Silvercrest Asset Management Group(SAMG) - 2023 Q3 - Quarterly Report

Part I Financial Information Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Silvercrest Asset Management Group Inc. as of September 30, 2023, and for the three and nine-month periods then ended. It includes the statements of financial condition, operations, changes in equity, and cash flows, accompanied by detailed notes explaining the basis of presentation and significant accounting policies Condensed Consolidated Statements of Financial Condition The company's total assets decreased to $191.3 million as of September 30, 2023, from $212.7 million at December 31, 2022, primarily due to a reduction in cash and cash equivalents. Total liabilities also decreased from $86.8 million to $67.4 million, largely driven by a significant drop in accrued compensation. Total equity saw a slight decrease over the same period Condensed Consolidated Statements of Financial Condition (in thousands) | Account | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Assets | $191,291 | $212,675 | | Cash and cash equivalents | $58,867 | $77,432 | | Goodwill | $63,675 | $63,675 | | Total Liabilities | $67,400 | $86,843 | | Accrued compensation | $24,819 | $39,734 | | Borrowings under credit facility | $3,624 | $6,337 | | Total Equity | $123,891 | $125,832 | Condensed Consolidated Statements of Operations For the third quarter of 2023, total revenue increased slightly to $29.7 million compared to $29.0 million in Q3 2022, while net income decreased to $5.4 million from $5.6 million. For the nine-month period, revenue fell to $88.9 million from $94.7 million year-over-year, and net income dropped significantly to $15.8 million from $27.5 million Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Q3 2023 (in thousands) | Q3 2022 (in thousands) | Nine Months 2023 (in thousands) | Nine Months 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $29,704 | $29,042 | $88,868 | $94,725 | | Management and advisory fees | $28,425 | $27,949 | $85,445 | $91,500 | | Total Expenses | $23,185 | $21,940 | $69,080 | $60,284 | | Compensation and benefits | $16,691 | $16,271 | $49,945 | $52,901 | | Net Income | $5,380 | $5,643 | $15,825 | $27,512 | | Net Income Attributable to Silvercrest | $3,216 | $3,433 | $9,505 | $16,771 | | Diluted EPS | $0.34 | $0.35 | $1.00 | $1.70 | Condensed Consolidated Statements of Changes in Equity This statement details the changes in equity accounts for the nine months ended September 30, 2023. Key activities impacting equity include net income of $15.8 million, distributions to partners of $7.8 million, dividends paid on Class A common stock totaling $5.2 million, and the repurchase of Class A common stock for $5.7 million - During the first nine months of 2023, the company paid $5.2 million in dividends on Class A common stock and repurchased shares for $5.7 million[17] - Total equity decreased from $125.8 million at the start of 2023 to $123.9 million at the end of Q3 2023[15] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash provided by operating activities was $6.2 million, a decrease from $7.7 million in the prior-year period. Investing activities used $3.4 million, primarily for asset acquisitions. Financing activities used $21.4 million, driven by distributions to partners, dividends, and share repurchases. This resulted in a net decrease in cash and cash equivalents of $18.6 million Cash Flow Summary (Nine Months Ended Sept 30, in thousands) | Cash Flow Activity | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,248 | $7,694 | | Net cash used in investing activities | $(3,355) | $(669) | | Net cash used in financing activities | $(21,442) | $(25,417) | | Net Decrease in Cash and Cash Equivalents | $(18,565) | $(18,392) | Notes to Condensed Consolidated Financial Statements The notes provide detailed information on the company's organization, accounting policies, acquisitions, debt facilities, leases, and equity structure. Key disclosures include details on the Cortina and Neosho acquisitions, the terms of the credit facility with City National Bank, lease commitments, and the specifics of the equity-based compensation plan - The company has a credit facility with City National Bank, which includes a term loan and a revolving credit facility. As of September 30, 2023, $3.6 million was outstanding under the term loan, and there were no borrowings on the revolving facility[109][110] - The company's 2012 Equity Incentive Plan was amended in June 2022 to increase the number of issuable shares to 2,737,500. As of September 30, 2023, 1,122,400 shares are available for grant[161] - Contingent consideration liabilities related to the Cortina and Neosho acquisitions were $0 and $64 thousand, respectively, as of September 30, 2023. The growth payment for the Cortina acquisition was not earned based on revenue through June 30, 2023[82][83][90] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, highlighting a 13.9% year-over-year increase in Assets Under Management (AUM) to $31.2 billion. Despite higher AUM, revenues for the nine-month period decreased 6.2% due to a lower average management fee rate. Expenses rose significantly, primarily due to a non-recurring favorable adjustment in the prior year related to acquisition contingent consideration. The discussion also covers liquidity, capital resources, and non-GAAP financial measures Key Performance