Silvercrest Asset Management Group Inc.

Good morning and welcome to the Silvercrest Asset Management Group, Inc. First Quarter 2024 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 Huff, Chairman and CEO of Silvercrest. Please go ahead.

Thank you very much, and good morning. Welcome to our first quarter 2024 earnings conference call. Usually I read my business update for the quarter, but I thought it'd be helpful this morning, it's been a while, to really talk about what Silvercrest does and highlighting the nature of our firm strategically. Silvercrest is an independent wealth management firm, and we combine top quality investment expertise with high levels of customer service. Our customer-facing investment professionals who provide customized advice and service to our well over 600 ultra-high net worth individuals and institutions have consistently enjoyed annual customer retention rates of over 98%, and most of our revenues come from recurring management fees. We also have great employee retention with very little turnover, and people have dedicated their careers at building this firm. Because of the excellent investment returns we've generated for our clients over time and our superb client service, our assets under management have grown from $4 billion to $30 billion over the last 20 years. Unlike many of our wealth management competitors who are 100% open architecture, which is to say they have none of their own internal investment management, we have a strong investment culture at Silvercrest focused on building, supporting, retaining, training really strong intellectual capital on behalf of our clients. We employ over 30 institutional grade investment professionals who manage equity and fixed income portfolios. These in-house investment teams all employ fundamental company and security analysis, and most of our proprietary strategies have excellent long-term investment track records. Our in-house investment teams also provide valuable input and feedback to our asset allocation, third-party manager selection, and OCIO teams. Our clients tell us that our asset allocation advice and investment returns have consistently been better than many of our peer organizations. One of our key value propositions is delivering institutional quality investment capabilities to our high net worth clients. We have built the firm in order not only to deliver institutional quality, but our proof of thesis is that we have institutional clients. And about 30% of our assets under management are now managed on behalf of organizations, consultants, and others who are professional investors. This is proof of thesis about what our clients are getting. I'd also like to highlight that my colleagues and I here at Silvercrest have one job, which is investing our clients' assets well. We're not part of a large global investment bank with highly levered balance sheets. And the executives and employees here own over 30% of our outstanding shares. And many of us, including me, have most of our own family assets managed at Silvercrest. So we are well aligned, both on the upside and downside, with both our clients and our shareholders. We think Silvercrest is one of the best wealth management firms in the world. So please don't hesitate to reach out to me, Scott Gerard, or any of my colleagues if you'd like to discuss becoming a client or working with us in the future. Now I'd like to update you on our company's progress for the first quarter of 2024. Supportive equity markets in the first quarter set the stage for a much better environment for our business, continuing progress that began in the fourth quarter of 2023 as the market broadened its gains. While we continue to expect uncertain economic and market environment, Silvercast has never had more business opportunities or initiatives underway. I think 2024 into 2025 proved to be one of the most formative years in the history of Silvercrest. We're focused on those new opportunities as well as investments to drive future growth in the business, including value-added hires. As part of those initiatives, Silvercrest is accruing a higher interim percentage of revenue for compensation, and we will adjust compensation rules to match those important investments in the business. Silvercrest just announced as of yesterday, hiring a new team to expand its international and global equity investment capabilities, as well as our global outreach. The team will complement Silvercrest's existing international team and capabilities for a more diversified robust offering. The team brings significant investment expertise, a proven track record, and experience managing significant equity mandates on behalf of large institutions around the world. Primarily due to the supportive market, Silvercrest's discretionary assets under management increased by $0.8 billion during the quarter, or 3.7% to $22.7 billion. The firm's total AUM increased by $1.2 billion to end the first quarter at $34.5 billion. Year-over-year, from the first quarter of 2023, our discretionary AUM and total AUM increased by 6.6% and 15.4% respectively. While top line revenue increased by 2.9% from the end of the first quarter last year, most metrics of the business are down due to higher expenses, primarily related to compensation expense. Silvercrest's pipeline of new institutional business opportunities have more than doubled since the fourth quarter of 2023. The firm's total new business pipeline now stands at 2 billion, which is up substantially from 700 million in the fourth quarter. We expect near-term positive flows to result from those opportunities for both our institutional equity and OCIO capabilities. As a high-end wealth and asset management firm, Silvercrest serves families and institutions from across the globe. Despite headline news of international tensions, we continue to see substantial new opportunities globally for a firm with our high-quality capabilities coupled with superior client service that I mentioned in the opening of my remark. With that, I'll turn this over to Scott Gerard for some comments on our financials, and then we'll turn to questions.

Thank you. Thanks, Fred. As disclosed in our earnings release for the first quarter, discretionary AUM as of March 31, 2024, was $22.7 billion, and total AUM as of the same period was $34.5 billion. Revenue for the quarter was $30.3 million, and reported consolidated AUM Net income for the quarter was $4.9 million. Revenue for the quarter increased year-over-year by $0.8 million or 2.8%, primarily driven by increased discretionary AUM resulting from market appreciation partially offset by net client outflows. Expenses for the quarter increased year-over-year by $1.7 million or 7.4%, primarily driven by increased compensation and benefits expense and to a lesser extent, increased general and administrative expenses. Compensation and benefits expense for the quarter increased year over year by 1.2 million or 7.1% of revenue, primarily due to an increase in the accrual for bonuses. Based on the increased recurring cash compensation ratio over the past two years, due in part to the investment in the next generation of associates to drive future growth, we increased the amount of the interim variable compensation accrual. Also, compensation and benefits expense for the quarter increased year over year as a result of increases in salaries due to merit-based increases. General and administrative expenses increased by 0.5 million, or approximately 8.3%, primarily due to increases in travel and entertainment expenses, occupancy and related costs, professional fees, and increased depreciation and amortization expense. Reported net income attributable to Silvercrest or to Class A shareholders for the first quarter was approximately $3 million, or $0.32 per basic and diluted Class A share. Adjusted EBITDA, which we defined as EBITDA without giving effect to equity-based compensation expense and non-core, non-recurring items, was approximately 7.5 million or 24.6 percent of revenue for the quarter. 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 4.7 million for the quarter, or 34 cents and 33 cents per 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 unfested restricted stock units and non-qualified stock options to the total shares outstanding to compute diluted adjusted EPS. Looking at the balance sheet, total assets were approximately 170.2 million as of March 31st of this year, compared to $199.6 million as of the end of 2023. Cash and cash equivalents were approximately $39.7 million as of March 31st of this year, compared to $70.3 million at the end of last year. Cash and cash equivalents at the end of the first quarter is net of our annual compensation payouts. Total borrowings as of March 31st this year were $1.8 million and total Class A stockholders' equity was approximately $83.9 million as of the end of the first quarter. That concludes my remarks and now we can go into Q&A. Thank you, Scott.