Q3 2024 Silvercrest Asset Management Group Inc Earnings Call
Excuse me. This is the conference operator, thank you for your patience the call will begin shortly thank you.
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Speaker Change: Good morning, and welcome to the Silvercrest asset Management Group, Inc. Third quarter 2024 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 an opportunity to ask questions. Please.
Speaker Change: No disadvantages being recorded.
Speaker Change: 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.
Speaker Change: Those factors are disclosed in our filings with the SEC under the caption risk factors for 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.
Speaker Change: I would now like to turn the conference over to Rick Hough, Chairman and CEO of Silvercrest. Please go ahead.
Rick Hough: Thank you and thanks for joining us for the third quarter of 2024.
Important markets and improving economic conditions helped silvercrest assets under management growth during the third quarter.
Rick Hough: Wanting to improve top line revenue. The firm also saw improved business development results and will report a robust pipeline of new business opportunities.
Rick Hough: A persistent trend of the market's recovery since 2022 has been the narrow leadership of large cap growth equities. We noted during our second quarter earnings call that despite progress in the market large cap value and small cap stocks it actually decline during that quarter.
Rick Hough: We've been pleased to see broader company market participation throughout the third quarter and an increase in equities across the market cap spectrum, which benefit silvercrest diversified wealth management business as well as our exposure to the small cap institutional business the increases during the quarter bode well for future revenue, we optimistic about securing significant organic net flows over the.
Rick Hough: Next few quarters Silvercrest discretionary AUM increased by $1 billion during the quarter to $22 6 billion, primarily due to rising markets. This net increase in discretionary a language drives our revenue represents a 5% increase in the second quarter and a year over year increase of 10% since the third quarter of 2023.
Rick Hough: New client accounts and relationships increased during the quarter led by new small cap opportunity mandates, while we report discretionary outflows during the quarter. The outflows were revenue neutral to the FERC overall total asset flows and market increases were a net positive for the firm and should drive an increase in fourth quarter revenue.
Rick Hough: <unk> AUM at the end of the third quarter was $35 1 billion and total AUM increased year over year from the third quarter of 2023 up 13% despite.
Rick Hough: Despite these increases silvercrest has been investing in the future growth of the business, which has resulted in higher total compensation and which we have adjusted for on a quarterly basis. As a result, while top line revenue has increased most metrics of the business are down due to the higher expenses.
Rick Hough: <unk> pipeline of new institutional business opportunities increased during the third quarter by 20% and now stands at $1 2 billion importantly, the firm's pipeline does not yet include potential mandates for our global equity strategy, which is a high capacity for very significant inflows over the past two quarters, we have worked to build the infrastructure to support that.
And strategy, while undertaking business development, we are optimistic about near term positive au inflows and resulting revenue increases to result from the pipeline.
Rick Hough: I have consistently mentioned that silvercrest has never had more business opportunities underway, we have made and will make investments to drive future growth in the business, we expect to make more hires to complement our outstanding professional team and to drive future growth Silvercrest continues to accrue a higher interim percentage of revenue for compensations for this purpose and.
Rick Hough: As mentioned, we will continue to adjust compensation levels to match. These important investments in the business and we will keep you informed of our plans and the progress of these investments we continue to see substantial new opportunities globally for a firm with our high quality capabilities, coupled with superior client service Scott why don't you address the fight.
Scott: And then we'll take questions great. Thanks, Rick.
Scott: Disclosed in our release for the third quarter discretionary AUM.
Scott: As of September 30 was $22 6 billion in total a U M S.
Speaker Change: Third quarter was $35 1 billion revenue for the quarter was 34 million and reported consolidated net income for the quarter was three 7 million.
Speaker Change: Going further into the third quarter revenue increased year over year, $5 7 billion or approximately 2%.
Speaker Change: Primarily driven by increased discretionary AUM, resulting from market appreciation, partially offset by net client outflows expenses for the quarter increased year over year by $2 8 million or 12%, primarily driven by increased compensation and benefits expense and to a lesser extent <unk>.
Speaker Change: Increased G&A expenses compensation and benefits for the quarter increased year over year by $1 9 billion or approximately 11% primarily due to an increase in salaries and benefits and the accrual for bonuses based on the increased recurring cash compensation ratio over the <unk>.
Speaker Change: <unk> two years due in part to the investment in the next generation of portfolio managers and other associates, we increase the amount of the interim variable compensation accrual to potentially narrow the adjustment in the fourth quarter.
