10-Q: Silvercrest Asset Management Reports Q2 Profit Decline Amid Rising Expenses and Client Outflows

Silvercrest Asset Management Group Inc. reported a significant drop in net income for the second quarter and first half of 2025, despite an increase in assets under management driven by market appreciation, as expenses rose and net client outflows persisted.

Summary

• Total revenue for the three months ended June 30, 2025, decreased by 1.0% to $30.7 million from $31.0 million in the prior year period, primarily due to a decrease in the average annual management fee rate.
• Total revenue for the six months ended June 30, 2025, increased by 1.3% to $62.1 million from $61.3 million in the prior year period, driven by market appreciation partially offset by net client outflows.
• Net income attributable to Silvercrest for the three months ended June 30, 2025, was $1.9 million, a 28.0% decrease from $2.7 million in the same period last year.
• Net income attributable to Silvercrest for the six months ended June 30, 2025, was $4.4 million, a 22.6% decrease from $5.7 million in the same period last year.
• Total expenses increased by 3.7% to $26.6 million for the three months ended June 30, 2025, and by 6.3% to $53.2 million for the six months ended June 30, 2025, driven by higher compensation and general & administrative costs.
• Assets under management (AUM) increased by 4.0% to $36.7 billion at June 30, 2025, from $35.3 billion at March 31, 2025, primarily due to $1.8 billion in market appreciation, partially offset by $0.4 billion in net client outflows.
• For the six months ended June 30, 2025, AUM increased by 0.5% to $36.7 billion from $36.5 billion at December 31, 2024, with $0.4 billion in market appreciation and $0.2 billion in net client outflows.
• Net cash used in operating activities increased to $10.9 million for the six months ended June 30, 2025, compared to $8.1 million in the prior year period.
• A new share repurchase program was approved on May 23, 2025, authorizing up to $25.0 million in repurchases; $11.7 million of Class A common stock had been purchased under this program as of June 30, 2025.
• The credit facility term loan maturity was extended to June 18, 2028, with potential extensions to June 18, 2030, and the revolving credit facility maturity was extended to June 18, 2026.

Sentiment

Score: 4

Explanation: The sentiment is moderately negative due to significant declines in net income and Adjusted EBITDA, coupled with persistent net client outflows. While AUM increased due to market appreciation and the company initiated a new share repurchase program, the underlying operational profitability and client asset gathering trends are concerning. The extension of credit facilities provides stability but does not offset the core financial performance deterioration.

Positives

• Assets under management (AUM) increased by 9.9% year-over-year to $36.7 billion at June 30, 2025, from $33.4 billion at June 30, 2024, primarily due to market appreciation.
• A new share repurchase program for up to $25.0 million was approved, demonstrating a commitment to returning capital to shareholders; $11.7 million has already been utilized as of June 30, 2025.
• The credit facility term loan maturity was extended to June 18, 2028, with options for further extensions to June 18, 2030, enhancing long-term financial flexibility.
• The revolving credit facility maturity was extended to June 18, 2026, providing continued access to liquidity.
• No outstanding borrowings exist under the term loan or revolving credit facility as of June 30, 2025, indicating a strong debt position.
• The company remains in compliance with all covenants under its credit facility.
• Family office services revenue increased by 5.9% for the three months and 3.7% for the six months ended June 30, 2025, indicating growth in this segment.

Negatives

• Net income attributable to Silvercrest decreased significantly by 28.0% for the three months and 22.6% for the six months ended June 30, 2025, compared to the prior year periods.
• Net income margin declined to 10.3% for the three months and 11.4% for the six months ended June 30, 2025, from 14.1% and 15.2% respectively in the prior year periods.
• Adjusted EBITDA decreased by 20.7% for the three months and 16.7% for the six months ended June 30, 2025, reflecting reduced operational profitability.
• Adjusted EBITDA margin declined to 18.7% for the three months and 19.7% for the six months ended June 30, 2025, from 23.3% and 24.0% respectively in the prior year periods.
• Net client outflows of $0.4 billion for the three months and $0.2 billion for the six months ended June 30, 2025, indicate a challenge in attracting or retaining client assets despite market appreciation.
• Total expenses increased by 3.7% for the three months and 6.3% for the six months ended June 30, 2025, outpacing revenue growth.
• Net cash used in operating activities increased by $2.8 million for the six months ended June 30, 2025, compared to the prior year, indicating less cash generation from core operations.
• The average annual management fee rate decreased to 0.34% for both the three and six months ended June 30, 2025, from 0.37% in the prior year periods, impacting revenue per AUM.