Indicators Assets Under Management (AUM) grew to $31.2 billion at the end of Q3 2023, up from $27.4 billion a year prior. However, profitability metrics declined; for the nine months ended September 30, 2023, net income was $15.8 million and Adjusted EBITDA was $24.3 million, compared to $27.5 million and $27.6 million, respectively, in the same period of 2022 Key Performance Indicators (in thousands, except AUM) | Indicator | Nine Months 2023 (in thousands) | Nine Months 2022 (in thousands) | | :--- | :--- | :--- | | Revenue | $88,868 | $94,725 | | Net income | $15,825 | $27,512 | | Adjusted EBITDA | $24,297 | $27,585 | | AUM at period end (billions) | $31.2 | $27.4 | Operating Results Analysis For Q3 2023, revenue increased 2.3% YoY to $29.7 million, while total expenses rose 5.7% to $23.2 million. For the nine-month period, revenue decreased 6.2% to $88.9 million, and total expenses increased 14.6% to $69.1 million. The nine-month expense increase was primarily due to a $10.9 million favorable adjustment to the fair value of contingent consideration related to the Cortina acquisition in 2022, which did not recur in 2023 Revenue Comparison (in thousands) | Period | 2023 (in thousands) | 2022 (in thousands) | Change ($) (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended Sept 30 | $29,704 | $29,042 | $662 | 2.3% | | Nine Months Ended Sept 30 | $88,868 | $94,725 | $(5,857) | (6.2)% | Expense Comparison (in thousands) | Period | 2023 (in thousands) | 2022 (in thousands) | Change ($) (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended Sept 30 | $23,185 | $21,940 | $1,245 | 5.7% | | Nine Months Ended Sept 30 | $69,080 | $60,284 | $8,796 | 14.6% | - The significant increase in nine-month general and administrative expenses was primarily due to a ($10.9 million) favorable adjustment to the fair value of contingent consideration for the Cortina Acquisition recorded in 2022, which was not repeated in 2023[242] Assets Under Management (AUM) Total AUM increased by $2.3 billion, from $28.9 billion at the start of 2023 to $31.2 billion at September 30, 2023. This growth was driven by market appreciation of $1.3 billion and net client inflows of $1.0 billion. Discretionary AUM saw net outflows of $0.7 billion, while non-discretionary AUM had net inflows of $1.7 billion AUM Change for Nine Months Ended September 30, 2023 (in billions) | AUM Component | Jan 1, 2023 (in billions) | Net Client Flows (in billions) | Market Appreciation (in billions) | Sept 30, 2023 (in billions) | | :--- | :--- | :--- | :--- | :--- | | Discretionary | $20.9 | $(0.7) | $0.3 | $20.5 | | Non-Discretionary | $8.0 | $1.7 | $1.0 | $10.7 | | Total AUM | $28.9 | $1.0 | $1.3 | $31.2 | Liquidity and Capital Resources The company's primary source of liquidity is cash from operations. Cash and cash equivalents stood at $58.9 million as of September 30, 2023, down from $77.4 million at the end of 2022. The decrease was mainly due to cash used in financing activities, including $7.8 million in partner distributions, $5.2 million in dividends, and $5.8 million in share repurchases. The company maintains a credit facility and was in compliance with all covenants Cash Flow Summary (Nine Months Ended Sept 30, in thousands) | Cash Flow Activity | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,248 | $7,694 | | Net cash used in investing activities | $(3,355) | $(669) | | Net cash used in financing activities | $(21,442) | $(25,417) | | Net change in cash | $(18,565) | $(18,392) | - Major uses of cash in financing activities for the nine months ended September 30, 2023 included distributions to partners ($7.8M), dividends to Class A shareholders ($5.2M), and share repurchases ($5.8M)[270] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, detailed disclosures are not required. The company identifies its primary market risk as the potential for declining securities prices, which would reduce assets under management and, consequently, advisory fee revenue. A 10% change in average AUM for the first nine months of 2023 would have resulted in an approximate $11.8 million annualized change in revenue - The company's main market risk is that a decline in securities prices would lower AUM, directly reducing fee-based revenue and income[281] - A hypothetical 10% change in average AUM for the nine months ended September 30, 2023, would cause an annualized revenue change of approximately $11.8 million[278] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of September 30, 2023, and concluded that they were effective. There were no material changes to the company's internal control over financial reporting during the quarter, and no material impact was noted from the remote work environment due to the COVID-19 pandemic - Based on an evaluation as of September 30, 2023, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[282][284] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[283] Part II Other Information Exhibits This section lists the exhibits filed with the 10-Q report, which include certifications by the CEO and CFO as required by the Sarbanes-Oxley Act of 2002, and Inline XBRL documents. It also notes that no directors or executive officers adopted or terminated a Rule 10b5-1 trading plan during the quarter - During the third quarter of 2023, none of the company's directors or executive officers adopted or terminated a Rule 10b5-1 trading plan[285]