Silvercrest Asset Management Group Inc.

Good morning and welcome to the Silvercrest Asset Management Group, Inc. Fourth Quarter and Full Year 2022 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. Those 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 Hoff, Chairman and CEO of Silvercrest. Please begin.

Good morning, and thanks for joining us for the fourth quarter of 2022 and year-end 2022 results. Silvercrest finished a volatile fourth quarter in calendar year 2022 with total assets under management of $28.9 billion and discretionary AUM of $20.9 billion. Total AUM declined at 10.5% during the calendar year 2022. Discretionary AUM, which primarily drives our revenue, declined 16.7% during the year 2022. Revenue consequently fell 15.7% and 6.4% for the fourth quarter and full year 2022, respectively, compared with 2021. This decline in revenue significantly affected our adjusted EBITDA and adjusted diluted earnings per share. Adjusted EBITDA declined to $4.4 million and $32 million for the fourth quarter and full year 2022 respectively from 2021. Our adjusted diluted earnings per share also declined to $0.15 and $1.35 for the fourth quarter and full year 2022 respectively. Our adjusted EBITDA margin for the fourth quarter and full year 2022 was 15.6% and 26% respectively. While down from the firm's 33% adjusted EBITDA margin for the year end of 2021, Silvercrest's adjusted EBITDA margin remains historically healthy for the company, especially in light of the declining markets last year. The volatile market conditions of 2022 relaxed during the fourth quarter of the year, and as a result, 2022 year-end discretionary AUM increased by $1.5 billion, or 7.7% over the third quarter to $20.9 billion. Silvercrest also gained $220 million in new relationships during the fourth quarter, which is one of our better new relationship development quarters over the past couple of years. We've stated that market volatility and uncertainty create long-term opportunities that have typically benefited the high quality of Silvercrest's capabilities. And Silvercrest's suite of asset management capabilities have maintained their solid relative performance. Our pipeline of new business opportunities also increased during the quarter, And finally, the firm's outsourced chief investment officer initiative now manages AUM of $1.45 billion. Silvercrest repurchased approximately 190,000 shares of Class A common stock for approximately $3.5 million during the fourth quarter. Those conclude my preliminary remarks. We'll turn it over to Scott Gerard, our CFO, and then we will take questions. Thank you. Great. Thanks, Rick.

As disclosed in our earnings release for the fourth quarter, discretionary AUM as of December 31st, 2022 was $20.9 billion, and total AUM as of the end of 2022 was $28.9 billion. Revenue for the quarter was $28.5 million, and reported consolidated net income for the quarter was $3.3 million. Looking further into the fourth quarter of 22, Again, revenue was approximately 28.5 million, and this represented approximately a 16% decrease over revenue of 33.8 million for the same period last year. This decrease was driven primarily by market depreciation and net client outflows in discretionary AUM. Expenses for the fourth quarter were 24.4 million, representing less than a 1% decrease from expenses of $24.5 million for the same period last year. This decrease was primarily attributable to a decrease in general and administrative expenses of $1.2 million and this was partially offset by an increase in compensation and benefits expense of $1 million. Compensation and benefits increased by $1 million or approximately 6% to $18.7 million for the fourth quarter of 2022 from 17.7 billion for the same period last year. The increase was primarily attributable to an increase in the accrual for bonuses and salaries and benefits expense primarily as a result of merit-based increases and newly hired staff. General and administrative expenses decreased by 1.2 million to 5.7 million for the fourth quarter of 2022 from $6.8 million for the same period in 2021. This was primarily attributable to a decrease in the adjustment to the fair value of contingent consideration related to the Cortina acquisition of $1.9 million, partially offset by an increase in travel and entertainment expenses and professional fees. Reported consolidated net income was $3.3 million for the quarter, This compared to 8.6 million in the same period last year. Reported net income attributable to Silvercrest or the Class A shareholders for the fourth quarter of 2022 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 and non-recurring items, was approximately 4.4 million or 15.6% of revenue for the quarter compared to $13 million or 38.5% 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%, was approximately $2.2 million for the quarter, or $0.16 and $0.15 for adjusted basic and diluted EPS respectively. Adjusted EPS 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 add unvested restricted stock units and non-qualified stock options to the total shares outstanding to compute diluted adjusted EPS. Looking at the full year, Revenue for 2022 was approximately 123.2 million, representing approximately a 6% decrease over revenue of 131.6 million for the same period last year. This decrease was driven primarily by market depreciation, partially offset by net client inflows in discretionary AUM. Expenses for 2022 were 84.7 million, representing approximately a 16% decrease from expenses of $101.1 billion for the same period last year. This decrease is primarily attributable to decreases in compensation expense and general and administrative expenses of $1 million and $15.5 million, respectively. The compensation benefits decrease was approximately 1% to $71.6 million for the year compared to $72.6 million for the same period last year. The decrease was primarily attributable to decreases in the accrual for bonuses and equity-based compensation expense due to a decrease in the number of unvested restricted stock units and unvested non-qualified stock options outstanding, partially offset by an increase in salaries and benefits expense, primarily as a result of merit-based increases in newly hired staff. General and administrative expenses decreased by $15.5 million or approximately 54% to $13 million for 2022 from $28.5 million for the same period in the prior year. This was primarily attributable to decreases in the fair value of contingent consideration related to the Cortina acquisition of $17.5 million, occupancy and related costs, and trade errors partially offset by increases in travel and entertainment expense, professional fees, and portfolio and systems expense. Reported consolidated net income for the year was $30.8 million compared to $24.9 million in the same period in the prior year. Reported net income attributable to Silvercrest for the year ended December 31st, 2022 was approximately $18.8 million or $1.92 per basic and diluted Class A share. Adjusted EBITDA was approximately $32 million, or 26% of revenue for 2022, compared to $43.4 million, or 33% of revenue for 2021. Adjusted net income was approximately $19.7 million for 2022, or $1.40 and $1.35 cents per basic adjusted and diluted EPS respectively. Quickly looking at the balance sheet, total assets at the end of 2022 were approximately 212.7 million compared to 229.3 million as of the end of 2021. At the end of 2022, cash and cash equivalents were approximately 77.4 million compared to $85.7 million at the end of 2021. Total borrowings as of the end of 2022 were $6.3 million, and total Class A stockholders' equity was approximately $84.6 million at the end of 2022. That concludes my financial remarks. I'll now turn it over to Rick for a Q&A.