Silvercrest Asset Management Group Inc. — FY2016 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2016; it is an annual report, not a standalone Q4 filing. Silvercrest is a wealth-management firm serving ultra-high-net-worth individuals and institutional investors, with investment advisory and family-office services. Reported assets under management (AUM) were $18.6 billion at year-end.
Key financial metrics
| Metric | FY2016 | FY2015 |
|---|---|---|
| Total revenue | $80.3 million | $75.1 million |
| Management and advisory fees | $76.2 million | $71.8 million |
| Family-office services revenue | $3.8 million | $3.4 million |
| Total expenses | $65.6 million | $58.2 million |
| Income before other income and taxes | $14.6 million | $17.0 million |
| Net income, consolidated | $10.0 million | $11.1 million |
| Net income attributable to Silvercrest | $5.0 million | $5.3 million |
| GAAP diluted earnings per share | $0.62 | $0.68 |
| Net income margin | 12.4% | 14.8% |
| Adjusted EBITDA (non-GAAP) | $22.5 million | $21.9 million |
| Adjusted EBITDA margin (non-GAAP) | 28.0% | 29.1% |
- AUM: $18.6 billion, up 2.8% from $18.1 billion. Discretionary AUM rose to $13.8 billion from $12.1 billion; non-discretionary AUM declined to $4.8 billion from $6.0 billion. FY2016 AUM movements included $4.9 billion of gross inflows, $5.4 billion of gross outflows and $1.0 billion of market appreciation.
- Cash flow: Operating cash flow was $18.0 million; investing activities used $0.3 million and financing activities used $11.7 million. Cash increased $6.0 million to $37.5 million.
- Debt and liquidity: Notes payable were $2.5 million, down from $4.5 million. No borrowings were outstanding under the $7.5 million revolving facility or the $7.5 million delayed-draw term loan at year-end. The revolving facility was extended to December 2017; the company reported compliance with its covenants.
- Balance sheet: Total assets were $112.3 million and total liabilities were $46.2 million. The filing reports no material off-balance-sheet arrangements.
- Dividends: $0.48 per Class A share was paid for 2016, or $3.9 million in aggregate. The board declared a further $0.12-per-share dividend in February 2017 for Q4 2016.
Material changes versus the prior comparable period
- Revenue increased 6.8%, principally from higher advisory fees, AUM growth and the Jamison acquisition; family-office revenue also grew, partly following the Cappiccille acquisition.
- Expenses increased 12.8%, faster than revenue. Compensation and benefits rose 14.4% to $49.0 million, reflecting higher bonuses, equity compensation, salaries and acquisition-related headcount. General and administrative costs rose 8.4% to $16.6 million.
- Despite revenue growth, consolidated net income fell to $10.0 million from $11.1 million, and net income attributable to Silvercrest fell to $5.0 million from $5.3 million. Adjusted EBITDA increased to $22.5 million, but its margin narrowed to 28.0% from 29.1%.
- Discretionary AUM growth was partly offset by a $1.2 billion decline in non-discretionary AUM. Equity discretionary assets grew 19.3%; fixed-income discretionary assets declined 2.8%.
- Other income and expense fell to $32,000 from $1.1 million, largely reflecting a prior-year tax-receivable-agreement fair-value adjustment. FY2016 included $0.3 million of equity income from investments, versus $18,000 in FY2015.
- The Cappiccille tax-services acquisition closed in January 2016. Jamison, acquired in June 2015, contributed $4.9 million of revenue in FY2016.
Outlook, commentary, risks and unusual items
- Management described organic growth, selective hiring and acquisitions, expansion of institutional business, and broader family-office service penetration as strategic priorities. It also discussed potential geographic expansion. The filing provides no specific financial guidance or quantified forecast.
- Management stated that operating cash flow and available cash were expected to meet working-capital needs for the next 12 months. This is a management expectation, not a guarantee.
- Market declines, investment underperformance, client withdrawals, fee pressure and the loss of key investment professionals could reduce AUM and revenue. Client advisory agreements generally can be terminated on short or no notice.
- Regulatory and compliance costs, cybersecurity and operational failures, litigation, conflicts of interest, acquisition integration, and the ability to sustain growth are identified risks. Management reported no material legal proceedings pending or threatened.
- AUM includes only $18.6 billion in the company’s reported total; approximately $14.5 billion of non-discretionary assets for a public treasurer’s office are excluded. Silvercrest advises that office under an annual fee cap of $825,000, which management says is not representative of its average fee rate.
- The tax receivable agreement generally requires Silvercrest to remit 85% of specified realized tax savings to principals. The reported liability was approximately $14.4 million; payments and timing can vary, and early termination or a change of control could accelerate obligations.
- The company’s New York headquarters lease runs through 2028. Total contractual obligations were $77.6 million, including $60.4 million of operating leases and $14.4 million under the tax receivable agreement.
- Management concluded disclosure controls and internal control over financial reporting were effective at year-end. The auditor audited the financial statements but did not attest to internal control, consistent with the company’s emerging-growth-company status.
Investor facts to verify
- Whether 2016 discretionary inflows and investment performance can be sustained, and how ongoing non-discretionary AUM outflows affect fee revenue.
- How much future revenue and earnings depend on the Jamison and Cappiccille acquisitions, acquisition earnouts, and successful integration.
- The drivers of expense growth—especially compensation—and whether the decline in GAAP net income and margins reverses.
- The actual cash timing and amount of tax receivable agreement payments, including potential acceleration and effects on liquidity or dividends.
- Current borrowing availability, covenant headroom, and scheduled note repayments; the filing reports no facility borrowings at year-end but does report $2.5 million of notes payable.
- That adjusted EBITDA and adjusted earnings per share are non-GAAP measures; review the company’s reconciliations and exclusions alongside GAAP results.