What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-05 compared with 2020-08-03 · 160 added, 151 removed, 465 unchanged (40% of the section changed)

22 unchanged sentences

In addition to a wide range of investment capabilities, we offer a full suite of complementary and customized family office services for families seeking a comprehensive oversight of their financial affairs.

During the three months ended June 30, 2020, our assets under management increased by 15.5% from $20.6 billion to $23.8 billion.

During the six months ended June 30, 2020, our assets under management decreased by 5.2% from $25.1 billion to $23.8 billion.

During the three months ended September 30, 2020, our assets under management increased by 2.5% from $23.8 billion to $24.4 billion.

During the nine months ended September 30, 2020, our assets under management decreased by 2.8% from $25.1 billion to $24.4 billion.

On July 1, 2019, we acquired $1.7 billion of assets under management in connection with the acquisition of Cortina Asset Management LLC (“Cortina” and the “Cortina Acquisition”).

The business includes the management of funds of funds, and other investment funds, collectively referred to as the “Silvercrest Funds”.

As of June 30, 2020, Silvercrest L.P.

As of September 30, 2020, Silvercrest L.P.

has issued Restricted Stock Units exercisable for 74,907 Class B units which entitle the holders thereof to receive distributions from Silvercrest L.P.

7 unchanged sentences

The interests of the limited partners’ collective 33.7% partnership interest in Silvercrest L.P.

as of June 30, 2020 are reflected in non-controlling interests in our Condensed Consolidated Financial Statements.

as of September 30, 2020 are reflected in non-controlling interests in our Condensed Consolidated Financial Statements.

COVID-19 Pandemic

3 unchanged sentences

Such current demand may not continue and/or demand may decrease from historical levels depending on the duration and severity of the COVID-19 pandemic, the length of time it takes for normal economic and operating conditions to resume, additional governmental actions that may be taken and/or extensions of time for restrictions that have been imposed to date, and numerous other uncertainties.

The COVID-19 pandemic affected our operations in the second quarter ended June 30, 2020, continues to affect our operations in the third quarter of 2020, and may continue to do so indefinitely thereafter.

The COVID-19 pandemic affected our operations in the second quarter ended June 30, 2020, in the third quarter ended September 30, 2020, and may continue to do so indefinitely thereafter.

All of these factors may have far reaching impacts on our business, operations, and financial results and conditions, directly and indirectly, including without limitation impacts on the health of our management and employees, client behavior, and on the overall economy.

2 unchanged sentences

As a result, we expect that our assets under management and revenue levels will be negatively impacted, on an incremental basis, by the effect of the COVID-19 pandemic on securities markets.

decrease in assets under management for the three months ended March 31, 2020 ha d an impact on our revenue for the second quarter ended June 30, 2020 because most of our revenue is billed in advance based on the value of assets under management on the last day of the preceding calendar quarter.

The decrease in assets under management for the three months ended March 31, 2020 ha d an impact on our revenue for the second quarter ended June 30, 2020 because most of our revenue is billed in advance based on the value of assets under management on the last day of the preceding calendar quarter.

Assets under management continue to be lower than at December 31, 2019, which caused a negative impact on our revenue for the nine months ended September 30, 2020.

We continue to fully operate with our management and employees working remotely and we have had business continuity plans in place which we were able to seamlessly activate upon actions taken by various governmental authorities suggesting that businesses recommend that their employees work from home as a result of the pandemic.

Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the three month period ended March 31, 2020 and for the three and six month periods ended June 30, 2020 are not necessarily indicative of the results to be expected for the full fiscal year.

Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the three month period ended March 31, 2020, for the three and six month periods ended June 30, 2020 and for the three and nine month periods ended September 30, 2020 are not necessarily indicative of the results to be expected for the full fiscal year.

Management cannot predict the full impact of the COVID-19 pandemic on the Company’s earnings and operations nor to economic conditions generally.

3 unchanged sentences

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

(in thousands except as indicated)

28 unchanged sentences

As of and for the Three

Months Ended June 30,

As of and for the Six Months

Ended June 30,

Months Ended September 30,

As of and for the Nine Months

Ended September 30,

(in billions)

5 unchanged sentences

As of and for the Three

Months Ended June 30,

As of and for the Six Months

Ended June 30,

Months Ended September 30,

As of and for the Nine Months

Ended September 30,

(in billions)

24 unchanged sentences

Average annual management fee is calculated by dividing our actual annualized revenue earned over a period by our average assets under management during the same period (which is calculated by averaging quarter-end assets under management for the applicable period).

Our average annual management fee was 0.43% and 0.45% for the three months ended June 30, 2020 and 2019, respectively.

Our average annual management fee was 0.43% and 0.46% for the six months ended June 30, 2020 and 2019, respectively.

Our average annual management fee was 0.45% and 0.49% for the three months ended September 30, 2020 and 2019, respectively.

Our average annual management fee was 0.43% and 0.47% for the nine months ended September 30, 2020 and 2019, respectively.

Changes in our total average management fee rates are typically the result of changes in the mix of our assets under management and the concentration in our equities strategies whose fee rates are higher than those of other investment strategies.

Management and advisory fees are also adjusted for any cash flows into or out of a portfolio, where the cash flow represents greater than 10% of the previous quarter-end market value of the portfolio.

These cash flow-related adjustments were insignificant for the three and six months ended June 30, 2020 and 2019.

These cash flow-related adjustments were insignificant for the three and nine months ended September 30, 2020 and 2019.

Silvercrest L.P.

17 unchanged sentences

(i) support our overall business strategy;

(ii) attract, retain and motivate top-tier professionals within the

investment management industry;

(ii) attract, retain and motivate top-tier professionals within the investment management industry;

and (iii) align our employees’ interests with those of our equity owners.

