Silvercrest Asset Management Group Inc (SAMG) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen. Before we begin, let me remind you that during today's call, Silvercrest will make forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts, including statements regarding future events and developments, and Silvercrest's future performances as well as management's current expectations, beliefs, plans, estimates or projections relating to the future are forward-looking statements.

These forward-looking statements are only predictions based on current expectations and projections about future events. These forward-looking statements are subject to a number of risks and uncertainties, and they are important factors that could cause actual results, level of activity, performance or achievements to differ materially than the statements made.

Among these factors are fluctuations in quarterly and annual results, incurrence of net losses, adverse effects of management focusing on implementation of a growth strategy, failure to develop and maintain the Silvercrest brand and other factors disclosed in the Company's filings with the SEC, including those factors listed under the caption entitled Risk Factors in the Company's Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC.

In some cases these statements can be identified by forward-looking words such as believe, expect, anticipate, plan, estimate, likely, may, will, could, continue, project, predict, goal, the negative or plural of these words, and other similar expressions. These forward-looking statements are predictions based on Silvercrest's current expectations and its projections about future events. All forward-looking statements made on this call are made as of the date hereof, and Silvercrest assumes no obligation to update these forward-looking statements.

I would now like to turn the call over to Rick Hough, Chairman and CEO.

Thank you very much and appreciate you joining us for our third quarter conference call for 2016. Silvercrest Asset Management continued our strong organic growth in both the core family wealth business and our institutional business during the quarter. We added $216 million in newly committed client accounts and assets, one of the best quarters for organic business development since the first quarter of 2014. New business was generated equally by both our ultra-high net worth and institutional businesses and we remain proud of our ability to maintain a history of organic growth.

Our strong investment performance during the third quarter also contributed additional growth of $456 million in discretionary assets. Combined with our organic growth during the quarter, our discretionary assets increased $660 million to $13.2 billion as of the end of the quarter, a 12% year-over-year increase in discretionary assets under management, which of course drives our firm's revenue. The firm's continued this growth while maintaining its fee basis for assets under management and margins and while investing in the business. Importantly and looking to the business development pipeline, our proprietary value equity strategies have maintained their strong performance and each of the firm's six primary equity strategies have outperformed the relevant benchmarks for nearly every measured period, as well as since inception.

We're focused on finding selective and prudent acquisitions in money center cities and we believe Silvercrest growth, culture and premier brand in the RIA business makes us a desirable business partner. We're optimistic about implementing our organic growth with accretive acquisitions to add professional talent, as well as to broaden our high net worth network of clients. Scott, if you could now address the financials on behalf of the third quarter and shareholders and then we'll take questions.

Thanks, Rick. As disclosed in our earnings release for the third quarter, discretionary AUM as of September 30, 2016 was $13.2 billion and total AUM as of September 30 was $17.9 billion. Revenue for the quarter was $20.5 million and reported consolidated net income for the quarter was $2.9 million.

Looking at the quarter, revenue for the third quarter again was $20.5 million, representing approximately a 3% increase over revenue of $20 million for the same period last year. This was driven by growth in management and advisory fees revenue as a result of increased AUM. Expenses for the third quarter were $16.3 million representing approximately a 4% increase from expenses of $15.7 million for the same period last year. This increase was primarily attributable to increases in compensation and benefits expense of $0.6 million. And what drove the comp increase was higher equity-based compensation expense as a result of restricted stock unit grants that were made in August of last year primarily and a small amount that were made in May of this year. Increased salary expense also drove the increase as a result of both merit-based increases and increased headcount due to the Jamison and Cappiccille acquisitions, and an increase in the accrual for bonuses. General and administrative expenses for the quarter basically remain flat to last year at $4.1 million.

Reported consolidated net income was $2.9 million for the quarter as compared to $2.8 million in the same period last year and reported net income attributable to the Silvercrest or to Class A shareholders for the third quarter of this year was $1.5 million or $0.19 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 items, was approximately $5.9 million or 28.8% of revenue for the quarter compared to $5.8 million or 28.8% of revenue for the same period last year. Adjusted net income, which we define as net income without giving effect to non-core items and income tax expense assuming a corporate rate of 40% was $2.6 million for the quarter or $0.20 per adjusted basic share and $0.19 per adjusted diluted 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 earnings per share and to the extent dilutive, we had unvested deferred equity units restricted stock units and performance units to the total shares outstanding to compute diluted adjusted earnings per share.

