Silvercrest Asset Management Group Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Financial statement amounts below are in millions of dollars unless stated otherwise. Silvercrest provides investment management and family-office services to high-net-worth individuals, families and institutions; it reports one operating segment.
Financial performance and key metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $33.46 | $27.18 | $97.80 | $79.57 |
| Income before taxes | $8.13 | $4.84 | $20.98 | $18.51 |
| Net income | $6.35 | $3.48 | $16.35 | $13.95 |
| Net income attributable to Silvercrest | $3.72 | $2.06 | $9.61 | $8.08 |
| Adjusted EBITDA (non-GAAP) | $10.35 | $8.12 | $30.43 | $23.00 |
| Adjusted EBITDA margin (non-GAAP) | 30.9% | 29.9% | 31.1% | 28.9% |
| GAAP net income margin | 19.0% | 12.8% | 16.7% | 17.5% |
- Q3 revenue rose 23.1% year over year; nine-month revenue rose 22.9%. Management and advisory fees were the main source of growth, increasing 23.3% and 23.4%, respectively. Family-office revenue also increased; performance fees were $0.09 million in both 2021 periods and zero in the comparable 2020 periods.
- Compensation and benefits increased 23.9% in Q3 and 24.1% year to date, largely reflecting higher bonus accruals. General and administrative expense decreased 8.0% in Q3 but increased 32.1% for the nine months, primarily due to Cortina acquisition earnout fair-value adjustments.
- Assets under management (AUM) were $31.0 billion at September 30, up 11.5% from $27.8 billion at year-end 2020 and 27.0% from $24.4 billion a year earlier. AUM was flat sequentially from June 30. Nine-month net client flows were negative $0.6 billion, while market appreciation added $3.8 billion. In Q3, net outflows of $0.2 billion were offset by $0.2 billion of market appreciation.
- Average annual management fee rate was 0.43% in Q3 and 0.44% for the first nine months, compared with 0.45% and 0.43%, respectively, in 2020.
- Operating cash flow was $21.64 million for the nine months, versus $10.11 million a year earlier. Investing activities used $0.63 million; financing activities used $17.58 million. Cash increased $3.43 million to $65.93 million.
- At September 30, cash was $65.93 million, total assets $212.91 million, and total liabilities $103.09 million. Term-loan borrowings were approximately $9.9 million, down from $12.6 million at year-end 2020; there were no revolver borrowings. The company reported compliance with credit-facility covenants.
Material changes, outlook and risks
- Management attributed revenue growth primarily to higher AUM from market appreciation, partly offset by net client outflows. Equity AUM declined 2.6% in Q3, while fixed-income AUM increased 0.5%; both grew over the nine-month period.
- The company repurchased 27,197 Class A shares for approximately $0.42 million under a newly authorized program permitting repurchases of up to $15 million. The program is discretionary and may be suspended or discontinued.
- Cortina earnout fair-value adjustments increased general and administrative expense by $4.57 million for the nine months, including $0.67 million in Q3. Total estimated contingent consideration was $17.23 million at September 30. A $3.37 million first retention payment was made in July, partly in cash and partly in equity.
- No formal earnings or AUM guidance is provided. Management expects operating cash flows to meet liquidity needs over the next 12 months, while noting that COVID-19 impacts and market conditions remain uncertain. It expects quarterly Class A dividends to continue, subject to cash availability, credit restrictions and the board’s policy.
- Revenue is highly sensitive to AUM and securities-market performance. Management estimates that a 10% change in average AUM would change annualized revenue by approximately $13.4 million based on Q3 average AUM and fee rates. Client withdrawals, investment performance, fee-rate pressure, retention and hiring, acquisition integration, cybersecurity and regulatory or litigation costs are among the stated risks.
- The tax receivable agreement requires payment to eligible partners of 85% of qualifying realized tax savings. The reported liability was approximately $9.5 million; actual payment timing and amounts depend on taxable income, exchanges, market values and tax rules. The filing also notes that an IRS challenge could leave the company unreimbursed for prior payments.
Important facts for investors to verify
- Whether AUM growth can continue if market appreciation slows, given negative net client flows in the first nine months and Q3.
- How bonus and other compensation costs evolve relative to fee revenue and AUM growth.
- Future Cortina earnout payments and fair-value adjustments, including the remaining retention and growth-payment conditions.
- Cash generation and uses, including partner distributions, Class A dividends, debt repayments and any further share repurchases.
- Credit-facility maturity and covenant terms, and the timing and amount of tax receivable agreement payments.
- Management’s non-GAAP Adjusted EBITDA and margin alongside GAAP results; non-GAAP measures are supplemental and include company-defined adjustments.