Silvercrest Asset Management Group Inc. Reports Q3 2017 Results

NEW YORK, Nov. 1, 2017 /PRNewswire/ -- Silvercrest Asset Management Group Inc. (NASDAQ: SAMG) (the "Company" or "Silvercrest") today reported the results of its operations for the quarter ended September 30, 2017.

Business Update

Silvercrest's third-quarter and year-to-date results reflect record revenues and net income for the third quarter and year-to-date periods. Our total assets under management increased by approximately $700 million for the third quarter ended September 30, 2017, driven by investment performance and new client capital. Silvercrest's discretionary assets under management now total $15.3 billion, representing a year-over-year increase in discretionary assets of 16% and a new high. Silvercrest's total assets under management now stands at $20.6 billion as of quarter end. Year-over-year, Silvercrest's quarterly top line revenue, consolidated net income, GAAP diluted net income per share, and adjusted diluted earnings per share are up approximately 12%, 28%, 21% and 26%, respectively.                                

Silvercrest's results are driven by the steady execution of our announced growth strategy and by focusing on businesses in which we believe we have a competitive advantage. Our differentiated high-quality service, intellectual capital and investment performance results have helped Silvercrest continue to its growth in assets, revenue and earnings. The third quarter of 2017 represented the firm's eighth straight quarter of net organic growth, and Silvercrest has delivered 17 quarters of positive or breakeven asset flows, with 14 of those quarters being positive.

Silvercrest's growth has been achieved while maintaining or increasing our adjusted EBITDA margins even while investing in the business on behalf of clients and future growth. We continue to invest in Silvercrest's next generation of high-quality talent and have funded new growth initiatives. Silvercrest also has made technological investments, including creation of a new data warehouse, reporting system, and online portal to better serve and attract our family wealth clients.

We are pleased to announce a new Outsourced Chief Investment Officer (OCIO) growth initiative to offer endowments, foundations, family offices and other institutional investors excellent discretionary asset management services. We have built and incubated a first-class team with deep knowledge and experience in the OCIO marketplace. Our OCIO offering represents the logical extension of our 2013 strategic acquisition made to strengthen Silvercrest's portfolio construction, asset allocation, due diligence and risk management capabilities. We have won our first OCIO investment mandates and have built a very healthy pipeline of new OCIO business opportunities.

Silvercrest continues to evaluate selective and prudent acquisitions to complement our organic growth, capabilities and professional talent, including the potential to expand in new geographies.

All of us at Silvercrest are grateful for the long-term support of our clients and shareholders.

On October 31, 2017, the Company's Board of Directors declared a quarterly dividend of $0.12 per share of Class A common stock.  The dividend will be paid on or about December 22, 2017 to shareholders of record as of the close of business on December 15, 2017.

Third Quarter 2017 Highlights

• Total Assets Under Management ("AUM") of $20.6 billion, inclusive of discretionary AUM of $15.3 billion and non-discretionary AUM of $5.3 billion at September 30, 2017.
• Revenue of $22.8 million.
• U.S. Generally Accepted Accounting Principles ("GAAP") consolidated net income and net income attributable to Silvercrest of $5.3 million and $3.7 million, respectively.
• Basic and diluted net income per share of $0.23.
• Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA")¹ of $7.0 million
• Adjusted net income¹ of $3.3 million.
• Adjusted basic and diluted earnings per share¹ of $0.25 and $0.24, respectively.

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

AUM at $20.6 billion

Silvercrest's discretionary assets under management increased by $2.1 billion, or 15.9%, to $15.3 billion at September 30, 2017 from $13.2 billion at September 30, 2016.  Silvercrest's total AUM increased by $2.7 billion, or 15.1%, to $20.6 billion at September 30, 2017 from $17.9 billion at September 30, 2016.  The increase in total AUM was attributable to net client inflows of $0.6 billion and market appreciation of $2.1 billion.

Silvercrest's discretionary assets under management increased by $0.6 billion, or 4.1%, to $15.3 billion at September 30, 2017 from $14.7 billion at June 30, 2017.  Silvercrest's total AUM increased by $0.7 billion, or 3.5%, to $20.6 billion at September 30, 2017 from $19.9 billion at June 30, 2017.  The increase in total AUM was attributable to market appreciation of $0.7 billion.

Third Quarter 2017 vs. Third Quarter 2016

Revenue increased by $2.4 million, or 11.6%, to $22.8 million for the three months ended September 30, 2017, from $20.5 million for the three months ended September 30, 2016. This increase was driven by growth in our management and advisory fees as a result of increased assets under management.