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.

The components of our compensation expense for the three and six months ended June 30, 2020 and 2019 are as follows:

The components of our compensation expense for the three and nine months ended September 30, 2020 and 2019 are as follows:

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

(in thousands)

2 unchanged sentences

Total compensation expense

For the three months ended June 30, 2020 and 2019, $5,557 and $6,261, respectively, of partner incentive payments were included in cash compensation and benefits expense in the Condensed Consolidated Statements of Operations.

For the six months ended June 30, 2020 and 2019, $12,934 and $11,651, respectively, of partner incentive payments were included in cash compensation and benefits expense in the Condensed Consolidated Statements of Operations.

For the three months ended September 30, 2020 and 2019, $7,121 and $7,115, respectively, of partner incentive payments were included in cash compensation and benefits expense in the Condensed Consolidated Statements of Operations.

For the nine months ended September 30, 2020 and 2019, $20,055 and $18,766, respectively, of partner incentive payments were included in cash compensation and benefits expense in the Condensed Consolidated Statements of Operations.

During 2020 and 2019, Silvercrest L.P.

22 unchanged sentences

On April 12, 2019, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Cortina Asset Management, LLC, a Wisconsin limited liability company (“Cortina”), and certain interest holders of Cortina (the “Principals of Cortina”) to acquire, directly or through a designated affiliate, substantially all of the assets of Cortina relating to Cortina’s business of providing investment management, investment advisory, and related services.

in the form of issuance and delivery to certain Principals of Cortina at closing of Class B Units in Silvercrest L.P., in each case subject to certain adjustments as described in the Purchase Agreement.

Subject to the terms and conditions set forth in the Purchase Agreement, we agreed to pay to Cortina an aggregate maximum amount of $44.9 million, 80% of which was agreed to be paid in cash at closing by us, and 20% of which was agreed to be paid by us in the form of issuance and delivery to certain Principals of Cortina at closing of Class B Units in Silvercrest L.P., in each case subject to certain adjustments as described in the Purchase Agreement.

In addition, the Purchase Agreement provides for up to an additional $26.2 million to be paid 80% in cash with certain Principals of Cortina receiving the remaining 20% in the form of Class B Units of Silvercrest L.P.

18 unchanged sentences

Operating Results

Our revenues for the three and six months ended June 30, 2020 and 2019 are set forth below:

Our revenues for the three and nine months ended September 30, 2020 and 2019 are set forth below:

For the Three Months

Ended June 30,

Ended September 30,

(in thousands)

2 unchanged sentences

Total revenue

For the Six Months

Ended June 30,

For the Nine Months

Ended September 30,

(in thousands)

2 unchanged sentences

Total revenue

The growth in our assets under management during the three and six months ended June 30 , 2020 and 2019 is described below:

The growth in our assets under management during the three and nine months ended September 30 , 2020 and 2019 is described below:

Assets Under Management

2 unchanged sentences

Discretionary

As of March 31, 2019

As of June 30, 2019

Gross client inflows

1 unchanged sentence

Market appreciation

As of September 30, 2019

As of June 30, 2020

As of March 31, 2020

Gross client inflows

1 unchanged sentence

Market appreciation

As of June 30, 2020

As of September 30, 2020

As of January 1, 2019

2 unchanged sentences

Market appreciation

As of June 30, 2019

As of September 30, 2019

As of January 1, 2020

2 unchanged sentences

Market (depreciation)/appreciation

As of June 30 , 2020

As of September 30 , 2020

Less than 5% of assets under management generate performance fees or allocations.

1 unchanged sentence

PROPRIETARY EQUITY PERFORMANCE

as of June 30, 2020

as of September 30, 2020

ANNUALIZED PERFORMANCE

40 unchanged sentences

The Russell 3000 Value Index is a capitalization-weighted, unmanaged index that measures those Russell 3000 Index companies with lower price-to-book ratios and lower forecasted growth.

Three Months Ended June 30 , 2020 versus Three Months Ended June 30 , 2019

Our total revenue increased by $0.1 million, or 0.5%, to $24.0 million for the three months ended June 30, 2020, from $23.9 million for the three months ended June 30, 2019.

This increase was driven by net client inflows in discretionary assets under management, including $1.7 billion in assets under management acquired on July 1, 2019 in connection with the Cortina Acquisition, partially offset by net client outflows and market depreciation during the quarter ended March 31, 2020.

Cortina revenue for the three months ended June 30, 2020 was $2.6 million.

Revenue for the quarter ended June 30, 2020 is primarily based on market values as of March 31, 2020, and as such was affected by declines in the financial markets caused by COVID-19 during the quarter ended March 31,2020.

Total assets under management increased by $2.1 billion, or 9.7%, to $23.8 billion at June 30, 2020 from $21.7 billion at June 30, 2019.

Compared to the three months ended June 30, 2019, there was an increase in market appreciation of $2.3 billion and a decrease of $1.2 billion in client outflows, partially offset by a decrease of $1.2 billion in client inflows.

During the three months ended June 30, 2020, from March 31, 2020, there was an increase of $2.4 billion in discretionary assets under management while non-discretionary assets under management increased by $0.8 billion.

These increases in assets under management as of June 30, 2020 as compared to March 31, 2020 were primarily due to market appreciation during the quarter ended June 30, 2020.

Sub-advised fund management revenue remained flat at $0.3 million for the three months ended June 30, 2020 as compared to the same period in the prior year.

Proprietary fund management revenue decreased by $0.2 million for the three months ended June 30, 2020 as compared to the same period in the prior year as a result of market fluctuations and client redemptions.

