Silvercrest Asset Management Group Inc.

Good morning and welcome to the Silvercrest Asset Management Group Inc. Q3 2020 Earnings Conference Call. All participants will be in a 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, certain statements made regarding your future performance are forward-looking statements. They are based on current expectations and projections, which are subject to a number of risks and uncertainties, and many factors could cause actual results to differ materially from the statements that are made. Those factors are disclosed in the filings with the SEC under the caption risk factors. For all such forward-looking statements, we claim the protections provided by Litigation Reform Act of 1995. All forward-looking statements made on this call are made as of the date hereof, and Silvercrest assumes no obligation to update them. I would like now to turn the conference over to Rick Hugh, Chairman and CEO of Silvercrest. Please go ahead.

Thanks. This is Richard Hoff joining you. Appreciate you joining us for our third quarter 2020 call. Silvercrest's discretionary assets under management, which drove our top line revenue, grew approximately 4% during the quarter to $17.9 billion as of September 30, 2020. The growth in discretionary assets under management was supported by markets, increasing our asset values by $700 million along with $200 million in new client accounts. These increases were offset by outflows of $200 million, primarily for tax payments as a result of delayed tax deadlines due to the coronavirus crisis. The firm's total assets under management during the quarter increased approximately 3% to end the quarter with $24.4 billion in total assets under management. Due to this year's market recovery, continued organic growth, and our accretive acquisition in the second half of 2019, the firm's revenue, our adjusted net income, adjusted EBITDA, and adjusted EBITDA margins for the nine months ended September 30, 2020, have each grown year over year. For the nine months ended September 30, 2020, adjusted diluted earnings per share increased approximately 13% year over year. Silvercrest's Outsource Chief Investment Officer, OCIO, initiative, which we began marketing heavily a year ago, contributed meaningfully to new business development in the third quarter and is poised to cross important AUM thresholds to be considered for new OCIO mandates. We continue to be proud of our progress in that business. Silvercrest's institutional asset management pipeline is rebuilding along with new initiatives, and we expect the institutional business to improve and contribute new AUM to the firm. Regardless of the environment, Silvercrest will continue to opportunistically seek to effectively deploy capital to enhance and complement our organic growth. 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 November 4th, 2020, the company's board of directors declared a quarterly dividend of 16 cents per share of Class A common stock. The dividend will be paid on or about December 18, 2020 to shareholders of record as of close of business on December 11th. With that, I'll turn it over to Scott to review our financials, and then we'll open the line for questions. Thanks. Thanks, Rick.

As disclosed in our earnings release for the third quarter, Discretionary AUM as of September 30th, 2020 was $17.9 billion and total AUM as of September 30th was $24.4 billion. Revenue for the quarter was $27.2 million and reported consolidated net income for the quarter was $3.5 million. Revenue for the third quarter was approximately $27.2 million, representing approximately a 2% decrease over revenue. of approximately $27.8 million for the same period last year. This decrease was driven by the continued impact of COVID-19 on the financial markets that occurred during the first quarter of 2020, which had the effect of reducing AUM in addition to net client outflows, and this was partially offset by market appreciation during the third quarter of this year. Most of our revenue was built in advance based on closing market values from the last day of the previous calendar quarter. Third quarter 2020 revenue was primarily based on June 30, 2020 market values. Expenses for the third quarter were $22.2 million, representing approximately a 3 percent increase from expenses of $21.5 million for the same period last year. This increase was primarily attributable to an increase in general and administrative expenses of $.6 million. Compensation and benefits expense was basically flat in the third quarter compared to the same period last year. The increase of approximately 0.6 million in general and administrative expenses in the third quarter of this year was primarily attributable to increases in the fair value of contingent consideration related to the Cortina acquisition and portfolio and systems expense, partially offset by decreases in professional fees due to lower Cortina acquisition-related fees, travel and entertainment, and reduced office expenses due to COVID-19. Furthermore, there was a decrease in storage and moving expenses as a result of the completion of the renovation of our space in New York City. Reported consolidated net income was 3.5 million for the quarter. This compared to 4.8 million in the same period last year. Reported net income attributable to Silvercrest or to Class A shareholders for the third quarter of this year was approximately 2.1 million or 22 cents 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 8.1 million or 29.9 percent of revenue for the quarter compared to 8.9 million or 32.1 percent of revenue for the same period last 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 5.1 million for the quarter, or 35 cents per adjusted basic earnings per share and 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 diluted, we had unvested restricted stock units and non-qualified stock options to the shares outstanding to compute diluted adjusted EPS. Looking year-to-date, revenue for the nine months ended September 30th of this year was approximately $79.6 million, representing approximately a 7% increase over revenue of approximately $74.3 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 1, 2019, in connection with the Cortina acquisition, partially offset by net client outflows and market depreciation in the first quarter of this year. Expenses for the nine months ended September 30th, were 60.6 million. This represented approximately a 2% increase from expenses of 59.6 million last year. Comp and benefits expense increased approximately 1.7 million during the nine months ended September 30th of this year compared to the same period last year. General and administrative expenses decreased approximately 0.7 million during the nine months ended September 30th of this year when compared to the same period last year. Looking at comp and benefits, it increased for the nine months ended September 30th this year, 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 staff, and an increase in the accrual for bonuses, partially offset by a decrease in equity-based compensation expense due to a decrease in the number of unvested restricted stock units and unvested non-qualified stock options outstanding. The decrease in general and administrative expenses for the nine months ended September 30th of this year was primarily because of year-to-date decreases in the fair value of contingent consideration related to the Cortina deal, travel and entertainment, and reduced office expenses, all related to COVID-19. Professional fees were lowered due to lower Cortina acquisition-related fees. and we also had reduced printing costs and storage and moving expenses. There were increases in depreciation and amortization expense related mainly to the amortization of intangible assets related to the Cortina acquisition and to the renovation of our office space in New York City. Occupancy and related expenses increased in addition to portfolio and systems expense, and there were increases in the fair value of contingent consideration related to the Jamison and Capucilli acquisitions. Reported consolidated net income was approximately $14 million for the nine months ended September 30th. This compared to $11.2 million in the same period last year. Reported net income attributable to Silvercrest or to Class A shareholders for the nine months ended September 30th was approximately $8.1 million or $0.85 per basic and diluted Class A share. Adjusted EBITDA was approximately $23 million or 28.9% of revenue for the nine months ended September of this year. This compared to $21.3 million or 28.6% of revenue for the same period last year. Adjusted net income was approximately $14.1 million for the nine months ended September of this year or $0.98 for adjusted basic earnings per share and $0.97 for adjusted diluted EPS. Total assets were approximately 201.2 million as of September 30th, this compared to 214.2 million as of December 31st last year. Cash and cash equivalents were approximately 48.2 million in September, compared to 52.8 million at December 31st of the end of last year. Total borrowings as of September 30th of this year were 13.5 million, And total Class A stockholders' equity was approximately $69.5 million at September 30th of this year. That concludes my remarks. I'll turn the call over to Rick for Q&A.