QUALCOMM Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 3, 2023

There are 6 speakers on the call.

Operator

Morning, and welcome to the Silvercrest Asset Management Group, Inc. Q3 2023 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.

Operator

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 the filings with the SEC under the caption Risk For all such forward looking statements, we claim the protection 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. Would now like to turn the conference over to Rick Huff, Chairman and CEO of Silvercrest.

Operator

Please go ahead.

Speaker 1

Good morning, and thanks for joining us The uncertain and more volatile markets During this past quarter had an outsized effect on our assets under management, with Silvercrest Concluding the quarter with a total AUM of $31,200,000,000 and discretionary AUM of 20,500,000,000 The discretionary AUM, which primarily drives our revenue decreased by $1,000,000,000 from the 2nd quarter And discretionary AUM has increased by $1,100,000,000 or 5.7 percent year over year since the Q3 of 2022. The firm's total AUM has increased by $3,800,000,000 or 13.9% year over year from $27,400,000,000 to $31,200,000,000 Revenue increased 2.3% year over year for the Q3 of 2023 compared to the same period in 2022 and our revenue decreased 6.2 Percent for the 9 months ended September 30, 2023. Most business metrics remain down on a year over year and year to date basis. Higher expenses during the Q3 this year negatively impacted our adjusted EBITDA and the adjusted EBITDA margin and the Year to date decline in revenue affected adjusted EBITDA, the adjusted EBITDA margin and our adjusted diluted earnings per share. With Silvercrest's adjusted EBITDA margin of 26.9 percent 27.3 percent for the 3 9 months ended September 30 remains healthy for the company.

Speaker 1

Silvercrest pipeline of new business opportunities remains solid, but we have weakened since the Q2. This is the result of slower decision making, not lost opportunities for the firm. We attribute this to a changing and uncertain business environment, Higher interest rates and geopolitical concerns. We're focused on these new opportunities as well as investments to drive future growth in the business, including value added hires. On October 31, the company's Board of Directors declared a quarterly dividend of $0.19 per share of Class A common stock, and that dividend will be paid on or about December 15, 2023.

Speaker 1

Then I'll hand it over to Scott Gerard to go through our financials and then we will take questions. Thanks. Great. Thanks Rick. As disclosed in our earnings release for

Speaker 2

the Q3, discretionary AUM as of September 30th this year was 20 $500,000,000 and total AUM as of the same date was $31,200,000,000 Revenue for the quarter was $29,700,000 and reported consolidated net income for the

Speaker 3

quarter was

Speaker 2

$5,400,000 Looking Further at the quarter, again revenue of $29,700,000 represented approximately a 2% increase from revenue of Approximately $29,000,000 for the same period last year. This increase was driven by an increase in the average annual management fee based on the mix of discretionary and non discretionary assets. Expenses for the Q3 were $23,200,000 representing approximately a 6% increase From expenses of $21,900,000 for the same period last year. This increase was primarily attributable to an increase In G and A expenses of $800,000 and an increase in compensation and benefits expense of 400,000 Looking further at comp and benefits expense, it increased approximately 3% to $16,700,000 for the 3rd quarter From $16,300,000 for the same period last year. The increase was primarily attributable to an increase in Salaries and benefits of $300,000 primarily as a result of merit based increases and newly hired staff and an increase In equity based compensation of $100,000 due to the granting of additional RSUs.

Speaker 2

General and administrative expenses increased by 0 point $8,000,000 to $6,500,000 for the 3rd quarter from $5,700,000 for the same period last year. Of negative $300,000 recorded during the Q3 of 2022 in addition to increases in Portfolio and Systems expense, Travel and Entertainment expense, Occupancy, Marketing Expense as well and these were partially offset by lower professional fees. Reported consolidated net income was $5,400,000 for quarter is compared to $5,600,000 in the same period last year. Reported net income attributable to Silvercrest Order Class A shareholders for the Q3 of this year was approximately $3,200,000 or $0.34 per basic and diluted Class A share. Adjusted EBITDA, which we define as EBITDA without giving effect to equity based compensation expense And non core and non recurring items was approximately $8,000,000 or 26.9 percent of revenue for the quarter compared to $8,200,000 or 28.1 percent of revenue for the same period in the prior year.

