Business Context and Reporting Period
Company: Evercore Partners Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2007
Business Overview: Evercore is a leading global investment banking boutique specializing in advisory services for mergers, acquisitions, divestitures, and restructurings. It also operates an Investment Management segment managing private equity funds and public securities. The company operates through two primary segments: Advisory and Investment Management. As of December 31, 2007, the firm employed 290 people, including 40 Senior Managing Directors.
Key Financial Metrics (Year Ended Dec 31, 2007)
| Metric | Value (in thousands) |
|---|---|
| Total Revenues | $340,050 |
| Net Revenues (Total Revenues less Interest Expense) | $321,599 |
| Net Income (Loss) | $(34,495) |
| Net Income (Loss) Per Share (Basic & Diluted) | $(3.38) |
| Total Assets | $689,096 |
| Total Liabilities | $469,781 |
| Stockholders' Equity | $172,976 |
| Cash and Cash Equivalents | $193,475 |
| Operating Cash Flow | $146,175 |
Segment Performance:
- Advisory Revenue: $295.75 million (92% of Net Revenue).
- Investment Management Revenue: $20.16 million (6% of Net Revenue).
Material Changes vs. Prior Period
Revenue Growth: Net revenues increased by 53% to $321.6 million in 2007 compared to $209.7 million in 2006. Advisory revenue grew 61% to $295.8 million, driven by a higher volume of M&A transactions. Investment Management revenue declined 14% to $20.2 million due to non-recurring transaction fees in 2006 and losses in public securities.
Profitability Decline: Despite revenue growth, the company reported a net loss of $34.5 million in 2007, compared to a net income of $69.7 million in 2006. This reversal was primarily caused by:
- Non-Cash Compensation Charges: A significant one-time charge of approximately $123.6 million related to the vesting of Evercore LP partnership units and stock-based awards triggered by the May 2007 Follow-On Offering.
- Increased Operating Expenses: Total operating expenses rose 117% to $235.5 million, largely due to the inclusion of Senior Managing Director compensation (previously treated as distributions) and hiring of new professionals.
- Minority Interest: Minority interest swung from a positive $16.0 million in 2006 to a negative $32.8 million in 2007 due to the Follow-On Offering vesting events.
Guidance, Outlook, Risks, and Unusual Items
Unusual Items: The 2007 results are heavily impacted by the "Follow-On Offering" in May 2007. This event triggered the vesting of 50% of unvested Evercore LP partnership units and significant stock-based awards, resulting in substantial non-cash compensation expenses that reduced net income.
Outlook and Strategy: Management expects to continue growth by hiring additional Senior Managing Directors, expanding into new geographic areas, and raising additional private equity funds. The company targets total employee compensation at approximately 50% of net revenue but exceeded this in 2007 due to new hires.
Key Risks:
- Market Conditions: Revenue is highly correlated with M&A activity, which declined in the second half of 2007. Further deterioration in credit markets or economic conditions could reduce transaction volume.
- Key Personnel: The business relies heavily on Senior Managing Directors; the loss of key individuals could materially harm operations.
- Client Concentration: The top five advisory clients accounted for 32% of net revenue in 2007, and one client represented over 10%.
- Regulatory: Subject to extensive regulation by the SEC, FINRA, and international bodies (e.g., FSA in UK, Ministry of Finance in Mexico).
Investor Verification Checklist
- Compensation Structure: Verify the sustainability of the 2007 compensation expense spike and the impact of future vesting events on earnings.
- M&A Market Trends: Monitor global and regional M&A deal volumes to assess the trajectory of the core Advisory revenue stream.
- Private Equity Fund Performance: Review the valuation and exit strategies of the firm's private equity funds (ECP II, Discovery Fund) as they impact Investment Management revenue.
- Client Concentration: Assess the risk associated with the top five clients representing nearly one-third of revenue.
- Tax Receivable Agreement: Understand the future cash outflow obligations to Senior Managing Directors under the tax receivable agreement, estimated at approximately $38.8 million for prior exchanges.