Business Context and Reporting Period
Company: Evercore Partners Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 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 June 30, 2009 |
Six Months Ended June 30, 2009 |
|---|---|---|
| Total Revenues | $77,252 | $135,469 |
| Net Revenues (Revenues less Interest Expense) | $71,043 | $120,769 |
| Total Expenses | $83,980 | $132,251 |
| Net Income (Loss) | $(14,310) | $(13,913) |
| Net Income (Loss) Attributable to Evercore | $(6,043) | $(5,852) |
| Diluted EPS Attributable to Evercore | $(0.43) | $(0.42) |
| Cash and Cash Equivalents (End of Period) | $166,856 | $166,856 |
| Notes Payable | $95,927 | $95,927 |
Material Changes vs. Prior Comparable Period
- Revenue Growth: Total revenues increased 15% year-over-year for both the three and six-month periods, driven primarily by a 21% increase in Advisory Revenue ($70.1M vs. $57.7M for Q2; $119.1M vs. $98.4M for YTD). This growth occurred despite a significant decline in global M&A transaction volumes.
- Profitability Decline: The company reported a net loss of $14.3M for Q2 2009 compared to a net income of $5.4M in Q2 2008. The loss was driven by a 61% increase in total expenses.
- Expense Increases: Operating expenses rose 32% in Q2 and 29% YTD. This was largely due to higher employee compensation (including sign-on costs for new leadership and consolidation of new businesses) and non-compensation costs related to acquisitions.
- Special Charges: The company recorded $16.1M in Special Charges in Q2 2009 related to the cancellation of employee equity awards and restructuring of U.S. Private Equity operations. This compares to $1.3M in Special Charges for the same period in 2008.
- Investment Management Losses: The Investment Management segment reported a loss of $28.1M for Q2 2009, compared to a loss of $6.5M in Q2 2008, primarily due to unrealized losses in private equity funds and the consolidation of new entities (ETC, EAM).
Guidance, Outlook, and Risks
- Market Conditions: Management notes that difficult market conditions persist, with contraction in credit markets and volatility affecting both Advisory and Investment Management businesses. While M&A volumes are down, restructuring activity has increased.
- Acquisitions and Integration: The company recently acquired a controlling interest in Bank of America's Special Fiduciary Services Division (forming Evercore Trust Company, ETC) and increased its stake in Evercore Asset Management (EAM) to 51%. These acquisitions are expected to drive future growth but currently contribute to higher operating costs.
- Capital Raising: Due to market dislocations, the company has suspended capital raising for Evercore Capital Partners and is focusing on managing and realizing the existing portfolio.
- Liquidity: The company maintains strong liquidity with $166.9M in cash and cash equivalents. It has $120M in Senior Notes outstanding and is in compliance with all regulatory capital requirements, including those for its new bank subsidiary (ETC).
- Risks: Key risks include the impact of global economic conditions on transaction volumes, the performance of private equity investments, and the ability to integrate new acquisitions successfully. The company also faces regulatory risks associated with its new banking subsidiary.
Key Facts for Investor Verification
- Special Charges Impact: Verify the non-recurring nature of the $16.1M Special Charge related to equity award cancellations and its impact on future compensation expenses.
- Acquisition Synergies: Monitor the revenue contribution and cost integration of the newly acquired ETC and consolidated EAM businesses to assess their path to profitability.
- Private Equity Performance: Review the valuation and exit strategy for the company's private equity funds, which contributed significantly to the Investment Management segment's losses.
- Debt Obligations: Confirm the terms and covenants of the $120M Senior Notes issued to Mizuho, including the accreted amount and potential redemption scenarios.
- Regulatory Compliance: Ensure continued compliance with the Office of the Comptroller of the Currency (OCC) agreements regarding capital and liquidity support for ETC.