May 4, 2018
Executives
Rick Hough - Chairman and Chief Executive Officer Scott Gerard - Chief Financial Officer
Analysts
Andrew Disdier - Sandler O'Neill
Operator
Good day, ladies and gentlemen, and welcome to the Silvercrest Asset Management Group, Inc. First Quarter Financial Results Conference Call.
At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.
[Operator Instructions] As a reminder, this conference 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 statements regarding future events and developments in 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 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 or achievements to differ materially to 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 the Form 10-K for the year ended December 31, 2017, 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.
Rick Hough
Thank you very much and welcome to our first quarter 2018 results for Silvercrest Asset Management Group. Silvercrest experienced a successful first quarter against the backdrop of more turbulent markets, experiencing net new organic growth for our first quarter 2018 with $189 million in additional client assets to manage.
The first quarter represents the firm's tenth straight quarter of net organic growth, excluding market influence and mark the 19th quarter of break even or better asset for the firm. Silvercrest ended the quarter $21.5 billion in total assets under management, which is an increase of $200 million over the fourth quarter of 2017.
Discretionary assets however declined to $15.9 billion from $16 due to more volatile markets in the first quarter. Our discretionary assets have grown 11% year-over-year as a quarter end.
Silvercrest continues to invest in the next generation of high-quality talent and we have funded new growth initiatives. Silvercrest firmly believes that reinvestment in our business and in our clients will create the longest term value for its shareholders by continuing our record of growth.
We're prepared to use our excess capital to grow the business with new strategic initiatives and intellectual capital such as our previously announced Outsource Chief Investment Officer Business. Our professionals had real skin in the game in Silvercrest with regards to investment performance and our best-in-class value strategies as walls are successful approach to active management, which differentiates our firm against the industry backdrop cheap beta and cookie-cutter asset allocations.
We expect our performance to support more opportunity in the institutional marketplace as well as providing a compelling and competitive offering to high network clients and prospects. We're finding new traction with our SMID Cap Value capability, which is now being introduced to the marketplace and we remain enthusiastic about institutional search opportunities.
We now have nearly 4 billion in institutional client assets committed to the firm. While the current M&A environment is competitive and expensive, Silvercrest continues to evaluate selective improving acquisitions that culturally compatible firms to complement our organic growth, investment capabilities and professional talent, including the possibility to expand in new geographies.
With that I'll turn it over to Scott Gerard to discuss the firm's financials and then we'll take questions. Thank you.
Scott Gerard
Thanks Rick. As disclosed in our earnings release for the first quarter, discretionary AUM as of March 31, 2018 was $15.9 billion and totally AUM as of March 31, this year was $21.5 billion.
Revenue for the quarter was $24.3 million and reporting consolidated net income for the quarter was $4.1 million. And the revenue for the first quarter of $24.3 million represented approximately and 11% increase over revenue of approximately $22 million for the same period last year.
This increase was driven primarily by growth in management and advisory fees as a result of increased AUM. Expenses for the quarter were $19 nineteen million which represented approximately 11% increase from expenses of $17.2 million for the same period last year.
The increase in expenses was primarily driven by increases in comp of $1.2 million and G&A $0.6 million. Comp and benefits increased primarily because of an increase in the accrual for bonuses and increase salary expenses result of merit-based increases.
The increase in general and administrative expenses during the first quarter compared to the same period last year was primarily due to increases in occupancy and related costs, as a result of our new lease in New York City keeping in fact this past October, 2017. Also we experience increases in sub-advisory and referral fees related to increase sub-advisory revenue, portfolio and systems expense increase in addition to telephone costs.
These were partially offset by a decrease in depreciation and amortization. Reporting consolidated net income was $4.1 for the quarter.
This compared to $3.3 million for the first quarter of 2017. Reported net income attributable to Silvercrest or to Class A shareholders for the first quarter of 2018 was approximately $2.2 million or $0.27 per basic and diluted Class A share.
Adjusted EBITDA which we define as EBITDA without giving effect equity based compensation expense and non-core non-recurring items was approximately $6.9 million or 20.5% of revenue for the quarter and this compared to $6.5 million or 29.6% of revenue for the same period last year. Adjusted net income which we define as net income without giving effect to non-core non-recurring items and assuming an income tax expense rate at the corporate level of 26% for periods beginning January 1 of this year as a result of the Tax Cuts and Jobs Act.
