Silvercrest Asset Management Group Inc (SAMG) 2019 Q4 法說會逐字稿

Good morning, and welcome to the Silvercrest Asset Management Group Inc. Q4 and Full Year 2019 Earnings Conference call. (Operator Instructions) Please note, this event 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 the statements of historical fact including statements regarding future events and 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 its current expectations and projections of our 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 and level of activity, performance or 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, 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 the Form 10-K for the year ended December 31, 2019, filed with the SEC. In some cases, these statements can be identified by forward-looking statements. Words such as believe, expect, anticipate, plan, estimate, likely, may, will, could, continue, project, predict, goal, 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 conference over to Rick Hough, Chairman and CEO of Silvercrest. Please go ahead.

Thank you very much, and welcome to our fourth quarter 2019 and year-end results. Total assets under management at Silvercrest grew to $25.1 billion as of the end of the year, of which $18.8 billion comprised the firm's discretionary assets under management. This represents both new highs for the firm driven by the firm's largest acquisition to date, strong equity markets and new client accounts. These results culminated in a recovery of the business from the market lows of the fourth quarter of 2018.

We experienced good new account growth during the fourth quarter and during 2019. We had announced our expectation for near-term success of Silvercrest's Outsourced Chief Investment Officer initiative, otherwise known as OCIO during the latter half of 2019. We won our first OCIO client during the third quarter of 2019, and that strength continued into the fourth quarter during which the OCIO business doubled to $300 million in AUM and drove half of Silvercrest's new client account growth during that quarter. We are proud of Silvercrest's internally built OCIO capability and are growing that business from scratch. Our team and performance track record is strong, our new business pipeline is growing and we expect continued success in the OCIO business during 2020.

Silvercrest has a proven ability to continue attracting net positive asset flows into its high-quality equity capabilities despite the industry-wide trend toward passive investment vehicles and the struggles of peer firms. Silvercrest now has $6 billion in total institutional asset management AUM. Each of Silvercrest equity strategies shows strong 3- and 5-year track records, which are vital for attracting new institutional business. We now have fully integrated our institutional marketing teams and are excited to bring our small-cap growth capabilities to market.

Silvercrest has also recently invested in new high net worth portfolio management professionals over the past 1.5 years to support organic growth of the business and to diversify our firm's talent. We have a track record of growing new talent internally, and we'll continue to do so. The current M&A environment for wealth management firms remains active and expensive. We believe our brand, culture, capabilities and technological innovation make Silvercrest a premier partner for select businesses and professionals. Regardless of the environment, Silvercrest will opportunistically seek to effectively deploy capital to complement more organic growth.

Scott, I'll turn over the financials to you, and then we'll take questions after that.

Thanks, Rick. So as disclosed in our earnings release for the fourth quarter, discretionary AUM as of December 31, 2019, was $18.8 billion and total AUM as of the same date was $25.1 billion. Revenue for the quarter was $27.8 million and reported consolidated net income for the quarter was $4.2 million.

Looking further into the fourth quarter of '19. Revenue was $27.8 million, and that represented approximately a 12% increase over revenue of approximately $24.8 million for the same period last year. This increase was driven primarily by the acquisition of Cortina, which took place in July of 2019. Revenue for the quarter ended December 31, 2019, attributable to Cortina was approximately $3.1 million.

Expenses for the fourth quarter were $23.7 million, representing approximately a 21% increase from expenses of $19.6 million for the same period last year. This increase is primarily attributable to increases in compensation and benefits expense of $3.4 million and general and administrative expenses of $0.7 million. Compensation and benefits expense increased primarily as a result of merit-based increases and newly hired staff, including the addition of Cortina staff, and an increase in the accrual for bonuses, partially offset by a decrease in equity-based compensation expense due to a decrease in the number of unvested restricted stock units.

The increase in general and administrative expenses during the fourth quarter compared to the same period last year was primarily due to increases in professional fees due to an increase in acquisition-related legal fees resulting from the Cortina acquisition, increased depreciation and amortization expense related mainly to amortization of intangible assets that were acquired as part of the Cortina deal and increase of expenses and depreciation related to the renovation of our office space in New York City.

We also experienced increase in occupancy and related expenses. Portfolio and systems expenses increased due to a decrease in accrued soft dollar-related research costs and increased travel and entertainment costs as well.

Also related to a few of our earnout arrangements, we had increases in the fair value of the earnout arrangements for both Jamison and Cortina deals. These were partially offset by a decrease in the fair value of earnout accruals related to the Neosho and Cappiccille acquisitions.