With respect to our discretionary assets under management, equity assets experienced an increase of 20.3% during the three months ended June 30, 2020 and fixed income assets increased by 1.9% during the same period.

For the three months ended June 30, 2020, most of the increase in equity assets came from our smid growth, small cap growth and master limited partnership strategies with composite returns of 47.3%, 43.8% and 28.2%, respectively.

As of June 30, 2020, the composition of our assets under management was 73% in discretionary assets, which includes both separately managed accounts and proprietary and sub-advised funds, and 27% in non-discretionary assets which represent assets on which we provide portfolio reporting but do not have investment discretion.

The following table represents a further breakdown of our assets under management as of the three months ended June 30, 2020 and 2019:

Three Months Ended September 30 , 2020 versus Three Months Ended September 30 , 2019

Our total revenue decreased by $0.6 million, or 2.4%, to $27.2 million for the three months ended September 30, 2020, from $27.8 million for the three months ended September 30, 2019.

This decrease was driven by the continued impact of COVID-19 on the financial markets during the quarter ended March 31, 2020 which caused a reduction in assets under management, as well as net client outflows during the quarter ended September 30, 2020.

This was partially offset by market appreciation during the current quarter.

Total assets under management increased by $0.9 billion, or 3.8%, to $24.4 billion at September 30, 2020 from $23.5 billion at September 30, 2019.

Compared to the three months ended September 30, 2019, there was an increase in market appreciation of $0.4 billion and a decrease of $1.5 billion in client outflows, partially offset by a decrease of $3.1 billion in client inflows.

Client inflows during the three months ended September 30, 2019 included $1.7 billion in assets under management acquired on July 1, 2019 in connection with the Cortina Acquisition.

During the three months ended September 30, 2020, from June 30, 2020, there was an increase of $0.6 billion in discretionary assets under management while non-discretionary assets under management remained flat.

The increase in assets under management as of September 30, 2020 as compared to June 30, 2020 were primarily due to market appreciation during the quarter ended September 30, 2020, partially offset by net client withdrawals during the current quarter.

Sub-advised fund management revenue remained flat at $0.3 million for the three months ended September 30, 2020 as compared to the same period in the prior year.

Proprietary fund management revenue decreased by $0.2 million for the three months ended September 30, 2020 as compared to the same period in the prior year as a result of market fluctuations and client redemptions.

With respect to our discretionary assets under management, equity assets experienced an increase of 4.5% during the three months ended September 30, 2020 and fixed income assets increased by 2.9% during the same period.

For the three months ended September 30, 2020, most of the increase in equity assets came from our core international, smid growth and small cap growth strategies with composite returns of 12.2%, 12.0% and 9.8%, respectively.

As of September 30, 2020, the composition of our assets under management was 73% in discretionary assets, which includes both separately managed accounts and proprietary and sub-advised funds, and 27% in non-discretionary assets which represent assets on which we provide portfolio reporting but do not have investment discretion.

The following table represents a further breakdown of our assets under management as of the three months ended September 30, 2020 and 2019:

Three Months Ended

Total AUM as of March 31,

September 30,

Total AUM as of June 30,

Discretionary AUM:

Total Discretionary AUM as of March 31,

Total Discretionary AUM as of June 30,

New client accounts/assets (1)

4 unchanged sentences

Change to Discretionary AUM

Total Discretionary AUM at June 30,

Total Discretionary AUM at September 30,

Change to Non-Discretionary AUM (5)

Total AUM as of June 30,

Total AUM as of September 30,

Represents new account flows from both new and existing client relationships.

3 unchanged sentences

Represents the net change to Non-Discretionary AUM.

Six Months Ended June 30, 2020 versus Six Months Ended June 30, 2019

Our total revenue increased by $5.9 million, or 12.7%, to $52.4 million for the six months ended June 30, 2020, from $46.5 million for the six months ended June 30, 2019.

Nine Months Ended September 30, 2020 versus Nine Months Ended September 30, 2019

Our total revenue increased by $5.3 million, or 7.1%, to $79.6 million for the nine months ended September 30, 2020, from $74.3 million for the nine months ended September 30, 2019.

Cortina revenue for the six months ended June 30, 2020 was $5.4 million.

Revenue for the first two quarters of 2020 is primarily based on market values as of the end of the respective prior quarter, and as such was partially affected by declines in the financial markets caused by COVID-19 during the quarter ended March 31,2020.

Total assets under management increased by $2.1 billion, or 9.7%, to $23.8 billion at June 30, 2020 from $21.7 billion at June 30, 2019.

Compared to the six months ended June 30, 2019, there was a decrease in market appreciation of $4.3 billion and a decrease in client inflows of $2.5 billion, partially offset by a decrease in client outflows of $2.8 billion.

During the six months ended June 30, 2020, from December 31, 2019, there was a decrease of $1.5 billion in discretionary assets under management and an increase of $0.2 billion in non-discretionary assets under management.

These decreases in assets under management during the six months ended June 30, 2020 as compared to December 31, 2019 were primarily due to the effects of COVID-19 on financial markets during the quarter ended March 31, 2020.

Sub-advised fund management revenue remained flat at $0.6 million for the six months ended June 30, 2020 as compared to the same period in the prior year.

Proprietary fund management revenue decreased by $0.3 million for the six months ended June 30, 2020 as compared to the same period in the prior year, as a result of market depreciation.

With respect to our discretionary assets under management, equity assets experienced a decrease of 11.3% during the six months ended June 30, 2020 and fixed income assets decreased by 1.1% during the same period.

For the six months ended June 30, 2020, most of the decrease in equity assets came from our master limited partnership, emerging markets ADR and international small cap value strategies with composite returns of (31.0)%, (28.9)% and (25.9)%, respectively.