Looking at the nine months, revenue was $59.1 million representing approximately a 6% increase over revenue of $56 million for the same period last year. This increase again was primarily driven by growth in our management and advisory fees as a result of increased AUM. And expenses for the nine months ended September 30 of this year were $47.8 million representing approximately an 11% increase from expenses of $42.9 million for the same period last year. Increases to comp and benefits expense of $3.7 million and G&A of $1.2 million contributed to the overall expense increase. And comp and benefits again was higher because of the equity-based compensation related to the restricted stock grants that I previously discussed and also increased salary expense due to merit-based increases and increased headcount again due to the Jamison and Cappiccille acquisitions.

G&A increased primarily because of increased investment research costs, increased amortization expense related to intangibles acquired as part of the Jamison acquisition and increase of subadvisory and referral fees, which was associated with increases in revenue per sub-advisory efforts. Reported consolidated net income was $7.5 million for the nine months ended September 30 of this year. That compared to $8.9 million in the same period last year. And again, reported net income attributable to the Class A shareholders for the nine months ended September 30 this year was $3.7 million or $0.47 per basic and diluted Class A share. Adjusted EBITDA was approximately $16.6 million or 28% of revenue for the nine months of this year compared to $16.1 million or 28.8% of revenue for the same period last year. Adjusted net income was $7.2 million for the nine months ended September 30 of this year or $0.56 per adjusted basic share and $0.53 per adjusted diluted share.

Taking a quick look at the balance sheet, our total assets were approximately $102.6 million as of September 30 of this year and that compared to $108.2 million as of December 31 last year. Cash and cash equivalents were approximately $30 million at September 30 and this compared to $31.6 million at December 31 of last year. Notes payable was approximately $2.6 million at September 30 of this year and that compared to $4.5 million as of December 31 last year. Lastly, total Class A stockholders' equity was approximately $47 million at September 30 of this year. That concludes my remarks. I'll now turn it over to Rick.

Thanks very much, Scott. We'll open the line now for questions.

(audio in progress) (Operator Instructions) Andrew Disdier, Sandler O'Neill.

So first one on the quarter, could you talk about the [fee rate], if you can, stratifying by institutional versus ultra-high net worth and also some of the drivers and maybe the outlook for the revenue?

So we don't give guidance and outlook. However, with the new flows that we reported, which were, as I have stated early in terms of new organic business , really strong. In fact, it was our best new organic flow quarter since the first quarter of 2014. We saw an uptick in the basis points that we're receiving for our discretionary assets under management. In fact, that new business is probably several percentage points, maybe even close to 10% higher than what our average was over a year ago. Of course, those revenues haven't been realized yet, but the trend of our new business flows effectively over the past few years has been very stable with regards to our pricing. We have not faced the downward pressure in fees that a lot of other asset managers have. And to the contrary, it's actually gone up a bit, that's primarily due to a strong quarter related to the family wealth business. The institutional business. just given the amount of assets that can be put into the firm, has very substantial pricing power. The basis points there have remained very steady across the board and that was just a bit less of that this quarter than it was compared to the kind of work flows.

Great. Thank you for the color. And then next elaborating on the new client asset growth, if possible, is there an estimate that you can generate with regards to kind of a wallet share related to those relationships, and maybe remind us what your current wallet share of the customer base is today?

It's very hard for us to measure, because we don't necessarily see all of our client's assets unless they choose to share them with us. Where we do see it is where people are giving us non-discretionary assets as part of their overall wealth portfolio profile to report on. And when we take those into account at the firm, we are well north of 80% of their assets overall. If you drop down in the AUM, our averages is hovering around $30 million per relationship, but if you drop down to close to our medium relationships, because an average is skewed by the largest relationships, we have the vast majority of the assets of our clients, in terms of liquid securities upwards of 90% or more. The real driver for us in terms of net inflows organic growth that we've seen is new relationship acquisition of clients, or clients who are still in business and experiencing healthy cash flows that they then commit to our firm. One thing that is done extremely well for us, of course, is the grade outperformance of our strategies at the firm on behalf of our client. It continues to build confidence, and, of course, makes us the first likely stop for clients working with us for committing new assets.

