Business context and reporting period
Silvercrest Asset Management Group Inc. filed this Form 10-K for the fiscal year ended December 31, 2019. The company provides investment management, wealth advice and family-office services to high-net-worth individuals and institutions. This is an annual filing, not a standalone Q4 filing; it does include unaudited quarterly results. Assets under management (AUM) were $25.1 billion at year-end, up 32.1% from $19.0 billion.
Financial performance and condition
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Total revenue | $102.2 million | $98.7 million |
| Net income | $15.4 million | $17.4 million |
| Net income attributable to Silvercrest | $8.6 million | $9.6 million |
| Adjusted EBITDA (non-GAAP) | $28.6 million | $29.6 million |
| Adjusted EBITDA margin (non-GAAP) | 28.0% | 30.0% |
| Operating cash flow | $18.8 million | $28.9 million |
| Cash and cash equivalents at year-end | $52.8 million | $69.3 million |
| Term-loan borrowings at year-end | $16.2 million | None |
Management and advisory fees rose 3.5% to $98.0 million; family-office revenue rose 4.6% to $4.2 million. Performance fees and allocations were $25,000. Total expenses increased 7.4% to $83.3 million, led by higher compensation and general and administrative costs. The effective tax rate was 25.1%, versus 23.9%.
Q4 2019 revenue was $27.8 million, versus $24.8 million in Q4 2018. Q4 net income was $4.2 million, versus $5.2 million; net income attributable to Silvercrest was $2.4 million, versus $2.9 million. Basic and diluted EPS were $0.26, versus $0.35.
Cash used in investing activities was $39.4 million, primarily for the Cortina and Neosho acquisitions and office improvements. Financing activities provided $4.2 million, including $18.0 million of credit-facility borrowings; the company paid $5.3 million in Class A dividends and $7.7 million in partner distributions. Year-end cash fell by $16.5 million.
Material changes versus the prior comparable period
- AUM growth reflected $4.2 billion of market appreciation, $1.9 billion of net inflows (gross inflows of $11.0 billion less gross outflows of $9.1 billion), and the Cortina acquisition, which added approximately $1.7 billion of AUM.
- Discretionary AUM increased to $18.8 billion from $14.2 billion; non-discretionary AUM increased to $6.3 billion from $4.8 billion. Average AUM rose to $22.1 billion from $20.2 billion.
- Despite higher revenue, net income and Adjusted EBITDA declined. Expenses rose faster than revenue, and the Adjusted EBITDA margin decreased by 2.0 percentage points.
- Goodwill increased to $63.7 million from $25.2 million, primarily from Cortina and Neosho. Total assets increased to $214.2 million from $133.4 million; lease-accounting adoption also added material right-of-use assets and lease liabilities.
Outlook, commentary, risks and unusual items
No quantitative earnings or AUM guidance is provided. Management said it expects operating cash flow to meet liquidity needs for the next 12 months and plans to continue organic growth, selective hiring and acquisitions, and institutional expansion. The term-loan facility was increased to $25.5 million; $16.2 million was outstanding at year-end. The undrawn revolving facility was extended to June 19, 2020. The company reported covenant compliance at year-end.
- The Cortina acquisition closed July 1, 2019. Consideration included cash, Class B units and contingent earnouts; the company recorded $14.0 million of Cortina contingent consideration at year-end. The agreement allows up to $26.2 million of additional earnout payments, subject to its terms.
- Key risks include market declines and client withdrawals reducing fee revenue; dependence on investment performance, key professionals and a limited number of strategies and clients; fee competition; acquisition integration and earnout uncertainty; regulatory, litigation, cybersecurity and operational risks; and the potential effects of the coronavirus outbreak noted in the filing.
- The company’s cash dividends are discretionary and depend on distributions from Silvercrest L.P., debt covenants and other requirements. Under the tax receivable agreement, Silvercrest generally pays principals 85% of realized tax savings; the recorded liability was $9.3 million at year-end. Early termination or a change of control could accelerate payments.
- Management reported effective disclosure controls and internal control over financial reporting. The auditor gave unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- How much of AUM growth and future fee revenue is attributable to market appreciation, organic flows and acquired assets, and whether net inflows persist.
- Whether Cortina and other acquisitions retain clients and meet revenue targets, and how earnout payments affect future cash, expenses and dilution.
- The sustainability of margins given expenses grew faster than revenue and operating cash flow declined.
- Available liquidity after acquisition spending, debt service, dividends, partner distributions, lease commitments and tax receivable agreement payments.
- Client and strategy concentration, key-person retention, and the impact of market volatility or the pandemic risk identified in the filing.