Reported consolidated net income was $4.2 million for the quarter as compared to $5.2 million in the same period last year. Reported net income attributable to Silvercrest or to Class A shareholders for the fourth quarter of 2019 was approximately $2.4 million or $0.26 per basic and diluted Class A share. Adjusted EBITDA, which we define as EBITDA without giving effect to equity-based compensation expense and noncore and nonrecurring items, was approximately $7.3 million or 26.3% of revenue for the quarter compared to $8.6 million or 34.6% of revenue for the same period in the prior year.

Adjusted net income, which we define as net income without giving effect to noncore, nonrecurring items and income tax expense assuming a corporate rate of 26%, was approximately $4.5 million for the quarter or $0.31 per adjusted basic and diluted earnings per 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 EPS, and to the extent dilutive, we add unvested restricted stock units and nonqualified stock options to the total shares outstanding to compute diluted adjusted earnings per share.

Looking at the full year. Revenue for 2019 was approximately $102.2 million, representing approximately a 4% increase over revenue of $98.7 million for the same period last year. This increase was driven by net client inflows and discretionary assets under management, including $1.7 billion of assets under management in connection with the acquisition of certain assets of Cortina and an increase in family office services revenue. Revenue related to Cortina for the full year, keeping in mind that revenue started on July 1, 2019, was approximately $6.2 million.

Expenses for the year ended December 31, 2019, were approximately $83.3 million, representing a 7% increase over expenses of $77.5 million for the same period last year. Compensation expense increased approximately $2.1 million during 2019 and this compared to the prior year. General and administrative expenses increased approximately $3.6 million during 2019 as compared to the prior year.

Again, compensation increased as a result of merit-based increases and newly hired staff including Cortina, and the increase for bonuses. Also looking full year, we also had a decrease in equity-based compensation expense due to several restricted stock units that fully invested early in the third quarter.

General and administrative expenses also increased for the year as a result of higher professional fees related to acquisition activities specifically in Cortina, depreciation and amortization increase related to intangibles and the New York City office renovation, and we experienced, again, increases in rent expense, portfolio and systems expense and the changes in the fair value of our various earnout arrangements.

Reported consolidated net income was approximately $15.4 million for the year ended December 31, 2019, compared to $17.4 million in 2018. Reported net income attributable to Silvercrest for classic shareholders for 2019 was approximately $8.6 million or $0.98 per basic and diluted Class A share.

Adjusted EBITDA was approximately $28.6 million, or 28% of revenue for 2019 compared to $29.6 million or 30% of revenue for 2018. Adjusted net income was approximately $16.9 million for 2019 or $1.18 and $1.17 per adjusted basic and diluted earnings per share, respectively.

Again, just drilling down a little bit on the Cortina acquisition. On July 1, we closed on the acquisition of certain assets of Cortina in consideration for the purchased assets and goodwill. At closing, we made cash payments in the aggregate amount of approximately $33.6 million. We drew down $18 million on our term loan facility with City National Bank, and we issued Class B units with a value equal to approximately $9 million. The total deal consideration includes contingent consideration in the form of 2 potential retention payments and a potential growth payment during the 5 years after the closing of the acquisition based on achieving revenue milestones.

Looking briefly at the balance sheet, total assets were approximately $214.2 million as of the end of 2019. This compared to $133.4 million as of the end of 2018. Cash and cash equivalents were approximately $52.8 million at the end of 2019 compared to $69.3 million at the end of 2018.

As a result of the adoption of the new lease accounting standard effective January 1, 2019, certain lease commitments now appear on the statement of financial condition as operating and finance lease assets and liabilities. As of December 31, 2019, our operating finance lease assets and liabilities totaled $33.7 million and $39.8 million, respectively. Total borrowings as of the end of 2019 were $16.2 million and total Class A stockholders equity was approximately $65 million at the end of 2019.

That concludes my remarks. I'll now turn the call over to Rick, and we'll lead into Q&A.

Thanks very much, Scott. We'll now take questions and talk about the quarter and year.

(Operator Instructions) And the first question comes from Sumeet Mody with Piper Sandler.

Just wanted to start with maybe an update on the M&A environment. 2019 was a pretty active year for the industry despite purchase multiples continuing to climb from the increased demand. I mean how are you guys approaching 2020 activity levels? And how are the conversations are going with the potential targets?