Speaker 2

Adjusted net income, which we define as net income without giving effect to non core and non recurring items and income tax Assuming a blended corporate rate of 26 percent was approximately $5,100,000 for the quarter or $0.37 $0.36 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 adjusted basic EPS. And to the extent dilutive, we add unvested restricted stock units and non qualified stock options To the total shares outstanding to compute diluted adjusted EPS. Looking at the 9 months Of this year, revenue was approximately $88,900,000 and this was approximately a 6 percent decrease from revenue of approximately $94,700,000 for the same period last year. This decrease was driven by a decrease in the average annual management fee based on the mix of discretionary and non discretionary assets, Also, market impacts as well. Expenses for the 9 months ended September 30 this year were $69,100,000 representing approximately a 15% increase from expenses of $60,300,000 for the same period last year.

Speaker 2

This increase was attributable to an increase in G and A expenses of $11,700,000 partially offset by a decrease in compensation And benefits expense of $2,900,000 Looking further, compensation and benefits expense Represented approximately a 6% decrease to $50,000,000 for the 9 months ended September 30 This year from $52,900,000 for the same period last year. The decrease was primarily attributable to a decrease in the accrual for bonuses of $4,300,000 partially offset by an increase in salary and benefits expense of $1,100,000 And an increase in equity based compensation expense of $300,000 General and administrative expenses increased by $11,700,000 $19,100,000 for year to date September 30 this year from $7,400,000 for the same period last year. This was primarily attributable to an adjustment to the fair value of contingent consideration related to Cortina $10,900,000 and that was a negative $10,900,000 so a reduction to expense that was recorded during the 9 months ended September 30, 2022, increases in portfolio and systems expense, professional fees, occupancy, Marketing and depreciation and amortization expense, partially offset by a decrease in sub advisory and referral fees. Reported consolidated net income was $15,800,000 for a year to date September 30 this year compared to $27,500,000 in the same period last year.

Speaker 2

Reported net income attributable to the Class A shareholders for year to date September 30th this year was approximately $9,500,000 or $1.01 per basic and diluted Class A share, respectively. Adjusted EBITDA was approximately $24,300,000 or 27.3 percent of revenue For year to date September 30 this year compared to $27,600,000 or 29.1 percent of revenue for the same period last year. Adjusted net income was approximately $15,100,000 for year to date this year or $1.05 per adjusted basic and diluted EPS respectively. Looking at the balance sheet, total assets as of September 30 this year were $191,300,000 compared to $212,700,000 as of the end of last year. Cash and cash equivalents were approximately $58,900,000 as of September 30 this year compared to $77,400,000 at the end of Total borrowings as of September 30 this year were $3,600,000 Total Class A stockholders' equity was Approximately $83,600,000 as of September 30 this year.

Speaker 2

That concludes my remarks. I'll turn it over to Rick for Q and A.

Speaker 1

Great. Thanks, Scott. Look forward to taking questions at this time.

Operator

We will now begin the question and answer session. Our first question will come from Sandeep Mehta with EvaluATE Research. You may now go ahead.

Speaker 4

Yes. Good morning. Rick, could you talk a little bit more about The pipeline, you have said

Speaker 1

in your comments that it remains solid, but there has been some slowness

Speaker 4

And people taking action. And are you seeing that from institutional investors or is it more of the consultants? And now that the Fed yesterday has signaled that they may be at a pause, do you think that things will people will be taking more decisions going forward? Thank you.