Speaker Change: Also compensation and benefits expense for the quarter increased year over year as a result of increases in salaries due to merit based increases.
Speaker Change: General and administrative expenses increased $5 9 million or approximately.
Speaker Change: 13%, primarily due to increases in professional fees portfolio and systems expenses.
Speaker Change: Our expense reported.
Reported net income attributable to silvercrest or the class a shareholders for the third quarter was approximately $2 3 million or <unk> 24 per basic and diluted class a share.
Speaker Change: Adjusted EBITDA, which we define as EBITDA without giving effect to equity based compensation expense and noncore and nonrecurring items was approximately $6 3 million or <unk>, 49% of revenue for the quarter.
Speaker Change: 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 40%.
Speaker Change: 6% was approximately $3 8 million per quarter or <unk> 27.
Speaker Change: 26 per adjusted basic and diluted earnings per share respectively.
Speaker Change: Adjusted earnings per share.
Speaker Change: 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.
Speaker Change: Adjusted EPS look.
Speaker Change: Looking at year to date September 30 of this year revenue increase year over year by $2 8 million or approximately 3% primarily driven by increased discretionary.
Speaker Change: <unk> for market appreciation, partially offset by net client outflows.
Speaker Change: Fences increased year over year by $6 9 million or 10%, primarily driven by increased compensation and benefits expense and again to a lesser extent increased G&A compensation expense increase year over year by $4 8 million or approximately 10%.
Speaker Change: Primarily due to an increase in the accrual for bonuses and increased salaries due to merit based increases.
Speaker Change: G&A expenses increased by $2 1 million or approximately 11% primarily due to increases in travel and entertainment expenses occupancy expense professional fees portfolio and systems expense recruiting expense.
Speaker Change: And trader expense.
Speaker Change: Reported net income attributable to Silvercrest was approximately $7 9 million or <unk> 83 per basic and diluted class a share.
Speaker Change: Adjusted EBITDA was approximately 21 billion or 22, 9% of revenue and.
Speaker Change: And adjusted net income was approximately $12 9 million or <unk> 93, and <unk> 89 cents.
Speaker Change: For adjusted basic and diluted EPS, respectively.
Speaker Change: You look at the balance sheet total assets were approximately $184 2 million as of September 30, compared to $199 6 million as of December 31 last year.
Speaker Change: Cash and cash equivalents were approximately $58 1 billion as of September 30, and this compared to December 31 of last year, which was at $73 million.
Speaker Change: There were no borrowings as of September 30th.
Speaker Change: Total class a stockholders equity was approximately $84 6 billion as of the end of the third quarter and we repurchased approximately one $4 billion of class a shares that concludes my remarks, and we'll now open up the call for Q&A. Thank.
Speaker Change: Thank you Scott.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one.
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 two.
Speaker Change: Again it is star then one to ask a question.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Sandy Mehta with evaluate research. Please go ahead.
Speaker Change: Good morning, Sandy yes, yes.
Yes, good morning.
Sandy Mehta: Rick and Scott.
Sandy Mehta: On the global strategies could you provide some more details on the opportunity.
Sandy Mehta: In terms of inflows also in terms of the staffing.
Sandy Mehta: Have you fully staffed up the team.
Sandy Mehta: Including the the business development officers as well as other new strategies that you've been developing several over the last few years.
Sandy Mehta: An update on the outlook for that in terms of our inflows and also the Oh CIO update please.
Speaker Change: Okay. Let me, let me start with the global equity strategy.
Speaker Change: We have hired most of the primary portfolio management team of analysts and those executing the strategy.
Speaker Change: We have also hired.
Speaker Change: Administration and.
Speaker Change: Have trading covered but that will be probably expanding a bit more.
I can see us hiring another analyst I think we are in the market for that now.
<unk>.
Speaker Change: With regards to business development.
Speaker Change: At this stage, we're well covered by our internal capabilities.
Speaker Change: And of course, the rest of the infrastructure at the affirmative support team like that as is already here, we were able to attract this high quality team in part because of the robustness of the infrastructure that we've built.
Speaker Change: Oriented towards the institutional business across compliance training operations technology.
Speaker Change: Et cetera are strong financial controls.
Speaker Change: Controls you name it.
Speaker Change: So we're getting close.
Speaker Change: Obviously, the key parts with the expensive parts early on when that team joined us.
Speaker Change: And I believe the second quarter.
Speaker Change: And we have spent.
Speaker Change: The past few months not only making sure that we were ready to take on a significant amount of business, but introducing the capability too.