The following table represents a further breakdown of our assets under management as of the six months ended June 30, 2020 and 2019:

Six Months Ended

Cortina revenue for the nine months ended September 30, 2020 was $8.4 million.

Revenue for the first three quarters of 2020 is primarily based on market values as of the end of the respective prior quarter, and as such was partially affected by declines in the financial markets caused by COVID-19 during the quarter ended March 31,2020.

Total assets under management in creased by $ 0.9 billion, or 3.8 %, to $ 24.4 billion at September 30, 2020 from $ 23.5 billion at September 30, 2019.

Compared to the nine months ended September 30, 2019, there was a decrease in market appreciation of $ 3.

9 billion and a decrease in client inflows of $ 5.6 billion, partially offset by a decrease in client outflows of $ 4.3 billion .

Client inflows during the nine months ended September 30, 2019 included $1.7 billion in assets under management acquired on July 1, 2019 in connection with the Cortina Acquisition .

During the nine months ended September 30, 2020, from December 31, 2019, there was a de crease of $ 0.9 billion in discretionary assets under management and an increase of $ 0.2 billion in non-discretionary assets under management.

The decrease in assets under management during the nine months ended September 30, 2020 , as compared to December 31, 2019 , w as primarily due to market depreciation due to the effects of COVID-19 on financial markets during the quarter ended March 31, 2020 , partially offset by net client inflows during the nine month period .

Sub-advised fund management revenue remained flat at $ 0.9 million for the nine months ended September 30, 2020 as compared to the same period in the prior year.

Proprietary fund management revenue decreased by $ 0.4 million for the nine months ended September 30, 2020 as compared to the same period in the prior year, as a result of market depreciation.

With respect to our discretionary assets under management, equity assets experienced a de crease of 7.3 % during the nine months ended September 30, 2020 and fixed income assets in creased by 1.8 % during the same period.

For the nine months ended September 30, 2020, most of the de crease in equity assets came from our master limited partnership , emerging markets ADR and REIT strateg ies with composite returns of ( 40.0 ) %, ( 24.6 ) % and ( 20.2 ) %, respectively.

As of September 30, 2020, the composition of our assets under management was 73 % in discretionary assets, which includes both separately managed accounts and proprietary and sub-advised funds, and 27 % in non-discretionary assets which represent assets on which we provide portfolio reporting but do not have investment discretion.

The following table represents a further breakdown of our assets under management as of the nine months ended September 30, 2020 and 2019:

Nine Months Ended

September 30,

Total AUM as of January 1,

6 unchanged sentences

Change to Discretionary AUM

Total Discretionary AUM at June 30,

Total Discretionary AUM at September 30,

Change to Non-Discretionary AUM (5)

Total AUM as of June 30,

Total AUM as of September 30,

Represents new account flows from both new and existing client relationships.

3 unchanged sentences

Represents the net change to Non-Discretionary AUM.

Our expenses for the three and six months ended June 30, 2020 and 2019 are set forth below:

For the Three Months Ended June 30,

Our expenses for the three and nine months ended September 30, 2020 and 2019 are set forth below:

For the Three Months Ended September 30,

(in thousands)

2 unchanged sentences

Total expenses

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

(in thousands)

2 unchanged sentences

Total expenses

For the three months ended September 30, 2020 and 2019, $7,121 and $7,154, respectively, of partner incentive payments were included in cash compensation and benefits expense in the Condensed Consolidated Statements of Operations.

For the nine months ended September 30, 2020 and 2019, $20,055 and $18,766 respectively, of partner incentive payments were included in cash compensation and benefits expense in the Condensed Consolidated Statements of Operations.

Our expenses are driven primarily by our compensation costs.

The table included in “—Expenses—Compensation and Benefits Expense” describes the components of our compensation expense for the three and six months ended June 30, 2020 and 2019.

The table included in “—Expenses—Compensation and Benefits Expense” describes the components of our compensation expense for the three and nine months ended September 30, 2020 and 2019.

Other expenses, such as rent, professional service fees, data-related costs, and sub-advisory fees incurred are included in our general and administrative expenses in the Condensed Consolidated Statements of Operations.

Three Months Ended June 30, 2020 versus Three Months Ended June 30, 2019

Total expenses increased by $3.2 million, or 16.4%, to $22.7 million for the three months ended June 30, 2020 from $19.5 million for the three months ended June 30, 2019.

This decrease was attributable to a decrease in compensation and benefits expense of $0.6 million partially offset by an increase in general, administrative and other expenses of $3.8 million.

Compensation and benefits expense decreased by $0.6 million, or 4.6%, to $13.4 million for the three months ended June 30, 2020 from $14.0 million for the three months ended June 30, 2019.

The decrease was primarily attributable to a decrease in the accrual for bonuses of $0.8 million and a decrease in equity based compensation expense of $0.7 million due to a decrease in the number of unvested restricted stock units and unvested non-qualified stock options outstanding, partially offset by an increase in salaries and benefits of $0.9 million primarily as a result of merit-based increases and newly hired staff, including the addition of Cortina staff.

General and administrative expenses increased by $3.8 million, or 70.6%, to $9.3 million for the three months ended June 30, 2020 from $5.5 million for the three months ended June 30, 2019.

This was primarily attributable to an increase in the fair value of contingent consideration related to the Cortina Acquisition of $3.8 million, a decrease in travel and entertainment expenses of $0.3 million and a decrease in storage and moving expenses of $0.2 million, partially offset by an increase in portfolio and systems expenses of $0.2 million and an increase in depreciation and amortization expense of $0.3 million related mainly to the amortization of intangible assets related to the Cortina Acquisition and to the renovation of our office space in New York City.

