Good morning, and welcome to the Silvercrest Asset Management Group, Inc. Second Quarter 2022 Earnings Conference Call. All 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 provided by the Litigation Reform Act of 1995. 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 Mr. Rick Hough, Chairman and CEO of Silvercrest. Please go ahead.

Thanks. Good morning, everyone. Welcome to our second quarter of 2022 results and earnings call. Volatile economic and marketing conditions primarily affected Silvercrest's performance in the second quarter of 2022. The firm also experienced net outflows due to substantial client tax payments. The firm's discretionary assets in the management which drives our revenue decreased to $20.4 billion as of the end of the second quarter of 2022 from $22.9 billion as of the end of the same period last year 2021. The firm's second quarter 2022 revenue decreased year-over-year to $32.2 million and our total AUM now stands at $28.7 billion The firm's quarterly adjusted EBITDA was approximately $9.2 million and annualized adjusted EBITDA run rate of $36.7 million. Silvercrest's second quarter 2022 adjusted EBITDA margin was 28.5%, a healthy margin in light of declining AUM and associated revenue. Silvercrest increased relationships during the second quarter and new accounts increased over the first quarter, partially offsetting outflows for client tax payments. Silvercrest's institutional equity new business opportunities increased during the second quarter. Our suite of proprietary equity capabilities continued solid outperformance, which pretends good future growth in the business. Our sub advisory relationships continued to add assets during the second quarter of 2022. Market volatility and uncertainty create long-term opportunities that typically benefit the high quality of Silvercrest capabilities and we look forward to more stable markets. Our tenure in the business has proven that our firm has the professional resources, ability and strategy to execute through difficult periods to build a growing and enduring business. We're pleased with Silvercrest's continued stable progress over time. On July 27, 2022, Board of Directors declared a quarterly dividend of $0.18 per share of Class A common stock that dividend will be paid on or about September 23, 2022 to shareholders of record as of the close of business on September 16, 2022, that was an increase of $0.01 over our previous dividend. I'll now turn it over to Scott and then, we'll take questions following his presentation. Scott?

Thanks, Rick. As disclosed in our earnings release for the second quarter, discretionary AUM as of June 30 of this year was $20.4 billion and total AUM as of June 30 of this year was $28.7 billion. Revenue for the quarter was $32.1 million and reported consolidated net income for the quarter was $9.5 million. Looking further at the quarter, again, revenue was $32.2 million, representing approximately a 3% decrease over revenue of approximately $33.1 million for the same period last year. This decrease was driven primarily by market depreciation and net client outflows in discretionary AUM. Expenses for the second quarter were $20.2 million, representing approximately a 21% decrease from expenses of $25.8 million for the same period last year. This decrease is primarily attributable to decreases in compensation and benefits expense of $0.5 million and general and administrative expenses of $5 million. The compensation and benefits decreased by $0.5 million or approximately 3% to $18 million for the three months ended June 30 of this year from $18.5 million for the three months ended June 30, 2021. The decrease was primarily attributable to a decrease in the accrual for bonuses, partially offset by an increase in salaries and benefits expense as a result of merit-based increases in newly hired staff. General and administrative expenses decreased by $5 million to $2.3 million for the three months ended June 30 of this year from $7.3 million for the three months ended June 30, 2021. This was primarily attributable to decreases in the fair value adjustment to their contingent consideration related to the Cortina Acquisition of $5.7 million. Trade errors and occupancy and related costs, partially offset by increases in travel and entertainment expense, portfolio and systems expense, professional fees, and shareholder related expenses. Reported consolidated net income was $9.5 million…

Thanks, Scott.

We will now begin the question-and-answer session. Our first question comes from Sumeet Mody from Piper Sandler. Please go ahead.

Thanks. Good morning, Rick and Scott.

Good morning.

Just wanted to start maybe on the net cash outflow number of nearly $1 billion in the discretionary AUM. We probably don't see that high of outflows that were tax related. So maybe just help break down that number into its parts, how much was taxes versus outflows?

Sure. So the vast majority of it was -- the vast majority of it was in terms of the impact on the business was for taxes. Due to client sensitivity, I want to be careful, but there were liquidity events that prompted taxes for some key clients that resulted in very high payments. That's a good thing, ultimately for them, even if we don't like paying the tax man. I would say in general, the outflows were kind of in line with what we've seen historically over quarters. It's a bumpy number as you well know. I would also comment that our second quarter tax outflows have been quite low in recent years. We don't have a lot of turnover in our portfolios and unless a client has other capital gains and liquidity events. You're not going to see a big bump in that. But not surprisingly, if someone has liquidity from a business or event, they're going to pay big taxes. In addition, as I mentioned in last quarter, we've had years of good capital gains and it's not surprising. At some point, you're going to see tax payments related to that. So can't give a lot more color than that other than the majority of the outflows were in fact for taxes.