Total expenses increased by $1.2 million, or 7.6%, to $17.5 million for the three months ended September 30, 2017 from $16.3 million for the three months ended September 30, 2016. Compensation and benefits expense increased by $1.3 million, or 11.0%, to $13.5 million for the three months ended September 30, 2017 from $12.2 million for the three months ended September 30, 2016. The increase was primarily attributable to an increase in the accrual for bonuses of $1.1 million and an increase in salaries expense of $0.2 million primarily as a result of merit-based increases.  General and administrative expenses decreased by $0.1 million, or 2.5%, to $4.0 million for the three months ended September 30, 2017 from $4.1 million for the three months ended September 30, 2016. The decrease was primarily attributable to a decrease in investment research costs of $0.2 million mainly due to a reduction in accrued soft dollar-related research cost conversions, a decrease in sub-advisory and referral fees of $0.1 million due to a decrease in sub-advisory revenue and a decrease in professional fees of $0.1 million, partially offset by an increase in travel and entertainment expense of $0.1 million and an increase in occupancy and related costs of $0.1 million.

Consolidated net income was $3.7 million.  Net income attributable to Silvercrest was $1.9 million, or $0.23 per basic and diluted share for the three months ended September 30, 2017.  Our Adjusted Net Income¹ was $3.3 million, or $0.25 per adjusted basic share and $0.24 per adjusted diluted share^{1, 2} for the three months ended September 30, 2017.

Adjusted EBITDA¹ was $7.0 million or 30.7% of revenue for the three months ended September 30, 2017 as compared to $5.9 million or 28.8% of revenue for the same period in the prior year.

Nine Months Ended September 30, 2017 vs. Nine Months Ended September 30, 2016

Revenue increased by $7.8 million, or 13.2%, to $66.9 million for the nine months ended September 30, 2017, from $59.1 million for the nine months ended September 30, 2016. This increase was driven by growth in our management and advisory fees as a result of increased assets under management.

Total expenses increased by $3.9 million, or 8.2%, to $51.7 million for the nine months ended September 30, 2017 from $47.8 million for the nine months ended September 30, 2016. Compensation and benefits expense increased by $4.2 million, or 11.9%, to $39.6 million for the nine months ended September 30, 2017 from $35.4 million for the nine months ended September 30, 2016. The increase was primarily attributable to an increase in the accrual for bonuses of $3.7 million and an increase in salaries expense of $0.5 million primarily as a result of merit-based increases.  General and administrative expenses decreased by $0.3 million, or 2.6%, to $12.1 million for the nine months ended September 30, 2017 from $12.4 million for the nine months ended September 30, 2016. The decrease was primarily attributable to a decrease in investment research costs of $0.4 million mainly due to a reduction in accrued soft dollar-related research cost conversions, a decrease in sub-advisory and referral fees of $0.2 million due to a decrease in sub-advisory revenue, a decrease in business taxes of $0.1 and a decrease in client reimbursements of $0.1 million, partially offset by an increase in travel and entertainment expense of $0.1 million, an increase in marketing costs of $0.1 million, an increase in insurance costs of $0.1 million and an increase in occupancy and related costs of $0.2 million.

Consolidated net income was $10.6 million.  Net income attributable to Silvercrest was $5.4 million, or $0.67 per basic and diluted share for the nine months ended September 30, 2017.  Our Adjusted Net Income¹ was $9.4 million, or $0.72 per adjusted basic share and $0.69 per adjusted diluted share^{1, 2} for the nine months ended September 30, 2017.

Adjusted EBITDA¹ was $20.3 million or 30.3% of revenue for the nine months ended September 30, 2017 as compared to $16.6 million or 28.0% of revenue for the same period in the prior year.

Liquidity and Capital Resources

Cash and cash equivalents were approximately $39.6 million at September 30, 2017, compared to $37.5 million at December 31, 2016. Silvercrest L.P. had notes payable of $0.7 million at September 30, 2017 and $2.5 million at December 31, 2016.  As of September 30, 2017, no amount had been drawn down on our term loan and there was nothing outstanding on our revolving credit facility with City National Bank. 

Total stockholders' equity was $50.1 million at September 30, 2017.  We had 8,131,220 shares of Class A common stock outstanding and 5,070,219 shares of Class B common stock outstanding at September 30, 2017.

Non-GAAP Financial Measures

To provide investors with additional insight, promote transparency and allow for a more comprehensive understanding of the information used by management in its financial and operational decision-making, we supplement our consolidated financial statements presented on a basis consistent with GAAP with Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Earnings Per Share which are non-GAAP financial measures of earnings.  These adjustments, and the non-GAAP financial measures that are derived from them, provide supplemental information to analyze our operations between periods and over time. Investors should consider our non-GAAP financial measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.

