Silvercrest Asset Management Group Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Dollar amounts below are in millions unless otherwise stated. Silvercrest provides investment management and family office services to high-net-worth individuals and institutions.
Business context and operating metrics
- Assets under management (AUM) were $29.9 billion at quarter-end, up 3.5% from $28.9 billion at December 31, 2022, but down 4.2% from $31.2 billion a year earlier. Q1 AUM growth reflected $1.2 billion of market appreciation, partly offset by $0.2 billion of net client outflows.
- Quarter-end AUM comprised $21.3 billion discretionary and $8.6 billion non-discretionary. Average AUM was $29.4 billion versus $31.8 billion in Q1 2022; the average annual management fee rate was 0.40% versus 0.42%.
- Management and advisory fees were 96% of management and advisory fee revenue from discretionary accounts; family office services revenue was $1.062 million in both periods.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $29.430 | $33.510 |
| Compensation and benefits | $16.498 | $18.659 |
| General and administrative expense | $6.181 | ($0.588) |
| Income before other expense and taxes | $6.751 | $15.439 |
| Net income | $5.310 | $12.396 |
| Net income attributable to Silvercrest | $3.204 | $7.568 |
| Basic / diluted EPS | $0.34 / $0.33 | $0.77 / $0.77 |
| Adjusted EBITDA (non-GAAP) | $8.181 | $10.250 |
| Net income margin / Adjusted EBITDA margin | 18.0% / 27.8% | 37.0% / 30.6% |
- Revenue fell 12.2% year over year, primarily reflecting lower AUM from market depreciation and net outflows. Compensation expense declined 11.6%, mainly because bonus accruals were $2.6 million lower, partly offset by higher salaries and benefits.
- General and administrative expense increased by $6.8 million year over year. The comparison is heavily affected by a $6.5 million gain from a reduction in Cortina acquisition contingent consideration recorded in Q1 2022; Q1 2023 recorded no such adjustment.
- Operating activities used $25.520 million of cash, versus $23.555 million used in Q1 2022. The quarter included a $31.670 million reduction in accrued compensation. Investing activities used $1.063 million; financing activities used $9.211 million, including partner distributions, dividends, debt repayment, and share repurchases.
- Cash and cash equivalents were $41.636 million at March 31, down from $77.432 million at December 31. The company had approximately $4.5 million outstanding on its term loan and no revolver borrowings; it reported compliance with credit facility covenants. Total liabilities were $54.569 million, including $29.522 million of operating lease liabilities.
Outlook, risks and unusual items
- Management said cash generated from operations is expected to meet liquidity needs for the next 12 months and that the company believes it has sufficient cash for operations and commitments. It provided no specific earnings, revenue, or AUM guidance.
- The revolving facility was scheduled to mature June 18, 2023; the term loan matures July 1, 2026. The filing does not describe a completed extension of the revolver as of the reporting date.
- Revenue depends substantially on market values and client flows. Silvercrest estimated that a 10% change in average AUM, at the quarter’s 0.40% weighted average fee rate, would change annualized revenue by approximately $11.8 million.
- Cash use is seasonal: Q1 typically includes payment of prior-year incentive compensation. Management also identified market conditions, client retention, fee levels, investment performance, competition, personnel retention, regulation, cybersecurity and operational safeguards as risks.
- The company’s estimated tax receivable agreement liability was $8.886 million. Silvercrest pays eligible former and current partners 85% of realized tax savings under the agreement; future amounts and timing can vary and may be substantial. The filing also notes customary client indemnification obligations and open U.S. federal tax years 2019–2022.
- Silvercrest paid a $0.18-per-share Class A dividend and repurchased approximately 96,000 shares for $1.6 million during the quarter. Management says dividends are intended to continue, but are conditional on available cash and financing restrictions.
Important facts for investors to verify
- Whether the revolving credit facility was extended or replaced before its June 18, 2023 maturity, and the resulting terms and liquidity available.
- Whether AUM and client flows stabilize, and how market movements affect fee revenue, margins and cash generation.
- The effect of the Q1 2022 Cortina contingent-consideration gain when assessing comparable operating performance; review both GAAP results and the company’s non-GAAP reconciliations.
- Future cash requirements for incentive compensation, partner distributions, dividends, share repurchases, leases and tax receivable agreement payments.
- Management’s assumptions and remaining exposure for the Cortina earn-out, tax receivable agreement and other disclosed contingencies.