Silvercrest Asset Management Group Inc.

Good morning and welcome to the Silvercrest Asset Management Group Inc. Q2 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 protection 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 obligations 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 so much and thank you for joining us for this second quarter earnings call of 2024. Generally supportive markets and economic conditions continue their progress since the fourth quarter of 2023. but market leadership remained unusually narrow during the second quarter. Large cap growth primarily drove higher markets, a persistent trend in the market's recovery since 2022. Other segments, including large cap value and small cap, actually declined during the second quarter, which negatively affected Silvercrest's assets. It's important to note that Silvercrest's U.S. value strategies and U.S. small cap growth strategies continue to perform well on a relative basis. Broader market participation benefits Silvercrest long-term due to the firm's diversified wealth management business and the firm's exposure to the small-cap institutional business. The markets have more recently broadened during the quarter and, if sustained, should improve Silvercrest's future assets under management and our growth. Silvercrest's discretionary AUM decreased $1.1 billion during the quarter to $21.6 billion, primarily due to the loss of institutional mandates. New client accounts and relationships during the quarter were modest but positive. Total AUM at the end of the second quarter was $33.4 billion and increased modestly at 4.7% year-over-year from the second quarter of 2023. Quarterly revenue year-over-year increased $1.3 million or 4.2%. Silvercrest has been investing in the future growth of the business, including on higher compensation. As a result, while top line revenue has increased, most metrics of the business are down due to higher expenses. On our last call, I mentioned that SilverCust has never had more business opportunities underway. We have made and will continue to make investments to drive future growth in the business, including value-added hires. During the second quarter, we announced the hiring of a high-quality, well-known global equity investment team to complement our international strategies. We are excited about the potential for significant institutional mandates in future quarters, raising Silvercrest's visibility globally with institutions and families alike. We also have invested in the new business development professional and market leader in the Southeast, focused on serving ultra high net worth families and family offices. We expect to make more hires to compliment our outstanding professional team and to drive future growth. Silvercrest continues to accrue a higher interim percentage of revenue for compensation. We will adjust variable compensation levels to match these important investments in the business, and that will keep you informed of our plans. Silvercrest's pipeline of new institutional business opportunities decreased during the second quarter to one billion. The pipeline remains up from the fourth quarter of last year, and importantly, the firm's pipeline does not yet include potential mandates for our new global equity team, which has a high capacity for significant inflows. We continue to expect near-term positive flows to result from opportunities for both our institutional equity and OCIO capabilities in that pipeline. 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 see substantial new opportunities globally for a firm with our high-quality capabilities coupled with superior client service. On July 30th of this year, the company's board of directors approved an increase of approximately 5% of the company's quarterly dividend rising from $0.19 per share to $0.20 per share. That dividend will be paid on or about September 20th to shareholders of record. With that, I'll turn things over to Scott Gerard, and then we'll have questions and commentary. Thank you.

Thanks, Rick. Again, as disclosed in our earnings release for the second quarter, discretionary AUM as of June 30th of this year was $21.6 billion, and total AUM as of the same period was $33.4 billion. Revenue for the quarter was $31 million, and reported consolidated net income for the quarter was $4.4 million. Looking further into the quarter, revenue increased year over year by $1.3 million, or 4.2%, 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 $2.5 million, or 10.6%, 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 1.7 million, or 10.4%, 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 portfolio managers and other associates, we increased the amount of the interim variable compensation accrual to potentially narrow the adjustment in the fourth quarter. 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 $0.7 million or approximately 11.3%, primarily due to increases in professional fees and recruiting expenses. Reported net income attributable to Silvercrest or the Class A shareholders for the second quarter was approximately $2.7 million or $0.28 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 and non-recurring items was approximately 7.2 million or 23.3% of revenue for the quarter. Adjusted net income, which we defined 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 4.4 million for the quarter or 31 cents and 30 cents per adjusted basic and diluted earnings per share respectively. 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 add unvested restricted stock units and non-qualified stock options to the total shares outstanding to compute diluted adjusted EPS. Looking at the first half, revenue increased year over year by 2.1 million or 3.6%. Again, primarily driven by increased discretionary AUM resulting from market appreciation partially offset by net client outflows. Expenses for the first half increased year over year by 4.2 million. or 9.1%, primarily driven by increased compensation expense and, to a lesser extent, increased G&A. Compensation and benefits for the first half increased year-over-year by 2.9 million, or 8.7%, primarily due to an increase, again, in the accrual for bonuses. Compensation and benefits also increased for the first half year-over-year due to salary increases. G&A increased by 1.3 million, or approximately 9.9%, primarily due to increases in travel and entertainment expenses, occupancy expense, professional fees, and recruiting expenses. Reported net income attributable to Silvercrest for the first half was approximately 5.7 million, or 60 cents per basic and diluted Class A share. Adjusted EBITDA was approximately 14.7 million, or 24% of revenue for the first half. Adjusted net income was approximately $9.1 million for the first half, or $0.65 and $0.63 per adjusted basic and diluted EPS, respectively. Looking at the balance sheet, total assets were approximately $177.6 million as of June 30th of this year, compared to $199.6 million as of the end of last year. Cash and cash equivalents at June 30th of this year were approximately $49.9 million compared to $70.3 million at the end of last year. As of June 30th, we had no borrowings, but we did renew the term portion of our credit facility for three years. Lastly, total Class A stockholders' equity was approximately $85.3 million at June 30th of this year. That concludes my remarks, and we'll turn it over for a Q&A. Thank you, Scott.