Silvercrest Asset Management Group Inc. (SAMG) Q3 2026 Earnings Call Transcript

Operator: Good morning, and welcome to the Silvercrest Asset Management Group, Inc. Q3 26 Earnings Conference Call. Participants will be in listen-only mode. 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 protections of the Litigation Reform Act of 2000. All forward looking statements made on this call are made as of the date hereof. And Silvercrest assumes no obligation to update them. I would now like to turn the conference over to Rick Hough, Chairman and CEO of Silvercrest. Please go ahead.

Richard R. Hough: Good morning, and thanks for joining us for our third quarter 2026 results Silvercrest continued its strategic initiatives during the third quarter and we continue to progress with the plan we have described over the past 2 years. Discretionary assets under management, which drives the firm's revenue decreased $939.2 million during the third quarter to $23.8 billion primarily due to weaker markets. Of that, $753 million had a revenue effect. The third quarter's weaker markets followed unusually strong second quarter markets with the result that capital growth has contributed 1.7 billion in new AUM this year to date. Net flows for the quarter were essentially flat at 58.3 million Silvercrest added $182.2 million in organic new client accounts, which was the best quarter during 2026. And our net flows included an affirming $373 million follow on investment in the firm's global value equity strategy. Offsetting outflows during the quarter were primarily attributable to seasonal high net worth client withdrawals for tax payments as well as some institutional. While total AUM stands at 36.2 billion we have discussed in prior quarters that non discretionary AUM is associated with this small portion of revenue as most of non-discretionary AUM represents flat fee family office and related services. Therefore, changes in the level of non discretionary AUM do not correlate to revenue change. We will adjust how the firm reports non discretionary at the end of the first quarter of 2027, likely eliminating the non-discretionary AUM category altogether. This adjustment will substantially lower reported non-discretionary and total AUM on a 1-time basis but without revenue effect. We seek to provide investors with a clear picture of the discretionary AUM and the flows and economics that drive our business. Year to date, revenue increased 2% year over year, reflecting a recovery in average AUM levels weighed down by first quarter outflows. Our estimated annual run rate increased by a similar percentage year over year since 09/30/2025. We announced during the third quarter that we received our full MiFID license through the Central Bank of Ireland. We also opened our Dublin office to serve both high net worth and institutional clients in Europe. With the completion of our Atlanta and Dublin offices, our UCITS fund, the Australian Trust and regulatory licensing, we do expect administrative and legal costs associated with these initiatives to decline and begin contributing revenue. Our institutional pipeline has continued to grow substantially and remains robust, particularly in our global and international equity strategies, which continue to deliver exceptional performance. Our pipeline quality has also improved with more possible AUM as well as a number of opportunities. We completed progress on building our global infrastructure and distribution for our current revenue push. We also have achieved important third party ratings for our strategies and vehicles. And we continue to seek additional ratings with major global consultants to further open institutional distribution channels. As previously discussed, Silvercrest will continue to adjust our compensation ratio to match compelling opportunities to organically grow the business. Total compensation and benefits expense was $62.9 million representing 66.3% of revenue for the 9 months ended 09/30/2026. As we have consistently communicated, our earnings and adjusted EBITDA reflect the deliberate cost of the most significant investment program in the firm's history. And we expect the compensation ratio to remain elevated as these investments mature. Also, we have discussed with and reminded investors shareholders approved an increase in the number of shares issuable under our equity incentive plan. Intellectual capital at Silvercrest is Silvercrest's most important resource and we have made substantial investments in excellent talent. We intend to imminently make equity grants to the professionals who are building our business and executing our strategy, attracting and motivating our professionals and working to align their long term interest with those of our shareholders is fundamental to how we intend to grow the firm compound value through this investment cycle. And beyond. On October 28, the company's Board of Directors declared a quarterly dividend of $0.21 per share of Class A common stock The dividend will be paid on or about 12/18/2026 to stockholders of record as of the close of business on 12/11/2026. Those are my preliminary remarks on the business. Scott Andrew Gerard, our CFO, will speak to the financials, and then we will be available for questions.