Risks

• Incurrence of net losses and fluctuations in quarterly and annual results.
• Adverse economic or market conditions could negatively impact assets under management and revenue.
• Future levels of assets under management, inflows, and outflows are uncertain and can affect financial performance.
• Ability to retain clients is crucial, and client withdrawals could lead to revenue decline.
• Ability to maintain the current fee structure is subject to competitive pressures and client negotiations.
• Particular choices with regard to investment strategies employed may not always yield attractive returns.
• Ability to hire and retain qualified investment professionals is essential for business growth and client service.
• The cost of complying with current and future regulation, coupled with the cost of defending against related investigations or litigation, could be substantial.
• Failure of operational safeguards against breaches in data security, privacy, conflicts of interest, or employee misconduct poses significant risks.
• Adverse effects of management focusing on implementation of a growth strategy could divert resources or lead to unforeseen challenges.
• Failure to develop and maintain the Silvercrest brand could impact client acquisition and retention.
• The actual increase in tax basis and the amount and timing of payments under the Tax Receivable Agreement (TRA) are uncertain and depend on various factors, potentially leading to substantial future payments.
• The IRS successfully challenging tax basis increases could result in payments under the TRA exceeding actual cash savings in income tax.

Future Outlook

Management expects cash and liquidity requirements for the next twelve months to be met primarily through cash generated by operations. The company will continue to evaluate its liquidity and financial position. Future payments under the tax receivable agreement are expected to be substantial, estimated at approximately $10.2 million for existing obligations, with additional substantial payments expected for future exchanges of Class B units. The company intends to fund these payments from distributions received from Silvercrest L.P. The company is currently evaluating the potential impact of the One Big Beautiful Bill Act (OBBBA) on its consolidated financial statements, with certain provisions effective in 2025 and others through 2027. New accounting standards (ASU 2023-09, ASU 2024-03, ASU 2025-03, ASU 2025-04) are not expected to have a material effect on the consolidated financial statements upon adoption in future periods.

Management Comments

• Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures and internal control over financial reporting at June 30, 2025, and concluded they were effective.
• We have experienced, and expect to continue to experience, a general rise in compensation and benefits expense commensurate with growth in headcount and with the need to maintain competitive compensation levels.
• We believe that we have sufficient cash from our operations to fund our operations and commitments for the next twelve months.
• We anticipate that distributions to the limited partners of Silvercrest L.P. will continue to be a material use of our cash resources and will vary in amount and timing based on our operating results and dividend policy.
• We pay and intend to continue paying quarterly cash dividends to holders of our Class A common stock.

Industry Context

The asset management industry is highly sensitive to market conditions, which directly impact assets under management (AUM) and, consequently, management fees. Silvercrest's AUM growth was primarily driven by market appreciation, reflecting a generally positive market environment during the period. However, the persistent net client outflows suggest that while market tailwinds are favorable, the company faces challenges in attracting new capital or retaining existing client funds relative to competitors. The decline in average annual management fees could indicate increased fee pressure within the competitive wealth management sector or a shift in asset allocation towards lower-fee strategies. Rising compensation and general & administrative expenses are common industry trends, but their impact on profitability is more pronounced when revenue growth is modest or declining, as seen in Silvercrest's reduced net income and EBITDA margins.

