Business Context and Reporting Period
Company: Evercore Partners Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Business Overview: Evercore is an investment banking and investment management firm. Its operations are divided into two primary segments: Investment Banking (M&A advisory, restructuring, and equity underwriting) and Investment Management (Institutional Asset Management, Wealth Management, and Private Equity). The company is a holding company that owns a controlling interest in Evercore LP.
Key Financial Metrics
| Metric (in thousands) | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Revenues | $93,445 | $58,217 |
| Net Revenues (Total Rev. less Interest Expense) | $87,841 | $49,726 |
| Net Income | $5,969 | $397 |
| Net Income Attributable to Evercore Partners Inc. | $2,020 | $191 |
| Diluted EPS | $0.09 | $0.01 |
| Cash and Cash Equivalents (End of Period) | $156,797 | $117,497 |
| Total Assets | $850,962 | $742,435 |
| Total Liabilities | $536,997 | $595,404 |
| Notes Payable (Senior Notes) | $96,972 | $96,618 |
Segment Performance (Net Revenues):
- Investment Banking: $76.5 million (Q1 2010) vs. $49.7 million (Q1 2009).
- Investment Management: $11.3 million (Q1 2010) vs. $0.1 million (Q1 2009).
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 61% year-over-year, driven primarily by a 55% increase in Investment Banking revenue and a significant expansion in Investment Management revenue (up from $569k to $11.1M) due to the consolidation of new businesses (EWM, ETC, EAM) and growth in assets under management.
- Profitability: Net income attributable to Evercore Partners Inc. surged 958% to $2.0 million. Income before taxes increased 630% to $10.6 million.
- Expense Increases: Total expenses rose 60% to $77.2 million. Employee compensation and benefits increased 55% to $55.7 million, reflecting higher discretionary compensation accruals and new business costs. "Other Expenses" (amortization of LP units and intangibles) increased 733% to $6.3 million.
- Cash Flow: Operating cash flow was a net outflow of $49.0 million, primarily due to the payment of 2009 bonus awards. Investing activities provided $18.8 million, largely from the sale and maturity of marketable securities.
- Headcount: Total headcount increased to 464 as of March 31, 2010, from 353 in the prior year period.
Outlook, Risks, and Unusual Items
- Acquisitions and Strategic Alliances:
- Atalanta Sosnoff Capital: Entered a definitive agreement in March 2010 to purchase a 49% economic interest for approximately $68.6 million, with up to $14.7 million in contingent consideration. Closing expected in Q2 2010.
- Neuberger Berman: Acquired assets of the Private Funds Group in February 2010 for $1.0 million plus contingent consideration.
- Trilantic Capital Partners: Formed a strategic alliance in February 2010; issued 500,000 LP Units with a minimum redemption value of $16.5 million.
- MJC Associates: Agreed in April 2010 to acquire this commercial real estate advisory boutique for $5.0 million cash and $3.0 million restricted stock.
- Dividends: Declared a quarterly cash dividend of $0.15 per share on Class A common stock, payable June 11, 2010.
- Stock Repurchases: Repurchased 343,030 shares of Class A common stock for $10.4 million during the quarter for net settlement of stock-based compensation awards.
- Risks:
- Market Conditions: Revenue is highly dependent on M&A transaction volume, which is cyclical and sensitive to global economic conditions.
- Liquidity: Liquidity is dependent on the timing of fee collections and the realization of transaction success fees.
- Foreign Exchange: Operations in Mexico and the UK expose the company to currency fluctuations; no hedging is currently employed.
- Legal/Regulatory: Subject to periodic examinations by regulatory bodies (SEC, OCC, etc.) which could result in fines or penalties.
Investor Verification Checklist
- Acquisition Closing: Verify the consummation of the Atalanta Sosnoff Capital acquisition and the associated contingent payment terms.
- Compensation Accruals: Review the sustainability of the 55% increase in compensation expenses relative to future revenue projections.
- Noncontrolling Interest: Monitor the impact of the 43% noncontrolling interest in Evercore LP and the Trilantic LP units on future earnings per share.
- Private Equity Valuations: Assess the valuation of private equity fund investments, which are subject to unrealized gains/losses and potential claw-back provisions.
- Debt Covenants: Confirm continued compliance with the Senior Notes covenants and the Mizuho Strategic Alliance Agreement.