Silvercrest Asset Management Group Inc. (SAMG) Q1 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Silvercrest Asset Management Group's First Quarter 2019 Earnings Call. [Operator Instructions]. As a reminder, today's conference 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 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 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 Form 10-K for the year ended December 31, 2018, 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. I would now like to turn the call over to Rick Hough, Chairman and CEO of Silvercrest. Sir, you may begin.

Great. Thank you very much and thanks for joining us for the first quarter of 2019 results for Silvercrest Asset Management. After finishing 2018 with record calendar year revenue and following a sustained multiyear period of organic growth, Silvercrest experienced a difficult first quarter of 2019 primarily as a result of revenue recorded after the equity markets' fourth quarter sell-off and negative asset flows. The markets have since rebounded and the firm ended the first quarter of 2019 with $15.3 billion in discretionary assets under management, which is up $1.1 billion during the quarter and $20.8 billion in total assets under management, up $1.8 billion from the end of the fourth quarter. Silvercrest has recently invested in a number of initiatives, which we expect to drive our future growth. During the first quarter of 2019, Silvercrest announced the acquisition of an international equity strategy being incubated at the firm and we have completed integration of that business. More recently, Silvercrest announced one of its most significant acquisitions in the history of the company. We have agreed to acquire substantially all of the assets of Cortina Asset Management LLC, a highly regarded growth investment management firm with nearly $2 billion in institutional assets. We expect to close on that transaction in the third quarter of 2019. We have long sought the right partner to establish an innovative and high-caliber growth equity capability at the firm and this is a good example of how we seek to combine strong intellectual capital within a supportive partnership to benefit our institutional and individual investors alike. We're excited to support Cortina's special talent and enhance our strategies in the marketplace setting the stage for our next phase of growth. Meanwhile, we're seeing substantial institutional interest in Silvercrest's multiple existing value equity strategies, some of which have only recently been produced in the marketplace. The years of 2019 and 2020 will be important for realizing the fruits of Silvercrest's OCIO initiative or outsourced CIO initiative, which is an investment we completed at the end of the third quarter of 2018 building our business development team. Silvercrest also laid the groundwork for future growth in the high net worth business. We've supported the new junior and senior portfolio managers, and we plan to continue building those ranks during 2019. We also have now introduced our value-added family business advisory capability, which helps businesses with succession planning, restructuring, recapitalizations in sales and which in time should help us attract new wealth management opportunities. While the current M&A environment for wealth management firms does remain expensive, Silvercrest continues to actively evaluate selective and prudent acquisitions with culturally compatible firms to complement our organic growth, including the potential to expand into new geographies. Meanwhile, we will seek value on behalf of shareholders where opportunity resides, and we will continue to foster initiatives to organically grow the firm. On April 30, the company's Board of Directors declared a quarterly dividend of $0.15 per share of Class A common stock. That dividend will be paid on or about June 21, 2019, to shareholders of record as of the close of business on June 14, 2019. Scott Gerard will now go over our financials following those introductory remarks, and then I'll be available for questions.

