Silvercrest Asset Management Group Inc. — Q2 2023 Form 10-Q
Business context and reporting period. The unaudited filing covers the quarter and six months ended June 30, 2023. Silvercrest provides investment management and family-office services. Amounts below are in millions of dollars except per-share data and AUM. Silvercrest held approximately 67.5% of Silvercrest L.P.; the remaining economic interest is reported as non-controlling interest.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $29.7 | $32.2 | $59.2 | $65.7 |
| Management and advisory fees | $28.7 | $31.1 | $57.0 | $63.6 |
| Expenses | $23.2 | $20.3 | $45.9 | $38.3 |
| Net income | $5.1 | $9.5 | $10.4 | $21.9 |
| Net income attributable to Silvercrest | $3.1 | $5.8 | $6.3 | $13.3 |
| Diluted GAAP EPS | $0.33 | $0.58 | $0.66 | $1.35 |
| Net income margin | 17.3% | 29.4% | 17.7% | 33.3% |
| Adjusted EBITDA / margin | $8.1 / 27.3% | $9.2 / 28.5% | $16.3 / 27.5% | $19.4 / 29.6% |
- Revenue declined 7.6% in Q2 and 9.9% for the first half. Management attributed the decrease mainly to a lower average annual management fee rate, reflecting asset mix. The rate was 0.38% in Q2 versus 0.43%, and 0.39% for the first half versus 0.43%.
- Average AUM was $30.9 billion in Q2 versus $30.0 billion; first-half average AUM was $30.4 billion versus $30.5 billion. Period-end AUM increased to $31.9 billion from $28.7 billion a year earlier and $28.9 billion at year-end 2022. First-half AUM growth reflected $1.2 billion of net inflows and $1.8 billion of market appreciation; discretionary net flows were negative.
- Compensation expense fell 6.8% in Q2 and 9.2% for the first half, primarily because of lower bonus accruals. General and administrative expense rose to $6.5 million in Q2 and $12.6 million for the first half, compared with $2.3 million and $1.7 million, respectively.
- Cash and cash equivalents were $47.4 million at June 30, down from $77.4 million at December 31, 2022. For the first half, operating activities used $9.9 million, investing used $2.6 million, and financing used $17.5 million; cash decreased by $30.0 million.
- Term-loan borrowings were $3.6 million, down from $6.3 million at year-end; there were no revolver borrowings. The revolver maturity was extended to June 18, 2024, and the term loan matures July 1, 2026. The company reported compliance with credit-facility covenants.
- Total liabilities were $60.4 million, including $28.6 million of operating lease liabilities. The company reported $35.8 million of future operating lease payments before subleases.
Material changes, outlook and risks
- The 2022 comparison includes favorable Cortina acquisition contingent-consideration fair-value adjustments that reduced expenses by $4.1 million in Q2 and $10.6 million in the first half. This makes year-over-year expense and earnings comparisons less representative of underlying changes. No growth payment was due under the Cortina earn-out based on revenue through June 30, 2023.
- First-half cash use included $4.9 million of share repurchases, $3.4 million of Class A dividends, $6.3 million of partner distributions, $2.7 million of term-loan principal repayments, and $2.6 million of capital expenditures, mainly for the Milwaukee office buildout.
- Management expects operating cash generation to meet cash and liquidity requirements over the next 12 months and intends to continue quarterly Class A dividends, subject to available cash, operating results, and credit-facility restrictions. The filing provides no specific revenue or earnings guidance.
- Key risks include market declines that reduce AUM and fee revenue, client outflows, investment performance and fee-mix changes, client and employee retention, competition, regulatory and litigation costs, operational and data-security risks, and the ability to integrate strategic transactions. The company also noted its exposure to market risk through AUM-based fees.
- The tax receivable agreement requires payment to eligible partners of 85% of qualifying realized tax savings. The recorded liability was approximately $9.2 million at June 30; actual payment timing and amounts depend on taxable income, exchanges, and other factors.
- Management concluded disclosure controls and procedures were effective at June 30, 2023 and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether AUM growth can translate into higher revenue: management fees fell despite higher period-end AUM, while the average fee rate declined.
- The sustainability and drivers of cash generation: first-half operating cash flow was negative despite reported net income, with a substantial cash use from lower accrued compensation.
- The underlying expense and earnings trend after separating the unusually large 2022 Cortina fair-value benefits from reported comparisons.
- The filing’s cash-flow discussion says Class A dividends paid were $4.9 million for the first half, while the cash-flow statement reports $3.437 million of dividends and $4.940 million of share repurchases. Confirm the narrative figure and classification.
- The MD&A describes discretionary equity AUM as increasing during the first half, but later refers to decreases in equity assets and strategies. Clarify this apparent inconsistency against the detailed AUM and performance disclosures.
- The capacity to sustain dividends, partner distributions, repurchases, and lease and tax-receivable-agreement obligations as cash balances change.