Yes. So at the same way we did 2019 and the same way we did 2018. Cortina deal last year is instructive in one way in that, that was actually the first deal that was brought to us by a banker. We've had plenty others that have been brought to us, and for a variety of reasons, were not appropriate for us or we're just -- we felt out of reach or not aligned with our interest and care of shareholder capital.

But this is a personal services business. The Culture is extraordinarily important to get right when you consider that you have talent going up and down the elevators and you want to have a clear, one-minded way of working together as a firm to grow the business. And it takes a lot of meetings to find the right potential wealth management partner.

We are very active in the industry, in different industry groups, trade associations. This firm is a firm that reaches out to and works with peer firms. In fact, we've even been referred business by peer firms or have other shared relationships and intentionally so.

People who are ready for the kind of firm that Silvercrest represents and our way of doing business very often reach out directly to us. And we have active conversations right now, as we did last year. I usually talk about the fact that we're almost always in a conversation. And it's not just a numbers game, but it's a long courting game. And we're just going to continue meeting people, cultivating them, helping them understand our story and really getting into their businesses and come to a meeting of the minds.

The roll-ups, the entry of a lot of private equity that want to then do a roll-up or otherwise, do financial engineering to pull together a network of RIAs without necessarily integrating them, have all driven up prices along with the equity markets. But quite honestly, very few of those firms on a cash-on-cash basis, or once you strip out, or if you can, strip out owners comp, are showing meaningful growth that in any way, it justifies the kind of multiples that they're selling for. In many cases, if they are not organically growing, these are businesses that are declining annuity. There's a leak in the bucket and you have to replace it every year, as we've shown in this business.

And a lot of these firms are good. They do a good job for their clients, but they're lifestyle businesses. They don't have particularly good business practices. They don't have the succession planning. They haven't successfully transitioned to generation in the business. They're eating all the economics, et cetera.

So I look at it with great skepticism. I am very careful with our capital. I am not going to engage in pure financial engineering to grow a company. We have to see that 1 plus 1 is going to equal 2 and that we can together continually organically grow the business as we've done in our history. So we're going to be selective about all of those things as well as the culture and then move forward.

The size of any deal to move the needle here would represent a very large use of capital and/or debt. And that's fine, but you've got to get it just right. And we're not going to be doing a bunch of serial acquisitions which would be required to get very aggressive, where some work, some don't and you just kind of stay one step ahead of the share as you're growing the top line. I hope that's a comprehensive answer that you find helpful.

Yes. No, that's really great. And then just turning to the institutional channel. Can you talk about what you've been seeing so far in the first quarter in terms of flows? I know in 4Q '18, you experienced some outflows with that market correction, some rebalancing as well. Just wondering if you've noticed the same trend over the last couple of weeks of volatility in market moves.

And then secondly and kind of relatedly, I wanted to get an update on the next 6-month pipeline for the institutional channel. I mean have you guys seen any strength of large-cap -- in the large-cap strategy? And has that offset a little bit of that volatility? And then -- I know it's a recent shift here, but just any color you can give, given passives get hit here?

Sure. Right. So you've asked a few things there, so I'll try to address them in order, and just follow up quickly if I miss any of them. First of all, going into 2019, as you recall in our other earnings calls, the pipeline really dried up significantly with that volatility. And the institutional pipeline grew meaningfully during the year, a little bumpy. But the pipeline now, just to get to that question, looks very strong.

The current kind of 6-month actionable pipeline, and by actionable, I'm talking about where we're either the semifinalist or finalist candidate and the search is going to be completed, that looks quite good. It stands at something around $3.6 billion. Obviously, we're not going to win all of that. So just -- but relatively, it's a high number for us. And we're going to get our share of wins there.

The large half in equity income capabilities have maintained very good 3- and 5-year, 7-year track records. In fact, you may be interested to know that the equity income strategy among all managers has the #1 record over 15 years and by a meaningful margin. People don't normally invest on the basis of a 15-year record, but I think it speaks very highly to the quality of the work and the team that we're doing, it's certainly going to help us.

But those recent track records are good. The volatility is often helpful to both us and our growth equity team in Milwaukee. We're not afraid to head in when everyone gets scared, clear out some of the deadwood and find things at reasonable value. So it's an opportunity to reorient the portfolio.

We've got our marketing teams in place now and how they're going to work. We're building up a pipeline for our Milwaukee growth capability with -- after the Cortina acquisition. They're wonderful professionals to work with. They understand how we want to grow with them and what it's going to take. That pipeline is smaller but growing because it's new for us. Their performance has been quite strong. So we feel very good going into the equity markets.