Great. Thanks, Rick. So as disclosed in our earnings release for the first quarter, discretionary AUM as of March 31, 2019, was $15.3 billion and total AUM as of the same date was $20.8 billion. Revenue for the quarter was $22.6 million and reported consolidated net income for the quarter was $3 million. So the revenue for the first quarter represented approximately a 7% decrease over revenue of approximately $24.3 million for the same period last year. This decrease was driven primarily by the market sell-off during the fourth quarter of last year and net client outflows in discretionary AUM. Expenses for the first quarter were $18.6 million, representing approximately a 2% decrease from expenses of $19 million for the same period last year. This decrease is primarily attributable to a decrease in compensation expense of $0.9 million partially offset by an increase in G&A expenses of approximately $0.5 million. Compensation expense decreased primarily because of a decrease in the accrual for bonuses partially offset by increased salary expense as a result of merit-based increases and newly hired staff. The increase in general and administrative expenses during the first quarter as compared to the same period last year was primarily due to increases in portfolio and systems expenses due to an increase in soft dollar-related research costs and an increase in occupancy and related costs as a result of the adoption of the new lease accounting standard effective January 1 of this year. Reported consolidated net income was $3 million for the quarter as compared to $4.1 million in the same period last year. Reported net income attributable to Silvercrest or the Class A shareholders for the first quarter of 2019 was approximately $1.7 million or $0.20 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 $5.8 million or 25.5% of revenue for the quarter compared to $6.9 million or 28.5% of revenue for the same period last year. Adjusted net income, which we define as net income without giving effect to noncore and nonrecurring items and income tax expense, assuming a corporate rate of 26%, was approximately $3.3 million for the quarter or $0.24 per basic adjusted and adjusted 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 had invested restricted stock units and nonqualified stock options to the total shares outstanding to compute diluted adjusted EPS. Looking at the balance sheet. Total assets were approximately $146.5 million as of March 31, 2019. This compared to $133.4 million as of the end of last year. Cash and cash equivalents were approximately $45.5 million at March 31 of this year compared to $69.3 million at the end of last year. As a result of the adoption of the new lease accounting standard that went into effect January 1 of this year, certain lease commitments now appear under the statement of financial condition as operating and finance lease assets and liabilities. As of March 31, 2019, our operating and finance lease assets and liabilities total $36.3 million and $43 million, respectively. Total Class A stockholders' equity was approximately $56.6 million on March 31 of this year. That concludes my remarks. I'll now turn it over to Rick for Q&A.

Great. Thank you very much, Scott. We're available at this time for the questions from our shareholders. Thank you.

[Operator Instructions]. And our first question comes from Sumeet Mody of Sandler O'Neill.

So first one -- I got a few questions, but the first here on Cortina. Just can you talk a little bit about the acquisition? How this [indiscernible] in the franchise? And then secondly, how long was the deal and the works? And talk a little bit about the genesis of the transaction a little bit?

Yes. Absolutely. Well, I'd just start with the simple question. It was in the works for months. I don't even remember when. Sometime in the middle of last year, maybe the beginning of the third quarter, something like that. I could be off by a month or two. You know in a business when you're acquiring the assets of -- that are the result of really good intellectual capital and hard work and a partnership culture and they have a special culture. The due diligence on their side and on ours, it takes a very long period of time if one of the most important things that you both as mutual firms coming together care about, our cultural compatibility and working together in a partnership and kind of understanding how you're going to grow and work together. So it was a long period of time. And I think Silvercrest is going to be -- reason our side. And I know that I can speak on behalf of what will be my new partners. Getting that chemistry right and really understanding the path forward and how we can make something work and feel really confident in each other's skills and build a high level of trust takes time. We've never engaged in pure financial engineering or doing deals merely for the purposes of growing our revenue and showing a good number. What we're doing is trying to implement a long-term strategy. So it took a fair bit of time. And I think from the ploy when we knew we're going to do something together even to being able to announce something took -- probably took 3 months or so, maybe 4. So we were both very, very careful. But it was primarily oriented around understanding who we are, trusting each other, getting to know our cultures and really understanding a vision for growing in the future. So that was your first question. It touched on some important things I think for us and our firm. In terms of our strategy, Silvercrest has long had this wonderful tradition of value equity and core value led by our analysts team here. We've grown the institutional business very substantially over the past few years primarily by bringing small cap to the marketplace and we can talk about it further, but we now have new capabilities in the marketplace that are gaining some traction. And it's been a key differentiator for us to be an asset management firm as you would survive from our name, Silvercrest Asset Management, such as wealth management. We are offering institutional quality capabilities to our high net worth audience, and we're doing so in a conflict-free environment in a way that makes it highly, highly competitive against our open architecture competitors because we're rewarding a double layer of fees. So there's a incredible symbiotic relationship between having the high net worth base business and the balance that provides and being able to argue that our clients are getting institutional quality capabilities and then underwriting and supporting that ability by bringing those institutional capabilities to the marketplace. Well, there are a lot of asset classes, right? There's international, there's growth, there's different kinds of credit, et cetera. And while we don't have to do everything, it's sort of a no-brainer and it has been for a long time that we complement a really high-quality value strategy with a great equity team that's managing growth. And in Cortina, we found them. it took a really long time. It's something that's been on our radar screen for well over a decade, but you had to find the right people at the right time with an appropriate growth vision, and that's what we found in Cortina. The marketplace was also conducive to Silvercrest working with an institutional manager and coming into the fold. If you went back several years ago, someone like Cortina and the high-quality team they have their would naturally, in many cases, have looked to a large bank or a brokerage firm where they could be plugged into products, client shoved into the portfolios and grow that way. Well, with the rise in passive over the past several years with banks and brokerages going through their own issues on how to handle active management with the plethora of product that were overlapping, that was no longer necessarily a winning formula. And for certain firms working in that environment isn't that appealing. And more and more recently over the past couple of years, 3 years, we have been talking to asset management firms in the institutional business about growth or something else. And we reviewed as a much more viable alternative, a partnership culture that was highly supportive, a place where the capability would be unique and a real differentiator and a real needle mover at the firm that they'd be coming to with a sound marketing plan with high-quality institutional contacts among consultants and others. So there was a real opportunity for us, especially at a time that you've seen wealth management firms continue to be quite frothy in the marketplace. And asset managers, if you look at the large -- certainly, if you look at the large publicly traded asset managers, sort of, being discounted by the market and not been taken as seriously as they used to be due to some of the threats in the business, whether it was fee compression or passover or something else. So the stars aligned, we got what we needed and we were very patient and thinking about how we were going to deploy that capital with partners we really, really feel strongly about.

