Evercore Inc. — Q1 2024 Form 10-Q
Business context and reporting period: Evercore is an investment banking and investment management firm operating across the Americas, Europe, the Middle East and Asia. This unaudited filing covers the three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise stated. Dollar amounts below are in millions except per-share data.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Total revenue | $585.0 | $576.3; up 2% |
| Net revenue | $580.8 | $572.1; up 2% |
| Income before taxes | $86.4 | $108.4; down 20% |
| Net income attributable to Evercore Inc. | $85.7 | $83.4; up 3% |
| Diluted EPS | $2.09 | $2.06 |
| Operating expenses | $496.7 | $462.3; up 7% |
| Employee compensation / net revenue | 66.8% | 64.1% |
| Operating cash flow | $(281.2) | $(384.7) |
| Cash, cash equivalents and restricted cash at period end | $578.4 | $588.1 at March 31, 2023 |
| Investment securities and certificates of deposit | $865.3 | $1,436.9 at December 31, 2023 |
| Notes payable | $373.8 | $373.9 at December 31, 2023 |
Q1 operating cash outflow primarily reflected payment of prior-year bonus awards and deferred cash compensation. Investing activities provided $576.5 million, mainly from net sales and maturities of securities and certificates of deposit; financing activities used $318.6 million, principally for treasury stock purchases, dividends and distributions. Cash and cash equivalents were $569.8 million at March 31, 2024. Current assets were $1.923 billion and current liabilities were $392.9 million.
Evercore repurchased 1.487 million Class A shares for $263.3 million, including $98.7 million under its repurchase program and shares acquired primarily for employee tax withholding. The Board declared a subsequent quarterly dividend of $0.80 per share, payable June 14, 2024. The company reported compliance with its debt covenants; it had no borrowings under its disclosed revolving credit facilities at quarter-end.
Material changes versus the prior comparable period
- Advisory fees fell 7% to $429.8 million, which management attributed primarily to lower revenue from large transactions.
- Underwriting fees rose 143% to $55.5 million, reflecting more underwriting transactions. Commissions were essentially flat.
- Other revenue, including interest and investments, increased 22% to $32.7 million, primarily due to stronger investment-fund performance and returns on fixed-income portfolios.
- Operating expenses increased 7%. Compensation rose 6%, reflecting higher salaries, senior hires and amortization of deferred awards; non-compensation costs rose 14%, including higher professional fees, travel, technology and research-service costs.
- Pre-tax income declined despite modestly higher net revenue. The income-tax line shifted from a $16.1 million expense to a $6.7 million benefit; the 2024 effective tax rate was negative 7.7%, substantially affected by $29.5 million of excess tax benefits from employee share awards.
- Investment Banking & Equities pre-tax income declined 23% to $79.6 million. Investment Management pre-tax income increased 25% to $6.9 million.
Outlook, management commentary and risks
Management gave no specific forward revenue or earnings guidance. It described continued macroeconomic uncertainty, elevated interest rates, geopolitical tensions and evolving regulatory and banking environments, which have elongated transaction-closing timelines. Advisory results depend on successfully completed client transactions, and management noted that timing and completion are outside its control. Announced M&A values increased year over year, while completed M&A values declined: global completed deal value was down 20%, and completed global deals over $100 million were down 19%.
Wealth Management AUM increased 6% from year-end to $13.0 billion, primarily reflecting $676 million of market appreciation; net client inflows were $51 million. Management reported that Wealth Management performance lagged the S&P 500 over the stated one- and three-year periods, while outperforming its fixed-income composite over those periods.
Key exposures include dependence on transaction activity and fee realization, market-driven AUM and investment values, foreign-currency movements, client receivable collection, and fixed costs and lease commitments. The company estimated that a 10% adverse change in its exchange-traded-fund investments would reduce quarterly pre-tax income by approximately $16.4 million; a 10% adverse change in private-equity fund values would reduce it by approximately $0.6 million. It reported no material pending legal proceedings expected to have a material effect, while noting that losses on certain proceedings or investigations cannot be estimated. The company was in compliance with applicable debt and regulatory capital requirements, and management concluded disclosure controls were effective.
Other items to note include $139.6 million accrued under the 2021 Long-term Incentive Plan, with future payments subject to conditions; $375.4 million expected to be paid under the deferred cash compensation program through 2028; and $140.6 million of future payments for leases not yet commenced. A $9.9 million expected annual expense for the headquarters expansion lease is anticipated after the space is taken in 2025.
Important facts for investors to verify
- Whether advisory fee trends and transaction closings improve, particularly given the gap between announced and completed M&A activity.
- How compensation and other operating costs evolve relative to revenue, including the effect of hiring and deferred compensation.
- How much reported earnings benefited from the unusually large share-based compensation tax benefit, and how the effective tax rate develops.
- Cash needs for compensation, dividends, buybacks, leases and deferred awards, alongside the timing of investment-security maturities.
- Market, foreign-exchange and AUM sensitivity, as well as the status and potential impact of legal, regulatory and other contingencies.