Great. And then moving to the flow trends during the quarter. I know you said there is an equal contribution in your prepared remarks between the institutional and the ultra-high net worth channels. I was just wondering if there is anything chunky on the ultra-high net worth side?

Yes, there were, this doesn't represent dozens of relationships. Our net inflows represents a few new relationships. So, yes, there's substantial families. I'd rather not get into more color than that.

That's fair. And then with regards to your comments around the institutional pipeline. Can you just update us where you are with the progression with the smid cap or the equal income strategies, I know there's a lot - it seems like there's a lot of capacity for you to kind of take on especially related to this smid cap product.

Yes, I'm very glad you asked that question, because I don't think we made anything explicit about it in the release. But as you know, we have experienced really great substantial progress with the small cap portfolio, and that has been the driver of our institutional new business for some time. And, of course, our outperformance has continued making that effort one we could really execute on quite well. We recently announced the soft close of our small cap strategy. It's open for certain relationships and under certain circumstances and is available to our family clients. So as we've talked about in prior conference calls, we've been looking to introduce to consultants and start to get into more advertised searches for smid cap in some of our other strategies. As you can see from the release, the performance in those strategies has remained very, very strong, certainly one of the best equity income performance records in the industry and the firm has experienced net inflows for quite some time into our equity strategies where the industry at large, and I dare say most other firms with equity strategies have seen net outflows. The effort to introduce that is going well. We will report more on that in the future, but that's exactly right. That's why we're doing the spade work and just given the outperformance and the roster of blue chip institutional investors that we now have in our strategy, we're optimistic about our ability to grow that business using those other strategies.

That's really good color and I guess related to that, just because of the outperformance over time do you think there could be an acceleration to market because your strategies have been performing so well?

There could be, I mean it's speculative. I don't know, we're working hard. I have enormous confidence in the team we've built here. Not just at the strategy level, but in terms of the execution of the business, the support staff, the marketing effort. So I'm quite optimistic about how we'll do.

Fantastic, and then last one from me. Switching to the hot-button topic, the Department of Labor rules. I understand that you're already operating as fiduciary but could you possibly frame the potential exposure to retirement assets? Would you be able to discuss how you think the rules could impact the business both at Silvercrest level and the broader ultrahigh net worth space? And then lastly how is Silvercrest preparing for the new regulation?

Yes, well, first of all, I don't think it really affects the ultra-high net worth space. These rules will really affect the accounts and pull the retirement vehicles that are much more likely to effect on small businesses and retail investors. We have very little exposure to that kind of business. We're not out there actively seeking to manage those plans in competition with broker dealers. So I can understand the pressures and issues they face. In fact, I'm surprised how often I hear people talking about it on my commute because clearly their own businesses have to readjust and it's a real problem about how they're going to do it and be able to serve those accounts effectively because of the way the fee model works for them. We have never operated as a broker-dealer. We don't have a broker-dealer, as you pointed out, we're a complete and total fiduciary as an SEC regulated registered investment advisor. We're already managing any monies like that as a fiduciary and will continue to do so. So they have no effect on us whatsoever. In terms of adjusting our own business, we're already there. We're just going to keep prosecuting the business we have.

Thank you. (Operator Instructions) And I am showing no further questions over the phone line.

Okay. Thank you very much for joining us for this third quarter conference call for 2016. As we mentioned at the beginning of the call, it was a very good quarter for Silvercrest with regards to our net new business and inflows into the business. And we had substantial capital appreciation in our accounts for the quarter. Just to repeat what I said earlier, this has been the best organic growth quarter since the first quarter of 2014. And in fact, when you combine our net new business with the capital gains due to performance in the third quarter, we've increased our discretionary assets under management in the third quarter alone more than we did in all of 2015 and nearly as much as we did in 2011. So I'm quite proud of what everybody here at Silvercrest has accomplished and we're just going to look forward to continuing to stick to our knitting and execute our strategy as we've laid it out very clearly in prior calls and hopefully enhance that with some acquisitions, which we've been talking about for some time, that pipeline remains robust. One other thing I'll mention is that our family office revenue has been increasing. And there was a slight increase in the third quarter over prior quarters for revenue there, and we are remaining optimistic about our ability to continue growing that piece of the business as well. With that, thank you very much for joining us and we look forward to next quarter. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.