
Flows, which is a confusing confusing metric that the SEC has us report ever since we went public.
Those flows could merely be the changing of assets within the firm. We did not have $6 billion leave the firm that is a gross number it could just be a switch from one equity strategy to another fixed income to equity or what have you.
What matters is the net flows which which was nicely positive for 2021.
And for the fourth quarter I know Thats confusing we do have a table that provides the net flow information in the 10-K.
Thank you and then my final question relates to share repurchases do you have orders to the board have a policy of attempting to use share repurchase to offset option creep.
We announced a share repurchase program last year that was in part and only in part to offset some dilution.
We don't have a firm policy on that obviously, it's a tool in the toolbox that we're happy to use its been a bit frustrating our net.
Spending that.
The share repurchase program that we announced due to volume constraints will be looking at that obviously given the results of last year and where we are positioned with the company. We continue to have a robust cash flow and to build cash either for strategic purposes or or another use including our dividend, which we.
Hi.
It should be pointed out that.
Despite acquisitions other potential dilution that this firm has.
Accreted adjusted diluted earnings per share that is to say after any dilution.
<unk> 21, 3% on a CAGR basis over the past five years, that's a five year CAGR of 21, 3% over the over the past seven years, it's been 12% compound itself.
Where that we care a lot about it and.
We're going to make use of that cash.
Either to accrete, our shareholders appropriately when we don't see opportunities to return in dividends even were to do an acquisition.
Thank you keep performing well thanks. Thank you.
Okay.
And once again, if you would like to ask a question. Please press star and one our next question comes from Christopher <unk> from Janney Montgomery Scott. Please go ahead with your question.
Hey, Thanks, Good morning, Rick I may have missed it earlier on the call.
The longer term goal on the EBITDA margin is that changing at all just given the success you experienced in 2021.
Not really changing I think.
I think youre going to have times, where we have spurts of growth either due to the market organic growth our organic growth last year was on a net basis one of the best we've had in the past nine.
We have to continually reinvest in the business as I said, it's a people business.
We have to reward people for success, which we do.
And it's just it's just from running ahead of my my plants, which is a great fit.
We.
I think a very well run wealth management business can hit the high Twenty's and EBITDA on a very consistent basis basis.
If you get.
If you get performance fees, which we do but we don't budget for those there was a nice number for that in 2021, that's going to bump up your.
Your EBITDA margin.
Again, all things.
Being equal we cant depend on that so you would have a slightly lower EBITDA margin.
Slightly lower those fees were not to appear for example in 2022.
The other thing to keep in mind is that we also have <unk>.
We werent spending due to the pandemic right and G&A and we actually want that to go up because that means an investment and getting out there and getting new business. So my views have not changed a lot they changed a little because obviously.
I have to hit EBITDA, a little bit harder than I would've said, a year or two years ago to bring that down even further.
Sounds good and I presume that the expenses, probably normalize to some extent to your point for this year.
I think thats right.
Okay.
And then can you also just update us on the outsource CIO business and just sort of your progress I know you've accomplished a lot. The last 12 to 18 months just curious what the next chapter.
Yes, I appreciate that as you know and just to remind everyone. We had a goal for for $1 billion.
As of the end of 2021, we hit that goal in the third quarter, which is great.
Their performance, which is really based on that on a.
Their selection of outside managers and the asset allocation.
<unk> remained very strong in and of itself. It compares extremely well and the OCI of indices that have been built.
And.
So we remain well above $1 billion the pipelines for the <unk> business.
Let me see here.
<unk>.
It's over $600 million and again.
A meaningful pipeline like it is for the rest of our institutional business. So I have a very positive outlook as I have going into 2022 with that pipeline and having achieved that.
That goal of getting over $1 billion. It makes us incredible entrants in the market entrants in the market.
Okay.
Great and then last question from Me Records, just the volatility we've seen in the last four to six weeks.
Going back to the history.
Typically navigate those environments does that create any near term noise for Ya.
Oh, it creates a little near term noise is a test for anyone.
One.
There were a couple of virtues of this particular business one in just the way that we run the business, which is a very long term stable view is very prudent.
Which is how we manage the business. It's also how we manage our client portfolios were not tactical we don't get caught up in the noise of the markets.
We have done historically extremely well through periods of noise, whether that was the global financial crisis.
The disruptions from Asia periodically that we had in the third and fourth quarters as in previous years.
That the downturn of the Corona virus.
<unk>.
2019, gosh, it's hard to believe it was that hiccup.
And then in the current disruption in the markets, whether that's a fixation on inflation interest rates or what's happening in Europe .
Historically, our portfolios our long term vision.
Our high quality emphasis of how we're selecting securities and and what we're looking to do.
Understood well by the clients and there is a really steady hand on the tiller here at the FERC. So generally we do well and in fact, we often do on a relative basis extremely well.
Any.
Any decline in markets and AUM, obviously, it's going to hit our revenue as it does any other firm.
It's the biggest element in our revenue alright, and something we can't control.
Why we are conservative with our management and careful with leverage as well as a business.
Which I think a lot of people who sign up.
The final thing is we built quarterly in advance at the end of the quarter. So we can also see.
Intra quarter noise, it really doesn't affect revenue unless it gets crystallized at the end of the.
Quarter really four days of the year that matter for us that also smooth out some.
Some volatility and then finally of course, we have room to breathe given given what were we.
We are reporting today. So it really doesn't concern me I look out three to five years and I feel very optimistic about the business.
Great. Thanks for taking the time to walk through that I. Appreciate it. Thanks for all the feedback this morning.
Welcome.
And ladies and gentlemen, with that we'll be concluding today's question and answer session I would like to turn the conference call back over to Rick Hough for any closing remarks.
Thanks, I really don't have much of a closing other than to say I. Appreciate you joining us it was a great 2021, as well as fourth quarter.
Really look forward to making additional strides in the business this year.
I am deeply appreciative to all of our shareholders.
For the great questions. This morning, thanks very much.
Ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending today's presentation.
You may now disconnect your lines.
Yes.