Business Context and Reporting Period
Company: Evercore Partners Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: Evercore is an investment banking firm organized into two primary segments: Advisory (M&A, restructuring, corporate finance) and Investment Management (Private Equity, Institutional Asset Management, Wealth Management). The company operates globally with significant presence in the U.S., Mexico, and Europe.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2009 | Nine Months Ended Sep 30, 2008 |
|---|---|---|---|
| Total Revenues | $87,694 | $223,163 | $183,428 |
| Net Revenues (Revenues less Interest Expense) | $83,196 | $203,965 | $161,419 |
| Total Expenses | $70,910 | $203,161 | $154,282 |
| Income Before Taxes | $12,286 | $804 | $7,137 |
| Net Income (Loss) | $7,684 | $(6,229) | $3,495 |
| Net Income Attributable to Evercore Partners Inc. | $2,633 | $(3,219) | $623 |
| Diluted EPS | $0.14 | $(0.22) | $0.05 |
| Cash and Cash Equivalents (End of Period) | $183,623 | $183,623 | $284,355 |
| Notes Payable | $96,268 | $96,268 | $95,263 |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 46% for the three months ended September 30, 2009, and 26% for the nine-month period compared to 2008. This growth occurred despite a decline in global M&A deal volume, driven by strong performance in U.S. restructuring assignments and increased strategic advisory revenue in Mexico.
- Segment Performance:
- Advisory: Net revenues rose 40% (Q3) and 26% (YTD). Operating income improved significantly due to higher discretionary compensation accruals reflecting revenue growth.
- Investment Management: Net revenues increased 126% (Q3) and 28% (YTD), primarily due to the consolidation of new businesses (ETC, EAM, EWM) and growth in assets under management. However, the segment reported a loss of $5.3 million (Q3) and $43.6 million (YTD) due to high operating expenses and unrealized losses in Private Equity funds.
- Expenses: Total expenses increased 29% (Q3) and 32% (YTD). Employee compensation rose significantly due to higher discretionary bonuses and sign-on costs for new leadership. "Other Expenses" increased 131% (Q3) and 76% (YTD), driven by a $16.1 million special charge related to the cancellation of unvested equity awards and restructuring of U.S. Private Equity operations.
- Acquisitions: The company consolidated results for Evercore Trust Company (ETC) as of May 1, 2009, and Evercore Asset Management (EAM) as of April 1, 2009, following acquisitions of controlling interests.
Guidance, Outlook, and Risks
- Outlook: Management notes that operating results remain sensitive to global financial market conditions and M&A activity. While restructuring activity has offset some declines in M&A, the company faces uncertainty regarding the realization of value in Private Equity portfolios.
- Capital Strategy: The company suspended capital raising for Evercore Capital Partners to focus on managing and realizing the existing portfolio. HighView Investment Group ceased operations, releasing the company from a $150 million capital commitment.
- Liquidity: Cash and cash equivalents totaled $183.6 million. The company maintains a $120 million Senior Note obligation due in 2020. Operating cash flows provided $15.7 million for the nine months ended September 30, 2009.
- Risks and Contingencies:
- Regulatory Compliance: ETC is subject to strict capital and liquidity requirements by the Office of the Comptroller of the Currency (OCC). Failure to comply could result in penalties or forced disposition of ETC.
- Market Risk: Exposure to fluctuations in the fair value of Private Equity portfolio companies and foreign exchange rates (Mexican Peso, British Pound).
- Tax Receivable Agreement: A liability of $69.6 million exists for future payments to members of Evercore LP based on tax savings realized from increased tax basis in assets.
Investor Verification Checklist
- Special Charges: Verify the impact of the $16.1 million non-cash special charge related to equity award cancellations on the YTD net loss.
- Investment Management Losses: Review the specific unrealized losses in Private Equity funds (ECP II) contributing to the segment's operating loss despite revenue growth.
- Acquisition Integration: Assess the revenue contribution and expense profile of newly consolidated entities (ETC, EAM) to determine long-term profitability.
- Tax Liability: Confirm the schedule and funding source for the $69.6 million Tax Receivable Agreement obligation.
- Capital Commitments: Monitor the $16.4 million in unfunded commitments to Private Equity Funds and the $4.3 million remaining commitment to EAM.