I think I addressed most of your questions there. If I missed something, let me know.

Yes. I just wanted to just get your thoughts on what's been happening maybe in the last couple of weeks, any shift that you're seeing from clients, from the volatility.

Just the volatility, this company has a luxury of having very long-term wealth management clients who work extremely closely with the portfolio managers who are highly experienced in all matters of markets. And our clients understand their asset allocations, what they're for, what the purpose of them is for and how to deal with markets like this. If you were to come here, it's a very calm environment. People are going about at work, and we see the opportunity to add value. I'm not seeing shifts from those clients in any meaningful way.

Our general outlook from an economic perspective is that, obviously, this will hurt, but it's going to be ultimately a short-term phenomenon in the economy, and we've remained long-term constructive about it. And we also see potentially the opportunity here for active management to outperform passive. And very often, institutions and investors get burned with their own behavior, buying high and selling low, whereas investors in our strategies, given the nature of our work with clients, often have us counseling them to take the opposite approach, which provides a real balance in the business but also helps clients actually realize better returns in the long run.

So what else about coronavirus? It helps us harden our infrastructure in the sense that we're all prepared for disaster recovery and business continuity, super important. It's just an opportunity to examine those procedures, make sure we're prepared and continue with the business.

But look, there's going to be a little slowdown but not necessarily in our business. If anything, we find that there are opportunities after volatility like this eventually. Right now, people are kind of worried, so they don't make moves while the volatility is going on. But once the dust settles, the phone does start to ring. So in terms of our direct business, if anything, it's a medium-term opportunity.

Got it. Helpful. And then you touched on it a little bit there. I just wanted to follow up on Cortina, but just want to get a sense of any trends you're seeing with client demand between value and growth across the platform. Or are there any changes that are more focused on one or the other? And can you just give a little color around what's happening with small cap growth?

Yes. No, there's nothing. No change, nothing to characterize there. The Cortina group, the Milwaukee group that I referred to has been with the firm basically 2 quarters. We have to integrate. We have to get our marketing going. We're just building a pipeline.

On the wealth side, there's not a lot of shifting. So there's not going to be a change there. In terms of the institutional search side, the growth equity capabilities are small cap. As you know, our largest institutional capability at Silvercrest is small cap value. There's a lot of capacity in our Milwaukee growth capabilities in small cap. It's a capacity-constrained opportunity in the marketplace. There's going to be demand for it. It's not necessarily dependent on the big shifts you see in larger market cap opportunity. So we're not going to see a change there. We're just going to get in the way of business and start winning it.

Okay. Great. Yes. And then another one just on the international strategy. I know it's still really early days there, but just kind of how is that marketing progression been coming along? And is there anything material we could expect over the next year or 2?

I think over the next couple of years. As I've said before, after we acquired that group, we wanted to incubate a couple of products, adjust them, put up some good numbers, introduce it to the marketplace. Just as when we started marketing our value equity at Silvercrest. It takes a couple of years to cultivate the consultants, get them familiar with their capability and comfortable. And of course, you got to put up a good number.

So long term, we're very excited. It's a great team. They put up good numbers as well. I'm just so pleased that if you look at absolutely everything we're offering, we've got great 3-and 5-year, 7-year numbers. It's going to bode really well for us. But that's going to be a much slower pipeline. We have an identical marketing team in place, coordinating with the Head of our Institutional Marketing Effort, Allen Gray, who is now on the executive committee of the firm, as has been announced. And we're excited about it, but that's going to be a little slower burn.

Okay. Great. And then just a couple more here on modeling. Just wanted to touch on the fee rate. I know you've been -- I just want to see if you guys have been experiencing any pressures on the rate. It seems historically pretty steady around 60 bps for the discretionary rate. Is this the level we should get comfortable with going forward? Any impact from Cortina or maybe contribution from the institutional channel that's been growing?

Yes. So if you look at our total discretionary assets under management, it's a little lower than that. Historically, it's around 58, 59, 60, bouncing around a little bit. It's come down. It's a high-class problem. It's come down because we're winning larger mandates. And so there's more pricing pressure there. It hasn't come down a lot recently. It's just steadily been doing that. The less so from fee pressure and more so from winning institutional mandates, which is now 60% of the business. And if you go back several years, it was nearly 0. So we've really done well there.

It may creep down just as it has been. But we're also growing the high net worth business, as Scott was discussing. We have new talent at the firm, bringing in those clients. That will be a countervailing pressure and push that up towards that 60 basis point number again. So it's hanging in there pretty well. It just moves by a basis, 1 or 2 basis points. I wouldn't read too much into it.