Speaker 1

Yes, you're welcome. And in fact, just on that note, when I mentioned in my introductory comments that We're just seeing a pretty uncertain business environment and sort of just very slow decision making. It's one of the few times, if any, in the past 10 years I've ever commented on the larger environment. We've done really well in this firm Through a variety of conditions and one of the most measurable things at our company is the institutional pipeline. So mostly To answer your question, characterizing the institutional business, but you feel a lot of uncertainness and probably decision making on the high net worth side.

Speaker 1

It's just a little harder to measure in the timelines for those mandates. It just looks very different from the So I know for sure for the institutional business. And basically, it's driven in part by clients who have withdrawn searches or just waiting and seeing, but also probably some consultants. All things being equal, I'm sure consultants would rather have to move things along and drive the process. So perhaps that means it's a little bit more institutional client driven.

Speaker 1

The pipeline was $1,300,000,000 for different institutional parts of the business. That includes Our U. S. Value equity capability, our U. S.

Speaker 1

Growth capability as well as the international and OCIO capabilities. And at the end of the second quarter, I reported $1,300,000,000 And just to remind everyone, those Where opportunities where we were invited, invite only RFP processes Or we were a finalist or semi finalist with kind of a 6 month actionable period of time. And I had actually lowered the pipeline at that time because things were taking longer than 6 months. It was one of the few times if ever That we just took opportunities out of the pipeline because it's not how we measure it. And that has occurred again for this quarter.

Speaker 1

So these are situations where we're still in the running, where there may be an opportunity, But it's moving past the 6 month window that we're comfortable measuring. And I want to make sure when I talk to our investors That we're making an apples to apples comparison from 1 period or year to another. And that pipeline, which was $1,300,000,000 last quarter It's now at $810,000,000 so a pretty substantial drop. But again, most of that is just due To the extended timelines for decision making or even things just flat out put on hold, where there will not be a decision or a search until perhaps the sponsoring institution feels a little more comfortable with the environment. We've had periods of time where that pipeline has actually gone to 0.

Speaker 1

There was a period in COVID where our pipeline dropped to nothing and it came right back. So we'll see what it means. We just want to be really clear about what we're seeing out there. Your final point in your was about the Fed. And I would agree that should the Fed or interest rates themselves start to decrease that could be helpful.

Speaker 1

I think one reason we don't have Broadening out in the markets is due to higher interest rates, which can cause financing pressure for many Companies, of course. And it changes capital allocation decisions, right, when it's moving around as much as it has Increased as much as it has really changes a lot of analysis of making investments. So I'll take other questions, but that's an extended comment on both the environment related to the pipeline.

Speaker 4

And just one follow-up, the OCI business, OCIO continues to grow?

Speaker 1

The OCIO business Continues to have really good opportunities. I expect a very near term win there. We'll see, but I expect that. And it remains at Basically, dollars 1,500,000,000 in assets under management. It's about the same, Very similar to what I reported at the end of the second quarter, but keep in mind that the markets were down during the quarter.

Speaker 1

So that's a relatively positive report. Great. Thank you. You're welcome.

Operator

Our next question will come from Christopher Marinac with Janney Montgomery Scott. You may now go ahead.

Speaker 3

Hey, good morning, Rick. Good morning, Scott. Just wanted to ask first about the discretionary versus nondiscretionary AUM. AUM, are those trends going to continue to shift in the next year and maybe just related pricing question too?

Speaker 1

Yes. Okay. Yes, it has gone up quite substantially over the past Recent, I don't know, 12 months to 18 months, as you've noticed, At a higher rate than I think we've ever really experienced with the company. I think year over year to your Point, it's up something like 34%. That is a function primarily of our family office services.

Speaker 1

The assets Related to non discretionary work is usually a project Fee for services rendered. I should note, by the way, that a fair bit of OCIO capabilities, if not The vast majority of it is also in non discretionary, that's the nature of those relationships, and those have more of a basis point relationship. So on the family office side, I expect the increases due to that to moderate. There is not really a Change in the amount of revenue we get, that's just a function of us doing reporting work and other tracking and balance sheet work On behalf of extremely wealthy clients, who have often non liquid holdings, Private Equity, Real Estate, Operating Businesses that we for Supervisory reasons have to report as non discretionary assets under management. So whether that goes up a lot or down a lot, It really doesn't change revenue on that side.