That was really helpful actually, answered a couple of my questions. But another one just as a follow-up. It was a kind of a nicely sized acquisition. I heard you guys talk about not wanting to do acquisition for any kind of financial engineering. But how much of a factor was the size in this transaction? And it was kind of a part of the consideration at the outset? Or...

The real consideration about somebody is the largest in terms of nominal value that Silvercrest has done. And I think probably on a percentage value to the overall value of the company, so size, if anything, gives us a bit of pause, right? That just raises the stakes about what you're doing, and some of what I was referring to before my prior answer is just really being certain that these are the people you want to be long-term partners with. And this is capital that is going to be accretive to shareholders and in a good way and meaningful way if we were to go forward with the deal. So yes, you're looking at the financials and what it means to the company and how it's going to contribute to earnings per share, to EBITDA and general accretion, that goes without say and that's what we've done in the past. But the stakes in terms of just making sure this is right are higher. So if anything, it slows me got a bit. We're excited, sure. Here is a growth management capability we've been looking for. We have a lot of Midwestern clients. That's kind of nice that they're in the Midwest. The intellectual capital can really be anywhere. We happen to like Milwaukee and the people there. We love midwesters. So that's all great. But it was really about making sure we were confident that this would be a benefit to my partners, who're also shareholders, because when you deploy this much capital on behalf of a company that are on our side, you really have to make sure it's right.

Okay. Great. And then maybe more broadly sort of the core Silvercrest, can you provide a little color on the search environment? How pipelines are looking on the institutional side at the moment?

