Silvercrest Asset Management Group Inc (SAMG) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Silvercrest Asset Management Group First Quarter 2017 Conference Call. (Operator Instructions) As a reminder, this call is being recorded.

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 fact, including the statements regarding future events, developments and Silvercrest's future performance 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 the current expectations and projections about future events. These forward-looking statements are subject to a number of risks and uncertainties, and there are important factors that could cause actual results, level of activity, performance and achievements to differ materially from statements made.

Among these factors are fluctuations in quarterly and annual results, incurrence of net losses, adverse effects of management focusing on implementation of growth strategy, future to development 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, 2016 filed with the SEC.

In some cases, these statements may 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 hand the call over to Rick Hough, Chairman and CEO. Sir, you may begin.

Thank you very much, and welcome to our First Quarter 2017 Investor Call. Silvercrest has begun 2017 by continuing our history of very strong organic growth by adding $230 million in new assets, primarily this time from ultra-high net worth families. The first quarter of 2017 was one of the strongest quarters for new commitments we had over the past few years. The beneficial market conditions in the first quarter combined with that organic growth increased our discretionary assets under management by approximately $537 million during the first quarter to reach a total of $14.3 billion as of March 31, representing a 17% increase in discretionary assets under management since the first quarter of 2016, and also represents a new high for discretionary assets at the firm.

Importantly, we've achieved this growth while maintaining the fee basis for assets under management, which [bucks] industry trends, and the firm also has maintained its adjusted EBITDA margins while continuing to invest in the business for future growth and to better serve our clients.

Silvercrest proprietary value equity strategies have continued to perform well, and we maintain our optimism about growing our high-quality institutional relationships, in contrast to many competitors who actively manage assets on behalf of their clients.

Finally, and importantly, Silvercrest and our partner celebrated 15 years as an independent firm. We're extraordinarily proud of the legacy we're building. We're grateful to the long trust placed in our [firm buyer] clients. And we are as excited about our firm's future growth as at any point in the firm's history.

Scott, if you could cover the financials, and then following that, we'll take investor questions.

Great. Thanks, Rick. Again, it's disclosed in our earnings release, for the first quarter, discretionary AUM as of March 31, 2017 was $14.3 billion and total AUM as of March 31, 2017 was $19.3 billion.

Revenue for the quarter was $22 million and reported consolidated net income for the quarter was $3.3 million. So comparing first quarter this year to a year ago, revenue, again, for the quarter was approximately $22 million, representing approximately a 14% increase over revenue of $19.3 million for the same period last year. This increase was driven primarily by growth in our management and advisory fees as a result of increased AUM. Expenses for the first quarter were $17.2 million, representing approximately a 10% increase from expenses of $15.6 million for the same period last year. And this increase was primarily attributable to increases in compensation and benefits expense of $1.6 million.

Comp and benefits increased primarily because of an increase in the accrual for bonuses, in addition to increased salary expense related to merit-based increases and higher equity-based compensation expense as a result of a small number of restricted stock unit grants that were made in May of 2016.

General and administrative expenses for the quarter basically remained flat at $4.1 million compared to the first quarter of last year. We had decreases to our G&A as a result of lower investment research costs and this is mainly due to a reduction in accrued soft dollar related research. We also had lower sub-advisory and referral fees, decreases in our telephone communications expense and client reimbursements.

Professional fees were a bit higher than prior year due to a documentation-related project that we completed.

Looking at reported consolidated net income, it was $3.3 million for the quarter. This compared to $2.5 million in the same period last year. Reported net income attributable to Silvercrest or the Class A shareholders for the first quarter of 2017 was $1.7 million or $0.21 per basic and diluted Class A share.

Adjusted EBITDA, which we define as EBITDA without giving effect to equity-based compensation expense and noncore, nonrecurring items, was approximately $6.5 million or 29.6% of revenue for the quarter compared to $5.3 million or 27.3% of revenue for the same period last year.

Adjusted net income, which we define as net income without giving effect to noncore, nonrecurring items, an income tax expense assuming a corporate rate of 40%, was approximately $3 million for the quarter or $0.23 per adjusted basic share and $0.22 per adjusted diluted share. Adjusted earnings per share, again, 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 [invested] restricted stock units to the total shares outstanding in order to compute diluted adjusted earnings per share.

Taking a quick look at the balance sheet, our total assets were approximately $95.4 million as of March 31, 2017, and this compared to $112.3 million as of December 31, 2016. Cash and cash equivalents were approximately $22.7 million at the end of the first quarter of this year. This compared to $37.5 million at the end of last year, that being December 31. Notes payable was approximately $2.4 million at the end of the first quarter this year, and this compared to $2.5 million at the end of last year. As of March 31, 2017, total Class A stockholders equity was approximately $48.2 million.

That concludes my remarks. I'll now turn it over to Rick, and then we'll have Q&A.

Great. Thank you very much, Scott. We're open for questions now about our quarter and the firm.

(Operator Instructions) Our first question comes from the line of Andrew Disdier of Sandler O'Neill.

So first, could you just talk a little bit about the pipeline? As you mentioned during the quarter, a lot of ultra-high net worth families making the contributions. But wondering about the institutional base as well as further potential for ultra-high net worth families.

