Business Context and Reporting Period
Company: Evercore Partners Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2011
Business Overview: Evercore is an investment banking and investment management firm. Its Investment Banking segment provides advisory services on M&A, restructuring, and capital markets. Its Investment Management segment includes institutional asset management, wealth management, and private equity operations. The company operates globally with significant presence in the U.S., Mexico, Europe, and Latin America.
Key Financial Metrics
| Metric (in thousands) | Q1 2011 | Q1 2010 |
|---|---|---|
| Total Revenues | $112,939 | $93,625 |
| Net Revenues | $107,845 | $88,021 |
| Net Income | $7,317 | $5,969 |
| Net Income Attributable to Evercore Partners Inc. | $3,588 | $2,020 |
| Diluted EPS | $0.14 | $0.09 |
| Cash and Cash Equivalents (End of Period) | $103,575 | $156,797 |
| Total Assets | $900,747 | $850,962 |
| Total Liabilities | $503,915 | $505,438 |
| Notes Payable (Senior Notes) | $98,465 | $98,082 |
Segment Performance (Net Revenues):
- Investment Banking: $82.4 million (Q1 2011) vs. $76.5 million (Q1 2010).
- Investment Management: $25.5 million (Q1 2011) vs. $11.5 million (Q1 2010).
Assets Under Management (AUM): $17.8 billion as of March 31, 2011, up from $17.4 billion at year-end 2010.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 21% year-over-year, driven primarily by a 133% surge in Investment Management revenue and a 9% increase in Investment Banking revenue.
- Profitability: Net income attributable to Evercore Partners Inc. increased 78% to $3.6 million. Diluted EPS rose 56% to $0.14.
- Expense Increases: Total operating expenses rose 26% to $89.4 million. Employee compensation and benefits increased 27% to $70.0 million, largely due to the expansion of new businesses and higher headcount (total headcount increased from 464 to 629).
- Cash Flow: Net cash used in operating activities was $37.8 million, primarily due to the payment of 2010 bonus awards and an increase in accounts receivable. This compares to $49.0 million used in the prior year.
- Investment Management Turnaround: The Investment Management segment moved from a pre-tax loss of $4.7 million in Q1 2010 to a pre-tax income of $0.1 million in Q1 2011, attributed to the integration of acquisitions (Atalanta Sosnoff, Morse Williams) and growth in AUM.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary & Outlook:
Management noted that M&A activity levels were higher in Q1 2011 compared to the prior year. The company continues to invest in talent and new business lines. Liquidity is monitored regularly, with cash flows from operations intended to fund expenses, dividends, and tax receivable agreement payments. The company has an authorized share repurchase program of up to $85.0 million; however, purchases in Q1 2011 were primarily for tax withholding on equity awards rather than open market repurchases under the program.
Risks and Contingencies:
- Market Dependence: Revenue is highly dependent on the volume and value of M&A transactions and market conditions affecting AUM valuations.
- Foreign Exchange: Operations in Mexico, the UK, Brazil, and Hong Kong expose the company to currency fluctuations. A 10% adverse change in private equity fund values could decrease pre-tax income by approximately $2.2 million.
- Legal Proceedings: The company is subject to routine regulatory examinations and potential litigation but believes no material pending proceedings exist that would have a material adverse impact.
Unusual Items:
- Carried Interest Clawback: As of March 31, 2011, the company had $2.7 million of previously received carried interest that may be subject to repayment if fund performance declines.
- Tax Receivable Agreements: The company has a liability of $102.1 million for amounts due pursuant to tax receivable agreements, which will be funded as tax benefits are realized.
Key Facts for Investor Verification
- Compensation Ratio: Verify the sustainability of the 65% employee compensation to net revenue ratio, which increased from 63% in the prior year due to new business expansion.
- Investment Management Growth: Confirm the durability of the 133% revenue growth in Investment Management, which was driven by acquisitions completed in 2010 and AUM inflows.
- Cash Position: Monitor the $37.8 million decrease in cash and cash equivalents, driven by seasonal bonus payments and working capital changes.
- Debt Obligations: Review the terms of the $120 million Senior Notes due 2020, including the change of control provisions and the associated warrants.
- Private Equity Exposure: Assess the risk associated with the $19.6 million investment in private equity funds and the potential for clawbacks on carried interest.