Business Context and Reporting Period
Company: Evercore Partners Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2008
Business Overview: Evercore is a leading independent investment banking boutique providing advisory services on mergers, acquisitions, divestitures, and restructurings. It also operates an Investment Management business comprising Private Equity, Institutional Asset Management, and Wealth Management sectors. The company operates globally with offices in New York, Boston, San Francisco, London, Mexico City, and Monterrey.
Key Financial Metrics
| Metric (in thousands) | 2008 | 2007 |
|---|---|---|
| Total Revenues | $224,933 | $340,050 |
| Net Revenues (Total Rev - Interest Exp) | $194,655 | $321,599 |
| Net Income (Loss) | $(4,713) | $(34,495) |
| Diluted EPS | $(0.36) | $(3.38) |
| Operating Expenses | $188,975 | $235,502 |
| Other Expenses | $15,064 | $141,032 |
| Cash and Cash Equivalents (End of Period) | $175,902 | $193,475 |
| Total Assets | $738,940 | $689,096 |
| Total Liabilities | $507,355 | $469,781 |
| Stockholders' Equity | $205,777 | $172,976 |
Material Changes vs. Prior Period
- Revenue Decline: Net revenues decreased 39% to $194.7 million in 2008 from $321.6 million in 2007. This was driven by a 39% drop in Advisory Revenue ($181.6M vs $295.8M) and a 53% drop in Investment Management Revenue ($9.4M vs $20.2M), reflecting the global financial crisis and reduced M&A activity.
- Profitability Improvement: Despite the revenue decline, the Net Loss narrowed significantly to $4.7 million in 2008 from $34.5 million in 2007. This improvement was largely due to a massive reduction in "Other Expenses" (down 89% to $15.1M from $141.0M), which in 2007 included a one-time $123.6 million charge for the vesting of partnership units and stock awards associated with the 2007 Follow-On Offering.
- Expense Management: Operating expenses decreased 20% to $189.0 million, primarily due to lower discretionary compensation ($139.2M vs $173.3M) and reduced professional fees.
- Debt Issuance: In August 2008, the company issued $120.0 million in Senior Notes due 2020 with a 5.20% coupon, increasing interest expense to $30.3 million (up 64% from 2007).
Guidance, Outlook, Risks, and Unusual Items
- Market Conditions: Management highlighted that difficult market conditions persisted throughout 2008, characterized by credit market contraction and volatile equity prices. These conditions reduced the volume and value of M&A transactions, directly impacting Advisory revenue.
- Unusual Items (2008): "Other Expenses" included $4.1 million in Special Charges related to the write-off of capitalized costs for ECP capital raising, employee severance, and the closing of the Los Angeles office. Additionally, $7.5 million was recorded for deferred consideration related to the Braveheart acquisition.
- Unusual Items (2007): The 2007 results were heavily impacted by non-recurring stock-based compensation charges totaling $123.6 million related to the Follow-On Offering, which skewed the year-over-year comparison.
- Risks: Key risks include the high volatility of revenue due to the transaction-based nature of the business, dependence on Senior Managing Directors, and exposure to foreign currency fluctuations (Mexican Peso, British Pound, Euro). The company also faces risks related to the performance of its private equity funds and the ability to raise new capital.
- Outlook: The filing does not provide specific numerical guidance for 2009 but notes that the economic downturn could further reduce demand for advisory services and impact the valuation of private equity investments.
Important Facts for Investor Verification
- Revenue Concentration: In 2008, no single client accounted for more than 10% of consolidated Net Revenues, though the top five clients accounted for 21% of revenue.
- Debt Obligations: Verify the impact of the $120 million Senior Notes issued in August 2008, including the 5.20% coupon and associated warrants, on future cash flows and interest coverage.
- Tax Receivable Agreement: The company has a long-term liability of approximately $40.2 million related to a Tax Receivable Agreement, requiring payments to Senior Managing Directors for 85% of tax savings realized from basis step-ups.
- Capital Commitments: The company has unfunded capital commitments of approximately $11.3 million to private equity funds and $150 million to HighView Investment Group (subject to conditions).
- Stock-Based Compensation: Monitor future vesting of unvested Evercore LP partnership units and Restricted Stock Units (RSUs), which could impact future compensation expenses.