Silvercrest Asset Management Group Inc.

Good morning and welcome to the Silvercrest Asset Management Group, Inc. Q2 2020 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. Before we begin, let me remind you that during today's call, Silvercrest will make forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding future events and developments, and Silvercrest's future performance, as well as management's current expectations, beliefs, plans, estimates, or projections relating to the future are forward-looking statements. These forward-looking statements are only predictions based on current expectations and projections about future events. These forward-looking statements are subject to a number of risks and uncertainties, and there are important factors that could cause actual results, level of activity, performance, or achievements to differ materially in the statements made. Among these factors are fluctuations in quarterly and annual results, inference of net losses, adverse effects of management focusing on implementation of a growth strategy, failure to develop and maintain the Silvercrest brand and other factors disclosed in the company's filings with the SEC. including those factors listed under the caption entitled Risk Factors in the company's annual report on Form 10-K for the year ended December 31, 2019, and quarterly report on Form 10-Q for the three months ended March 31, 2020, and on quarterly report on Form 10-Q for the three and six months ended June 30, 2020, filed with the SEC. In some cases, these statements can be identified by forward-looking words such as believe, expect, anticipate, plan, estimate, likely, may, will, could, continue, project, predict, goal. The negative or plural of these words and other similar expressions. These forward-looking statements are predictions based on Silvercrest's current expectations and its projections about future events. All forward-looking statements made on this call are made as of the date hereof and Silvercrest assumes no obligation to update these forward-looking statements. I would now like to turn the conference over to Rick Huff, Chairman and CEO of Silvercrest. Please go ahead.

Thanks, and thanks very much for joining us for our second quarter 2020 results. It's good to speak with you all today, and it's the first time in five months I've been in the same room with my CFO, which is nice. Silvercrest is pleased to report good results for the second quarter of 2020, ending June 30th. despite the challenging backdrop we've all seen with the corona shutdown. And we've grown both due to organic growth in each segment of our businesses, as well as supportive equity markets. We opened new discretionary accounts of $159 million during the quarter, and we saw a total net organic inflows of $200 million in discretionary assets under management, which delivered our best organic growth since the second quarter of 2019. Our discretionary assets under management, which drive top-line revenue, grew 16% from the first quarter, And our total assets under management during the quarter increased 16% to $23.8 billion. Importantly, as of June 30, 2020, our assets under management now stand at nearly the same level as Q3 2019. Finally, as a result of the recovery and our accretive combination with Cortina in July 2019, our total assets have increased 10% year over year. Accordingly, our revenue adjusted net income, adjusted EBITDA, adjusted EBITDA margins, and adjusted diluted earnings per share each show increases or were flat for the quarter and first half versus a year ago. Silvercrest has maintained a proven ability over time, even during difficult environments and despite industry trends, to continue attracting net positive asset flows from new high-net-worth families, institutional asset management, and for our outsourced chief investment officer businesses. Last year, we announced that 2020 and 2021 would prove important for the OCIO business. While the current environment has slowed searches, we reported last quarter that OCIO had contributed half of the firm's organic growth, and that business continues to develop. With new wins in the second quarter of 2020, the OCIO business now advises on half a billion in assets under management. We are proud of our progress to date, and we expect to grow this business into a few billion in assets under management with time. Silvercrest's institutional asset management pipeline also is rebuilding after the initial shock and economic shutdown due to the coronavirus. The new business pipeline is recovering, and we expect the institutional business to improve as society makes further progress toward reopening. Regardless of the environment, Silvercrest will continue to opportunistically seek to effectively deploy capital to enhance and complement our organic growth, especially during an uncertain environment that is likely to experience continued market volatility. Silvercrest has successfully made investments to organically grow the business and will continue to make those investments with its cash flow and reserves. We've hired new high-net-worth portfolio management professionals in New York and will continue to add new talent, both to maintain a high level of client service and to grow the business. On July 28, 2020, the company's board of directors declared a quarterly dividend of $0.16 per share of Class A common stock. The dividend will be paid on or about September 18, 2020 to shareholders of record as of the close of business on September 11th, 2020. Before I take questions, I'll turn it over to Scott Gerard, our CFO.