Six Months Ended June 30, 2020 versus Six Months Ended June 30, 2019

Total expenses increased by $0.4 million, or 1.0%, to $38.4 million for the six months ended June 30, 2020 from $38.0 million for the six months ended June 30, 2019.

Three Months Ended September 30, 2020 versus Three Months Ended September 30, 2019

Total expenses increased by $0.7 million, or 3.2%, to $22.2 million for the three months ended September 30, 2020 from $21.5 million for the three months ended September 30, 2019.

This increase was attributable to an increase in general, administrative and other expenses of $0.6 million and an increase in compensation and benefits expense of $0.1 million.

Compensation and benefits expense increased by $0.1 million, or 0.3%, to $15.2 million for the three months ended September 30, 2020 from $15.1 million for the three months ended September 30, 2019.

The increase was primarily attributable to an increase in salaries and benefits of $0.3 million primarily as a result of merit-based increases and newly hired staff, partially offset by a decrease in equity based compensation expense of $0.2 million due to a decrease in the number of unvested restricted stock units and unvested non-qualified stock options outstanding.

General and administrative expenses increased by $0.7 million, or 10.0%, to $7.1 million for the three months ended September 30, 2020 from $6.4 million for the three months ended September 30, 2019.

This was primarily attributable to an increase in the fair value of contingent consideration related to the Cortina Acquisition of $1.7 million and an increase in portfolio and systems expenses of $0.2 million partially offset by a decrease in professional fees of $0.9 million, a decrease in travel and entertainment expenses of $0.2 million as a result of the coronavirus pandemic, a decrease in office expense of $0.1 million as a result of the coronavirus pandemic and a decrease in storage and moving expenses of $0.1 million.

Nine Months Ended September 30, 2020 versus Nine Months Ended September 30, 2019

Total expenses increased by $1.0 million, or 1.8%, to $60.6 million for the nine months ended September 30, 2020 from $59.6 million for the nine months ended September 30, 2019.

This increase was attributable to an increase in compensation and benefits expense of $1.7 million partially offset by a decrease in general, administrative and other expenses of $0.7 million.

Compensation and benefits expense increased by $ 1.7 million, or 6.2 %, to $ 29.1 million for the six months ended June 30, 2020 from $27.4 million for the six months ended June 30, 2019.

Compensation and benefits expense increased by $1.7 million, or 4.1%, to $44.2 million for the nine months ended September 30, 2020 from $42.5 million for the nine months ended September 30, 2019.

The increase was primarily attributable to an increase in salaries and benefits expense of $2.1 million primarily as a result of merit-based increases and newly hired staff, including the addition of Cortina staff and an increase in the accrual for bonuses of $1.3 million, partially offset by a decrease in equity based compensation expense of $1.7 million due to a decrease in the number of unvested restricted stock units and unvested non-qualified stock options outstanding.

General and administrative expenses decreased by $1.3 million, or 12.4%, to $9.3 million for the six months ended June 30, 2020 from $10.7 million for the six months ended June 30, 2019.

The decrease was primarily attributable to a decrease in the fair value of contingent consideration related to the Cortina Acquisition of $2.2 million, a decrease in travel and entertainment expenses of $0.3 million and a decrease in storage and moving expenses of $0.2 million partially offset by an increase in depreciation and amortization expense of $0.8 million related mainly to the amortization of intangible assets related to the Cortina Acquisition and to the renovation of our office space in New York City, an increase in occupancy and related expenses of $0.1 million, an increase in portfolio and systems expenses of $0.3 million, an increase in the fair value of contingent consideration related to the Jamison Acquisition of $0.1 million and an increase in the fair value of contingent consideration related to the Cappiccille Acquisition of $0.1 million.

General and administrative expenses decreased by $0.7 million, or 3.9%, to $16.4 million for the nine months ended September 30, 2020 from $17.1 million for the nine months ended September 30, 2019.

The decrease was primarily attributable to a decrease in the fair value of contingent consideration related to the Cortina Acquisition of $0.5 million, a decrease in travel and entertainment expenses of $0.5 million as a result of the coronavirus pandemic, a decrease in professional fees of $1.0 million, a decrease in office expense of $0.1 million as a result of the coronavirus pandemic, a decrease in printing costs of $0.1 million and a decrease in storage and moving expenses of $0.3 million partially offset by an increase in depreciation and amortization expense of $0.8 million related mainly to the amortization of intangible assets related to the Cortina Acquisition and to the renovation of our office space in New York City, an increase in occupancy and related expenses of $0.3 million related to the increased costs of cleaning due to the coronavirus pandemic, an increase in portfolio and systems expenses of $0.5 million, an increase in the fair value of contingent consideration related to the Jamison Acquisition of $0.1 million and an increase in the fair value of contingent consideration related to the Cappiccille Acquisition of $0.1 million.

Other Income (Expense), Net

For the Three Months Ended June 30,

For the Three Months Ended September 30,

(in thousands)

2 unchanged sentences

Interest expense

Equity income from investments

Total other income (expense), net

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

(in thousands)

2 unchanged sentences

Interest expense

Equity income from investments

Total other income (expense), net

NM – Not Meaningful

Three Months Ended June 30, 2020 versus Three Months Ended June 30, 2019

Total other income (expense) net decreased by $201 thousand to other expense of $122 thousand for the three months ended June 30, 2020 from other income of $79 thousand for the three months ended June 30, 2019 due to an increase in interest expense as a result of borrowings under our credit facility and a decrease in interest income due to lower balances on notes receivable as a result of scheduled repayments.

