Silvercrest Asset Management Group Inc. (SAMG) Q1 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to the Silvercrest Asset Management Group Inc. Q1 2026 Earnings Conference Call. [Operator Instructions] 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 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 protection provided by the Litigation Reform Act of 1995. All forward-looking statements made in this call are as of the date hereof, and Silvercrest assumes no obligation to update them. I now would like to turn the conference over to Rick Hough, Chairman and CEO of Silvercrest. Please go ahead.

Thank you, and thanks for joining us for this conference call for the first quarter of 2026. Silvercrest entered its 25th year in business at the beginning of the second quarter with clear strategic momentum, even as our first quarter results reflected near-term headwinds as we have anticipated and communicated. Discretionary assets under management, which primarily drives the firm's revenue, decreased 3.7% to $23.1 billion at March 31, 2026, from $24 billion as of December 31, primarily attributable to net institutional outflows. Organic new client account flows into the firm were $81 million for the first quarter, primarily from high net worth investors. Year-over-year, discretionary AUM grew nearly 2% from $22.7 billion as of the end of March last year. Year-over-year, total AUM grew 1.1% to $35.7 billion, up from $35.3 billion as of March 31, 2025. Nondiscretionary AUM are associated with a very small portion of our overall revenue and can substantially change with little revenue effect. As we have previously announced, we will adjust how the firm reports nondiscretionary AUM in the future quarter, which will substantially lower reported nondiscretionary AUM on a onetime basis without any revenue effect, providing investors with a clearer picture of the AUM and economics that drive our business. As we conveyed in our annual report throughout 2025, Silvercrest has embarked on the most significant investment program in its history to build a more enduring and globally capable firm for our next 25 years. We began these investments in earnest about 1.5 years ago, and it takes time for those investments, primarily intellectual capital and headcount to bear fruit. Our earnings and adjusted EBITDA continue to reflect the deliberate cost of this program. We continue to execute on our strategic priorities in the first quarter, and we are fully committed to its rationale and we'll continue to be transparent about the effect on our financial results. Our new business pipeline remains particularly robust with regards to the firm's global and international equity strategies, bolstered by exceptional investment performance across the board. The firm continues to generate strong interest from institutional consultants and allocators globally, and our primary institutional objective for 2026 is to convert that pipeline into consultant approvals and funded mandates. We have reorganized our international business development effort and now have professionals in London and Australia dedicated to the effort. Our Dublin office is on track to open later in 2026 following expected Bank of Ireland regulatory approval and which will allow us to proactively market our capabilities in Europe. We have created investment trust in both Ireland and Australia together materially expanding our distribution opportunity across Europe and Oceania. These milestones represent the culmination of a multiyear build that we expect to contribute meaningfully to positive flows in 2026 and beyond. Finally, we opened our Atlanta and Singapore offices during the first quarter of 2026 and are beginning to see business development as a result. The firm continues to invest in talent across the organization and to execute on next-generation portfolio management transitions designed to protect our investment process and preserve our culture as well as deepen the bench for the years ahead. These transitions are deliberate and central to our long-term competitive positioning as we approach our 25th anniversary in 2027. As previously discussed, Silvercrest will continue to adjust our compensation ratio to match compelling opportunities to organically grow the firm and build return on invested capital. With significant initiatives underway for marketing and distribution in Europe, Oceania and Asia as well as in U.S.-based personnel, our compensation ratio remains elevated. Total compensation and benefits expense was $21.1 million, representing 67.2% of revenue for the 3 months ended March 31, 2026, compared to $18.9 million or 60.2% of revenue for the same period of the prior year. We expect the compensation ratio to remain elevated as these investments mature and begin contributing to revenue growth. Our balance sheet continues to support our strategic growth initiatives and our ongoing commitment to capital returns to shareholders. On May 6, 2026, 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 June 19 to stockholders of record as of the close of business on June 12. With that, I'll turn things over to Scott Gerard, our CFO, to discuss the financial results, and then we will take questions. Scott?

Thank you. So as disclosed in our earnings release for the first quarter, again, discretionary AUM as of March 31, 2026, was $23.1 billion, and total AUM as of the same period was $35.7 billion. Revenue for the quarter was $31.4 million, and reported consolidated net income for the quarter was $0.5 million. Revenue basically remained flat for the quarter compared to the first quarter of 2025. Expenses for the quarter increased year-over-year by $3.6 million or 13.5%, primarily driven by increased compensation and benefits expense and general and administrative expenses. Compensation and benefits expense for the quarter increased year-over-year by $2.3 million or 12%, primarily due to increases in salaries and benefits expense, primarily as a result of merit-based increases and new hires, including new staff in Ireland and an increase in the accrual for bonuses. General and administrative expenses increased by $1.3 million or approximately 17.3%, primarily due to increases in professional fees, occupancy and travel and entertainment expenses. Reported net income attributable to Silvercrest or to Class A shareholders for the first quarter was approximately $0.2 million or $0.03 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 $3.7 million or 11.8% of revenue for the quarter. 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 $1.5 million for the quarter or $0.13 and $0.12 per adjusted basic and diluted EPS, respectively. 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 had unvested restricted stock units and nonqualified stock options to the total shares outstanding to compute diluted adjusted EPS. On the balance sheet, total assets were approximately $133 million as of the end of March of this year compared to $166.6 million as of the end of last year. Cash and cash equivalents were approximately $11.6 million as of March 31 of this year compared to $44.1 million at the end of last year. Borrowings totaled approximately $10 million as of the end of the first quarter. Total Class A stockholders' equity was approximately $46.9 million at the end of the first quarter. During the first quarter of this year, we repurchased Class A shares totaling approximately $1.9 million, which represented the completion of our previously announced $25 million stock repurchase plan. That concludes my remarks, and we'll go into Q&A.