It also depends on what base you're using. So when you're talking about 60 versus what I'm seeing now, we can talk off-line, but there are different ways to look at our AUM, beginning a period, out of a period, average AUM, et cetera.

Okay. Great. And then shifting over to the excess capital kind of deployment. Just wanted to get a sense for how you're thinking about the debt situation. I mean you guys still have a relatively low level of debt, but correct me if I'm wrong. It looks like the debt came down, I think, about $1 million in this quarter.

And kind of going back to my first question on M&A. I mean how do you view that level of the paydown going forward? Is that something you're focused on? Is it -- if there's no kind of imminent deal to be done, would you kind of put more capital towards that and anything else. How does -- sorry, I was just going to...

Yes. I'm sorry.

No, no. I'm just going to add how does that debt level as well kind of affect your view on future M&A if it has an effect at all?

If anything, it just means we've got a lot of dry powder and not just in cash but in debt ability. We renegotiated our debt facility in doing the Cortina deal with our colleagues in Milwaukee. That's where that debt was put on our balance sheet. It was a great opportunity to make it a little more rational and to give ourselves more room to use debt as a tool. I'm not focused on paying it down aggressively. It's very, very low compared to our EBITDA. I can substantially lever from here and still feel pretty comfortable. I'd rather not get into specifically where I'm comfortable, but it's -- we've got a lot of room left.

If we were to do a meaningful wealth management deal with a firm that was $3 billion or $5 billion in AUM, we have those types of conversations, that's going to take a lot of cash and potential debt. So that dry powder is going to be very useful at that opportunity. If I were to be less conservative with it, we could have a problem doing a deal to move this company forward. And keep in mind, a lot of our cash as it grows through the year is actually part of compensation. And as you just saw, it's paid out -- or we'll see, it's paid out in January and the end of February. So I tend to be conservative with how many turns the EBITDA I would lever the company, which is still to say that I've got a lot of room. And we'll just wait for the right opportunity.

The other thing that we've done, and you saw this with the comp coming up a bit, is we were fully burdened last year with investments in new personnel to grow the high net worth business and help us transition business. Super important for the enduring nature of this firm to maintain that growth and to continue building our network. We have to invest in that. And 2019 was the first year where our income was fully burdened by those new people. Most will be successful, I predict, based on what I've seen. We have one individual who is already basically paying for him or herself here and expect further growth.

That kind of investment, we will be looking at more and more closely as we sit in this expensive M&A environment. Don't be surprised if we do some more things with our capital. It certainly affects our income statement in a different way. But we've got plenty of room to do it. We're running an EBITDA margin that hovers between 28% and 30%. That is right in line with what our company had done historically. The EBITDA margin kind of hit a high towards the end of 2018 as a result of performance fees and the fact that, that hiring had not hit our P&L. I think if this business is well run, you'll see EBITDA cycle between the mid- to somewhat high-20s to when we're running flat out over 30. But we have to make those investments. We've just got a short-term outlook on the business, which is something we really seek to avoid.

A good case in point, sorry, is the OCIO business. We staffed up for that, hit the income statement, brought on people and announced that we were going to execute a new strategy to grow the business organically, and we're doing that. It's now organically growing very nicely.

Great. I just want to follow up one last question here, if I could, on the compensation comments. I know you talked a little bit about expanding in wealth management this year. Your comp ratio for 2019 came in just above 55%, which is kind of within that range you've guided to, with Cortina maybe contributing some downward pressure over time, sort of a higher margin. I mean how should we think about that 2020 rate? Is it going to be sort of within that type down to 55%? Or with increased hiring, so that can kind of shift one way or the other?

It's going to depend on how we grow, of course, as well because it's a ratio versus revenue. And obviously, we have the ambitions for growing our top line. Yes, we do try to manage the company toward around a 55% comp ratio when we come under it as we did in a couple of years like 2018, I think it was 53%. We're going to do that. We're going to put up better numbers. We're not going to spend the money on ourselves just because we've told investors that we're willing to go up to 55% and pay ourselves more. I think it's a big mistake a lot of other businesses make in our industry.

Cortina the institutional business, not just our colleagues in Milwaukee but value equity team or international growth, do add more leverage to the business. And we drive that down, you're correct. It's also more volatile because of the nature of performance in the institutional business.