Six Months Ended June 30, 2020 versus Six Months Ended June 30, 2019

Total other income (expense) net decreased by $448 thousand to other expense of $300 thousand for the six months ended June 30, 2020 from other income of $148 thousand for the six months ended June 30, 2019 due to an increase in interest expense as a result of borrowings under our credit facility and a decrease in interest income due to lower balances on notes receivable as a result of scheduled repayments.

Three Months Ended September 30, 2020 versus Three Months Ended September 30, 2019

Total other income (expense) net decreased by $133 thousand to other expense of $110 thousand for the three months ended September 30, 2020 from other income of $23 thousand for the three months ended September 30, 2019 due to a decrease in interest expense as a result of the level of borrowings under our credit facility and a decrease in interest income due to lower balances on notes receivable as a result of scheduled repayments.

Nine Months Ended September 30, 2020 versus Nine Months Ended September 30, 2019

Total other income (expense) net decreased by $581 thousand to other expense of $410 thousand for the nine months ended September 30, 2020 from other income of $171 thousand for the nine months ended September 30, 2019 due to an increase in interest expense as a result of the level of borrowings under our credit facility and a decrease in interest income due to lower balances on notes receivable as a result of scheduled repayments.

Provision for Income Taxes

Three Months Ended June 30, 2020 versus Three Months Ended June 30, 2019

The provision for income taxes was $0.5 million and $1.2 million for the three months ended June 30, 2020 and 2019, respectively.

The change was primarily the result of the tax effect of the decrease in the fair value of the contingent consideration related to the Cortina Acquisition, partially offset by increased profitability during the current period as compared to the prior year.

Our provision for income taxes as a percentage of income before provision for income taxes for the three months ended June 30, 2020 and 2019 was 36.7% and 25.7%, respectively.

Six Months Ended June 30 , 2020 versus Six Months Ended June 30 , 2019

The provision for income taxes was $3.2 million and $2.2 million for the six months ended June 30, 2020 and 2019, respectively.

Three Months Ended September 30, 2020 versus Three Months Ended September 30, 2019

The provision for income taxes was $1.4 million and $1.5 million for the three months ended September 30, 2020 and 2019, respectively.

The change was primarily the result of the tax effect of the increase in the fair value of the contingent consideration related to the Cortina Acquisition, partially offset by increased profitability during the current period as compared to the prior year.

Our provision for income taxes as a percentage of income before provision for income taxes for the three months ended September 30, 2020 and 2019 was 28.1% and 23.7%, respectively.

Nine Months Ended September 30, 2020 versus Nine Months Ended September 30, 2019

The provision for income taxes was $4.6 million and $3.6 million for the nine months ended September 30, 2020 and 2019, respectively.

The change was primarily the result of by increased profitability during the current period as compared to the prior year.

Our provision for income taxes as a percentage of income before provision for income taxes for the six months ended June 30, 2020 and 2019 was 23.4% and 25.4%, respectively.

Our provision for income taxes as a percentage of income before provision for income taxes for the nine months ended September 30, 2020 and 2019 was 24.6% and 24.7%, respectively.

Supplemental Non-GAAP Financial Information

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Reconciliation of non-GAAP financial measure:

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Non-acquisition expansion costs (a)

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Total other adjustments

For the six months June 30, 2020 and 2019, represents accrued earnout of $0 and $97, respectively, related to our Richmond, VA office expansion.

For the three months ended June 30 , 2020 , represents legal and other professional fees of $ 12 and insurance costs of $ 11 related to the acquisition of Cortina .

For the six months ended June 30, 2020, represents legal and other professional fees of $ 84 , insurance costs of $ 23 related to the acquisition of Cortina, and costs related to the integration of Cortina’s operations of $ 173 .

For the three months ended June 30 , 2019 , represents legal fees of $ 38 related to the Neosho Acquisition and legal fees of $ 194 related to the acquisition of Cortina.

For the six months ended June 30, 2019, represents legal fees of $156 related to the Neosho Acquisition and legal fees of $214 related to the acquisition of Cortina.

For the three months ended June 30, 2020, represents an ASC 842 rent adjustment of $48 related to the amortization of property lease incentives, a fair value adjustment to the Jamison contingent purchase price consideration of $70, a fair value adjustment to the Cortina contingent purchase price consideration of $3,800 and expenses related to the Coronavirus pandemic of $123.

For the six months ended June 30, 2020, represents expenses of $18 related to office renovations, an ASC 842 rent adjustment of $96 related to the amortization of property lease incentives, professional fees related to a new audit requirement of $13, a fair value adjustment to the Cappiccille contingent purchase price consideration of $83, a fair value adjustment to the Cortina contingent purchase price consideration of $(2,200), a fair value adjustment to the Jamison contingent purchase price consideration of $70, and expenses related to the Coronavirus pandemic of $144.

For the three months ended June 30, 2019, represents moving expenses of $187 related to office relocations and an ASC 842 rent adjustment of $48 related to the amortization of property lease incentives.

For the six months ended June 30, 2019, represents moving expenses of $235 related to office relocations and an ASC 842 rent adjustment of $96 related to the amortization of property lease incentives.

For the nine months September 30, 2020 and 2019, represents accrued earnout of $0 and $97, respectively, related to our Richmond, VA office expansion.

For the three months ended September 30 , 2020 , represents legal and other professional fees of $ 27 and insurance costs of $ 11 related to the acquisition of Cortina .

For the nine months ended September 30, 2020, represents legal and other professional fees of $ 111 , insurance costs of $ 34 related to the acquisition of Cortina, and costs related to the integration of Cortina’s operations of $ 173 .

For the three months ended September 30, 2019, represents legal fees of $0 related to the Neosho Acquisition and legal and other professional fees of $932 and insurance costs of $22 related to the acquisition of Cortina.