Speaker 1

With the OCIO business, if you think About most of that $1,500,000,000 being in there, is non discretionary, then yes. To the extent that that business continues to grow, which we're quite optimistic about and continue to make progress on, as you know, that number will increase And that is additive to revenue and we'll have a closer tie to kind of the economics of total AUM. Does that

Speaker 3

help? Yes, it does. That's great. Thank you for that. And I guess just a related question about just kind of the pricing in basis points.

Speaker 3

I know it's sort of trending for a while and it's kind of more secular. I'm just kind of curious if this environment leads that to change any different pace.

Speaker 1

If you could ask your question another way, I'm not sure I quite followed it. I'll just say one thing before you clarify. One thing we have to watch is backing into total basis points by taking our total assets under management as the denominator with revenue. As a denominator is misleading because you're putting in a lot of assets that don't really have basis Before, it looks like the basis points that we're getting for the business is going down when that is not in fact the case. But I'm not sure that's what you were asking about.

Speaker 3

No. Actually, Rick, you actually hit it right there because that was kind of where I was going. So That clarifies the point. So really don't be too caught up in that basis point slippage based on

Speaker 1

We take primarily look at discretionary assets under management as the driver of revenue. Of course, we The OCIO business, which is basis points and looks more like the institutional business and pricing by the way Is in there and there's some influence, but it's still small compared to the overall enterprise. In fact, the $1,500,000,000 Our discretionary assets of 20.5%, puts it around 4% or 5%. Great. The last question for

Speaker 3

me just has to do with sort of expenses and hiring. If you have some delayed decision making in general, as you Talked about, does that make any impact in the next couple of quarters on hires and just sort of how you spend at the company?

Speaker 1

Yes. I don't think it affects our decision making. This is a company that over 20 years has been through multiple Business environments, including the global financial crisis when and of course, we were a private company then. It was really hard to manage There was a lot to deal with. And my partners and I have been through it.

Speaker 1

We know what to do. We know how to handle our expenses. We're not done when it comes to capital allocation or too tight. We're not going to hurt the business With slowing things down or delaying our decision making, we just want to be really ourselves, I'm speaking about Silvercrest, really careful about how we deploy our cash and We unlike other folks are not having to digest a lot of unwieldy acquisitions and Need to make expensive operational changes and let alone worry about our debt load. So that money is to invest And create good return on invested capital for our investors.

Speaker 1

And just as we saw in And I alluded to the fact that we have a number of new business opportunities in my opening remarks. And that refers to both the pipeline kind of a new business that I talked about earlier in the question, but it also Speaks to hires. I'm having a lot of conversations. It speaks to other ways to advance the business from an investment perspective. And we're if anything, it's busier for us on that score than it has been in quite some time.

Speaker 1

Any number of different types of initiatives underway, it's actually quite busy. So it's not going to change my decision The slowness in decision making that I'm seeing really has to do with potential clients, institutions and just the sense of the business environment In general, this includes the feedback and things that we're hearing from other management teams in their own earnings reports, Because we are investors, we are in the middle of the markets, which is one of the advantages of this firm. And I think that could Would be prolonged into 2024. I really don't know. I'm not an economist.

Speaker 1

I run a good business and That's all I'm focused on. On the expense side, we haven't really made any new hires or changes Since I last gave everyone an update, it has been difficult on the expense side because a lot of Vendors and companies have been increasing prices with inflation and that's going in one direction While the stock markets have been going in the other, so that creates a little more stress and management issues than I would like to have, but we're used to it. We've done this before. It's nothing new. It's part of being in our business.

Speaker 1

And as I highlighted, we continue with a very good EBITDA margin hovering around 27%. That is not unusual for And it looks pretty good overall. And I don't expect that trend to change barring some dramatic market effect.