Yes. I'm glad you asked because if you recall at the end of the fourth quarter, when I did that call, I felt that -- so you may recall that the pipeline with the market decline in the fourth quarter, I felt really, really slowed up. I mentioned that in the extended Q&A that we had. And not surprisingly with the market rebound in the first quarter and continuing to date, our pipeline has really blossomed, is the only word I can use. It is substantially higher than it was at quarter end in the fourth quarter on the order of 4 or 5x as much potential in the business as we had at the end of the fourth quarter to give you magnitude. I won't to give you numbers, but that just gives you an idea how much sentiment has changed. What I like -- and by the way that pipeline I always defined here with my marketing colleagues is invite only RFPs, a semifinalist or a finalist candidate to be completed in the next 6 months. So this is very real step. This isn't just us going out with an RFP or blindly answering calls for firms to submit their RFPs where we've been clearly invited or that we're a semifinalist or finalist candidate. Not only has that blossomed with the increase in the markets, but as you know it's the small-cap capability that we first brought to the marketplace. And by the way, with Cortina, that's what we're really going to be working with, I mean, is their small-cap expertise, capacity, constraint product that has some real viability in the marketplace and then we move on from there. We are now in several SMid searches, which, as you know, we've been promoting. That was the next logical thing to do. But what's really heartening is that we have several large cap and equity income searches that are in progress. That is -- that's a really nice indicator to us for a couple of reasons. One is, I have not been shy in talking about the fact that in many respects, while passive has been an incredible boom to retail investors and many others for efficiency in the marketplace that it has a role to play, but that I felt in many respects there have been issues with passive and that active was going to be coming back to the floor. And that I believed it was very important to have extremely high-quality fundamental bottom-up active management. The fact that professional institutional investors are now looking at spaces that used to be considered, something that you would just go to passive for like large cap, is an indicator that we may be right about that thesis. You have to remain humble and question whether you are at all times, maybe even be paranoid a bit about how you're going to grow, especially as competitive space is active. But I'm looking at that phenomenon very carefully because it's a fairly new one. It is a trend we noticed a year ago to 6 months ago, but it's moved substantially in that direction over the most recent quarter.

That's very helpful. And then I guess shifting over to the OCIO business. Can you talk about the progress of the build-out there? And then maybe secondly, just the overall expansion, the effect the expansion is having on kind of managing costs on the comp and non-comp side as well?

Yes. Okay. So let me talk about progress and hiring. We're done with hiring. We made our last hire for that team on the business development side at the very end of the third quarter, I think in the fourth quarter of last year. So that does mean that the comp that we have taken on in order or to support that initiative will have a full year, this year, as only a quarter or 2 depending on who you look at of those hires. A lot of the build-out for the intellectual capital of the nuts and bolts of the team have occurred progressively as their own business grew serving other RIAs with their asset allocation, risk management and manager due diligence work, family offices that had investment, professionals who wanted to hire us, even some large banks have hired us for some work. And so a lot of the build-out of that team was covered by their own revenue coming in. So really didn't hit the P&L in a meaningful way, maybe a little bit on the comp side. The new hires we took on more recently in that business is to come. So is it hitting against comp? However, I will note that we've always talked about a compensation goal at the company for 55% of revenue. We came in under 55% for 2018. Certainly, if the market sell-off had been sustained. There was a potential we could have exceeded that. However, a lot of compensation at the firm is also driven formulaically and is tied to revenue. So that would have come down as well. So on that -- it didn't really touch the P&L remains to be seen this year. I can work it up a bit. I think it's rounding here quite frankly. We were basically adding 1.5% since we last talked. And in terms of hard costs. There really hasn't been much in the way to speak of there. The systems, research is required to manage our high net worth business. It's a share full of capital, not unlike when our high net worth client need access to use our equity capabilities, there's a set cost for providing that. So again, not really a noticeable cost on that side. In general, there's been a trend that have to pay more hard dollars for research. There are regulatory issues that are more expensive. Regardless of whether we have OCIO or not that's just a reality for even our equity capabilities at the firm. So 2019 and '20 are going to be very important for whether that growth initiative is going to show results. And the nice thing about it, there's some pretty good leverage associated with it because of the cost basis. And if it doesn't work, well, we'll move on. We still need a lot of the intellectual capability and work for the high net worth audience, it's already here and that we're paying for. And there's already an embedded business serving other institutions. It's just not strictly OCIO. OCIO, if you will, is additional growth on top of the infrastructure we have.

Okay. Great. And then just last one for me. Can you explain a little bit about the family business advisory capability you discussed in the prepared remarks and in the press release?

