Business Context and Reporting Period
Company: Evercore Partners Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2010
Business Overview: Evercore is an investment banking and investment management firm. The company operates through two primary segments: Investment Banking (advisory, underwriting, and private fund placement) and Investment Management (institutional asset management, wealth management, and private equity). The reporting period includes the full impact of the acquisition of Atalanta Sosnoff Capital (AS) in May 2010, which significantly expanded the Investment Management segment.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2010 |
|---|---|---|
| Total Revenues | $129,440 | $293,658 |
| Net Revenues (Total Rev - Interest Expense) | $123,587 | $276,268 |
| Net Income | $9,018 | $13,434 |
| Net Income Attributable to Evercore Partners Inc. | $3,530 | $5,667 |
| Diluted EPS (Attributable to Common Shareholders) | $0.17 | $0.25 |
| Cash and Cash Equivalents (End of Period) | $168,541 | $168,541 |
| Total Assets | $1,080,468 | $1,080,468 |
| Total Liabilities | $723,954 | $723,954 |
| Notes Payable | $97,704 | $97,704 |
Material Changes vs. Prior Comparable Period
- Revenue Growth: Net revenues increased 49% for the three months ended September 30, 2010, compared to the same period in 2009. For the nine-month period, net revenues increased 35%.
- Investment Banking: Revenue increased 38% (quarterly) and 17% (year-to-date), driven by higher M&A activity and the inclusion of new businesses (Institutional Equities and MJC Associates).
- Investment Management: Revenue surged 139% (quarterly) and 306% (year-to-date), primarily due to the consolidation of Atalanta Sosnoff Capital (AS) and Morse Williams.
- Profitability: Net income attributable to Evercore Partners Inc. increased 34% for the quarter and turned from a loss of $3.2 million in the prior year to a profit of $5.7 million for the nine-month period.
- Expenses: Total operating expenses increased 52% for the quarter and 30% for the nine months, largely due to higher discretionary compensation reflecting revenue growth and costs associated with new acquisitions.
- Balance Sheet: Total assets grew from $891.2 million (Dec 31, 2009) to $1.08 billion (Sep 30, 2010). Goodwill increased significantly to $139.0 million due to acquisitions.
Guidance, Outlook, and Risks
- Management Commentary: Management attributes growth to increased M&A activity, successful integration of new businesses (AS, Morse Williams, MJC), and expansion of the Institutional Equities business. The company completed a $25 million share repurchase program in the third quarter and authorized a new $85 million program in October 2010.
- Dividends: A quarterly cash dividend of $0.18 per share was declared on October 26, 2010, payable December 10, 2010.
- Acquisitions and Contingencies:
- Earn-outs: The company has contingent consideration obligations related to the acquisitions of AS, Morse Williams, MJC Associates, and the Private Funds Group of Neuberger Berman. For AS, up to $14.7 million is payable based on 2010 EBITDA targets.
- Tax Receivable Agreement: A liability of $96.9 million exists for payments to LP Unit holders regarding tax savings from stock exchanges. Estimated future payments total $99.5 million.
- Risks:
- Market Conditions: Revenue is highly dependent on M&A transaction volumes, which are cyclical and subject to economic conditions.
- Regulatory: Subsidiaries are subject to capital adequacy requirements (e.g., Rule 15c3-1 for broker-dealers). The company was in compliance as of September 30, 2010.
- Foreign Exchange: Operations in Mexico and the UK expose the company to currency fluctuations, though no hedging is currently employed.
Investor Verification Checklist
- Acquisition Integration: Verify the revenue contribution and profitability timeline of the Atalanta Sosnoff Capital (AS) acquisition, which drove the majority of Investment Management growth.
- Compensation Ratios: Monitor the ratio of employee compensation to net revenues (67% for the nine months ended Sep 30, 2010) to assess margin sustainability as discretionary bonuses fluctuate.
- Contingent Liabilities: Review the specific EBITDA targets for the AS earn-out and the timing of payments under the Tax Receivable Agreement ($99.5 million total obligation).
- Share Repurchases: Track the execution of the new $85 million share repurchase program authorized in October 2010.
- Noncontrolling Interest: Analyze the allocation of net income to noncontrolling interests ($7.8 million for the nine months), which significantly reduces net income attributable to common shareholders.