Business Context and Reporting Period
Company: Evercore Partners Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2010
Business Overview: Evercore is an investment banking and investment management firm. The company operates through two primary segments: Investment Banking (advisory, underwriting, private fund placement) and Investment Management (institutional asset management, wealth management, private equity). The reporting period includes the consolidation of recent acquisitions, most notably Atalanta Sosnoff Capital, LLC, which significantly expanded the Investment Management segment.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2010 |
Six Months Ended June 30, 2010 |
|---|---|---|
| Total Revenues | $70,773 | $164,218 |
| Net Revenues (Total Rev. less Interest Expense) | $64,840 | $152,681 |
| Net Income (Loss) | $(1,553) | $4,416 |
| Net Income Attributable to Evercore Partners Inc. | $117 | $2,137 |
| Diluted EPS | $0.00 | $0.09 |
| Cash and Cash Equivalents (End of Period) | $144,825 | $144,825 |
| Total Assets | $890,570 | $890,570 |
| Total Liabilities | $544,926 | $544,926 |
| Notes Payable | $97,336 | $97,336 |
Material Changes vs. Prior Period
- Revenue Growth: For the six months ended June 30, 2010, Net Revenues increased 26% to $152.7 million compared to $120.8 million in the prior year period. This was driven primarily by a 902% increase in Investment Management Revenue ($27.3 million vs. $2.7 million), largely due to the acquisition of Atalanta and Morse Williams. Investment Banking Revenue increased 4% to $123.4 million.
- Profitability Turnaround: The company reported a Net Income of $4.4 million for the six months ended June 30, 2010, a significant improvement from a Net Loss of $13.9 million in the same period in 2009. The 2009 loss included $16.1 million in non-cash Special Charges related to the cancellation of equity awards, which were absent in 2010.
- Expense Management: Total Expenses increased 10% to $145.3 million for the six-month period, primarily due to higher compensation costs reflecting revenue growth and new business expansion. However, "Other Expenses" (including Special Charges) decreased 33% to $11.9 million.
- Cash Flow: Net cash used in operating activities was $15.3 million for the six months ended June 30, 2010, compared to $7.5 million in the prior year. This outflow was primarily due to the payment of 2009 bonus awards. Cash and cash equivalents decreased by $61.9 million during the period to $144.8 million.
Guidance, Outlook, and Risks
- Acquisition Impact: The acquisition of Atalanta Sosnoff Capital (49% economic interest) in May 2010 added approximately $10.2 billion in Assets Under Management (AUM) and $3.9 million in revenue for the quarter. The company also acquired Morse Williams and the Private Funds Group of Neuberger Berman.
- Capital Allocation: The company repurchased 446,000 shares of Class A common stock for $12.1 million under its share repurchase program during the first half of 2010. Dividends of $0.30 per share were declared for the six-month period.
- Debt Obligations: The company has $120 million in Senior Notes due in 2020 with a 5.20% coupon (effective yield 7.94%). As of June 30, 2010, the fair value of these notes exceeded their carrying value by approximately $22 million.
- Risks:
- Market Dependency: Investment Banking revenues are highly correlated with M&A and restructuring activity, which are sensitive to global economic conditions.
- Private Equity Valuations: Investment Management results are impacted by the valuation of private equity portfolio companies and the realization of carried interest, which may be subject to claw-back provisions.
- Foreign Exchange: Operations in Mexico and the UK expose the company to currency fluctuations, resulting in a $2.1 million negative impact on Other Comprehensive Income for the six-month period.
Investor Verification Checklist
- Acquisition Integration: Verify the ongoing integration and revenue contribution of Atalanta Sosnoff Capital and Morse Williams, which drove the majority of Investment Management growth.
- Compensation Structure: Review the composition of "Employee Compensation and Benefits" and "Other Expenses" to understand the impact of deferred compensation and LP Unit amortization on future earnings.
- Carried Interest Exposure: Assess the $2.7 million of previously received carried interest that may be subject to repayment if private equity fund performance declines.
- Liquidity Position: Monitor the $11.8 million in unfunded capital commitments to private equity funds and the company's ability to fund these from operating cash flows.
- Senior Notes Valuation: Track the fair value of the $120 million Senior Notes, which currently trade at a premium to their carrying value, indicating potential refinancing or redemption implications.