But in talking about hiring, yes, we may do more in 2020. The real story here is we've done a bunch of hiring, and we've got to have some success there. If you saw the full burden of it in 2019, we're going to be careful about it. You might expect more -- we're still guiding towards 55%. If we do hiring in this year, it's not going to burden the full year. You should keep that in mind. So as we grow, that gives us a little room to spend some money.

A final point about comp was that compensation didn't go down quite as much as we expected as a result of the acquisition with Milwaukee because their comp on revenue was substantially higher than we expected. Nothing wrong with that. It was a super high-class problem. This is a super talented team and absolutely great partners. And they had fantastic performance and much of their comp is driven by performance. And so they got paid more.

Let me assure you, we are thrilled to do that. That is a super great problem to have. But I think some of the margin expansion we may have expected going in didn't appear and solely for those reasons quite honestly. And I want them to hit the ball out of the park every time they can because that's just going to be more top line growth. That will ultimately drive down the margin in the long run as well.

(Operator Instructions) The next question comes from Fred Foulkes with Boston University.

Rick, it's Fred Foulkes. Just a quick question. What is sort of the correlation in terms of your business model? What's sort of the correlation between the state of the market and your revenue? If for the next 6 months, the Dow declines 10%, is your revenue going to go down 5%?

Good question, Fred. We do model that. I want to make a preliminary comment, and then I'll let Scott answer that more accurately since he tracks those numbers. One thing to keep in mind about our business is that 4 days of the year matter to this business, the last day of each quarter. And that day determines effectively the revenue for the next quarter.

So while the current disruption will affect us going forward, it really kind of depends what happens March 31. What's happening now doesn't matter whatsoever, which is to say, look, we finished the year nicely December 31. So this is -- even though this event is occurring first quarter, our first quarter is effectively pretty well-known because of how we're billing in advance.

With regards to how much do you expect it to move around, one thing we have yet experienced with is taking into account the nearly 13% or -- 10% to 13% of revenue that the growth equity capabilities now represent. We haven't remodeled things. And with the growth of the institutional business, you would be correct to assume that it levers this business more to the market than it has when it's purely wealth management. But I think Scott can give a little guidance on the exact number.

Yes. So it wouldn't necessarily be a 1 percentage point per 1 percentage point decrease. We can mark the asset. Keep in mind, as Rick said, we've had a different mix of strategies which -- some of those strategies may lag the market. And again, because the overwhelming majority of our revenue is built quarterly in advance, if you conceptually had a significant marker recovery at this point and back to the levels of the market before there's volatility over the last few weeks, well, then your second quarter revenue is not going to be as low as one would anticipate.

So there's -- mix factors in the lines of business. Our billing convention, that would lead to -- if it was a 10% decrease in the market, it's going to be something less than that and a hit to our revenue for the year.

Okay. And the second question is given the coronavirus and the nature of your work, what are the things that you're doing in terms of telling employees to work from home, don't travel, et cetera, et cetera?

Yes. So I think we've done what any good company that cares about its partners and colleagues does. We've provided guidance on how to -- attempt to avoid contracting the virus in the first place. I won't go through those protocols. We all read the news. But we got out in front as soon as this news broke and looked like it was coming here to educate our employees, step number one.

Number two, all of our infrastructure and access to systems are in the cloud. We have a disaster plan and a business continuity plan to execute. Any of our employees can work absolutely anywhere with a data connection, including just a cellular connection. And so if anyone feels the slightest way that -- fever or whatever it may be, and if they are to work from home, and we're completely good with that. We have many remote employees as well, and our teams have backups.

So we just reminded folks of our capabilities and how to take care of themselves. We did limit travel to certain countries, as you would expect as well. We don't have a lot of international travel business. But number one is caring for the people who are doing the work here, that's what this company is all about, so that they can take care of our clients, which of course, are the reason we're in business.

This concludes our question-and-answer session. I would like to turn the conference back to Rick Hough for any closing remarks.

Great. Thank you very much for joining us for a review of the fourth quarter of 2019. It was a decent year of organic growth. It was really nice to see that our Outsourced Chief Investment Officer capability, which we have great hopes for in the future, has now got some wind behind it. And we expect to have some more organic growth from that capability in the new year.

And finally, with the completely integrated marketing initiative on behalf of multiple institutional quality equity strategies, we're excited about potential growth in the future, 2020 and beyond, for those capabilities as well as now growth in the high net worth business with some new talent at the firm. We appreciate all of our shareholders, their long-term vision, which is shared by us and their support. Thank you very much.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.