Q3 2026 Earnings Conference Call - SILVERCREST ASSET MANAGEMENT GROUP INC

Financial Performance:

• Revenue: Q3 2026 revenue was $32.7 million, up $1.4 million year-over-year (YoY); YTD revenue increased 2% YoY driven by higher average annual management fees.
• Earnings: Reported consolidated net income for Q3 was $1.2 million ($0.08/share); reported net income attributable to Class A shareholders was $0.6 million ($0.08/share).
• Adjusted Metrics: Q3 Adjusted EBITDA was $4.4 million (13.5% of revenue); Q3 Adjusted Net Income was $1.9 million ($0.16/share); YTD Adjusted Net Income was $4.6 million ($0.38/share).
• Margins & Expenses: Total compensation and benefits were $62.9 million YTD (66.3% of revenue), though Q3 compensation decreased 2.1% YoY; General and administrative expenses rose 16% YoY in Q3 to $1.3 million due to professional fees, travel, and systems costs.
• Cash & Balance Sheet: Cash and equivalents were $27.8 million (down from $44.1 million at end of 2025); borrowings were $9 million; total assets were $146.3 million; Class A stockholders' equity was $45.5 million.
• AUM: Discretionary AUM decreased $939.2 million to $23.8 billion due to market declines; Total AUM stood at $36.2 billion. Net flows were essentially flat at $58.3 million, offset by $753 million in market effects and seasonal institutional withdrawals.

Guidance and Future Outlook:

• 2027 Outlook: Management expects 2027 to be a pivotal year where current investments begin yielding revenue impacts, leading to lower compensation ratios as the firm transitions from the heavy investment phase.
• Cost Efficiency: Administrative and legal costs associated with recent expansions (Atlanta, Dublin, Australian Trust) are expected to decline and contribute to revenue.
• Reporting Changes: The firm plans to eliminate the non-discretionary AUM category at the end of Q1 2027, which will lower reported non-discretionary and total AUM on a one-time basis without affecting revenue.
• Capital Allocation: The board declared a quarterly dividend of $0.21 per Class A share, payable December 18, 2026, to record holders as of December 11, 2026.

Business Segments and Product Lines:

• European Expansion: Completed opening of the Dublin office and secured full MIFID license via the Central Bank of Ireland; largely completed hiring for institutional and high-net-worth capabilities.
• Asian Operations: Licensing secured; initial hiring completed; a head of office for the high-net-worth business is expected to be announced in Q1 2027; distribution coverage exists for South Asia, Japan, and Australia.
• Institutional Pipeline: Robust growth in the institutional pipeline, particularly in global and international equity strategies; achieved important third-party ratings to open new distribution channels.
• Product Focus: High emphasis on organic growth via new client accounts; added $182.2 million in organic new accounts (best quarter of 2026) and $373 million in follow-on investments in the global value equity strategy.

Market and Competitive Landscape:

• Value vs. Growth: Acknowledged a persistent, record-breaking disparity between growth and value strategies, leading to challenging performance for value-oriented indices and managers.
• Competitive Positioning: Strategies target high-quality, concentrated portfolios of quality companies rather than lower-quality index constituents, maintaining a "stick to our knitting" fundamental research approach despite current underperformance.
• Market Trends: Q3 markets were weak following unusually strong Q2 markets; capital growth contributed $1.7 billion in new AUM YTD.

Risks and Challenges:

• Market Volatility: Fluctuations in discretionary AUM levels driven by market performance directly impact revenue generation.
• Investment Phase: Elevated compensation ratios and expenses are temporary results of a strategic "investment cycle" to build infrastructure and talent; returns on these investments are not immediate.
• Operational Complexity: Managing expansion across new geographies (Dublin, Asia) and regulatory licensing introduces initial administrative and legal cost burdens.

Management Commentary and Tone:

• Tone: Confident and strategic; management views current underperformance in value strategies as an unusual historical period but remains committed to long-term processes.
• Strategic Focus: Emphasizes that the firm is at the "tail end" of a significant multi-year investment program and is transitioning toward a phase of revenue realization.
• Talent Strategy: Reiterated that intellectual capital is the most important resource; plans imminent equity grants to align professional interests with shareholders.

Analyst Questions and Answers:

• Staffing Status: Dublin office is fully staffed and operational; Asia office is in early stages with licensing complete and a new head of office announcement expected in Q1 2027.
• Value Strategy Performance: Management attributed underperformance to structural differences between their high-quality, concentrated portfolios and heavily weighted low-quality value indices; confirmed they will not alter their investment process.
• Revenue Timeline: Confirmed that revenue benefits from the strategic investments are expected to materialize significantly in 2027, improving the revenue-to-compensation ratio.

Other Key Points:

• Regulatory Milestones: Secured full MIFID license in Ireland and completed the USITS fund setup in Ireland to serve European institutional clients.
• Shareholder Alignment: Shareholders approved an increase in shares issuable under the equity incentive plan to facilitate talent retention and alignment.
• Pipeline Quality: Noted an improvement in the quality of the institutional pipeline, with more opportunities and potential AUM.