[Operator Instructions] And the first question comes from Sandy Mehta with Evaluate Research.

Yes. The global strategy, you mentioned that you're quite optimistic on that. Could you possibly give some more color on inflows in the pipeline? What sort of inflows you might see this year for the balance of this year?

Yes. So let me just start by saying not just the global value strategy, but our global strategy as well as emerging markets and international strategies all have outstanding top-tier, well beyond top quartile performance, which, of course, all consultants and institutions can see in the available databases, and that is proving to be a sustainable record. And so that bodes very well for potential inflows, especially as some of our competitor active managers have had some difficulties in that area. It takes a long time to see fruition of inflows. Sandy, you have to introduce the capabilities to the consultants. They have to do their homework. They want to watch it, get to know the team and institution. Just to give you one example, an extremely large allocator has had, I think, 7 or 8 meetings with the team, including here in New York as well as elsewhere. The strategies are being rated by the large consultants. That is absolutely necessary in order to make those strategies acceptable to those allocators. That is a near-term project and should be completed very shortly. So that makes me optimistic about flows this year. And then finally, we completed our trusts in both Europe and Australia, which took quite a significant amount of time. And those will be rated as soon as we have regulatory approval from the Bank of Ireland, we can start distributing that trust in Europe. Our trust in Australia is up and running and is looking to be rated. And we would expect inflows from both investors that handle monies for high net worth investors or at least retail asset management as well as from the larger institutions. Now what does that mean for 2026? I can't firmly tell you. We're working on how to measure this pipeline because it's either a lot of money or 0 money in terms of a decision-making, right? And quite binary. But I can tell you that the pipeline we're looking at is in the billions of dollars. The issue with giving you that number, that is the high potential right now. But the expected return out of that is a little bit unknown since we are newly entered into the field with these capabilities. I remain highly optimistic to show progress in both AUM and revenue as a result, but I'm having a little difficulty, to be honest, with timing. So that's about as far as I can go comfortably to give you some idea about what we're trying to measure and where we are with the process.

Okay. Small-cap stocks in the U.S. are doing better this year. So are you seeing some more interest from a marketing perspective in small-cap strategies, growth and value?

Yes. So I think that -- and our small cap did quite well since September of last year, which is when small caps rallied. There has been performance issues because we are a higher quality manager. We have had some performance lagging, as you would expect, like most higher-quality active managers or active managers in general, given what has been performing in the marketplace. I think the improved performance of small cap has helped us preserve some AUM rather than necessarily attracting new AUM at this point. I think we have to show some sustained better performance as well as get through what we have been very clear about a transitionary period between the senior managers on those capabilities. As I have mentioned in prior calls and in our annual update that part of the investments that we're making across the firm have been to make sure that we have clear succession planning for our capabilities, which we have been executing over the past 1.5 years or so.

It was great -- it's great to see the share count down 15% year-over-year. And I think it was mentioned that the prior authorization has been completed. What are your thoughts on further buybacks, please?

Yes. So I will -- I appreciate that. I will mention that we have been and remain committed to returning capital to shareholders, whether that is through our dividend, which remains quite high or through buybacks, of which we have done approximately $87 million over the past 5 years. If you look at our shareholder yield, which would be buybacks plus dividends relative to the market cap, it was 23% for 2025, maybe even a touch over. 21% or so on a fully diluted basis. So it does reflect the aggressive share repurchase that you just mentioned. We have repurchased out of that $52 million Class A shares over the past 5 years. And the current yield is, I think, about 10.5%, maybe on a fully diluted basis, closer to 10%, maybe just over 9.5%. And the current yield is 6.1%, which we've continued to grow. The reason I give those statistics is, one, we have a record of this. I think people should be well apprised of it. Given the small cap nature of our stock and where we are in the investment cycle, I think it's really important as a leader of the firm to pay investors to own our shares and to see a regular return via either buybacks or -- and accretion or through that nice dividend yield. We're at a low in cash right now, Sandy, because we just completed our bonus compensation payments, and now we're building cash up through the next year. As of year-end, to give you an idea where that stood before bonuses, I think it was about $44 million. It's probably down to about $11 million now. We've taken on some debt. We just thought that was prudent to have that facility being used and capable here for working capital as we make these investments. However, our cash flow even though we have cut into it quite heavily over the past 1.5 years. And our facilities all mean that we can support both our ongoing growth initiatives as well as capital returns. I'm likely to take a slight pause with regards to capital returns right now as we wait for some of these investments to show progress and come to fruition. But it is high on our mind, something that we think is fundamentally important for shareholders, which is why I gave you the history and wanted to reemphasize my commitment to it as we make progress.