• EBITDA represents net income before provision for income taxes, interest income, interest expense, depreciation and amortization.
• We define Adjusted EBITDA as EBITDA without giving effect to the Delaware franchise tax, professional fees associated with acquisitions or financing transactions, gains on extinguishment of debt or other obligations related to acquisitions, impairment charges and losses on disposals or abandonment of assets and leaseholds, client reimbursements and fund redemption costs, severance and other similar expenses, but including partner incentive allocations, prior to our initial public offering, as an expense. We feel that it is important to management and investors to supplement our consolidated financial statements presented on a GAAP basis with Adjusted EBITDA, a non-GAAP financial measure of earnings, as this measure provides a perspective of recurring earnings of the Company, taking into account earnings attributable to both Class A and Class B shareholders.
• Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by total revenue. We feel that it is important to management and investors to supplement our consolidated financial statements presented on a GAAP basis with Adjusted EBITDA Margin, a non-GAAP financial measure of earnings, as this measure provides a perspective of recurring profitability of the Company, taking into account profitability attributable to both Class A and Class B shareholders.
• Adjusted Net Income represents recurring net income without giving effect to professional fees associated with acquisitions or financing transactions, losses on forgiveness of notes receivable from our principals, gains on extinguishment of debt or other obligations related to acquisitions, impairment charges and losses on disposals or abandonment of assets and leaseholds, client reimbursements and fund redemption costs, severance and other similar expenses, but including partner incentive allocations, prior to our initial public offering, as an expense. Furthermore, Adjusted Net Income includes income tax expense assuming a blended corporate rate of 40%. We feel that it is important to management and investors to supplement our consolidated financial statements presented on a GAAP basis with Adjusted Net Income, a non-GAAP financial measure of earnings, as this measure provides a perspective of recurring income of the Company, taking into account income attributable to both Class A and Class B shareholders.
• Adjusted Earnings Per Share represents Adjusted Net Income divided by the actual Class A and Class B shares outstanding as of the end of the reporting period for basic Adjusted Earnings Per Share, and to the extent dilutive, we add unvested deferred equity units, restricted stock units and performance units to the total shares outstanding to compute diluted Adjusted Earnings Per Share. As a result of our structure, which includes a non-controlling interest, we feel that it is important to management and investors to supplement our consolidated financial statements presented on a GAAP basis with Adjusted Earnings Per Share, a non-GAAP financial measure of earnings, as this measure provides a perspective of recurring earnings per share of the Company as a whole as opposed to being limited to our Class A common stock.

Conference Call

The Company will host a conference call on November 2, 2017, at 8:30 am (Eastern Time) to discuss these results.  Hosting the call will be Richard R. Hough III, Chief Executive Officer and President and Scott A. Gerard, Chief Financial Officer. Listeners may access the call by dialing 1-866-394-9665 or for international listeners the call may be accessed by dialing 1-253-237-1128.  An archived replay of the call will be available after the completion of the live call on the Investor Relations page of the Silvercrest website at http://ir.silvercrestgroup.com/.

Forward-Looking Statements and Other Disclosures

This report contains, and from time to time our management may make, forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking words such as "may", "might", "will", "should", "expects", "intends", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue", the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions, may include projections of our future financial performance, future expenses, anticipated growth strategies, descriptions of new business initiatives and anticipated trends in our business or financial results. These statements are only predictions based on our current expectations and projections about future events. Important factors that could cause actual results, level of activity, performance or achievements to differ materially from those indicated by such forward-looking statements include but are not limited to: incurrence of net losses, fluctuations in quarterly and annual results, adverse economic or market conditions, our expectations with respect to future levels of assets under management, inflows and outflows, our ability to retain clients from whom we derive a substantial portion of our assets under management, our ability to maintain our fee structure, our particular choices with regard to investment strategies employed, our ability to hire and retain qualified investment professionals, the cost of complying with current and future regulation, coupled with the cost of defending ourselves from related investigations or litigation, failure of our operational safeguards against breaches in data security, privacy, conflicts of interest or employee misconduct, our expected tax rate, and our expectations with respect to deferred tax assets,  adverse economic or market conditions, incurrence of net losses, adverse effects of management focusing on implementation of a growth strategy, failure to develop and maintain the Silvercrest brand and other factors disclosed under "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2016 which is accessible on the SEC's website at www.sec.gov.  We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

About Silvercrest

Silvercrest was founded in April 2002 as an independent, employee-owned registered investment adviser. With offices in New York, Boston, Virginia and New Jersey, Silvercrest provides traditional and alternative investment advisory and family office services to wealthy families and select institutional investors.

(A)       Other adjustments consist of the following:

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SOURCE Silvercrest Asset Management Group Inc.