For the nine months ended September 30, 2019, represents legal fees of $156 related to the Neosho Acquisition and legal and other professional fees of $1,146 and insurance costs of $22 related to the acquisition of Cortina.

For the three months ended September 30, 2020, represents an ASC 842 rent adjustment of $48 related to the amortization of property lease incentives, a fair value adjustment to the Cortina contingent purchase price consideration of $1,700 and expenses related to the Coronavirus pandemic of $165.

For the nine months ended September 30, 2020, represents expenses of $18 related to office renovations, an ASC 842 rent adjustment of $144 related to the amortization of property lease incentives, professional fees related to a new audit requirement of $13, a fair value adjustment to the Cappiccille contingent purchase price consideration of $83, a fair value adjustment to the Cortina contingent purchase price consideration of $(500), a fair value adjustment to the Jamison contingent purchase price consideration of $70, and expenses related to the Coronavirus pandemic of $309.

For the three months ended September 30, 2019, represents expenses of $154 related to office renovations and an ASC 842 rent adjustment of $48 related to the amortization of property lease incentives, partially offset by an adjustment to the fair value of our tax receivable agreement of $234.

For the nine months ended September 30, 2019, represents expenses of $389 related to office renovations and an ASC 842 rent adjustment of $144 related to the amortization of property lease incentives partially offset by an adjustment to the fair value of our tax receivable agreement of $234.

GAAP net income per share is strictly attributable to Class A shareholders.

Adjusted earnings per share takes into account earnings attributable to both Class A and Class B shareholders.

Includes 8,242 and 1,897 unvested restricted stock units at June 30, 2020 and 2019, respectively.

Includes 74,907 and 276,963 unvested restricted stock units and 86,764 and 0 unvested non-qualified options at June 30, 2020 and 2019, respectively.

Includes 8,242 and 1,897 unvested restricted stock units at September 30, 2020 and 2019, respectively.

Includes 74,907 and 35,336 unvested restricted stock units and 86,764 and 0 unvested non-qualified options at September 30, 2020 and 2019, respectively.

Liquidity and Capital Resources

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Any undrawn amounts under this facility would be available to fund future acquisitions or for working capital purposes, if needed.

As of June 30, 2020, we had $14.4 million outstanding under the term loan.

As of June 30, 2020, there were no borrowings outstanding on the revolving credit facility.

We were in compliance with the covenants under the credit facility as of June 30, 2020.

As of September 30, 2020, we had $13.5 million outstanding under the term loan.

As of September 30, 2020, there were no borrowings outstanding on the revolving credit facility.

We were in compliance with the covenants under the credit facility as of September 30, 2020.

Our ongoing sources of cash will primarily consist of management fees and family office services fees, which are principally collected quarterly.

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We believe that we have sufficient cash from our operations to fund our operations and commitments for the next twelve months.

The following table sets forth certain key financial data relating to our liquidity and capital resources as of June 30, 2020 and December 31, 2019.

The following table sets forth certain key financial data relating to our liquidity and capital resources as of September 30, 2020 and December 31, 2019.

(in thousands)

September 30,

Cash and cash equivalents

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We intend to fund required payments pursuant to the tax receivable agreement from the distributions received from Silvercrest L.P.

The following table sets forth our cash flows for the six months ended June 30, 2020 and 2019.

The following table sets forth our cash flows for the nine months ended September 30, 2020 and 2019.

Operating activities consist of net income subject to adjustments for changes in operating assets and liabilities, depreciation, and equity-based compensation expense.

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Financing activities consist primarily of contributions from partners, distributions to partners, dividends paid on Class A common stock, the issuance and payments on partner notes, other financings, and earnout payments related to business acquisitions.

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

Net cash used in operating activities

Net provided by operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash (used in) provided by financing activities

Net change in cash

Operating Activities

Six Months Ended June 30, 2020 versus Six Months Ended June 30, 2019

For the six months ended June 30, 2020 and 2019, operating activities used $4.4 million and $8.1 million, respectively.

This difference is primarily the result of an increase in net income of $4.1 million, decreased payouts of accrued compensation of $0.4 million, a decrease in accounts receivable of $1.4 million due to timing of payments received from clients, an increase in deferred tax expense of $0.8 million, an increase in non-cash lease expense of $1.3 million, an increase in depreciation and amortization expense of $0.8 million primarily as a result of the Cortina Acquisition and the completion of renovations to our offices and an increase in prepaid expenses and other assets of $0.2 million.

This was partially offset by a decrease in equity-based compensation expense of $1.5 million, a decrease in distributions received from investment in funds of $0.5 million, a decrease in operating lease liabilities of $1.5 million and a decrease in accounts payable and accrued expenses of $2.0 million, primarily due to a decrease in the fair value of contingent consideration related to the Cortina Acquisition.

Nine Months Ended September 30, 2020 versus Nine Months Ended September 30, 2019

For the nine months ended September 30, 2020 and 2019, operating activities provided $10.1 million and $3.8 million, respectively.

This difference is primarily the result of an increase in net income of $2.7 million, decreased payouts of accrued compensation of $0.5 million, an increase in distributions received from investment funds of $0.3 million, a decrease in accounts receivable of $3.6 million due to timing of payments received from clients, an increase in non-cash lease expense of $2.4 million, an increase in depreciation and amortization expense of $0.8 million primarily as a result of the Cortina Acquisition and the completion of renovations to our offices, a change in the tax receivable agreement adjustment of $0.2 million and an increase in prepaid expenses and other assets of $1.2 million.