Yes. I just wanted to highlight it because it is important that we continue to focus on growing the high net worth business organically. The RIA business at large is fast-growing. But if you look at individual firms -- individual RIAs working with wealth management clients at the company level, after they've started maybe a breakaway broker or kind of banker has started new firm, after a few years, the organic growth really slows. And I would argue that the average firm is probably close to being just under 2% organic growth. And we've done a pretty good job of exceeding that at the firm. But we have to continue recruiting portfolio managers, which I also mentioned in my introductory remarks, which we are going to do. We added a new portfolio manager at the end of the third quarter, beginning of the fourth quarter last year. I see myself adding more this year who can bring business to the firm. But you also need to be able to get in front of clients who have any number of barriers in front of them and it's a relationship and referral business. So we hired a gentleman to provide the services you just mentioned, succession planning, recapitalizations, sales, a family business and what have you as a fiduciary on their side of the table. And the revenue from those activities will support his efforts here. Just to be clear, I don't expect the revenue from that activity at the firm to be a big needle mover. It really is about having a value-added services as part of our family office offering, either to existing clients who have illiquid wealth in those situations or to new families that would be highly desirable for us, Sumee, and which would help grow new high net worth assets and revenue. So it's the secondary and ancillary effects of having that service that I'm primarily interested in.

And our following question comes from Arnie Ursaner [ph] of Private Investor.

A couple of quick questions. Your 2019 CapEx expenditure and DNA expenditure level, please, 2019?

I'm sorry. Say that again.

Your 2019 CapEx and DNA levels for 2019, please?

Yes. So our CapEx for this year, we have renovations going on in our corporate headquarter. So we'll have a higher-than-normal level of CapEx this year as we've build-out those leasehold improvements. As a result of that, our depreciation and amortization will go up as well as those are advertised over the balance of our lease, which is for another roughly 8 years left on our lease here in New York.

Okay. You don't have the level -- a specific level of CapEx in 2019?

No. Not a specific level. It's fluid now as we're going through the construction.

Okay. Most of my questions on OCIO were answered. But could you comment at the end of 2019, assuming it meets your expectations, how its margins would compare with your core business?

Its margins are a little better than the core business because those relationships are institutional when you're dealing with endowments and foundations. There's a lot more leverage like you would find with an equity team. So as that grows, we would expect it to be additive to either EBITDA or earnings margins. But as we've said, we've just built out the team. It's quasi relationship oriented, so you do need a little more personnel than you do in a pure equity management institutional relationship. So it kind of resides on a margin basis in between high net worth and pure institutional business. Pure institutional business, as you know, can have extremely high margins. High net worth business, depending on the complexity of the case, can be anywhere from the mid- to high teens to -- at least a lot of firms I looked at to the low to mid-20s. Obviously, we're pushed up a bit higher because of our own institutional business. But on the margin basis, to answer your question, it's a little bit more expansive.

Okay. On the Cortina acquisition, do you have either any performance-based compensation criteria built into the agreement? And will they be getting any shares versus cash?

Yes. They will. So the answer to your first question, there is performance criteria in the compensation. They had a very compelling compensation schedule at their firm prior to our combination that balanced growth in the business along with performance. In fact, I would say, there's a priority price on performance at that firm. It was highly compatible with our own compensation schedules at this firm. So we left them unchanged. We thought they were compelling and has the Cortina team with a lot of skin in the game in terms of being motivated to continue to outperform. With regards to cash and stock. Cash is primarily being used to buy out minority shareholders or others who are leaving the firm in time. Stock is more heavily weighted or exclusively weighted, I should say, to the ongoing professionals at the firm, who're responsible for their very good track record. In the earn-out periods, which rewards them in the purchase agreement that has been filed publicly, there's a mix of cash and stock. Again, to the extent the outside shareholders are participating in that, they'll be getting the cash and our new partners will be more heavily weighted towards stock. Stock ownership is very important at this firm. It makes us partners. It helps us all keep a long-term view and have skin in the game with regards to growth of the business.

Great. My final question relates to your core institutional business. When you look back at the end of the year and you look forward, what are the common characteristics of the assets that you're winning? And what are the common characteristics of the assets that are leaving you?