Speaker 3

Sounds good, Rick. Thanks for all the background this morning. We appreciate it.

Speaker 1

Yes. You're very welcome.

Operator

Our next question will come from Chris Sakai with Singular Research. You may now go

Speaker 2

ahead. Hi, Chris.

Speaker 5

Hi, good morning, Rick. Just had a question on you mentioned the M and A environment, can you comment on are you seeing any good acquisition targets out there?

Speaker 1

Yes. We always see potential M and A targets. It is kind of just a theme of my job that I'm regularly talking to other executives and companies. What we're looking for is quite select in the marketplace. I've described before that this is a high net worth Business, if not ultrahigh net worth, our average client is for the size company we are is well above Most of our peers continues to be at anywhere between $35,000,000 $40,000,000 As an average, our median is lower.

Speaker 1

I want to have a good firm with good planning, Succession, if it can be done, I'd like to at least know how to fix that, that can organically grow post Acquisition by Silvercrest, that is not as common as you might think. The high net worth business can be quite slow growing organically ex markets, Witness the environment we're in. And I want them in key places where I'm interested in having a location, if it's not a bolt on New York, Milwaukee, Boston or Richmond. And so there are only so many firms that really That's the criteria that I'm looking for that are that check all the boxes and they have to be ready at the right time. I would say it's quite active in discussions.

Speaker 1

I alluded in the last question the fact that we're always looking at these things and busy. That includes Hires by the way that can advance the company on behalf of our shareholders and I would just characterize it as a busy period. I have no idea if any of those will land and I wouldn't want to suggest anything is imminent To anyone on the call, you just don't know. There are so many things that can change between conversations now and what ultimately But I'll conclude by saying we are quite active.

Speaker 5

Okay. Thanks for that. And then

Speaker 1

Yes, Chris, I'll just add one other thing. Sorry. We're also, as I predicted in the last couple of calls, the increase in interest rates, while it's not welcome in some ways, Certainly, its effect on markets and people's outlook combined with not to mention the geopolitical concerns that we have, that I think It's just part of the general feeling people have. I've actually welcomed it because I think it will lead to more rational capital allocation decisions ultimately. Finally, people are getting paid for their fixed income.

Speaker 1

It just creates a lot of disruption In the meantime, but I'm seeing a moderating in the market that's actually healthy on the M and A side from my perspective.

Speaker 5

Okay, great. Thanks for that. And then my other question was on there was a slight uptick in travel and entertainment expense. My question there is, is this coming basically what we should expect coming out of COVID? And What should we expect it without expense going forward?

Speaker 1

Yes. You can expect that to increase coming Out of COVID, it's pretty variable. So I'm not going to provide guidance what I think is going to happen in the future. My general view and I know Scott shares this as our CFO is this is a good thing. You want to see that increasing.

Speaker 1

This means we're out there, we're active. Our clients want to see us. We're seeing prospects. And even for example, on That's a high net worth side, but on the institutional side, so much of it was via Zoom and no travel and it's way better to meet prospective Clients, consultants and others face to face and that is starting to occur more often as well. So Yes, I would expect a more normalized environment.

Speaker 1

When it was lower during COVID, we made that point. I don't know what that might look And I should point out there's also been more international opportunities. I've talked about that in the past. So that's a little bit more expensive travel as well.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Rick Huff for any closing remarks.

Speaker 1

Great. Thank you very much. I really appreciate all of our shareholders for joining us today for the update on the Q3. As we navigate this interesting environment and I think we've got tremendous opportunities ahead. This is a company, as I said before, That has been through environments like this for 22 years running this business through all sorts of Ups and downs and we've successfully navigated any number of issues and grown our business profitably.

Speaker 1

The kind of uncertainty that we face creates opportunity whenever one of our businesses is affected and we're feeling very good about that and the team that we have So I look forward to talking to you again soon and really appreciate everyone joining us. Thanks so much.

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Earnings Conference Call
QUALCOMM Q3 2023
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