Evercore Inc. Q1 2008 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended March 31, 2008 for Evercore Partners Inc., a Delaware corporation and holding company for Evercore LP. The firm operates as an investment banking and investment management organization with two primary segments: Advisory (M&A, restructuring, corporate finance) and Investment Management (private equity funds and public securities). The company is headquartered in New York, with significant operations in Mexico and Europe.
Key Financial Metrics
| Metric (in thousands) | Q1 2008 | Q1 2007 |
|---|---|---|
| Total Revenues | $50,480 | $91,844 |
| Net Revenues (Total Rev - Interest Exp) | $44,488 | $89,496 |
| Net Income (Loss) | $(965) | $4,220 |
| Diluted EPS | $(0.08) | $0.64 |
| Cash and Cash Equivalents (End of Period) | $124,569 | $87,618 |
| Net Cash Used in Operating Activities | $(60,421) | $36,239 |
| Total Assets | $667,880 | $689,096 |
| Total Liabilities | $438,644 | $469,781 |
Material Changes vs. Prior Period
- Revenue Decline: Total revenues decreased 45% year-over-year. Advisory Revenue dropped 52% to $40.7 million, driven by a significant contraction in North American and global M&A activity. Investment Management Revenue fell 44% to $2.6 million due to a step-down in management fees for ECP II and losses in public securities.
- Profitability: The company reported a net loss of $0.97 million compared to a net income of $4.22 million in Q1 2007. Pre-tax income swung from a $24.1 million gain to a $2.6 million loss.
- Expense Management: Total operating expenses decreased 38% to $38.0 million, primarily due to a 46% reduction in employee compensation and benefits ($25.8 million vs. $47.6 million) reflecting lower discretionary bonuses.
- Unusual Items: "Other Expenses" increased 113% to $9.1 million. This includes a $7.5 million charge for deferred consideration related to the Braveheart acquisition and a $1.1 million write-off of deferred costs for the ECP III fund raising.
- Liquidity: Cash and cash equivalents decreased by $68.9 million to $124.6 million. The primary driver was a $60.4 million cash outflow from operating activities, largely attributed to the payment of 2007 bonus awards.
Guidance, Outlook, and Risks
- Outlook: Management anticipates additional special charges of approximately $3.0 million in Q2 2008 related to executive retirement (Austin Beutner) and costs associated with exiting the Los Angeles office.
- Capital Allocation: On May 7, 2008, the Board authorized a share repurchase program of up to $25.0 million. A quarterly dividend of $0.12 per share was declared for Class A stockholders.
- Tax Rate: The effective tax rate for Q1 2008 was 11.3%, reduced by a $0.67 million reversal of a tax reserve. Management expects the full-year 2008 effective tax rate to be approximately 25.5%.
- Risks:
- Market Conditions: Continued volatility in credit markets and M&A activity poses a risk to Advisory revenue.
- Legal Proceedings: Ongoing litigation regarding the High Voltage Engineering Corp. bankruptcy restructuring is in the appeal stage; management believes the outcome will not have a material adverse effect on financial condition.
- Investment Risk: Exposure to private equity fund valuations and market value fluctuations in asset management portfolios.
Investor Verification Checklist
- Verify the sustainability of the 46% reduction in compensation expenses and whether it impacts retention of key personnel.
- Confirm the timing and magnitude of the anticipated $3.0 million Q2 2008 special charges.
- Monitor the status of the High Voltage Engineering Corp. litigation appeal.
- Assess the impact of the $7.5 million Braveheart deferred consideration charge on future earnings.
- Review the $7.6 million in unfunded commitments for private equity capital contributions.