Speaker Change: Significant asset allocators globally, the opportunity is absolutely enormous for us the team and its past as has managed billions and billions of dollars number one so they have experienced doing it and are well known in the marketplace number two if you look at asset flows in the bill.
Speaker Change: Business.
Speaker Change: Global equity at least if you look at the international stage is the highest in demand.
Speaker Change: Capability.
Speaker Change: Now that is where a lot of flows are going.
Speaker Change: That in private equity.
Speaker Change: Third.
Speaker Change: When you look at the large families and institutions outside of the U S.
Speaker Change: <unk> very much want exposure to global equities, they do not divide.
Speaker Change: Place in quite the same way that we do in the United States, what we make.
Speaker Change: Much stronger distinctions between.
Speaker Change: Different asset classes in equity markets with the biggest exposure in the United States.
Speaker Change: So this gives us a really credible capability and talking to those larger families outside of the U S, which as you know has been an increasing part.
Speaker Change: Ah.
Speaker Change: Of our business.
Speaker Change: I have not included.
Speaker Change: The potential for global equity in our pipeline I announced in my introductory remarks that we have a pipeline now of $1 2 billion.
Speaker Change: That is up 20% or $200 million basically from the second quarter of where we stood at $1 billion.
Speaker Change: So anything that would flow over the next couple of quarters into the global equity would be in addition to the pipeline of $1 2 billion.
Speaker Change: I, obviously since I spoke extensively about my expectations in my opening remarks.
Speaker Change: I am very very optimistic for quite significant inflows.
Speaker Change: Over the next two quarters to the extent that we could even see nice organic net organic flows for 'twenty 'twenty four as a result of those flows but we will keep you posted and of course put out a press release when when do you think that is going to come to <unk>.
Speaker Change: Fruition on the pipeline.
Speaker Change: I mentioned previously.
Speaker Change: Of the last quarter that the value pipeline value equity pipeline had really.
Speaker Change: Reduced but that has picked back up which is really nice to see our growth pipeline is smaller than it was in the second quarter and that is because we won a couple of really meaningful mandates.
Speaker Change: So that's really good news and the Oce Io portion of the $1 $2 billion pipeline stands at about $600 million.
That portfolio to answer your final question is about $1 6 billion in total right now.
Speaker Change: Okay I believe.
Speaker Change: Understood.
Speaker Change: Okay.
Speaker Change: Thank you. Thank you so much and then just.
Speaker Change: One follow up.
Speaker Change: I believe you had some buybacks mentioned at the end of your comments.
Speaker Change: Hum.
Speaker Change: Can you update us on the buyback activity I generally it's been very slow and how do you look at the use of cash in terms of buybacks versus saving money for a potential acquisition, which we you know nobody knows when that may or may not happen. Thank you.
Speaker Change: Exactly.
Speaker Change: If you looked at our past history, Sandy we had a lot of cash on the balance sheet and then boom, we had a really meaningful accretive acquisition. When we merged with Cortina, which gave us the the growth equity capabilities pack the inflows that I just mentioned with the pipeline.
Speaker Change: We're primarily into the small cap opportunity a portfolio, which is which is with that team.
Speaker Change: So yeah all of a sudden you don't know when thats going to going to happen. We think it's really important to buy back shares when we have the cash to do so and we think it is a compelling value.
Speaker Change: <unk> acquisition by another means we're just buying ourselves instead of somebody else.
Speaker Change: However, it is slow to put to work primarily because we have volume restrictions as we are in the market and we are very active in the market. We're careful about it of course, but but we're being much more aggressive this time around in the market than we were the last time, we did a buyback.
Speaker Change: Order to affect as much as a.
Speaker Change: That buyback as soon as we can.
Speaker Change: The reason, we chose this form of a buyback and talking to our counselors and advisors at the different banks, we work with and elsewhere is because it does give us the flexibility to stop the buyback should something be coming to fruition and we have the use of that cash.
Speaker Change: If that were to happen in the meantime, we're going to support our security.
Speaker Change: And and buy back shares as often as we can and we will continue to reevaluate. This as we go along and as cash builds.
Speaker Change: Sandeep just a reminder, that the plan we disclosed the middle of August.
Speaker Change: Up to $12 million buyback plan, so we had roughly.
Speaker Change: Six weeks.
Speaker Change: Available purchasing time through the end of the third quarter.
Speaker Change: And so that resulted in about $1 4 billion repurchase.
Speaker Change: Alright, great. Thank you so much.
Speaker Change: Youre welcome.