And this amount was approximately $4.1 for the quarter or $0.31 per adjusted basic share and $0.30 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 EPS and to the extend dilutive, we had unvested restricted stock used to the total shares outstanding to compute diluted adjusted earnings per share.
Taking a quick look at the balance sheet, total assets as of March 31 were approximately $199.1 million and this compared to $117.4 as of December 31 last year. Cash and cash equivalents were approximately $35.4 million at March 31 as compared to $33.8 million at December 31 last year and both at the end of the first quarter of this year and the end of last year notes payable was approximately 0.7 million.
Lastly, total Class A stockholders' equity was approximately $50.8 a March 31. That concludes my remarks.
I'll turn it over to Rick and we'll take Q&A.
Rick Hough
Thanks very much Scott. We're taking questions now for our first quarter and company in general.
Thanks.
Operator
[Operator Instructions] And our first question is from Andrew Disdier from Sandler O'Neill. Your line is now open.
Rick Hough
Good morning, Andrew.
Andrew Disdier
Good morning, Rick. Good morning, Scott.
Scott Gerard
Good morning.
Andrew Disdier
So first, it sounds like there is good traction with this SMID-cap value product. So would you just be able to talk about the types of opportunities that you're seeing with new product?
Rick Hough
Sure, yeah. So in the first quarter, we had UMA accounts of 27 million flow into the SMID-cap category.
That is only recently been placed on platform. And that platform was a very significant part of the growth in our small cap strategy.
So the fact we're on it now with SMID-cap it gives a new option for an institution and their investors who really like Silvercrest and our performance to start allocating to that. I'm just moving up the market cap a bit.
So we're excited about having that and about the flows that we're starting to see there. Secondly, like our focus value in large cap as well as equity income, we're bringing SMID-cap to the institutional marketplace to consultants.
And we're seeing movement there. We are in several SMID searches as we continue to promote that strategy.
Andrew Disdier
Great. And then I guess to the larger value space, so anecdotally from what we're hearing, you know there could be some poking around by institutions, consultants really looking for value oriented products.
So I guess aside from it sounds like you know pretty strong up there with SMID, could you talk a little bit about the other products as well?
Rick Hough
Yeah, absolutely right. So absolutely, given our small cap performance as combined I should say with the excellent client service that everyone on the equity team provides our clients, has given some so really great reputation in the marketplace.
We we've delivered precisely what we've told institutions we would. And so that puts us in good stead obviously for selective searches.
As I've mentioned before, at Silvercrest, we have large cap, we have small cap, we have SMID cap, we have equity income, we have focused value, we have a multi-cap that's more high net worth not institutional. And so institutionally now, we've got the small core steps that's larger closed as we mentioned SMID-cap, large cap focused value and equity income.
And we have a particular focus right now on SMID-cap just because that is a constraint place in the marketplace, but obviously we're bringing them all out there. In general, the advertise search environment that is our key sponsor announced possibilities remain slow in the long equity space in general and I would say in the value equity space in particular.
Yes, I'm hearing people say that is value it's to have its stake. And when we get to more normalized markets, interest rates et cetera.
That should prove well for value in particular value managers as you well know struggled, we're very proud that we've delivered very good performance given the general environment for value. So I think as it kicks up, which I would expect, but I'm no market that we will see more opportunities there.
And in addition we will be in a very good position to benefit because of our strong track record through a difficult period for value managers in general. On that note however, I mentioned that the advertise search environment is a bit slow and long only space.
But our current pipeline is moderately strong at Silvercrest, which is to say kind of our actionable six month pipeline which we look at as the pool of opportunities for insight only RFPs where we think we're a semifinalist or finalist candidate with a search. So yes, well the advertise space is slowing, we've definitely seen a pick-up in invite only activity for value strategies.
So a bit of a story but I will tell you our pipeline has picked up about 50% from the entity to the end of this quarter.
Andrew Disdier
Got it. And then I guess to the pipeline that's specific to the equity products, correct?
Or is that incorporating the OCIO too?
Rick Hough
No, that's separate from the OCIO. I was straightly - since your question was about our institutional equity possibilities and flows4 that are strictly about the opportunity sat for value market strategies.
Andrew Disdier
Got it, just wanted to be clear. And I guess on that point though, OCIO, just curious about any progression on the newer initiative?
Rick Hough
Yeah, we don't have any new wins to win out. As we've said before, it's going to take us a bit of time to get traction in the marketplace after we introduce the product and built our team, just as when we created the institutional push for our value equity strategy starting in 2008.