Scott Andrew Gerard: Thank you. Thanks, Rick. Discretionary AUM as of September of this year was $23.8 billion and total AUM as of September 30 was $36.2 billion Revenue for the quarter was $32.7 million and reported consolidated net income for the quarter was $1.2 million Looking at the quarter, revenue increased year over year by $1.4 million primarily driven by an increase in the average annual management fee. Expenses for the quarter increased year over year by $800 thousand or 2.9%, primarily driven by increased general and administrative expenses, partially offset by a decrease in compensation and benefits expense. Compensation and benefits expense for the quarter decreased year over year by $500 thousand or 2.1%, primarily due to a decrease in the accrual for bonuses and severance, partially offset by increases in salaries and benefits expenses primarily as a result of merit based increases in new hires, including new staff in Ireland and increased equity based compensation expense. General and administrative expenses increased by 1.3 million or approximately 16%, primarily due to increases in professional fees, travel and entertainment expense and portfolio and systems expense. Reported net income attributable to Silvercrest or the Class A shareholders for the quarter was approximately $600 thousand or $0.08 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 non recurring items was approximately $4.4 million or 13.5% of revenue for the quarter. Adjusted net income, which we define as net income, without giving effect to non core and non recurring items, income tax expense assuming a corporate rate of 26%, approximately $1.9 million for the quarter or $0.16 per adjusted basic and diluted EPS. Adjusted EPS 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 EPS Looking year to date, revenue increased year over year by $1.5 million also driven by an increase in the average annual management fee Year to date expenses increased year over year by $7.6 million or 9.2% driven by increased compensation and benefits expense and general and administrative expenses. Year to date compensation benefits increased year over year by 3.5 million or 5.9%, primarily due to increases in salaries and benefits primarily as a result of both merit based increases in newly hired staff as well as an increase in the accrual for bonuses equity based compensation and severance expense. Year to date general and administrative expense expenses increased by $4.1 million or approximately 17.2% primarily due to increase in professional fees, occupancy and related expenses, travel and entertainment expenses and portfolio and systems expense. Year to date reported net income attributable to Silvercrest or Class A shareholders, approximately $1.1 million or $0.14 per basic and diluted Class A share. To date adjusted EBITDA was approximately $11.6 million or 12.2% of revenue, Year to date adjusted net income was approximately $4.6 million or $0.38 per adjusted basic and diluted EPS. Looking at the balance sheet, total assets were approximately $146.3 million as of the end of September of this year. Compared to $166.6 million as of the end of 2025. Cash and cash equivalents were approximately $27.8 million as of the end of September, compared to $44.1 million at the end of last year. Borrowings totaled approximately $9 million as of September 30, Total Class A stockholders' equity was approximately $45.5 million at the end of September of this year. That concludes my remarks and I will now turn it over for Q&A.

Operator: Thank you very much, Scott. We will welcome questions at this time. We will now begin the question and answer session. The first question comes from Sandy Mehta with Evaluate Research. Please go ahead.

Sandy: Yeah. Hi. This is Ashish coming from Evaluate Research. I am speaking on behalf of Sandy. he is on a flight, so I will be taking 2 questions on his behalf. So the first question is, regarding the staff setup. So is the staff setup in Asia and Europe in place as of now or what is the status for the same?

Richard R. Hough: Our speaker is a little distorted in this room. And so if you could repeat your question 1 more time, we are going to turn the speaker down so I can fully understand it. Thank you.

Sandy: Yes. I will repeat it again. So the first question is regarding the staff setup. Is the staff setup in Asia and Europe in place as of now? And what is the status regarding the same?

Richard R. Hough: Okay. So in Europe, where we have opened the Dublin office, we have largely completed our hiring and the staff set up there. That includes representative, for our institutional capabilities as we have completed the UCITS fund in Ireland and other efforts facing Europe. With regards to the high net worth capability in order to get our full MiFID license through the Central Bank of Ireland. We had to fully staff. We may be hiring 1 more individual there for the investment team, but largely complete and they are off and running now that everything is complete. So that effort with that office opening in the third quarter is just fully starting. With regards to Asia, we will have an announcement in the first quarter. With regards to head of office there. For the high net worth business, we are going to be assessing what our needs are and, therefore aligning the staffing required But we do have our licensing there and did our initial hiring already. that is in its early stages. With regards to other work we have somebody in Australia working on distribution in this-- The In South Asia, Japan, Australia. We have other domestic needs, but it is going to be rolled out on a slower basis than it has been today. So as I mentioned in my business update, we are starting to get to the end of the investment period on the personnel side. There are going to be some bits and pieces across the firm. But also other changes. So you are just going to see a dramatic change in that. And the real expectation is now for revenue to start having an effect. Based on these investments, and therefore, lowering, hopefully, the percentage of compensation. That is being spent out of revenue. 2027 is going to be an important year for that.

Sandy: Got it. Thank you. 1 more question, please. So the second question is, regarding the value strategies. So the value strategies have had challenging performance. Can you give us broad reason for that?

Richard R. Hough: Yes. A lot of the challenging performance has to do with index construction. Versus the index, which are extremely heavily weighted towards lower quality companies. We tend to invest in very high quality companies as well as to an extraordinary concentration among very few companies. This is true of many, many different indices. So it depends what value strategy you are looking at. We have talked about challenges for the institutional business that we have there. In the past, it seems like that has slowed. And we also have seen a lot of our consultants, investors, understand how our portfolios are constructed. They are seeing these challenges for a lot of active managers. Right now, and they are in our strategies for a reason. Which is a tilt towards high value and therefore, quality. That team is looking very hard, but they are not going to be changing their-- they are looking to improve how they do things, but it has been proven time and again that if we stick to our knitting, stick to our fundamental research, and build our portfolios around high quality companies. That inevitably we perform well. We have seen other periods of underperformance going into the global financial crisis during the tech bubble and a couple other periods. it is been in a very, very unusual period of time since the global financial crisis for value investors. The disparity between growth and value has persisted much longer than ever before and is much wider than ever before among other attributes. Got it. Thank you. And all the best.

Operator: You are welcome. Yep. This concludes our question and answer session. I would like to turn the conference back over to Rick Hough for any closing remarks.

Richard R. Hough: Thank you. Thank you very much for joining us and appreciate the time this morning. I think we covered a lot. In my business update with regards to what we are trying to do and accomplish. And we have been discussing this for some period of time in well before we started this heavy investment period 2 years ago. We are facing the tail end of that and we are quite excited about the pipeline that we have. The objective now in 2027 and going forward is to really see the fruits of those investments benefiting the firm and our shareholders. Thank you very much. I am always available for conversations as many of you know and look forward to following you up. We will talk to you next quarter. Thank you.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.