So we've had very, very few lost institutional business. We did lose an account in the fourth quarter, the nature of that was due to a merger. It was an organization that merged with another one and have a different process and stable managers for its true portfolio. Lost assets in general over the past few years, which I commented on, on prior calls, have primarily been for rebalancing purposes. We have not lost institutional business to speak of, so there isn't much to characterize. Rebalancing is just a matter of the asset allocation work that those institutions are undertaking and as our capabilities outperform or otherwise rise beyond levels they're comfortable with, they take some of the winnings off the table. That's a high-class problem to have. With those that we are winning, what we tend to have are very high-quality consultant relationships. They are a wide variety of types of institutions from pension funds to endowments to pools of assets that can grow because they're part of the same insurance company vehicle. Health care has been a significant one for us. But in general, it's been done through the consultants and they span the different types of institutions that you can think of. Our largest, I think, as publicly known is Callisters. We have just a very wide variety. I think the key thing to look at is that we're working with intermediaries that we would consider partners and that they would as well. There's also the fact that Silvercrest is on the earnings platform with its small-cap ability and SMid-cap capability, that's been driving very meaningful flows to the business. Obviously, we seek to introduce other capabilities to that long-standing relationship.

[Operator Instructions]. And our next question comes from Brian Rohman with Boston Partners.

Bunch of questions. The decline sequentially in cash on the balance sheet, what's the reason for that?

So we pay out our annual compensation primarily in the month of February.

Got it. That makes perfect sense.

Yes. Right. And so that will build up substantially until next spring, right? So you always have to normalize our cash for that.

Sure. That's what I thought. The Cortina acquisition. I'm sorry, I haven't seen the documents you filed on the purchase agreement. Have you disclosed the price, the breakdown between cash and stock? Anything about their profitability, their margins? I think that I looked on their website, their AUM was about $2.1 billion or some number like that. So what can you tell me at this point?

Yes. Absolutely. So in the purchase agreement, there is nominal pricing on the deal and a mention of their pro forma run rate. We have not disclosed expected EBITDA or accretion or earnings. We are undergoing a consent process currently. And we will be filing pro formas on the deal once we have closed, which will be targeted in July, which gives us half a year of their revenue contribution as well as EBITDA and any other accretion that may occur to earnings, I think.

So you've disclosed the top -- the price that you're paying?

Yes. Yes.

I'm sorry. I missed it. What was it? Was that a $40 million?

Yes. Right. Yes.

Yes. At closing. Right.

At closing. That's correct.

And is there any back end to that price? Is there a piece that could be paid at a later date based on performance?

There are two pieces. Secondly, there's a piece paid in year two to get up to the upfront cost. And then, there's an earn-out, which is paid out over the next few years, which is entirely dependent upon achieving growth.

And that's been disclosed?

That is also disclosed. Yes.

Okay. So upfront $40 million, something in year two, something after a certain amount of years?

Yes. That's exactly right.

Okay. Did I get -- I think I got the $2.1 billion off of their website. Is that number close enough?

Close enough. It sounds a little high, but, yes, close enough.

Fine. I thought -- yes, $2.1 billion was -- okay.

I spoke in round numbers of $2 billion. It's going to be high billions to low 2s. But again, we're not combining until July, who knows what happens until then, right?

Sure. Your guess is as good as mine.

When you know, let me know, Brian.

Yes. After I've invested for myself. Sure. And then I will let you know.

Okay.

And any comment about the EBITDA margins? And just it's really above industry, in line -- let me just ask, are their EBITDA margins what you would consider in line?

I think their EBITDA margins are very good for an institutional asset management firm. I think it has been a very, very prudently well-run company that has historically had high EBITDA margins. I'll leave it at that.

Okay. Have you given the breakdown between cash and stock?

I'm trying to think if we have. Scott, you know, if we...

At closing, it's 80% cash, 20% stock.

Okay. So this is going to use up a big chunk of the cash sitting on the income -- on the balance sheet?

It will use a fair bit. We're also -- we're doing some other things. So -- but, yes, it will use a fair bit of cash.

