Silvercrest Asset Management Group Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. Amounts are U.S. dollars; financial statement amounts are in thousands unless stated otherwise.
Business context
Silvercrest is a wealth management firm serving ultra-high-net-worth individuals and institutional investors, offering investment management and family-office services. Reported assets under management (AUM) were $18.1 billion at year-end, up 1.1% from $17.9 billion. The firm also advised on approximately $13.4 billion of non-discretionary assets for a public treasurer’s office; those assets are excluded from reported AUM because the annual fee is capped at $825,000.
Financial and operating results
| Metric | FY 2015 | FY 2014 | Change |
|---|---|---|---|
| Total revenue | $75.1 million | $69.5 million | +8.2% |
| Management and advisory fees | $71.8 million | $65.0 million | +10.4% |
| Family-office services revenue | $3.4 million | $4.2 million | −20.3% |
| Performance fees and allocations | $11,000 | $221,000 | −95.0% |
| Total expenses | $58.2 million | $54.2 million | +7.4% |
| Net income, consolidated | $11.1 million | $10.7 million | +3.5% |
| Net income attributable to Silvercrest | $5.3 million | $4.8 million | +11.5% |
| Adjusted EBITDA (non-GAAP) | $21.9 million | $21.1 million | +3.4% |
| Adjusted EBITDA margin (non-GAAP) | 29.1% | 30.4% | −1.3 percentage points |
Management attributed fee growth mainly to higher AUM and the Jamison acquisition. Average AUM rose to $18.0 billion from $16.8 billion, while the average management fee rate was 0.42% versus 0.41%. AUM growth was partly offset by market depreciation: market movement reduced AUM by about $0.7 billion in 2015, compared with $1.5 billion of market appreciation in 2014. Gross inflows were $4.6 billion and gross outflows $3.7 billion. Discretionary AUM reached $12.1 billion; non-discretionary AUM was $6.0 billion.
Operating cash flow was $16.2 million, down from $20.4 million; investing activities used $3.9 million and financing activities used $11.6 million. Cash increased by $0.7 million to $31.6 million. The company paid $3.8 million in Class A dividends, or $0.48 per share, during the year.
At December 31, 2015, total assets were $108.2 million, total liabilities $46.6 million, and total equity $61.6 million. Notes payable were $4.5 million; there were no year-end borrowings on the revolving credit facility. The credit facility provides a $7.5 million revolver and a $7.5 million delayed-draw term loan, subject to covenants; the company reported compliance at year-end.
Material changes versus the prior period
- Jamison acquisition closed June 30, 2015. It added approximately $0.7 billion of AUM and contributed $2.6 million of revenue in the second half. Consideration included $3.6 million cash, $2.2 million in notes, $3.6 million in equity and contingent consideration; the recorded year-end earnout liability was $1.3 million.
- Compensation and benefits rose 6.4%, principally from salary and benefit increases, headcount, bonuses and equity compensation. General and administrative expense increased 10.6%, including higher research, professional, occupancy and amortization costs.
- Family-office revenue declined following the termination of accounts associated with a principal who left in 2013. Performance-fee revenue also fell, reflecting lower returns at external investment strategies.
- Net income increased modestly, while the effective tax rate rose to 38.6% from 37.4%. Other income declined to $1.1 million from $1.8 million, including a $1.2 million reduction in the tax receivable agreement liability resulting from a New York City tax-rate change.
Outlook, risks and unusual items
The filing gives no specific revenue, earnings or AUM guidance. Management expects to fund the next 12 months’ operating and liquidity needs primarily from operating cash flow and describes liquidity as sufficient for normal operations under its plan. Its stated growth strategy is to pursue organic growth, selective hiring and acquisitions, expand institutional business, and increase family-office service use.
- Results are sensitive to market valuations, investment performance, client withdrawals, fee pressure and the ability to retain key professionals. Most revenue depends on AUM-based advisory fees, and client agreements may generally be terminated on short or no notice.
- Regulatory compliance, litigation, conflicts of interest, cybersecurity, operational failures and employee misconduct could raise costs or harm client relationships. The filing reports no material legal proceedings pending or threatened.
- Leases represent $63.5 million of undiscounted operating-lease commitments, including the extended New York headquarters lease through September 2028. The company also disclosed $14.7 million of estimated tax receivable agreement obligations; payments depend on realized tax benefits and may vary or accelerate in specified circumstances.
- The Jamison earnout is contingent on business EBITDA and has no stated cap or floor. The 2015 accounts also include acquisition-related expenses and contingent-consideration fair-value adjustments.
- Adjusted EBITDA and adjusted earnings measures are non-GAAP and include management-defined adjustments; they should be considered alongside GAAP results. Reported equity-strategy returns are gross of advisory fees, and past performance is not indicative of future results.
Important facts for investors to verify
- Separate organic AUM flows and investment performance from the $0.7 billion attributed to Jamison, and confirm treatment of the excluded $13.4 billion public-treasurer mandate.
- Review the drivers of lower operating cash flow and the durability of the 29.1% adjusted EBITDA margin, including the non-GAAP reconciliation and compensation costs.
- Assess Jamison’s post-acquisition results, earnout assumptions and remaining acquisition-related liabilities and note maturities.
- Evaluate cash available for dividends after partner distributions, lease commitments and tax receivable agreement payments; dividends remain subject to board discretion and covenants.
- Consider concentration in AUM-based fees, market and client-retention risks, and the potential impact of key-person departures, regulation or operational and cyber incidents.