Silvercrest Asset Management Group Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Unaudited consolidated results include Silvercrest Asset Management Group Inc. and Silvercrest L.P. Silvercrest provides investment management and family office services. Unless stated otherwise, financial amounts below are in millions of dollars.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $33.5 | $31.2 | +7.3% |
| Management and advisory fees | $32.4 | $30.2 | +7.4% |
| Family office services revenue | $1.1 | $1.0 | +2.9% |
| Performance fees | $0 | $0 | No change |
| Total expenses | $18.1 | $25.5 | -29.3% |
| Net income | $12.4 | $4.3 | +186% |
| Net income attributable to Silvercrest | $7.6 | $2.6 | +197% |
| GAAP diluted EPS | $0.77 | $0.26 | +$0.51 |
| Adjusted EBITDA | $10.3 | $9.7 | +6.2% |
| Adjusted EBITDA margin | 30.6% | 30.9% | -0.3 percentage points |
GAAP net income margin was 37.0%, compared with 13.9% in Q1 2021. The sharp earnings increase chiefly reflects a $6.5 million gain from a downward fair-value adjustment to Cortina acquisition earnout consideration; the comparable quarter recorded a $2.3 million expense. Compensation and benefits rose 5.7% to $18.7 million, including $8.6 million of partner incentive payments. The income tax provision was $3.0 million, and the effective tax rate was 19.3%, versus 22.5%.
Assets, cash flow, debt and liquidity
- Assets under management (AUM) ended the quarter at $31.2 billion, down 3.4% from $32.3 billion at year-end 2021, but up from $29.0 billion a year earlier. Q1 net client flows were approximately flat; market depreciation reduced AUM by $1.1 billion. Average AUM was $31.8 billion, versus $28.4 billion in Q1 2021.
- Operating cash flow was negative $23.6 million, compared with negative $15.6 million in Q1 2021. Investing cash use was $0.03 million; financing cash use was $5.1 million. Cash fell $28.7 million during the quarter to $57.0 million.
- At March 31, cash was $57.0 million, receivables net of allowance were $9.4 million, and amounts due from Silvercrest Funds were $1.3 million. Total assets were $197.9 million and total liabilities were $72.7 million.
- Term-loan borrowings were $8.1 million, down from $9.0 million at year-end; there were no revolving-credit borrowings. The company reported compliance with credit-facility covenants. The revolving facility’s stated maturity was June 18, 2022; the term loan matures July 1, 2026.
- Operating lease liabilities were $31.2 million. The company paid $1.7 million in Class A dividends during the quarter; the declared dividend was $0.17 per share.
Changes, outlook and risks
Revenue growth reflected higher management and advisory fees, while quarter-end AUM declined from year-end due mainly to market depreciation. The unusually low reported expenses and elevated GAAP profit were materially affected by the Cortina earnout valuation change; adjusted EBITDA increased much less than GAAP net income.
Management gave no specific earnings or AUM guidance. It stated that operating cash flows are expected to meet cash and liquidity needs over the next 12 months, while noting that the assessment will be revisited as conditions evolve. Management expects partner distributions to remain a material use of cash and intends to continue quarterly Class A dividends, subject to available cash, credit-facility restrictions and other conditions.
Key risks include market declines reducing AUM and fee revenue, client withdrawals, investment performance and client retention, competition, compensation and operating costs, the COVID-19 pandemic and broader economic conditions, cybersecurity and operational disruptions, regulation and litigation, and credit-facility compliance. The filing notes that most revenue is market-sensitive and that a 10% change in average AUM would correspond to an estimated approximately $13.4 million annualized revenue change at the quarter’s 0.42% weighted-average fee rate. This is a sensitivity illustration, not guidance.
Important facts for investors to verify
- How much of the GAAP earnings increase is attributable to the $6.5 million Cortina earnout fair-value gain, and how earnout estimates may change.
- Whether AUM and client flows stabilize after Q1’s $1.1 billion market-driven decline and flat net flows.
- The drivers of negative operating cash flow, including the timing of compensation and other accrued-liability payments, and the sustainability of cash generation.
- The status and terms of the revolving-credit facility after its June 18, 2022 stated maturity, and continued covenant compliance.
- Cash requirements from partner distributions, dividends, lease commitments and the tax receivable agreement; the filing estimates the existing TRA liability at approximately $9.2 million and says future exchange-related payments may be substantial.