[Operator Instructions] And the next question comes from Jim Marrone with Singular.

Yes. My question is just with regards to the increase in the expenses, given that the revenue is flat and it kind of put pressure on your profit margin. So can you shed some light -- yes -- can you just shed some light with how much of that is just attributed to increased value of the equity markets? And given that the equity markets continue to churn at a high in the second quarter. Can we expect the same kind of pressure with regards to expenses and on the margin in the next quarter?

Yes. Right. So the tailwinds for the equity markets with regards to our AUM were pretty significant for 2024 and 2025. I would even say '23 through '25. It was a definite negative, as you might expect in 2022 for us. That is increasingly attenuated in part because of where we are exposed in the market. You have to keep in mind, we're a diversified wealth management firm, 70% of our assets are going to be invested in a way that's quite balanced and not necessarily levered directly to hot running equity markets, number one. Number two, as you well known, the hottest spot in the market are large cap technology stocks, very, very concentrated, way more concentrated than we would normally have a wealth management client who needs a diversification in assets and can't have that kind of exposed risk as much as it's enticing and creates a fear of missing out. So we're just not going to run the same way as the equity markets. And the capital gain, for example, at the firm over the first quarter was very, very, very small. And it probably ran at -- I'm just ballparking here, but I'm going to be very close. In the fourth quarter, if you had to annualize that, it probably would have been closer to $1.2 million on that $1 billion on an annualized basis. So a good bit down from total years of, say, 2024. And we're in a really unusual situation. The market could take a big hit from those large-cap stocks. They could decline meaningfully as they did at the beginning of the Iran war or when tariffs were announced. And it would have less an effect on this firm. We'll be much more stable. In general, if there's a flight to quality, we will benefit. So that's one way that you should think about and look at our AUM. As for expenses, I should mention something else, sorry, which is that new client organic flows were very strong in 2024 for us, some of the strongest we had seen over the past several years. That was due to primarily new high net worth accounts as well as very large investment in our global value equity strategy. It was a pretty good quarter in the fourth quarter of last year on that basis, and it was okay for the first quarter of 2026. The drawback there is that we saw institutional outflows from other parts of the business due to some performance concerns as well as fully funded pension plans and obligations. So as the firm is diversified, the nature of our flows have become a little more complicated. Now on the expense side, we're seeing increases in G&A with travel, as you might expect, and a heavy marketing push especially when we're going to further places in the globe. So that's a meaningful increase. There's a meaningful increase as well with regards to legal and other administrative expenses as we built these trusts. But the biggest needle mover with regards to expenses is in intellectual capital and headcount. And to give you an idea of the magnitude of that and where it's hitting our earnings and EBITDA, we were running a 60% of revenue for compensation a year ago. We're now at 67% of revenue. So while we've been making this investment for going almost 2 years, the real momentum was from the beginning of last year to this year in terms of the number of people and initiatives required to make this happen. I've mentioned in prior calls, filling out the analyst team, trading, operations, administration, of course, marketing has been completely rebuilt, including professionals in Australia and London. It includes internal marketing capabilities among other initiatives. At the same time, we're concentrated on growing the high net worth business. We've opened an Atlanta office. We hired a new senior portfolio manager there who is already seeing some inflows to the firm that will be reportable. So there's a lot going on, but the expense you're seeing has been primarily over the past year. It's early in the investment cycle. As I was alluding to with Sandy's question, this could change very, very quickly with only a couple of mandates. It's just a matter of doing that homework, getting it done and being patient to see those flows as our capabilities get rated. So it's been a very, very significant and intentional investment. I remain highly excited about it. Hopefully, you've been on these calls long enough to know that I'm pretty conservative in my estimates over time and careful about what I say. So what I hope to deliver is starting to see progress on that revenue given what we started in earnest really only a year ago.

[Operator Instructions] All right. This does conclude our question-and-answer session. I would like to return the conference to Rick Hough for any closing comments.

Thank you. I very much appreciate you taking the time to join us today to talk about the first quarter of 2026. As I mentioned, we've accelerated our investments over the past year in earnest. We're excited about what we're building for the future to create a much more enduring and profitable business over the next 25 years. And I think we will see substantial progress in the quarters to come based on these investments that we have made, and I look forward to talking to you about them then. Thank you.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.