So the cash balance -- I think your cash balance should after closing, will basically be the third quarter earnings report, drop a healthy amount?

Yes. We'll have a meaningful cash outflow at closing and then, of course, even without Cortina we're also building up cash and then what's there more it will have cash contribution from their earnings as well.

And finally, Brian -- And Brian, of note, I think it's important just to note that Silvercrest currently has zero debt.

Yes. Okay. Last couple of questions. EBITDA margin in the quarter -- adjusted EBITDA margin was 25%. Fourth quarter, it was 34.6%. All of last year, it was 30%. What's a good number for 2019 without going too deep into projections?

I think I'm going to get pretty into projections to give you a 2019, so I'm going to take a pass on that. Let me just give you some color though. Because I do think it's helpful and it's something I've talked about in the past. I think when we're running really well on all cylinders, we're going to be hovering around that 30% margin point. Of course, that's ex Cortina, that's as the company stands now. And dependent upon where we are in an investment cycle on behalf of personnel in the business, since I can't write-off the hiring someone, it's a direct hit against EBITDA on our earnings, right? It's not like an acquisition, right? People are not machines. There's not a CapEx thing that I can do. So to the extent I invest in the business or do new things while we try to grow. I'm going to hit EBITDA and if possible we can cycle down as well as 22%, 24% at times when we've done that. And if you look at history of the company, going back over the past several years, we've definitely done that and then grown through it. I think a good number in a steady state once you've done that is around that 30% number. And then if some right things hit, like some of the fees we received in the fourth quarter for good performance, you can exceed it as we did. But that's going to be gravy on top. I think it will expand with good institutional business given the high margins in that business. The decline to 25% that you're looking at now is really just a factor primarily of 1 quarter of fixed costs against a decline in revenue primarily due to the markets. So with regards to 2019, look, if you think about it, half the year is pretty much baked in because of March 31 being behind us. The good equity markets in March, the new business we see coming along should push us back towards that 30% number over the course of the year, whether it happens for 2019 or is on a rolling 1 year period, if, all things being equal, things remain where they are is something I can't predict. Again, we go back to the question of you investing your money in the market and then you telling me how it's going to do.

Yes. No, we'll discuss that off-line. That's the easy stuff to talk about.

Yes. I hope that gives you the color you wanted.

Yes. It does. The last question is about fees. I did not do the calculation of average fees on the asset management business here. What was a -- are you feeling pressure? I guess, Cortina is a higher fee, lower average fee. We're asking -- mostly asking about direction here?

Yes. No. Nothing to comment on with regards to direction. The change in fees against discretionary assets did come down over the course of 2019. But it wasn't because of the -- of changing your fees for existing clients or lowering of fees of new clients, it is primarily...

Rick, I just want to -- I want to clarify something you just said. It came down over the course of and then you said 2019, did you mean '18?

Oh, I said '18. I'm so sorry. I was looking at the sheet data of '19, but yes. But that was primarily a factor of equity selling off which we see the higher fees and fixed income. So our balance, when you look at your discretionary assets, your fee comes down. It was not a matter of additional fee pressure having to win new business at lower fees or renegotiating fees on behalf of clients. So I don't -- it came down for those reasons, so I want to be clear and straightforward about that, but not for any other business considerations or long-term trends. We are hanging in with our fees where they have been for the -- gosh, a decade or more.

Thank you. And I'm showing no further questions at this time. I would now like to turn the call back to your speakers for closing remarks.

Right. Thank you very much. I appreciate the questions and the time you spent with us to review the first quarter of 2019. As you can tell, we're quite enthusiastic about our new partners at Cortina joining the firm at hopefully the beginning of the third quarter or somewhere around then of this year as well as the other growth initiatives we're undertaking, whether it is now trying to aggressively drive the OCIO business, the new opportunities we have for institutional business, either with Cortina or our existing value equity team, and the hiring of additional portfolio managers to help us with high net worth organic growth. Thank you, again, for your time, and we look forward to speaking next quarter. Thanks.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.