Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2006, for Evercore Partners Inc. (historically reported as Evercore Holdings). The filing presents unaudited condensed combined financial statements reflecting the company's operations prior to a major reorganization and Initial Public Offering (IPO) completed in August 2006. The company operates as an investment banking boutique with two primary segments: Advisory (M&A, restructuring) and Investment Management (private equity funds). The historical results do not reflect the elimination of certain general partner entities, the acquisition of Protego Asesores, or the corporate tax structure adopted post-IPO.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2006 | Six Months Ended June 30, 2005 | Three Months Ended June 30, 2006 | Three Months Ended June 30, 2005 |
|---|---|---|---|---|
| Total Revenues | $89.1 million | $36.7 million | $43.5 million | $14.3 million |
| Net Income | $50.6 million | $13.1 million | $24.7 million | $1.9 million |
| Operating Income | $52.5 million | $14.1 million | $25.6 million | $2.3 million |
| Cash and Cash Equivalents | $14.8 million (June 30, 2006) | $37.9 million (Dec 31, 2005) | N/A | |
| Short-Term Borrowings | $30.0 million | $0 | N/A | |
| Total Assets | $83.9 million | $81.4 million | N/A | |
| Operating Margin | 58.9% | 38.4% | 58.8% | 15.8% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 142.8% year-over-year for the six-month period, driven by a 137.8% increase in Advisory revenue ($72.6M vs. $30.5M) and a 165.5% increase in Investment Management revenue ($16.2M vs. $6.1M). The Investment Management surge was largely due to $4.6M in net gains on investments and carried interest, compared to a $2.5M loss in the prior year.
- Expense Increases: Total operating expenses rose 62.0% to $36.6 million. Compensation and benefits increased 58.8% to $16.9 million due to higher headcount (130 vs. 94) and performance-based bonuses. Non-compensation expenses increased 65.1%, driven by professional fees, travel, and financing costs related to a new line of credit.
- Liquidity and Debt: The company drew down a full $30 million on a new revolving line of credit in 2006 to fund working capital and investment activities. Cash and cash equivalents decreased by $23.0 million from the prior year-end, primarily due to member distributions ($76.4M) and increased receivables.
Guidance, Outlook, and Risks
- Reorganization and IPO: The company completed an IPO on August 16, 2006, raising approximately $81.8 million in net proceeds. These proceeds were used to repay the $30 million line of credit and fund the acquisition of Protego Asesores. Post-IPO, the company will consolidate Evercore LP and record significant minority interest for Senior Managing Directors.
- Compensation Policy: Following the IPO, the company intends to set total employee compensation and benefits expense at a level not to exceed 50% of total revenue (excluding investment gains/losses). This represents a shift from the historical partnership model where Senior Managing Director compensation was treated as distributions.
- Acquisitions: The company acquired Protego Asesores (Mexico) and entered into an agreement to acquire Braveheart Financial Services Limited (UK). These transactions introduce foreign currency risk (Mexican Peso, British Pound, Euro) and goodwill (pro forma goodwill of $31.5 million).
- Legal Contingencies: The company is involved in litigation regarding its advisory role in the High Voltage Engineering Corp. bankruptcy. The Trustee seeks to recover $2.34 million in fees. Management believes the claims are meritless and intends to defend vigorously.
- Dividends: The company intends to pay a quarterly cash dividend of $0.07 per share of Class A common stock, commencing in the fourth quarter of 2006, subject to board discretion and subsidiary cash availability.
Investor Verification Checklist
- Pro Forma Adjustments: Verify the impact of the 50% compensation cap and the 44% effective tax rate on future earnings, as historical results do not reflect these post-IPO structures.
- Investment Volatility: Assess the sustainability of Investment Management revenue, which was heavily influenced by $4.6M in unrealized/realized gains on private equity investments in the current period.
- Client Concentration: Note that for the six months ended June 30, 2006, three clients accounted for 24.2% of total combined revenues, and three clients accounted for 66% of accounts receivable.
- Unvested Equity: Review the terms of unvested partnership units and restricted stock units (totaling over $200M in potential future compensation expense if all vest), which could significantly impact future net income.
- Debt Repayment: Confirm that the $30 million line of credit was fully repaid using IPO proceeds, as indicated in the subsequent events section.