Business Context and Reporting Period
Company: Evercore Partners Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2008
Business Overview: Evercore is an investment banking and investment management firm organized into two primary segments: Advisory (M&A, restructuring, corporate finance) and Investment Management (private equity funds and public securities). The company operates globally with significant presence in the U.S., Mexico, and Europe.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2008 |
Six Months Ended June 30, 2008 |
Six Months Ended June 30, 2007 |
|---|---|---|---|
| Total Revenues | $67,230 | $117,710 | $161,337 |
| Net Revenues (Total Rev - Interest Exp) | $60,118 | $104,606 | $155,408 |
| Net Income (Loss) | $2,056 | $1,091 | $(39,953) |
| Diluted EPS | $0.16 | $0.08 | $(4.98) |
| Cash and Cash Equivalents (End of Period) | $155,102 | $155,102 | $144,587 |
| Total Assets | $747,339 | $747,339 | $470,992 |
| Total Liabilities | $516,391 | $516,391 | $469,781 |
| Stockholders' Equity | $191,645 | $191,645 | $172,976 |
Operating Cash Flow (Six Months): Net cash used in operating activities was $(18.5) million in 2008, compared to $73.9 million provided in 2007. This outflow was driven by the payment of bonus obligations.
Material Changes vs. Prior Period
- Revenue Decline: Net revenues for the six months ended June 30, 2008, decreased 33% to $104.6 million from $155.4 million in the prior year.
- Advisory Revenue: Decreased 30% to $98.4 million, attributed to a significant decline in North American M&A deal volume and value due to challenging credit market conditions.
- Investment Management Revenue: Decreased 65% to $4.4 million. This was driven by a step-down in management fees for private equity funds (from 2% of committed capital to 1% of invested capital) and losses in public securities investments.
- Profitability Improvement: The company returned to profitability with a net income of $1.1 million for the six months ended June 30, 2008, compared to a net loss of $39.9 million in the same period in 2007. The prior year loss was heavily impacted by $125.9 million in stock-based compensation costs related to the May 2007 Follow-On Offering.
- Expense Management: Total operating expenses decreased 13% to $88.5 million for the six-month period. Employee compensation decreased 12% due to lower discretionary bonuses, while non-compensation expenses decreased 14% due to reduced professional fees (completion of Sarbanes-Oxley projects) and occupancy costs.
- Special Charges: The company incurred $2.4 million in special charges for the six months ended June 30, 2008, related to the write-off of capitalized costs for a deferred private equity fund (ECP III) and severance costs from closing the Los Angeles office.
Guidance, Outlook, and Risks
- Outlook: Management notes that liquidity is highly dependent on the irregular timing of advisory transaction closings. The effective tax rate for the full year 2008 is expected to be approximately 33%.
- Capital Allocation: The Board authorized a share repurchase program of up to $25 million in the second quarter of 2008. No repurchases were made under this specific program during the quarter, though $4.6 million was spent on treasury stock purchases to fund employee tax obligations.
- Dividends: A quarterly cash dividend of $0.12 per share was declared on July 22, 2008, payable September 12, 2008.
- Risks and Contingencies:
- Market Risk: Exposure to M&A market volatility and credit conditions. A hypothetical 10% adverse change in private equity fund values would decrease pre-tax income by approximately $2.4 million.
- Legal Proceedings: Ongoing litigation regarding the High Voltage Engineering Corp. bankruptcy restructuring. The company contests liability and believes the outcome will not have a material adverse effect on financial condition, though it could impact future operating results.
- Collateralized Financing: Significant activity in repurchase agreements (approx. $406 million in liabilities) related to Mexican government securities, managed with strict risk limits.
Investor Verification Checklist
- M&A Market Exposure: Verify the correlation between the 30% drop in advisory revenue and the broader decline in North American M&A deal volume cited in the filing.
- Private Equity Fee Structure: Confirm the impact of the transition from "committed capital" to "invested capital" fee bases on future Investment Management revenue stability.
- Compensation Trends: Monitor the ratio of compensation to revenue, noting the company's strategy to maintain competitive compensation levels despite revenue declines to retain key personnel.
- Legal Liability: Track the status of the High Voltage Engineering Corp. appeal to assess potential future financial impact.
- Liquidity Position: Review the $155 million cash balance against the $39.1 million in estimated contractual obligations for Tax Receivable Agreements and $7.8 million in unfunded private equity commitments.