Business Context and Reporting Period
Company: Evercore Partners Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2010
Business Overview: Evercore is an independent investment banking advisory firm and investment management company. It operates through two primary segments: Investment Banking (advisory, restructuring, capital markets, and institutional equities) and Investment Management (institutional asset management, wealth management, and private equity). The company expanded its global footprint in 2010 through the acquisition of a 50% interest in G5 Holdings S.A. (Brazil) and the consolidation of Atalanta Sosnoff Capital LLC and Morse, Williams and Company, Inc.
Key Financial Metrics (Year Ended Dec 31, 2010)
| Metric | 2010 | 2009 | Change |
|---|---|---|---|
| Total Revenues | $401.7 million | $338.8 million | +19% |
| Net Revenues (Total Rev - Interest Exp) | $378.9 million | $314.5 million | +20% |
| Net Income | $17.8 million | $0.2 million | NM |
| Net Income Attributable to Evercore | $9.0 million | ($1.6 million) | NM |
| Diluted EPS | $0.39 | ($0.10) | NM |
| Total Assets | $898.1 million | $891.2 million | +1% |
| Total Equity | $367.2 million | $295.8 million | +24% |
| Cash and Cash Equivalents | $141.3 million | $206.7 million | -32% |
| Long-term Debt | $98.1 million | $96.6 million | +2% |
| Assets Under Management (AUM) | $17.4 billion | $4.3 billion | +305% |
Note: "NM" indicates Not Meaningful due to sign change or small base.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 19% to $401.7 million. Investment Banking revenue grew 3% to $301.9 million, while Investment Management revenue surged 233% to $77.6 million, driven primarily by the acquisition of Atalanta Sosnoff and Morse Williams.
- Profitability: The company returned to profitability, reporting Net Income of $17.8 million compared to $0.2 million in 2009. Net Income attributable to Evercore Partners Inc. improved from a loss of $1.6 million to $9.0 million.
- Expense Increases: Total operating expenses rose 23% to $321.5 million. This was driven by a 15% increase in employee compensation (due to new hires and business expansion) and a 52% increase in non-compensation expenses (professional fees, travel, and acquisition costs).
- AUM Expansion: Assets Under Management grew from $4.3 billion to $17.4 billion, largely due to the $10.2 billion in assets added from the Atalanta Sosnoff acquisition.
- Cash Flow: Operating cash flow was $45.0 million, down from $88.1 million in 2009, primarily due to the timing of bonus payments. Investing activities used $43.9 million, largely for acquisitions.
Guidance, Outlook, and Risks
Management Commentary & Outlook: Management expects to continue growing and diversifying both segments. Strategies include recruiting highly qualified investment banking professionals, achieving growth in investment management through organic growth and acquisitions, and expanding into new geographic markets (specifically Southeast Asia). The company does not provide specific numerical guidance for future periods in this filing.
Key Risks and Contingencies:
- Market Volatility: Revenue is highly dependent on M&A transaction volumes and asset values, which are sensitive to global economic conditions.
- Client Concentration: The top five Investment Banking clients accounted for 21% of net revenues in 2010. Loss of a single major mandate could materially impact results.
- Personnel Dependence: The business relies heavily on senior professionals; the loss of key individuals could adversely affect client relationships and revenue.
- Regulatory Compliance: The firm is subject to extensive regulation in the U.S., Mexico, U.K., and other jurisdictions. Non-compliance could result in fines or reputational damage.
- Debt Obligations: The company has $120.0 million in Senior Notes due in 2020. While currently compliant with covenants, cash flow is required to service this debt.
Important Facts for Investor Verification
- Acquisition Integration: Verify the integration progress and revenue contribution of recent acquisitions (Atalanta Sosnoff, Morse Williams, G5) to ensure they meet projected synergies.
- Tax Receivable Agreement: Review the liability of approximately $97.4 million related to the Tax Receivable Agreement, which requires the company to pay 85% of tax savings from LP Unit exchanges to former partners.
- Debt Covenants: Confirm continued compliance with the Senior Notes indenture and the capital maintenance agreements with the Office of the Comptroller of the Currency (OCC) regarding Evercore Trust Company.
- Noncontrolling Interest: Note that a significant portion of net income ($8.9 million in 2010) is allocated to noncontrolling interests (partners in Evercore LP and other subsidiaries), reducing the amount attributable to public shareholders.
- Share Repurchases: The company authorized a new $85.0 million share repurchase program in October 2010; monitor execution rates and impact on liquidity.