Comparison to Industry Standards

• The company's proprietary equity strategies show mixed performance relative to their benchmarks as of June 30, 2025. For instance, the Large Cap Value Composite (inception 4/1/02) returned 9.6% annualized since inception, trailing the Russell 1000 Value Index's 8.0% (note: the filing shows 9.6% for SAMG and 8.0% for Russell 1000 Value Index for inception, which means SAMG is outperforming here, but for 1-year, 3-year, 5-year, 7-year, SAMG trails the benchmark).
• Small Cap Value Composite (inception 4/1/02) returned 9.7% annualized since inception, outperforming the Russell 2000 Value Index's 7.5%. However, for the 1-year, 3-year, and 5-year periods, it slightly trails the benchmark.
• Smid Cap Value Composite (inception 10/1/05) returned 9.2% annualized since inception, trailing the Russell 2500 Value Index's 7.7% (note: SAMG is outperforming here). For 1-year, 3-year, 5-year, 7-year, SAMG trails the benchmark.
• Global Value Opportunity Composite (inception 1/1/20) returned 11.0% annualized since inception, outperforming the MSCI ACWI Value Net Index's 7.8%. This strategy shows strong outperformance across all reported periods (1-year, 3-year, 5-year, inception).
• Small Cap Opportunity Composite (inception 7/1/04) returned 10.4% annualized since inception, outperforming the Russell 2000 Index's 7.8%.
• Small Cap Growth Composite (inception 7/1/04) returned 10.1% annualized since inception, outperforming the Russell 2000 Growth Index's 8.3%.
• Smid Cap Growth Composite (inception 1/1/06) returned 10.7% annualized since inception, outperforming the Russell 2500 Growth Index's 9.2%.
• Overall, while some strategies show strong long-term outperformance (e.g., Global Value Opportunity, Small Cap Opportunity, Small Cap Growth, Smid Cap Growth), others, particularly in the Large Cap and Smid Cap Value categories, have underperformed their respective benchmarks over shorter to medium terms (1-7 years), which could contribute to client outflows.

Corporate Governance

Legal Proceedings

• Not a party to any material legal proceedings.

Related Party Transactions

• Provided investment advisory services to various Silvercrest Funds (feeder funds and stand-alone funds), earning management fee income of $911,000 for Q2 2025 and $1,837,000 for H1 2025.
• Owed $875,000 from its various funds as of June 30, 2025.
• Earned management and advisory fees of $471,000 for Q2 2025 and $943,000 for H1 2025 from assets managed on behalf of certain employees.
• Owed approximately $101,000 from certain employees as of June 30, 2025.
• Entered into a tax receivable agreement (TRA) with SLP partners, requiring payments of 85% of cash savings in U.S. federal, state, and local income tax realized from tax basis increases and other benefits. Estimated liability of $10,150,000 as of June 30, 2025.

Stakeholder Impact

• **Shareholders**: Experienced a decrease in net income and EPS, indicating reduced profitability. However, the approval of a new $25.0 million share repurchase program could provide support for the stock price and enhance shareholder returns.
• **Employees/Partners**: Compensation and benefits expense increased due to merit-based increases and newly-hired staff, suggesting continued investment in human capital. Partner incentive allocations are a significant component of compensation. The increase in shares available under the equity incentive plan provides opportunities for future awards.
• **Clients**: Assets under management increased due to market appreciation, but net client outflows indicate some clients may be withdrawing funds, potentially due to performance relative to competitors or other factors. The company continues to offer a wide range of investment capabilities and family office services.
• **Creditors**: The company is in compliance with all covenants under its credit facility, and the extension of debt maturities provides financial stability, which is positive for creditors.

Next Steps

• The company will continue to evaluate its liquidity and financial position on an ongoing basis.
• Future payments are expected to be made pursuant to the tax receivable agreement, funded from distributions received from Silvercrest L.P.
• The company is evaluating the potential impact of the One Big Beautiful Bill Act (OBBBA) on its consolidated financial statements.
• The company intends to repurchase shares through market purchases, privately-negotiated transactions, block purchases, or 10b5-1 share trading plans under the new $25.0 million repurchase program.

Key Dates

Recommendation

The company's financial performance shows a concerning trend of declining net income and Adjusted EBITDA, coupled with persistent net client outflows, despite overall AUM growth driven by market appreciation. While the new share repurchase program and extended credit facility maturities are positive for shareholder returns and financial flexibility, they do not fully offset the underlying operational challenges. For existing investors, holding the stock to monitor if profitability trends reverse and net client flows improve is a reasonable approach. For new investors, a 'hold' stance suggests caution, awaiting clearer signs of operational improvement and sustained organic AUM growth.

Keywords

Wealth Management, Asset Management, Financial Advisory, Family Office Services, SEC Filing, 10-Q, Assets Under Management, AUM, Net Income, EBITDA, Share Repurchase, Credit Facility, Investment Performance, Client Outflows, Financial Results, Corporate Governance, Risk Factors