Silvercrest Asset Management Group Inc.

Good morning, and welcome to the Silvercrest Asset Management Group Incorporated Q3 2021 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, certain statements made regarding our 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. These factors are disclosed in our filings with the SEC under the caption Risk Factors. For all such forward-looking statements, we claim the protections provided by the 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 now like to turn the conference over to Rick Huff, Chairman and CEO of Silvercrest. Please go ahead.

Thank you very much, and thanks for joining us for our third quarter update of 2021. We're pleased to report strong financial results for the third quarter, despite anemic markets and institutional rebalancing during the quarter. The firm's discretionary assets under management, which drives revenue, increased 25%, year-over-year commensurate with that increase, Silvercrest concluded the quarter with $33.5 million in revenue and quarterly adjusted EBITDA of $10.3 million, representing year-over-year increases of 23.1% and 27.4% respectively. Our adjusted diluted earnings per share increased 25.7% year-over-year to $0.44 per adjusted diluted earnings per share. Silvercrest sought to achieve a billion In AUM, with its relatively new outsourced chief investment officer capability by the end of 2021, we are pleased today to report that the OCIO business now has $1.1 billion in assets under management. We have a strong new business pipeline of opportunities, and crossing this AUM threshold will be helpful to building that business. Our new business opportunities continue to grow thanks to continued strong relative investment performance for high net worth and institutional clients alike. During the third quarter, Silvercrest repurchased approximately 27,000 shares of Class A common stock for approximately $400,000 pursuant to its previously announced share repurchase program on July 28, 2021. On November 2, the company's board of directors declared a quarterly dividend of $0.17 per share of Class A common stock, which represents an annual yield of approximately 4.1% based on the closing price of the company's Class A common stock on November 3, 2021. The dividend will be paid on or about December 17th to shareholders of record as of the close of business on December 10th. With that, I'll turn it over for Scott Gerard, and then we look forward to conversation. Thank you, Rick.

As disclosed in our earnings release for the third quarter, discretionary AUM as of September 30th of this year was $22.5 billion, and total AUM as of the same date was $31 billion. Revenue for the quarter was $33.5 million. and reported consolidated net income for the quarter was $6.4 million. Looking at the quarter a little bit more detail, revenue, again, was $33.5 million, representing approximately a 23% increase over revenue of approximately $27.2 million for the same period last year. This increase was driven primarily by market appreciation, partially offset by net client outflows and discretionary AUM. Expenses for the third quarter were $25.3 million. This represented approximately a 14% increase from expenses of $22.2 million for the same period last year. This increase was primarily attributable to an increase in income and benefits expense of $3.6 million, partially offset by a decrease in G&A expense of $0.6 million. Looking further at compensation, again, an increase by $3.6 million or approximately 24% to $18.8 million for the three months ended September 30th of this year from $15.2 million for the three months ended September 30th of 2020. The increase was primarily attributable to increases in the accrual for bonuses Salaries and benefits expense primarily as a result of merit-based increases in newly hired staff and equity-based compensation expense due to an increase in the number of unvested restricted stock units and unvested non-qualified stock options outstanding. G&A expense decreased by 0.6 million or approximately 8% to 6.5 million for the three months ended September 30th this year, from $7.1 million for the third quarter of 2020. This was primarily attributable to decreases in the fair value adjustment to the contingent consideration related to the Cortina acquisition of $1 million and occupancy-related costs, partially offset by increases of portfolio and systems expense and depreciation and amortization. Reported consolidated net income was $6.4 million for the quarter as compared to $3.5 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 $3.7 million or $0.38 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 and non-recurring items was approximately 10.3 million, or 30.9% of revenue for the quarter, compared to 8.1 million, or 29.9% of revenue for the same period last year. Adjusted net income, which we defined as net income without giving effect to non-core and non-recurring items, and income tax expense, where we assume a corporate rate, which is blended at 26%, was approximately $6.6 million for the quarter, or $0.46 and $0.44 per adjusted basic and diluted earnings per share, respectively. Adjusted earnings per share is equal to an 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 total shares outstanding to compute diluted adjusted EPS. Looking at the nine months ended September 30th, revenue was approximately 97.8 million, and this represented approximately a 23 percent increase over revenue of approximately 79.6 million for the same period last year. Again, this increase was driven primarily by market appreciation partially offset by net client outflows in discretionary AUM. Expenses for the nine months ended September 30th of this year were $76.6 million, and this represented approximately a 26% increase from expenses of $60.6 million for the same period last year. The increase was attributable to increasing comp and benefits expense of $10.7 million and G&A expense of $5.3 million. Comp and benefits increased by 10.7 million, or 24%, to 54.9 million for the nine-month set in September this year, compared to 44.2 million for the same period last year. The increase was attributable, again, to increases in the accrual for bonuses, salaries and benefits expense, primarily as a result of merit-based increases and newly hired staff, and increased equity-based compensation. General and administrative expenses increased by $5.3 million or approximately 32 percent to $21.7 million for the nine months ended September 30th this year from $16.4 million for the same period last year. This was primarily attributable to increases in the fair value of contingent consideration to the core team acquisition of $5.1 million trade errors, professional fees, sub-advisory and referral fees, and insurance expense, partially offset by decreases in travel and entertainment expense, portfolio and systems, and depreciation and amortization. Reported consolidated net income was $16.4 million for the nine months ended September 30th this year, compared to $14 million for the same period last year. Reported net income attributable to Silvercrest For the nine months ended this year, it was approximately $9.6 million, or $0.99 per basic and diluted Class A share. Adjusted EBITDA was approximately $30.4 million, or 31.1% of revenue for the nine months ended September 30th. This year compared to $23 million, or 28.9% of revenue for the same period last year. Adjusted net income was approximately $19.5 million for the nine months ended September 30th. of 21, or $1.35 and $1.31 per adjusted basic and diluted earnings per share, respectively. Looking quickly at the balance sheet, total assets were approximately $212.9 million as of September 30th of this year, compared to $213.8 million as of the end of last year. Cash and cash equivalents were approximately $65.9 million at September 30th, and is compared to $62.5 million at the end of last year. Total borrowings as of September 30th of this year were $9.9 million. Total Class A stockholders' equity was approximately $75.5 million at September 30th of this year as well. That concludes my remarks. I'll now turn the call over to Rick for Q&A.