Silvercrest Asset Management Group Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Silvercrest provides investment management and family-office services. Unless noted otherwise, financial amounts are in U.S. dollars.
Business context and performance
Assets under management (AUM) ended the quarter at $29.0 billion, up 4.3% from $27.8 billion at December 31, 2020 and 40.8% from $20.6 billion a year earlier. The quarterly increase primarily reflected $1.4 billion of market appreciation, partly offset by $0.2 billion of net client outflows. Discretionary AUM was $21.9 billion; non-discretionary AUM was $7.1 billion.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 / comparator |
|---|---|---|
| Revenue | $31.2 million | $28.4 million; up 10.1% |
| Income before taxes | $5.6 million | $12.4 million |
| Net income | $4.3 million | $9.7 million |
| Net income attributable to Silvercrest | $2.6 million; $0.26 per share | $5.5 million; $0.59 per share |
| Net income margin | 13.9% | 34.2% |
| Adjusted EBITDA (non-GAAP) | $9.7 million; 30.9% margin | $8.2 million; 29.0% margin |
| Average annual management fee rate | 0.44% | 0.50% |
Management and advisory fees rose 10.3% to $30.2 million; family-office services revenue rose 5.6% to $1.0 million. Total expenses increased 62.2% to $25.5 million. Compensation and benefits rose 12.4% to $17.6 million, while general and administrative expense was $7.9 million versus $43,000.
The unusually large year-over-year increase in general and administrative expense chiefly reflects Cortina acquisition earnout fair-value changes: a $2.3 million expense in Q1 2021 versus a $6.0 million gain in Q1 2020, an $8.3 million adverse swing. Adjusted EBITDA excludes specified items, including the 2021 contingent-consideration adjustment; it is a non-GAAP measure and should not be treated as a substitute for GAAP results.
Cash and cash equivalents were $42.6 million at March 31, 2021, down from $62.5 million at December 31, 2020. Operating activities used $15.6 million of cash; investing activities used $0.1 million and financing activities used $4.1 million. The operating cash outflow included a $24.1 million reduction in accrued compensation, reflecting cash payments, and the company notes first-quarter cash flow is affected by incentive-compensation timing.
Term-loan borrowings were $11.7 million, down from $12.6 million at year-end; no revolving-credit borrowings were outstanding. The company reported compliance with credit-facility covenants. Total liabilities were $87.1 million and total equity was $105.1 million at quarter-end. The revolving facility’s stated maturity was June 19, 2021.
Changes, outlook, risks, and unusual items
- Revenue growth reflected market appreciation in discretionary AUM, partly offset by net outflows. The lower average fee rate was attributed to the mix of assets and strategies.
- Management said client demand continued and business continuity arrangements supported remote operations. It cautioned that COVID-19’s effects on markets, client behavior, operations, and results remained uncertain.
- The filing provides no specific earnings or AUM guidance. Management expected near-term cash needs to be met primarily through operating cash generation and said it believed liquidity was sufficient for the next 12 months, while noting that the pandemic’s effects were evolving.
- Key risks include market declines reducing AUM and fee revenue, client withdrawals and retention, investment performance, competition, employee retention, cybersecurity and operational disruptions, regulation and litigation, and credit-facility compliance.
- Cortina contingent consideration totaled $17.4 million at quarter-end; total estimated acquisition contingent consideration was $18.6 million. Its fair value depends on projected performance and other significant unobservable assumptions.
- The tax receivable agreement requires payment to eligible partners of 85% of specified realized tax savings. The recorded liability was $9.4 million; the filing says future payments may be substantial and their timing is uncertain.
- Silvercrest paid $1.5 million in Class A dividends during the quarter and expects quarterly dividends and partner distributions to remain uses of cash, subject to available funds and financing restrictions.
Important facts for investors to verify
- Whether the revolving credit facility was renewed, amended, or repaid before its stated June 19, 2021 maturity.
- Subsequent AUM levels, net flows, market performance, and the impact of the 0.44% average fee rate on revenue.
- Updates to Cortina and other acquisition earnout estimates, payments, and the assumptions behind their fair values.
- Cash conversion and the timing of compensation payments, partner distributions, dividends, and debt service.
- Developments affecting client retention, operations, and markets from COVID-19 and other disclosed risks.