Once again, if you have a question. Please press Star then one.
Speaker Change: The next question comes from Chris Sakai with singular research. Please go ahead.
Speaker Change: Yes.
Chris Sakai: Just a question on <unk>.
Adjusted EBITDA margin.
Chris Sakai: Are you still are you still trying to get it back to 27% and the long term.
Speaker Change: Yes long term this is a business that as a mature business.
Speaker Change: It runs into into the upper Twenty's as an EBITDA margin.
Speaker Change: And so that's what that's what we're aiming for.
Speaker Change: I was very clear over the past year and a half two years. However that we would be hitting earnings we would be hitting EBITDA in order to set up the next stage of our company's growth and also to be super prudent about.
Speaker Change: About the next generation and redundancy in the business.
We have a history of very successfully transitioning the business.
Speaker Change: Two the next generation.
Speaker Change: Yes.
Speaker Change: When I joined.
The firm.
Speaker Change: I'm. An example of that as are many of my colleagues, but going back 10 years. There was a gap kind of in the middle between very senior people and very junior we've really filled that in well, but we've also been able to successfully hire and then build new capabilities.
<unk> team would be an example.
Speaker Change: Of that where we've been able to organically grow something for scratch, let's not forget that I've mentioned in the past it's not just about this global equity team.
Speaker Change: In order to win large mandates and serve the biggest families. It's all the rest of the infrastructure and as you grow you have to put a little bit more investment in that and then grow grow into it you have to be credible that you.
Speaker Change: Have a very robust institutional quality offering if youre going to talk to families with a couple of hundred million dollars.
Speaker Change: And as we've grown and capacity feels we have to we have to invest some aspects of the business in order to set the stage for the next.
Speaker Change: Piece of growth, we've also announced I think in the second quarter that we were.
Speaker Change: Green fielding an organic growth opportunity in Atlanta.
Speaker Change: We have our full SaaS license in Singapore, we have clients there now.
Speaker Change: We have employees that is going to be important as we look at different <unk>.
Speaker Change: Time zones, and dealing with not only clients, but trading opportunities and global equity.
Speaker Change: So this is a very broad and diverse.
Speaker Change: <unk> and other business development. This is a very broad based effort.
Speaker Change: We have always been successful at.
Speaker Change: Growing into.
Speaker Change: In the past week, we didn't necessarily make as large investments and we were able to grow quickly through those investments. So there may have been a slight hiccup in.
Speaker Change: Or a pull down in EBITDA, but we grow through it so it wasn't even noticeable. This we're getting ahead of it just a bit as I forecast that we would but I'm quite optimistic that we're going to see the fruits of this over the next year.
Speaker Change: Okay sounds good.
Speaker Change: One question as well.
Speaker Change: Or.
Speaker Change: Your new hiring.
Speaker Change: It.
Speaker Change: Can you give an idea all your hiring.
Speaker Change: So I'll leave that at market rates or are you hiring at higher than market rates.
Speaker Change: Can you give us an idea about.
Speaker Change: I would argue that we're hiring people at competitive.
Speaker Change: Competitive rates, we do not need to overpay to attract people to our firm. This is an incredible place to work with a very strong culture, we have very low employee turnover people really commit.
Speaker Change: Their careers here and we're very proud of that.
Speaker Change: When you have that kind of entrepreneurial environment, where people have a lot of autonomy and purpose.
Speaker Change:
Speaker Change: You can you have to be competitive to get the best talent, but you certainly don't need to overpay.
Speaker Change: Okay, great. Thanks.
Speaker Change: Once again, if you have a question. Please press Star then one.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Rick Hough for any closing remarks, great. Thank you and thank you for joining us for our third quarter results.
Rick Hough: I appreciate the attention and the and the <unk>.
Speaker Change: <unk>.
Speaker Change: And just to emphasize.
We ended the third quarter with an increase of $1 billion, which represents a nice quarter over quarter, a 5% increase in were up <unk>.
Speaker Change: 10% year over year over year that is revenue that has not yet been recognized so thats a good forward looking.
Speaker Change: Disability into.
Speaker Change: The firm and as I emphasized several times during the call I'm quite optimistic about our net organic flows looking forward at least over the next couple of quarters. Thanks to the progress we've made with business.
Speaker Change: Business development investments that we've made in the business. Thanks, so much for joining us I look forward to updating everyone at the end of the fourth quarter.
Speaker Change: The conference has concluded thank you for attending.
Speaker Change: During today's presentation you may now disconnect.
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Speaker Change: Yes.
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