Business context and reporting period
Silvercrest Asset Management Group Inc. filed this Form 10-K for the fiscal year ended December 31, 2022. The company provides investment management, financial advisory and family-office services, primarily to ultra-high-net-worth individuals and institutional investors. Its revenue is largely tied to assets under management (AUM) and market values. Figures below are in U.S. dollars; “Q4” refers to the three months ended December 31, 2022, where shown.
Financial and operating performance
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Revenue | $123.2 million | $131.6 million | Down 6.4% |
| Income before other income (expense), net | $38.6 million | $30.5 million | Up 26.3% |
| Net income | $30.8 million | $24.9 million | Up 23.4% |
| Net income attributable to Silvercrest | $18.8 million | $14.7 million | Up 28.1% |
| Net income margin | 25.0% | 19.0% | Up 6.0 percentage points |
| Adjusted EBITDA (non-GAAP) | $32.0 million | $43.4 million | Down 26.3% |
| Adjusted EBITDA margin (non-GAAP) | 26.0% | 33.0% | Down 7.0 percentage points |
| Adjusted net income (non-GAAP) | $19.7 million | $28.1 million | Down 30.1% |
| Year-end AUM | $28.9 billion | $32.3 billion | Down 10.5% |
Management and advisory fees were $118.7 million, down 6.5%; family-office services revenue was $4.5 million, roughly flat; and performance-fee revenue was negligible. Average AUM increased slightly to $30.6 billion from $30.1 billion, while the average annual management fee rate declined to 0.40% from 0.44%.
Q4 2022 revenue was $28.5 million, versus $33.8 million in Q4 2021. Q4 net income was $3.3 million, compared with $8.6 million a year earlier. Quarterly results therefore weakened through 2022 as revenue and income before other items declined over the course of the year.
Cash flow, debt and liquidity
Cash and cash equivalents were $77.4 million at year-end, down from $85.7 million. Operating cash flow was $23.4 million, versus $44.3 million in 2021; investing activities used $1.0 million and financing activities used $30.7 million, resulting in an $8.3 million net decrease in cash. Financing outflows included $6.8 million of Class A dividends, $7.9 million of partner distributions, $4.6 million of acquisition earnout payments, $2.7 million of debt repayments and $8.8 million of share repurchases.
Term-loan borrowings were $6.3 million at year-end, down from $9.0 million; there were no revolver borrowings. The company reported compliance with credit-facility covenants. Management expects operating cash flows to meet cash and liquidity requirements over the next 12 months. The filing reports no significant off-balance-sheet arrangements.
Material changes versus the prior comparable period
- Total AUM fell $3.4 billion. Market depreciation reduced AUM by $3.5 billion, while net client flows were slightly positive overall; discretionary AUM declined $4.2 billion and non-discretionary AUM increased $0.8 billion.
- Discretionary equity AUM declined 15.9%, while discretionary fixed-income AUM increased 4.7%. Several growth-oriented strategies had particularly weak 2022 returns; the filing cites smid growth, multi-cap growth, REIT and core international composites at approximately -32.7%, -26.6%, -26.3% and -26.0%, respectively.
- Total expenses fell 16.3% to $84.7 million. General and administrative expense declined $15.5 million, largely due to an $11.8 million downward fair-value adjustment to Cortina acquisition contingent consideration, compared with a $5.7 million upward adjustment in 2021. This unusual non-cash item materially affects year-over-year comparisons.
- Other income (expense), net moved from income of $1.3 million to an expense of $0.2 million, primarily reflecting a $1.6 million decline in equity income from investments and higher interest expense.
- Despite higher GAAP net income, adjusted EBITDA and adjusted net income declined. These non-GAAP measures exclude specified adjustments and should be considered alongside, not instead of, GAAP results.
Outlook, risks and unusual items
The filing provides no quantified earnings or AUM guidance. Management’s stated priorities include organic growth, selective hiring and acquisitions, and expanding institutional and family-office services. Management cautions that growth may be difficult to sustain and that AUM, fee rates and revenue depend on markets, investment performance, client flows and asset mix.
Important risks include market declines or client withdrawals, performance and fee pressure, revenue concentration in discretionary accounts and a limited number of strategies and clients, and dependence on key investment professionals. Other risks include regulatory and litigation exposure, cybersecurity and operational failures, acquisition integration, conflicts of interest, and the company’s ability to fund distributions and tax-receivable-agreement obligations. The company pays principals 85% of specified realized or deemed tax savings under the agreement; the recorded liability was approximately $8.9 million at year-end. The credit facility also includes financial covenants and restrictions.
The company reported no material pending or threatened legal proceedings. Deloitte & Touche issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified fair-value measurement of Cortina contingent consideration as a critical audit matter, involving significant unobservable assumptions; the reported year-end liability was approximately $2,000.
Important facts for investors to verify
- Reconcile the drivers of AUM decline, including market depreciation, discretionary outflows and the increase in non-discretionary assets.
- Review the Cortina contingent-consideration valuation and its substantial impact on reported expenses and adjusted results.
- Assess whether the lower average fee rate and weak strategy performance could pressure future management fees, client retention and margins.
- Evaluate the decline in operating cash flow alongside dividends, partner distributions, repurchases, earnout obligations and ongoing debt service.
- Confirm current credit-facility terms, covenant headroom, the revolving facility’s maturity and the timing and potential size of tax-receivable-agreement payments.