It took some time for the consultants and others really to get to know what's in the marketplace and pick-up. We're getting in very good reception, we have a nice pipeline, we built a great team, but there's nothing yet to announce where in several searches and we're working hard.
It should be noted that the group which is responsible for the OCIO initiative did six year a new institutional client in Japan for aspects of the work that they do and would do on behalf of institutions in the United States. The object that you saw and non-discretionary assets under management somewhere around 300 million or 250 million was that Japanese institution.
So the knowledge base and capabilities that we have here is definitely getting recognized. That not strictly OCIO mandate, but it is a mandate that supports that team and provides yet another institution to put on our list using our capabilities.
So we're just as excited forever, we're just going to have to be patient until we get really well known in the marketplace and get some wins.
Andrew Disdier
Understood. Understood.
And then I guess from a broader backdrop on the regulatory front, would you be able to provide any color on some of your takeaways from the SEC's proposal or standards of conduct?
Rick Hough
So, I am on the board of the Investment Advisor Association which is the industry group representing RIAs. And I'm pretty involved in the regulatory environment in terms of what's happening in Washington, I myself lobby and was involved for example in beating back the changes to the first-in first-out rules last fall, which would have just had been terrible for our business and in particular for business versus dealers and we were successful on that.
In general the regulatory environment has improved dramatically for RIAs in the - SEC has shifted its focus I think in the right directions, they're doing a better job of screening and providing a hierarchy of risk and who to examine and how those examine them. It's I have to say much to our relief and improve situation.
And I don't see that changing. A few years ago, we were in a discussion in Washington about precisely how to regulate advisors and in particular broker dealers and there was an attempt by broker dealers to redefine what it meant to be a fiduciary and to bring our IAs into FINRA, the self-regulatory organization for broker dealers.
That did not go through. And it was dropped because it was very hard to square the circle of how you can be someone who is effectively compensated for sales or for doing and providing product to clients without a strict fiduciary standard whereas in the RIA world, we live by a strict fiduciary standard.
I have my hopes that that's not going to change. I'm not seeing a wellspring support to water down the fiduciary stander.
Brokers have a particular role in the world, I think it's actually a good one. And I think how they are regulated and what they are due to be compensated should be kept here.
And we shouldn't further blur the lines between fiduciaries and broker dealers by changing the standard, because it could only be watered down.
Andrew Disdier
Understood. That's all I got today.
Thanks for taking the question guys.
Rick Hough
That was very quick, Andrew.
Operator
Thank you. [Operator Instructions] At this time, I'm showing no further questions.
I would like to turn the call back over to Richard Hough, CEO for closing remarks.
Rick Hough
Great. Thank you very much and thanks for joining us on the first quarter call 2018.
I'd like to make concluding remarks especially if I don't have questions I get at it and I think it's important for investors to take stock of where the company has come over the past four to half years. I'll talk more about that this summer when we have the fifth anniversary of this company going public and the progress we've made and what we've built.
But very important to the success that we've had and the likelihood of us being able to replicate the nice growth that we've had has been the culture at the fur. A lot of companies give lift service to culture, they are marketing points to try to sell the business to clients.
And I have to say here, it's a verb, it's something everyone lives and it's a very tightly knit group that's been extraordinarily loyal to the company and have worked very hard on their behalf. There is an article that was published in The New York Times in the first quarter.
If you haven't seen it, you should check it out, it's about Silvercrest. It's linked on the front page of our website under the News section and gets a little look into the culture that we were building at the firm and kind of camaraderie that we have among our people working hard on the business.
And most of these calls are spent going through the numbers and how we've progressed, those are super important, but there are people behind those numbers and if we lose our hedge with regards to culture, the numbers will suffer. So we're really proud of what was done on that front.
My second comment which you'll see in the Annual Letter which I hope you check out have to do with the fact that we definitely will be making new investments behalf of investors to grow the firm. It's time that we start adding more portfolio in management teams potentially intellectual capital with regards to new strategy to complement the high net worth business, of course we've already announced the OCIO initiative.
And as we have grown our capital base and achieved very low levels of debt, it's time to deploy on behalf of shareholders to further grow the company. And so I'm really grateful for our shareholders' support, the initiatives that we've taken and understanding for company of our size what we have to do to continue growing the company in extraordinarily competitive marketplace.
So thank you, because that is a contribution to our success as well. And I look forward to updating every one of the next quarter.
Thanks very much.
Operator
Ladies and gentlemen, thank you for your participation in today conference. This concludes the program.
You may now disconnect.