Thanks, Rick, and I second. It's great to be in the same room as you as well. As disclosed in our earnings release for the second quarter, discretionary AUM as of June 30th, 2020 was $17.3 billion, and total AUM as of June 30th, 2020 was $23.8 billion. Revenue for the quarter was 24 million, and reported consolidated net income for the quarter was 0.8 million. Delving into the second quarter further, again, revenue was 24 million, and that represented approximately a 0.5% increase over revenue of approximately 23.9 million for the same period last year. This increase was driven primarily by increased net client flows and discretionary assets under management, including 1.7 billion in assets under management acquired on July 1, 2019 in connection with the Cortina acquisition, partially offset by market depreciation in the first quarter of this year. Revenue for the quarter ended June 30, 2020. Related to the Cortina acquisition was approximately $2.6 million. Total AUM increased from March 31, 2020 to June 30 of the same year, primarily because of rebounds in the market after significant market declines in the first quarter of this year resulting from the COVID-19 pandemic. Most of our revenue was built in advance based on closing market values from the last day of the previous calendar quarter. Second quarter 2020 revenue was primarily based on March 31st, 2020 values. Expenses for the second quarter were $22.7 million, representing approximately a 16 percent increase from expenses of $19.5 million for the same period last year. This increase was primarily attributable to an increase in general and administrative expenses of $3.8 million, partially offset by a decrease in compensation benefits expense of $.6 million. Comp and benefits expense decreased primarily as a result of a decrease in the accrual for bonuses as a result of lower revenue, and equity-based compensation expense due to a decrease in the number of unvested restricted stock units, partially offset by merit increases and newly hired staff, including the addition of Cortina staff. The increase in general and administrative expenses in the second quarter of this year was primarily attributable to a $3.8 million increase in the fair value of contingent consideration related to the Cortina acquisition, increased portfolio and systems expense, and higher depreciation and amortization expense related mainly to the amortization of intangibles related to the Cortina acquisition and to the renovation of our office space in New York City. There were decreases in travel and entertainment, storage, and moving expenses. Reported consolidated net income was 0.8 million for the quarter as compared to 3.4 million in the same period last year. Reported net income attributable to Silvercrest or to Class A shareholders for the second quarter of 2020 was approximately $0.5 million or $0.05 per basic and diluted Class A share. Adjusted EBITDA, which we define as EBITDA without giving effect to equity-based compensation expense and non-core, non-recurring items, was approximately $6.7 million or 27.7 percent of revenue for the quarter compared to 6.6 million or 27.5 percent of revenue for the same period in the prior year. Adjusted net income, which we define as net income without giving effect to non-core and non-recurring items, and income tax expense, assuming a corporate rate of 26 percent, was approximately 4 million for the quarter, or 28 cents for adjusted basic earnings per share, and 27 cents for adjusted diluted earnings per share. Adjusted earnings per share is equal to adjusted net income divided by the actual Class A and Class B shares outstanding as of the end of the reporting period for basic adjusted EPS. And to the extent dilutive, we had unvested restricted stock units and non-qualified stock options to the total shares outstanding to compute diluted adjusted EPS. Looking at the first half of the year, revenue was approximately $52.4 million which represented approximately a 13 percent increase over revenue of approximately 46.5 million for the same period last year. This increase was driven primarily by net client inflows in discretionary AUM, including 1.7 billion in assets under management acquired on July 1st, 2019, in connection with the Cortina acquisition, partially offset by market depreciation in the first quarter of this year. Expenses for the first half were $38.4 million and were basically flat to expenses of $38 million for the same period last year. Comp and benefits increased approximately $1.7 million in the first half compared to last year, and G&A expenses decreased approximately $1.3 million in the first half of this year compared to 2019. Compensation and benefits increased for the first half primarily because of an increase in salaries and benefits expense as a result of merit-based increases and newly hired staff, including the addition of Cortina, and an increase in the accrual for bonuses. This was partially offset by a decrease in equity-based compensation expense, due again to a decrease in the number of unvested restricted stock units and unvested non-qualified stock options, which are outstanding. The decrease in G&A, for the first half was primarily because of decreases in the fair value of contingent consideration related to the Cortina acquisition. Also travel and entertainment expenses and storage and moving expenses were lower. Increases in expenses were related to depreciation and amortization as a result of the Cortina acquisition and related to the renovation of our office space in New York City. Occupancy and related expenses portfolio and systems expense, and an increase in the fair value of contingent consideration related to the Jameson and Capicelli acquisitions. Reported consolidated net income was $10.5 million for the first half, as compared to $6.4 million in the same period last year. Reported net income attributable to Silvercrest or to Class A shareholders for the first half of 2020 was approximately $6 million, or 64 cents, per basic and diluted Class A share. Adjusted EBITDA was approximately 14.9 million or 28.4 percent of revenue for the first half. This compared to 12.3 million or 26.5 percent of revenue for the same period last year. Adjusted net income was approximately 9.1 million for the first half or 63 cents per adjusted basic EPS and 62 cents per adjusted diluted EPS. Looking quickly at the balance sheet, total assets were approximately $193.5 million as of June 30, 2020, compared to $214.2 million as of December 31, 2019. Cash and cash equivalents were approximately $37.7 million at June 30, compared to $52.8 million at December 31 last year. Total borrowings as of June 30 were $14.4 million. And total Class A stockholders' equity was approximately $68.9 million as of June 30th. That concludes my remarks. I'll now turn it over to Rick for Q&A.