This was partially offset by a decrease in equity-based compensation expense of $1.7 million, a decrease in operating lease liabilities of $2.6 million, a decrease in deferred tax expense of $0.1 million and a decrease in accounts payable and accrued expenses of $1.0 million, primarily due to a decrease in the fair value of contingent consideration related to the Cortina Acquisition.

Investing Activities

Six Months Ended June 30, 2020 versus Six Months Ended June 30, 2019

For the six months ended June 30, 2020 and 2019, investing activities used $0.4 million and $3.2 million, respectively.

The primary use of cash during the six months ended June 30, 2020 was for the acquisition of furniture, equipment and leasehold improvements mostly related to the renovation of our office space in New York City.

The primary use of cash during the six months ended June 30, 2019 was for cash paid at closing of the Neosho Acquisition and for the acquisition of furniture, equipment and leasehold improvements mostly related to the renovation of our office space in New York City.

Nine Months Ended September 30, 2020 versus Nine Months Ended September 30, 2019

For the nine months ended September 30, 2020 and 2019, investing activities used $0.5 million and $39.1 million, respectively.

The primary use of cash during the nine months ended September 30, 2020 was for the acquisition of furniture, equipment and leasehold improvements mostly related to the renovation of our office space in New York City.

The primary use of cash during the nine months ended September 30, 2019 was for cash paid at closing of the Neosho and Cortina Acquisitions and for the acquisition of furniture, equipment and leasehold improvements mostly related to the renovation of our office space in New York City.

Financing Activities

Six Months Ended June 30, 2020 versus Six Months Ended June 30, 2019

For the six months ended June 30, 2020 and 2019, financing activities used $10.4 million and $7.1 million, respectively.

During the six months ended June 30, 2020, the Company repaid $1.8 million of principal on the term loan with City National Bank.

Distributions to partners during the six months ended June 30, 2020 and 2019 were $5.0 million and $5.8 million, respectively.

During the six months ended June 30, 2020 and 2019, the Company paid dividends of $3.0 million and $2.6 million, respectively, to Class A shareholders.

During the six months ended June 30, 2020 and 2019, we made earnout payments of $0.7 million and $0.4 million, respectively.

During the six months ended June 30, 2020 and 2019, we received payments from partners on notes receivable of $0.3 million and $0.3 million, respectively.

Nine Months Ended September 30, 2020 versus Nine Months Ended September 30, 2019

For the nine months ended September 30, 2020 and 2019, financing activities used $14.3 million and provided $6.9 million, respectively.

During the nine months ended September 30, 2020 and 2019, the Company repaid $2.7 million and $0.9 million, respectively, of principal on the term loan with City National Bank.

Distributions to partners during the nine months ended September 30, 2020 and 2019 were $6.5 million and $7.4 million, respectively.

During the nine months ended September 30, 2020 and 2019, the Company paid dividends of $4.6 million and $3.9 million, respectively, to Class A shareholders.

During the nine months ended September 30, 2020 and 2019, we made earnout payments of $0.7 million and $0.4 million, respectively.

During the nine months ended September 30, 2020 and 2019, we received payments from partners on notes receivable of $0.3 million and $0.3 million, respectively.

We anticipate that distributions to principals 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.

As of June 30, 2020 and December 31, 2019, $14.4 million and $16.2, respectively, was outstanding under the term loan with City National Bank.

As of June 30, 2020 and December 31, 2019, nothing was outstanding on our revolving credit facility with City National Bank.

As of September 30, 2020 and December 31, 2019, $13.5 million and $16.2, respectively, was outstanding under the term loan with City National Bank.

As of September 30, 2020 and December 31, 2019, nothing was outstanding on our revolving credit facility with City National Bank.

Off-Balance Sheet Arrangements

We did not have any significant off-balance sheet arrangements as of June 30, 2020 or December 31, 2019.

We did not have any significant off-balance sheet arrangements as of September 30, 2020 or December 31, 2019.

Critical Accounting Policies and Estimates

There have been no changes to our critical accounting policies during the six months ended June 30, 2020 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on March 5, 2020.

There have been no changes to our critical accounting policies during the nine months ended September 30, 2020 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on March 5, 2020.

Revenue Recognition

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(in billions)

June 30, 2020 AUM

September 30, 2020 AUM

December 31, 2019 AUM

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“– Qualitative and Quantitative Disclosures Regarding Market Risk.”

The average value of our assets under management for the three and six months ended June 30 , 2020 was approximately $ 22.2 billion and $ 24.5 billion, respectively .

Assuming a 10% increase or decrease in our average assets under management and the change being proportionately distributed over all our products, the value would increase or decrease by approximately $ 2.2 billion and $ 2.5 billion for the three and six months ended June 30 , 2020 , respectively, which would cause an annualized increase or decrease in revenues of approximately $ 9.6 million and $ 10.5 million for the three and six months ended June 30 , 2020 , respectively, at a weighted average fee rate for the three and six months ended June 30 , 2020 of 0.

43 % and 0.43 %, respectively .

The average value of our assets under management for the three and nine months ended September 30 , 2020 was approximately $ 24.1 billion and $ 24.8 billion, respectively .

Assuming a 10% increase or decrease in our average assets under management and the change being proportionately distributed over all our products, the value would increase or decrease by approximately $ 2.4 billion and $ 2.5 billion for the three and nine months ended September 30 , 2020 , respectively, which would cause an annualized increase or decrease in revenues of approximately $ 10.9 million and $ 10.6 million for the three and nine months ended September 30 , 2020 , respectively, at a weighted average fee rate for the three and nine months ended September 30 , 2020 of 0.45 % and 0.43 %, respectively .

The average value of our assets under management for the year ended December 31, 2019 was approximately $22.1 billion.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis