What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-06 compared with 2020-11-05 · 106 added, 206 removed, 419 unchanged (43% 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 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 September 30, 2020, Silvercrest L.P.

During the three months ended March 31, 2021, our assets under management increased by 4.3% from $27.8 billion to $29.0 billion.

The business includes the management of funds of funds, and other investment funds, collectively referred to as the “Silvercrest Funds.” As of March 31, 2021, 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 33.1% partnership interest in Silvercrest L.P.

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

as of March 31, 2021 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, in the third quarter ended September 30, 2020, and may continue to do so indefinitely thereafter.

The COVID-19 pandemic affected our operations in the each of the four quarters during the period April 1, 2020 through March 31, 2021 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.

3 unchanged sentences

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, 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.

Due to the above circumstances and as described generally in this Form 10-Q, management cannot predict the full impact of the COVID-19 pandemic on the Company’s earnings and operations nor to economic conditions generally.

The ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic might end.

2 unchanged sentences

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Ended March 31,

(in thousands except as indicated)

28 unchanged sentences

As of and for the Three

Months Ended September 30,

As of and for the Nine Months

Ended September 30,

Months Ended March 31,

(in billions)

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As of and for the Three

Months Ended September 30,

As of and for the Nine Months

Ended September 30,

Months Ended March 31,

(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 0.45% 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.

Our average annual management fee was 0.44% and 0.50% for the three months ended March 31, 2021 and 2020, 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 nine months ended September 30, 2020 and 2019.

These cash flow-related adjustments were insignificant for the three months ended March 31, 2021 and 2020.

Silvercrest L.P.

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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 nine months ended September 30, 2020 and 2019 are as follows:

The components of our compensation expense for the three months ended March 31, 2021 and 2020 are as follows:

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Ended March 31,

(in thousands)

2 unchanged sentences

Total compensation expense

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.

For the three months ended March 31, 2021 and 2020, $8,004 and $7,377, respectively, of partner incentive payments were included in cash compensation and benefits expense in the Condensed Consolidated Statements of Operations.

During 2021 and 2020, Silvercrest L.P.

granted restricted stock units (“RSU”) to existing Class B unit holders.

During 2020 and 2019, Silvercrest L.P.

During 2020, Silvercrest L.P.

granted non-qualified options (“NQO”) to an existing Class B unit holder.

Information regarding restricted stock units and stock options can be found in Note 16.

“Equity Based Compensation” in the “Notes to Consolidated Financial Statements” in “Item 1.

“Equity Based Compensation” in the “Notes to Condensed Consolidated Financial Statements” in “Item 1.

Financial Statements” of this filing.

37 unchanged sentences

Operating Results

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

Our revenues for the three months ended March 31, 2021 and 2020 are set forth below:

For the Three Months

Ended September 30,

(in thousands)

Management and advisory fees

Family office services

Total revenue

For the Nine Months

Ended September 30,

Ended March 31,

(in thousands)

2 unchanged sentences

Total revenue

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

The growth in our assets under management during the three months ended March 31, 2021 and 2020 is described below:

Assets Under Management

2 unchanged sentences

Discretionary

As of June 30, 2019

Gross client inflows

Gross client outflows

Market appreciation

As of September 30, 2019

As of June 30, 2020

Gross client inflows

Gross client outflows

Market appreciation

As of September 30, 2020

As of January 1, 2020

1 unchanged sentence

Gross client outflows

Market appreciation

As of September 30, 2019

Net client flows

Market depreciation

As of March 31, 2020

As of January 1, 2021

1 unchanged sentence

Gross client outflows

Market (depreciation)/appreciation

As of September 30 , 2020

Net client flows

Market appreciation/(depreciation)

As of March 31 , 2021

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

1 unchanged sentence

PROPRIETARY EQUITY PERFORMANCE

as of September 30, 2020

as of March 31, 2021

ANNUALIZED PERFORMANCE

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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 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 March 31, 2021 versus Three Months Ended March 31, 2020

Our total revenue increased by $2.9 million, or 10.1%, to $31.2 million for the three months ended March 31, 2021, from $28.4 million for the three months ended March 31, 2020.

This increase was driven by market appreciation in discretionary assets under management, partially offset by net client outflows.

Total assets under management increased by $8.4 billion, or 40.8%, to $29.0 billion at March 31, 2021 from $20.6 billion at March 31, 2020.

Compared to the three months ended March 31, 2020, there was an increase in market depreciation of $6.0 billion and an increase of $0.5 billion in client inflows, partially offset by an increase of $0.8 billion in client outflows.

During the three months ended March 31, 2021, from December 31, 2020, there was an increase of $1.3 billion in discretionary assets under management while non-discretionary assets under management decreased by $0.1 billion.

The increase in assets under management as of March 31, 2021 as compared to December 31, 2020 was primarily due to market appreciation during the quarter ended March 31, 2021.

Sub-advised fund management revenue remained flat at $0.3 million for the three months ended March 31, 2021 as compared to the same period in the prior year.

Proprietary fund management revenue remained flat at $0.9 million for the three months ended March 31, 2021 as compared to the same period in the prior year.

With respect to our discretionary assets under management, equity assets experienced an increase of 9.1% during the three months ended March 31, 2021 and fixed income assets increased by 1.5% during the same period.

For the three months ended March 31, 2021, most of the increase in equity assets came from our master limited partnership, small cap value and smid cap value strategies with composite returns of 18.8%, 15.6% and 14.7%, respectively.

As of March 31, 2021, the composition of our assets under management was 76% in discretionary assets, which includes both separately managed accounts and proprietary and sub-advised funds, and 24% 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 March 31, 2021 and 2020:

Three Months Ended

September 30,

Total AUM as of June 30,

Discretionary AUM:

Total Discretionary AUM as of June 30,

New client accounts/assets (1)

Closed accounts (2)

Net cash inflow/(outflow) (3)

Non-discretionary to Discretionary AUM (4)

Market appreciation

Change to Discretionary AUM

Total Discretionary AUM at September 30,

Change to Non-Discretionary AUM (5)

Total AUM as of September 30,

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

Represents closed accounts of existing client relationships and those that terminated.

Represents periodic cash flows related to existing accounts.

Represents client assets that converted to Discretionary AUM from Non-Discretionary AUM.

Represents the net change to Non-Discretionary AUM.

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.

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 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,

4 unchanged sentences

Net cash inflow/(outflow) (3)

Market (depreciation) appreciation

Non-discretionary to Discretionary AUM (4)

Market appreciation

Change to Discretionary AUM

Total Discretionary AUM at September 30,

Total Discretionary AUM at March 31,

Change to Non-Discretionary AUM (5)

Total AUM as of September 30,

Total AUM as of March 31,

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 nine months ended September 30, 2020 and 2019 are set forth below:

For the Three Months Ended September 30,

(in thousands)

Compensation and benefits (1)

General, administrative and other

Total expenses

For the Nine Months Ended September 30,

Our expenses for the three months ended March 31, 2021 and 2020 are set forth below:

For the Three Months Ended March 31,

(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.

NM = Not Meaningful

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 nine months ended September 30, 2020 and 2019.

The table included in “—Expenses—Compensation and Benefits Expense” describes the components of our compensation expense for the three months ended March 31, 2021 and 2020.

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 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 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 $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 September 30,

(in thousands)

Three Months Ended March 31, 2021 versus Three Months Ended March 31, 2020

Total expenses increased by $9.8 million, or 62.2%, to $25.6 million for the three months ended March 31, 2021 from $15.8 million for the three months ended March 31, 2020.

This increase was attributable to increases in compensation and benefits expense and general, administrative and other expenses of $1.9 million and $7.9 million, respectively.

Compensation and benefits expense increased by $1.9 million, or 12.4%, to $17.7 million for the three months ended March 31, 2021 from $15.7 million for the three months ended March 31, 2020.

The increase was primarily attributable to an increase in the accrual for bonuses of $1.3 million, an increase in salaries and benefits of $0.3 million primarily as a result of merit-based increases and newly hired staff, an increase in equity-based compensation expense of $0.4 million due to an increase in the number of vested and unvested restricted stock units and unvested non-qualified stock options outstanding.

General and administrative expenses increased by $7.9 million, to $7.9 million for the three months ended March 31, 2021 from $43 thousand for the three months ended March 31, 2020.

This was primarily attributable to an increase in the fair value of contingent consideration related to the Cortina Acquisition of $8.3 million, an increase in occupancy and related costs of $0.1 million due to increased cleaning costs relate to the coronavirus pandemic, and an increase in professional fees of $0.1 million partially offset by a decrease in portfolio and systems expense of $0.3 million and a decrease in travel and entertainment expenses of $0.3 million as a result of the coronavirus pandemic.

Other Income (Expense), Net

Interest income

Interest expense

Equity income from investments

Total other income (expense), net

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

(in thousands)

2 unchanged sentences

Interest expense

Equity income from investments

Total other income (expense), net

NM – Not Meaningful

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.

Three Months Ended March 31, 2021 versus Three Months Ended March 31, 2020

Total other income (expense) net decreased by $82 thousand to other expense of $96 thousand for the three months ended March 31, 2021 from other expense of $178 thousand for the three months ended March 31, 2020 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.

Provision for Income Taxes

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 nine months ended September 30, 2020 and 2019 was 24.6% and 24.7%, respectively.

Three Months Ended March 31, 2021 versus Three Months Ended March 31, 2020

The provision for income taxes was $1.3 million and $2.7 million for the three months ended March 31, 2021 and 2020, respectively.

The change was primarily related to a reduction in the tax effect of the change in the fair value of the contingent consideration related to the Cortina Acquisition and by decreased 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 March 31, 2021 and 2020 was 22.5% and 22.1%, respectively.

Supplemental Non-GAAP Financial Information

To provide investors with additional insight, promote transparency and allow for a more comprehensive understanding of the information used by management in its financial and operational decision-making, we supplement our Condensed Consolidated Financial Statements presented on a basis consistent with U.S.

Financial Statements presented on a basis consistent with U.S.

generally accepted accounting principles, or GAAP, with Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net Income, and Adjusted Earnings Per Share which are non-GAAP financial measures of earnings.

13 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

Reconciliation of non-GAAP financial measure:

29 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

Non-acquisition expansion costs (a)

Acquisition costs (b)

Acquisition costs (a)

Total other adjustments

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.

For the three months ended March 31, 2021, represents equity-based compensation expense of $300 related to restricted stock unit grants issued to two associates hired as part of the Cortina Acquisition in conjunction with their admission to Silvercrest L.P., and insurance costs of $11 related to the acquisition of Cortina.

For the three months ended March 31, 2020, represents legal and other professional fees of $73, insurance costs of $11 related to the acquisition of Cortina, and costs related to the integration of Cortina’s operations of $173.

For the three months ended March 31, 2021, represents a fair value adjustment to the Cortina contingent purchase price consideration of $2,300, an ASC 842 rent adjustment of $48 related to the amortization of property lease incentives and expenses related to the Coronavirus pandemic of $115.

For the three months

ended March 31, 2020 , represents expenses of $ 18 related to office renovations, an ASC 842 rent adjustment of $48 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 $(6,000) and expenses related to the Coronavirus pandemic of $21.

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 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.

Includes 8,242 and 10,139 unvested restricted stock units at March 31, 2021 and 2020, respectively.

Includes 74,907 and 35,336 unvested restricted stock units and 192,162 and 0 unvested non-qualified options at March 31, 2021 and 2020, 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 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.

As of March 31, 2021, we had $11.7 million outstanding under the term loan.

As of March 31, 2021, there were no borrowings outstanding on the revolving credit facility.

We were in compliance with the covenants under the credit facility as of March 31, 2021.

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

We will primarily use cash flow from operations to pay compensation and related expenses, general and administrative expenses, income taxes, debt service, capital expenditures, distributions to Class B unit holders and dividends on shares of our Class A common stock.

Seasonality typically affects cash flow since the first quarter of each year includes, as a source of cash, payment of the prior year’s annual performance fee s and allocations , if any, from our various funds and external investment strategies and, as a use of cash, the prior fiscal year’s incentive compensation.

Seasonality typically affects cash flow since the first quarter of each year includes, as a source of cash, payment of the prior year’s annual performance fees and allocations, if any, from our various funds and external investment strategies and, as a use of cash, the prior fiscal year’s incentive compensation.

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 September 30, 2020 and December 31, 2019.

The following table sets forth certain key financial data relating to our liquidity and capital resources as of March 31, 2021 and December 31, 2020.

(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 nine months ended September 30, 2020 and 2019.

The following table sets forth our cash flows for the three months ended March 31, 2021 and 2020.

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.

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

Net provided by operating activities

Net used in operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Net cash used in financing activities

Net change in cash

Operating Activities

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.

Three Months Ended March 31, 2021 versus Three Months Ended March 31, 2020

For the three months ended March 31, 2021 and 2020, operating activities used $15.6 million and used $15.1 million, respectively.

This difference is primarily the result of a decrease in net income of $5.4 million, decreased deferred income taxes of $2.3 million, increased payouts of accrued compensation of $0.2 million, increased operating lease liabilities of $0.5 million, a

de crease in distributions received from investment funds of $ 0.1 million and a n in crease in accounts receivable of $ 2.

3 million due to timing of payments received from clients .

This was partially offset by a n in crease in equity-based compensation expense of $ 0.4 million , an increase in prepaid expenses and other assets of $0.

1 million, an increase in non-cash lease expense of $0.5 million and a n in crease in accounts payable and accrued expenses of $ 9.4 million , primarily due to a change in the fair value of contingent consideration related to the Cortina Acquisition .

Investing Activities

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.

Three Months Ended March 31, 2021 versus Three Months Ended March 31, 2020

For the three months ended March 31, 2021 and 2020, investing activities used $0.1 million and $0.2 million, respectively.

The primary use of cash during the three months ended March 31, 2021 was for the acquisition of furniture, equipment and leasehold improvements.

The primary use of cash during the three months ended March 31, 2020 was for the acquisition of furniture, equipment and leasehold improvements mostly related to the renovation of our office space in New York City.

Financing Activities

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.

Three Months Ended March 31, 2021 versus Three Months Ended March 31, 2020

For the three months ended March 31, 2021 and 2020, financing activities used $4.1 million and used $4.8 million, respectively.

During the three months ended March 31, 2021 and 2020, the Company repaid $0.9 million and $0.9 million, respectively, of principal on the term loan with City National Bank.

Distributions to partners during the three months ended March 31, 2021 and 2020 were $1.8 million and $2.2 million, respectively.

During the three months ended March 31, 2021 and 2020, the Company paid dividends of $1.5 million and $1.5 million, respectively, to Class A shareholders.

During the three months ended March 31, 2021 and 2020, we made earnout payments of $0.1 million and $0.4 million, respectively.

During the three months ended March 31, 2021 and 2020, we received payments from partners on notes receivable of $0.2 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 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.

As of March 31, 2021 and December 31, 2020, $11.7 million and $12.6, respectively, was outstanding under the term loan with City National Bank.

As of March 31, 2021 and December 31, 2020, accrued but unpaid interest on the term loan with City National Bank was $32 thousand and $0, respectively.

As of March 31, 2021 and December 31, 2020, 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 September 30, 2020 or December 31, 2019.

We did not have any significant off-balance sheet arrangements as of March 31, 2021 and December 31, 2020.

Critical Accounting Policies and Estimates

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.

There have been no changes to our critical accounting policies during the three months ended March 31, 2021 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission on March 4, 2021.

Revenue Recognition

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(in billions)

September 30, 2020 AUM

March 31, 2021 AUM

December 31, 2020 AUM

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“– Qualitative and Quantitative Disclosures Regarding Market Risk.”

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 three months ended March 31, 2021 was approximately $28.4 billion.

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 $2.8 billion for the three months ended March 31, 2021, which would cause an annualized increase or decrease in revenues of approximately $12.5 million for the three months ended March 31, 2021, at a weighted average fee rate for the three months ended March 31, 2021 of 0.44%.

The average value of our assets under management for the year ended December 31, 2020 was approximately $26.5 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