Silvercrest Asset Management Group Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; financial statements are unaudited. Amounts below are in millions of dollars unless noted.
Business context and key results
Silvercrest provides investment management and family office services to high-net-worth individuals, families and institutional investors. Revenue is primarily driven by assets under management (AUM), market performance, client flows and fee mix.
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $30.3 | $29.4 | +2.9% |
| Compensation and benefits | $17.7 | $16.5 | +7.1% |
| General and administrative expenses | $6.7 | $6.2 | +8.4% |
| Net income | $4.9 | $5.3 | -7.4% |
| Net income attributable to Silvercrest | $3.0 | $3.2 | -6.4% |
| Adjusted EBITDA (non-GAAP) | $7.5 | $8.2 | -8.9% |
| Adjusted EBITDA margin (non-GAAP) | 24.6% | 27.8% | -3.2 percentage points |
| Cash and cash equivalents, at quarter-end | $39.7 | $70.3 at Dec. 31, 2023 | -$30.6 |
Net income margin was 16.2%, down from 18.0%. Basic and diluted GAAP earnings per share were both $0.32, compared with $0.34 and $0.33, respectively. Interest income rose to $0.35 million from $0.02 million, while interest expense fell to $0.05 million from $0.12 million. The effective tax rate was 20.8%, versus 20.7%.
Assets under management and operating changes
Quarter-end AUM was $34.5 billion, up 3.6% from $33.3 billion at year-end 2023 and 15.4% from $29.9 billion a year earlier. Q1 AUM growth reflected $1.5 billion of market appreciation, partly offset by $0.3 billion of net client outflows. Discretionary AUM ended at $22.7 billion and non-discretionary AUM at $11.8 billion. Management and advisory fees increased 2.8%; family office services revenue increased 4.2%.
Average AUM was $33.9 billion, versus $29.4 billion. The average annualized management fee rate declined to 0.36% from 0.40%, which moderates the revenue benefit from higher AUM. Management attributed revenue growth to market appreciation, partly offset by net outflows.
Expenses increased 7.4%, faster than revenue. Compensation growth included a $1.0 million increase in bonus accruals, merit-related salary and benefit increases, and $0.1 million of severance. General and administrative costs rose mainly from professional fees, occupancy, travel and depreciation and amortization. These factors contributed to lower profit and margins despite higher revenue.
Cash flow, debt and liquidity
Operating activities used $24.1 million of cash, compared with $25.5 million used in Q1 2023. The quarter’s operating cash outflow was heavily affected by a $28.3 million reduction in accrued compensation; the filing notes that Q1 cash flows are seasonal, including payment of prior-year incentive compensation. Investing activities used $0.6 million, primarily for equipment and leasehold improvements. Financing activities used $5.9 million, including $3.3 million of partner distributions, $1.8 million of Class A dividends and $0.9 million of term-loan repayments. Cash declined from $70.3 million to $39.7 million.
Term-loan borrowings were $1.8 million at March 31, 2024, down from $2.7 million at year-end; there were no revolver borrowings. The term loan matures July 1, 2026. The revolving facility’s stated maturity is June 18, 2024, shortly after quarter-end. The company reported compliance with its credit-facility covenants. Management expects operating cash flows to meet cash and liquidity needs for the next twelve months, while noting partner distributions and dividends as continuing uses of cash.
Operating lease liabilities were $25.1 million and finance lease liabilities were $0.3 million at quarter-end. The company paid a quarterly Class A dividend of $0.19 per share. It also reported an estimated $8.8 million tax receivable agreement liability; payment amounts and timing depend on realized tax savings and other factors.
Outlook, risks and notable disclosures
The filing provides no specific financial guidance. Management expects cash requirements over the next twelve months to be met primarily through operating cash generation. The company’s results remain sensitive to market values because most revenue is tied to AUM; a market decline can reduce fee revenue and may prompt client withdrawals. Other stated risks include net outflows, investment performance, fee pressure, client and employee retention, competition, regulation, litigation, cybersecurity and operational safeguards.
Management estimates that a 10% change in average AUM, assuming a proportionate change across products, would change annualized revenue by approximately $12.1 million at the Q1 fee rate. This is a sensitivity estimate, not guidance. The company reported effective disclosure controls and internal control over financial reporting as of March 31, 2024. Its forward-looking statements are subject to risks and the company undertakes no general obligation to update them.
Important facts for investors to verify
- Whether net client outflows persist, and how market returns and flows affect AUM and fee revenue.
- Why the average fee rate declined to 0.36%, and whether fee mix or pricing changes continue.
- The timing and drivers of cash usage, including incentive compensation, partner distributions and dividends.
- The status and terms of the revolving credit facility as its stated June 18, 2024 maturity approaches.
- Potential tax receivable agreement payments, including the assumptions behind management’s estimate and the $8.8 million recorded liability.
- Performance of key investment strategies relative to benchmarks; reported past performance is not a guarantee of future results.