Well, there's always a good potential, given the infrastructure we've now built in the firm and the number of portfolio managers we have with the capacity to take on high net worth families. Our flows are always combination, of course, not just new clients but additional contributions from our existing client base. So it's a mix of those two. And one thing we're very pleased about this quarter is that the net contributions from families was quite strong from existing. As you can imagine, people who have made their wealth and are living comfortably or have inherited it have a leak in the bucket. And so those are representing kind of a steady outflow from the firm. So you're always fighting that a bit in this business. And the first quarter was an unusually good one in that respect. We don't usually remark on the pipeline for the -- for families because it's a much lumpier business that doesn't quite build the same way with the same visibility. I would just say that the conditions that support growth in our business are as good as they've ever been. And the firm's visibility from a brand perspective and the size of our infrastructure is such that we feel good about continuing to grow the high net worth business over a sustained period of time. But it's never something we can look at, at quarter-to-quarter, or even know exactly what a year's going to look like based on pipelines. I'll just color it as we're positive about the business. In terms of the institutional businesses, I mentioned last quarter, the overall search environment was pretty low and it remains pretty low during the first quarter. It is, obviously, not been something that has greatly affected us because we've continued to do pretty well and we have also sought out additional sub-advisory relationships rather than invite only [our peers] or single mandate type searches. And to the extent we continue to put our institutional capabilities on the platforms for distribution with other institutional managers and/or our sub-advising to pools of assets that can grow. We feel quite positive about that business. But it is a little lower pipeline than we're used to seeing. But plenty large enough for us to execute our strategy.

Got it. And on the number of first quarter's ultra-high net worth family contributions, I know you mentioned that there were a decent amount of commitments essentially that gained wallet share. But I guess if you could sieve out the new customers versus -- or the new clients versus existing clients, could be helpful.

Yes, I don't usually break it out, it's too volatile. It is probably a little bit more weighted towards existing clients to give you a little color, but it's highly volatile. And it represented several new clients, including, if I put all the flows together, some new institutional clients. In fact, this quarter we saw, probably a slight negative net outflow of the institutional business despite getting meaningful new institutional mandates because of our strong performance. I've mentioned the past, probably 3 or 4 quarters, that our strong performance has led to some rebalancing, which ironically means that the better we've done, it means that we've lost some assets as institutions rebalance away from our strong performance. But we did get new clients and we're very pleased about it. On the high net worth side, it was kind of split but definitely some new clients there. I just -- it's too volatile for me to get into numbers on behalf of the firm.

No, that's fair enough directionally (inaudible) helps. But on the flip side, and you just spoke about it a little bit, the rebalancing. So as you mentioned on the prior quarter's call, did -- how much visibility do you have into the, I guess, the outflow pipeline, if you will? And did any of the rebalancing come to fruition? Or has it been pushed back a bit?

Some of it came to fruition. There was -- that's what, as I mentioned in the fourth quarter, we expected some. It's been a trend as long as we have very strong performance, there's always going to be some. And that definitely came to fruition in the first quarter. I have no visibility to the future. I would rather have much stronger performance than have a bit -- have some outflows than the opposite problem. It's a really high-class problem.

Without a doubt. And now Scott, just on equity comp. How are you thinking about that going forward? I think at the end of the quarter, there were about 690,000 shares remaining on the grant?

Yes, I mean, the way our expenses currently is that we're about half way -- almost half way through divesting period of the grants that we made back in August 2015. At this point in time, there's no definitive plan as far as granting the units that we still have available. It's -- as we've said in the past, equity ownership and equity-based comp, especially as a public company, is certainly part of our philosophy but we're going to be very diligent about how we grant those and when we do. And so that's basically the position we're at right now.

Understood. And couple of more questions. So with regards to Moffett Cochran and the Trust ownership, saw there were a few moves made recently. And I understand it's a sensitive subject but to the extent possible, would you provide -- be able to provide any color on the shift as far as just ownership vehicles?

Yes. No, I'm not going to speak to the decisions that any shareholder makes with regards to our stock. I'll make one comment only because of his role as a founder of the company. And that is, as expected shortly after the IPO and his death, in 2014, a significant portion of Silvercrest stock was sold as expected to diversify his estate. And there are other estate realities involved in the Trust that they've been dealing with. But I am not going to comment on any investor.

No. Fair enough. Wasn't looking for anything situationally.

Yes. Okay.

And then last question here is, new board member with Mr. Dunn noticed his history is primarily in the comp -- executive comp and employee compensation. Would we expect to see any changes in compensation techniques or levels going forward as a result?

I can't speak for what he may advocate as a board member and a new board member. He is very familiar with the company. As you know from his history, Mr. Dunn is one of the most esteemed and expert people in compensation or financial services. The reality is that Mr. Pechter had served on the board for 5 years, did a great job for us and was head of the compensation committee and is reaching retirement age. We're very grateful for his service. And Mr. Dunn was a very high-level expert type person to put into specifically, the comp role. But the intention was not to change any formulas of the company in doing so at this time.

(Operator Instructions) And I'm showing no further questions at this time. I'd like to turn the call back over to Mr. Rick Hough for any closing remarks.

Great. Thank you very much. Thanks for joining us for the first quarter call. As I mentioned, we're very excited about our future. I think the feeling in our firm in general amongst all the partners and our staff is that we have a great opportunity to continue that historical growth that we have over the 15-year history of this company. We're enormously proud of what we've built into a wonderful culture, place to work. We love working with our clients and that gives us great optimism about what we can achieve toward executing the strategy that we've outlined to investors over the past few years. We're at a point in the business' evolution where the contributions from the institutional business, the intellectual capital we have in other parts of the firm like Family Office Services and the continued growth of the high-net worth business are really supporting the independent model that we've built. And we really look forward to continuing this trend over the next foreseeable future, not just on behalf of our investors and what we're doing as a firm, but on behalf of our clients. Because as we grow, we build a talent, which we certainly did last year and thankfully grew through the investments we made. It's just going to be of great benefit to anybody involved in the firm. And where we sit today at an all-time high in discretionary assets really gives us a lot of tools to make those investments on behalf of clients and growth on behalf of investors. So thanks again for joining us. I very much appreciate it. And I look forward to speaking to everyone in another quarter. Thanks very much.

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