Okay. Great. That's actually really helpful. And then, I guess turning more on a high level basis to capital returns and the repurchase program. Just wondering, how are you guys thinking about using that lever now that we're sort of a year-end program?

Yeah.

Especially over the next 12 to 18 months.

Yeah. I really appreciate you are asking that. Obviously, with the market downturns and the relative health of the business high maintained margins, I'm sure we'll talk more about that. We were -- we've done quite well compared to markets overall. If you look at our, if you look at our AUM, which of course, declined with the markets, but we feel really good about it on a relative basis, especially with maintaining our margins. This is a very healthy business. What we're experiencing is just comes with the territory of being in the markets and in this business. But with the downturn, of course, our own equity has become cheaper and to me represents a really good value. So yes, you should be looking for us to deploy it. We've been frustrated with getting those buybacks done, but we're going to see to it. I have said this before, but I want to emphasize it. I don't like announcing a buyback as a press release. I actually want to do it. So stay tuned on that.

Okay, great. And actually that kind of leads me into my next question. I guess we'll start on the margin questions, but really just wanted to maybe get a step back at a high level thought on sort of how flexible the expense side of the equation is here? Where are you guys at with T&E and the non-comp side and how does that translate to margin going forward, especially with sort of revenue, headwinds that we're seeing? Can we potentially be below that range of like 27 to 30 that you guys like to run at over the next couple of quarter?

Well, just I'll start with the end of your statement, which is 27 to 30 that we'd like to run at, which you mentioned. I've said before that when we're up in that higher end, and I would include what we are right now even that I need to be reinvesting the business and I wouldn't mind hitting that to make a key hires or build our intellectual capital for future growth. So I could be hitting margins for those purposes. And of course, I'll be clear about that. Obviously, the margin compression that we've seen over the last quarter or a couple of quarters is solely due to decline in the top line, and then translating into some of our fixed expenses. That's the first thing. Second of all, in the second quarter, we had higher G&A than we normally do because of our 20th anniversary celebration. It was a much more expensive affair than we would normally have in any given year that sort of thing only happens every five years or so, 20th is a big one. So that expense was in that quarter and so we're going to see a bounce back to little better margins just based on that alone when we look forward in other quarters. Fixed expenses otherwise are pretty low for business like this. And one reason, we maintain margins is because our total compensation comes down with revenues overall. So we feel very good not just maintaining this margin, but if I were not to invest in the business, hire more people, which I'd like to do. And nothing changed with AUM, I would expect our margin actually to go up from this level.

Yeah, Sumeet. I’ll just touch on T&E. So yeah, the second quarter, as Rick mentioned, was somewhat high data. If you discount that, T&E levels are not running at levels historically prior to the pandemic, but they are starting to creep up. And I think we've talked about in the past that we would expect that expense to start progressing toward more normalized levels. But the second quarter as Rick mentioned, didn't represent a normalized level.

With regards to the T&E, it climbing obviously not to quite the level that when you have a 20th party, but it climbing in general is a good thing. Given where we've been with the pandemic. It's tightly related to business development.

Okay. Great. Thanks guys. I'll hop back in the queue.

Thanks.

The next question comes from Christopher Marinac from Janney Montgomery Scott. Please go ahead.

Hey. Thanks. Good morning, Rick and good morning, Scott.

Good morning.

I wanted to ask about the success on expenses this quarter. Was any of that surprise to you and do you think that could continue even just as you look ahead in the next few quarters?

Chris, are you referring to the GAAP numbers with respect to expenses?

Yes.

Okay. Yeah. So the reason, I ask is because year-over-year we had a $5.7 million reduction to expense due to the fair valuation of the Cortina earn out. So that's something for adjusted EBITDA purposes that we adjust out because it's a non-cash fair value adjustment and you may recall, we mark-to-market that liability at the end of every quarter. So there's -- it can be quite lumpy. Just so happens with declining markets, the fair valuation went down. So we have a large decrease to that liability and that is incrementally inflates operating income right because of the reduction in expense.

Got you. Okay. Fair enough. Thanks for clarifying that, Scott. And then I guess just a general question about the EBITDA margin. Should we still see some seasonality come fourth quarter as we look ahead to year end?

Yes, very clearly. Everything gets trued up in the fourth quarter, sometimes that works in a very, very positive direction as it did in the fourth quarter of 2021, very significant change. Some years, there's no adjustment, some years there is adjustment the other way. We've never had a really big hit there, but because we're pretty good at running the business, the ratios we'd like to. But in general, that's a true up quarter. In addition, we neither budget for nor a no what we might be getting in terms of incentive fees and that too can be pretty sizable.

