Business Context and Reporting Period
Company: Silvercrest Asset Management Group Inc. (Silvercrest)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2013
Key Event: The company completed a corporate reorganization on June 26, 2013, and its Initial Public Offering (IPO) on July 2, 2013. Prior to this date, the company operated as a private partnership (Silvercrest L.P.). The financial statements for the period ended June 30, 2013, reflect the results of the predecessor entity (Silvercrest L.P.) with pro forma adjustments for the IPO structure.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2013 | Six Months Ended June 30, 2013 |
|---|---|---|
| Total Revenue | $14.5 million | $28.2 million |
| Net Income | $5.5 million | $10.9 million |
| Adjusted EBITDA | $4.4 million | $8.5 million |
| Adjusted EBITDA Margin | 30.4% | 30.3% |
| Assets Under Management (AUM) | $13.9 billion (Period End) | $13.9 billion (Period End) |
| Cash and Cash Equivalents | $12.7 million | $12.7 million |
| Total Debt (Notes Payable + Revolver) | $16.6 million | $16.6 million |
Note: Debt includes $9.6 million in notes payable and $7.0 million drawn on a revolving credit facility.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 12.1% year-over-year for the three months ended June 30, 2013, and 13.6% for the six-month period. This was driven primarily by a 14.0% increase in management and advisory fees.
- Profitability: Net income rose 6.9% for the three months and 16.2% for the six months compared to the prior year periods.
- Assets Under Management: AUM grew 29.9% year-over-year to $13.9 billion. The six-month growth of 24.1% was significantly aided by the acquisition of Ten-Sixty Asset Management, LLC, which added approximately $1.9 billion in assets.
- Expense Increases: Compensation and benefits expenses increased 22.6% (three months) and 15.9% (six months) year-over-year. This included special non-principal bonuses of $0.8 million paid in July 2013 upon the consummation of the IPO.
- Acquisitions: The company acquired Ten-Sixty Asset Management, LLC on March 28, 2013, for a total consideration of approximately $4.1 million ($2.5 million cash and $1.6 million promissory note).
Guidance, Outlook, and Risks
- Dividend Policy: Management intends to declare quarterly cash dividends to Class A common stockholders beginning in the fourth quarter of 2013. Dividends will be funded by distributions from the operating subsidiary, Silvercrest L.P.
- Tax Receivable Agreement (TRA): In connection with the IPO, Silvercrest entered into a TRA requiring it to pay 85% of the cash tax savings realized from the step-up in tax basis of assets to the selling partners. Estimated future payments related to the initial purchase of Class B units are approximately $3.7 million, with additional payments expected upon future exchanges of units.
- Liquidity: The company entered into a $15.0 million credit facility in June 2013 ($7.5 million term loan, $7.5 million revolver). As of June 30, 2013, $7.0 million was drawn on the revolver to fund a pre-IPO distribution to partners.
- Risks: Key risks include market volatility affecting AUM and revenue, the ability to attract and retain investment talent, and the impact of the TRA on future cash flows. The company also faces increased costs associated with being a public company (e.g., compliance, insurance).
Investor Verification Checklist
- IPO Proceeds Usage: Verify the allocation of the ~$49.4 million net IPO proceeds, specifically the $35.4 million used to purchase Class B units from existing partners.
- Tax Receivable Agreement Liability: Confirm the estimated liability recorded for the TRA and the assumptions regarding future tax basis step-ups and exchange timing.
- Non-Controlling Interest: Review the impact of the 57.4% non-controlling interest held by Silvercrest L.P. partners on the company's reported net income and equity.
- Debt Covenants: Examine the financial covenants in the new $15 million credit facility, specifically the discretionary AUM test and debt-to-EBITDA ratios.
- Adjusted EBITDA Reconciliation: Scrutinize the adjustments made to reach Adjusted EBITDA, particularly the treatment of partner incentive allocations and IPO-related professional fees.