Silvercrest Asset Management Group Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This annual report includes fourth-quarter results, but is not a standalone quarterly filing. Unless stated otherwise, dollar amounts below are in millions.
Business context
Silvercrest is a wealth-management firm serving ultra-high-net-worth individuals, families and institutional investors, with investment management and family-office services. Year-end assets under management (AUM) were $27.8 billion, up 10.8% from $25.1 billion. The company reported 815 client relationships; its 50 largest averaged $328 million each and represented approximately 59% of AUM.
Financial and operating performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Total revenue | $108.0 | $102.2 | +5.7% |
| Management and advisory fees | $103.8 | $98.0 | +5.9% |
| Family-office services revenue | $4.2 | $4.2 | +1.2% |
| Total expenses | $85.7 | $83.3 | +2.9% |
| Income before other income and expense | $22.3 | $18.9 | +18.1% |
| Consolidated net income | $17.5 | $15.4 | +13.4% |
| Net income attributable to Silvercrest | $10.0 | $8.6 | +15.2% |
| GAAP diluted EPS | $1.05 | $0.98 | +7.1% |
| Adjusted EBITDA (non-GAAP) | $30.3 | $28.6 | +6.0% |
| Adjusted EBITDA margin (non-GAAP) | 28.1% | 28.0% | +0.1 percentage point |
Consolidated net income margin was 16.2%, compared with 15.1% in 2019. Performance fees and allocations were nil in 2020 versus $25,000 in 2019. Average AUM increased to $26.5 billion from $22.1 billion, while the average management fee rate declined to 0.41% from 0.46%.
Cash flow and liquidity: Operating cash flow was $26.8 million, versus $18.8 million; investing activities used $0.6 million, versus $39.4 million in 2019, when acquisitions were a principal cash use. Financing activities used $16.6 million. Year-end cash and cash equivalents were $62.5 million, up from $52.8 million. The company reported $12.6 million outstanding on its term loan, no revolver borrowings, and compliance with credit-facility covenants. The company stated operating cash flow should meet its expected liquidity needs for the next 12 months.
Quarterly context: Fourth-quarter 2020 revenue was $28.4 million and net income was $3.5 million, compared with $27.8 million and $4.2 million, respectively, in fourth-quarter 2019. Second-quarter 2020 net income was $0.8 million; the filing does not provide a single explanation for the quarterly variation.
Material changes versus 2019
- Revenue growth reflected net client inflows and market appreciation. AUM increased by $2.7 billion; management reported $4.2 billion of gross inflows and $3.8 billion of gross outflows, alongside $2.3 billion of market appreciation.
- Compensation and benefits rose 3.9% to $62.4 million, primarily reflecting higher bonus accruals, salaries and benefits, partly offset by lower equity-based compensation.
- Other income, net, fell to $0.6 million from $1.7 million, including lower equity income from investments and higher interest expense.
- Credit-facility borrowings declined by $3.6 million during 2020. Class A dividends paid were $0.64 per share, versus $0.60 in 2019.
Outlook, risks and unusual items
- COVID-19: Management said the pandemic affected operations from the second quarter onward and expected further negative effects on AUM and revenue into 2021. Fee revenue is market-sensitive and generally based on prior quarter-end AUM; the duration and full effects remained uncertain. The firm operated remotely and reported business continuity plans were activated.
- No quantified earnings or AUM guidance is provided in the filing. Management’s outlook emphasizes continued organic growth, selective hiring and acquisitions, institutional expansion, and family-office services.
- Client and market concentration: Most revenue depends on market-linked advisory fees; client agreements can generally be terminated on short or no notice. The company also identified reliance on key investment professionals, competitive fee pressure, investment performance, cyber and operational risks, and regulatory and litigation exposure.
- Acquisition-related estimates: Cortina contingent consideration was valued at $15.1 million at year-end, using a Monte Carlo model and significant unobservable assumptions; potential earnout payments under the agreement could total up to $26.2 million. Deloitte identified this valuation as a critical audit matter.
- Tax receivable agreement: Silvercrest generally owes principals 85% of realized tax savings. The recorded liability was approximately $9.4 million; early termination or a change of control could accelerate payments and affect liquidity.
- Contingencies and controls: The company reported no material pending or threatened legal proceedings and no significant off-balance-sheet arrangements. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- Whether AUM growth and net client flows continued after year-end, and how much growth came from market returns versus new assets.
- Client and strategy concentration, including the largest relationships’ share of AUM and the exposure to key portfolio managers.
- The persistence of the lower average fee rate and whether compensation, acquisition-related expenses and margins evolve as AUM changes.
- COVID-19-related market and client impacts, including subsequent-period results and management’s expectations for 2021.
- Credit-facility terms and covenant headroom, as well as the timing and potential amount of Cortina earnouts and tax receivable agreement payments.
- Adjusted EBITDA and adjusted earnings per share reconciliations, since these non-GAAP measures include management-defined adjustments and differ from GAAP results.