Got it. And then last question for me is just an update on the OCIO business and kind of your outlook there plus any of the international kind of initiatives you were working on ?

Yes. So the OCIO business, you may recall me mentioning was falling below $1 billion with the declining markets. We had hit that benchmark and had to schedule last year, which was an important one to us. Interestingly, we're now back to about $1 billion in the OCIO business. So that's good news. The pipeline in that business looks quite good. I'd say with the actionable pipeline for the OCIO business is somewhere around $750 million. And it's very competitive, but our performance on manager selection and asset allocation remains very strong and competitive. We're in just the right-size of institution that we're looking for that is both relationship heavy but also underserved. And yeah, we feel good about that. The team is strong and we're just plugging away.

Thank you, fellas. I appreciate it.

You're welcome.

Thanks.

Our next question comes from Sandy Mehta from Evaluate Research. Please go ahead.

Good morning, Sandy.

Yes. Good morning, Rick and Scott. You had slight outflows in the discretionary AUM, but there was large inflows in the non-discretionary AUM and what drove that?

We also -- so that was in part related to growth in a new family relationship. Relationships did grow and those were largely non-discretionary assets. We also had some clients with liquidity events. You could see some of that on the tax side, some of those are in non-discretionary assets. Those assets as you know are not generally on a fee basis. Some of them are, but they tend to be very low, and much of it is project or fee for services, not necessarily linked directly to AUM. But that's what drove those numbers.

All right. And you talked about the OCIO pipeline. Any comments on the institutional pipeline or non-OCIO payout?

Sure. The actionable pipeline for U.S. value growth international and OCIO altogether actually grew from the end of the first quarter to this quarter. I think last quarter, it was $1.58 billion or so. The total pipeline is now $1.71 billion, so a nice pick-up there in that pipeline. I mentioned that $700 million plus, $750 million of that is OCIO. So just call it about $1 billion in the institutional equity pipeline. And we measure that as invite only RFPs or I should say a possible mandates -- invite only mandate semi-finals and finals. So it's a real pipeline with great possibilities.

Great. Thank you.

You're welcome.

Our next question comes from Chris Sakai from Singular Research. Please go ahead.

Good morning, Chris.

Hi. Good morning, Rick. Just I had a question on possible acquisition opportunities out there. What are you seeing? Are there any good deals?

That market is improving as you would expect with the increase in interest rates, as that markets have become more volatile and people got their fingers burned. I’ve seen folks scrutinizing the deals that they're doing a little bit more, which is all very helpful. It hasn't materially changed yet. I've often commented that this kind of environment could shape some things out. And make for what I think are more rational allocations of capital in terms of these businesses, given what the reality of how they look in terms of organic growth and maturity, et cetera. I'm starting to see a change. I haven't seen it entirely yet. On the other hand, I am starting to look at a few more opportunities.

Okay. Thanks for that. And could you comment on, your company is hiring? How are things there? Is it hard to find new hire, new portfolio managers?

It is hard. It's not only hard. It's extremely hard to find folks, who are going to be a good cultural fit and help you organically grow the business and we're very particular about that. One reason that firm has been successful over 20 years and that we've had such a steady execution of strategy is a very tight team of culturally compatible people who share similar principles in building this business. Talent acquisition is one of the hardest things that any company can do, especially when your services business and the capital we have are the great people who work here. We take it very seriously. It's always been that way. So I would not say, it's any harder than it ever has been. And I personally, I am very aggressive at talking to any number of people. As you also know, we've made some hires over the past few years whether that's in the OCIO business, talent acquisition includes M&A, the Cortina deal brought in some really great talent almost three years ago. On the Portfolio Manager side, I think we've hired at different stages of degreasers. I'm going to round four or five people over the past three, four years just before COVID. Obviously, that's been difficult for them to go right into COVID with us, but they're doing well. And I'm looking very closely at some new potential hires because that is one way that you not only further the business organically, but prudently transition business over time to build a sustainable firm.

Okay. All right. Great. Thanks.

You're welcome.

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Rick Hough for any closing remarks.

Thanks very much for joining us for our second quarter results, really appreciate it. No one likes volatile markets, but it's part of our business and we feel pretty pleased with how we've maintained margins, have done relatively well in our top line versus what it could be given the extend of the market downturn and we feel like our pipelines and business opportunities are pretty solid. We're used to working in these environments and in fact, it could provide a good opportunity for us for future growth, given the high quality and focus on both risk management and preservation of capital that we have at this firm on behalf of our clients. Thanks so much and look forward to talking to you soon.

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.