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NEW YORK–(BUSINESS WIRE)–Evercore Inc. (NYSE: EVR) today announced its results for the second quarter ended June 30, 2020.

 

Second Quarter 2020 Results

 

2020 Year to Date Results

 

U.S. GAAP

 

Adjusted

 

U.S. GAAP

 

Adjusted

 

 

vs.

Q2 2019

 

 

vs.

Q2 2019

 

 

vs.

YTD 2019

 

 

vs.

YTD 2019

Net Revenues ($ millions)

$

507.1

 

(5%)

 

$

513.9

 

(4%)

 

$

934.1

 

(1%)

 

$

948.9

 

(1%)

Operating Income ($ millions)

$

86.7

 

(32%)

 

$

102.7

 

(26%)

 

$

136.0

 

(35%)

 

$

185.3

 

(21%)

Net Income Attributable to Evercore Inc. ($ millions)

$

56.4

 

(31%)

 

$

71.8

 

(29%)

 

$

87.6

 

(41%)

 

$

129.6

 

(29%)

Diluted Earnings Per Share

$

1.35

 

(28%)

 

$

1.53

 

(26%)

 

$

2.08

 

(39%)

 

$

2.74

 

(27%)

Operating Margin

17.1

%

(678) bps

 

20.0

%

(586) bps

 

14.6

%

(769) bps

 

19.5

%

(498) bps

 

 

 

 

Business and Financial

Highlights

Second quarter Net Revenues decreased 5% on a U.S. GAAP basis and 4% on an Adjusted basis versus the prior year period. For the first six months of 2020, Net Revenues decreased 1% on both a U.S. GAAP and an Adjusted basis versus the first six months of 2019

Record quarterly Underwriting Revenue of $93.6 million in the second quarter increased 453% versus the prior year period. For the first six months of 2020, Underwriting Revenue of $114.7 million increased 162% versus the prior year period, also a record for the period

Evercore ISI research and trading maintained high levels of engagement with clients as volatility remained elevated, driving an 11% increase in Commissions Revenue versus the prior year period. For the first six months of 2020, Commissions Revenue increased 21% versus the prior year period

Maintained #1 league table ranking for announced M&A among independents over the last twelve months and achieved #1 league table ranking by number of announced and number of completed Restructuring deals in the U.S. for the first half of 2020

Advised on three of the ten largest global M&A transactions and four of the five largest U.S. M&A transactions in the first half of 2020

Served as active bookrunner or co-manager on six of the ten largest U.S. IPOs in the first half of 2020

Continued to execute previously announced realignment strategy and other cost management initiatives

 

 

 

 

 

 

 

 

Responding to the Current Environment

M&A activity remains limited, and uncertainty and market volatility have led to delays or, in some cases, terminations of transactions

Evercore remains focused on four priorities in this dynamic and challenging market environment:

 

Ensuring the health, wellness and safety of our workforce, including redoubling our commitment to our diversity and inclusion objectives

 

Focusing our Advisory and Research businesses to meet the immediate needs of our clients, while helping them be well-positioned for the eventual recovery

 

Sustaining our operating infrastructure to support flexible and efficient working arrangements and planning and implementing our return to office on a thoughtful and disciplined basis

 

Maintaining our strong and liquid balance sheet

 

 

 

 

 

 

 

Talent

John Scuorzo joined the Advisory business as a Senior Managing Director in May, enhancing our Capital Markets Advisory practice and strengthening our coverage of the Technology sector

Bodo Uebber joined as the Chairman of Evercore Germany

 

 

 

 

 

 

 

Strategic Transactions

Announced the sale of Evercore Casa de Bolsa, S.A. de C.V. (“ECB”), our Mexico based broker-dealer focused principally on providing Investment Management services

Closed the previously announced sale of the ECB Trust business

 

 

 

 

 

 

 

Capital Return

Quarterly dividend of $0.58 per share

Returned $206.3 million to shareholders for the first six months of 2020 through dividends and repurchases of 1.9 million shares at an average price of $76.22

 

 

 

 

 

LEADERSHIP COMMENTARY

Ralph Schlosstein, President, Co-Chairman and Co-Chief Executive Officer, “Our results for the second quarter and first half of 2020 demonstrate our ability to support our clients broadly in challenging economic and financial markets. We are particularly pleased with our team’s ability to assist clients in raising strategic capital, advising on several of the largest transactions of the year and leading to record quarterly and year-to-date underwriting revenues. Restructuring and debt advisory activity remains high, as does client engagement with our macro and fundamental research teams.”

Schlosstein continued, “We remain focused on our cost management initiatives and, despite the more challenging environment, we were able to deliver a 20% Adjusted operating margin for the second quarter, a sequential increase of 100 basis points. Our cash position and our balance sheet remain strong and our capital return strategies remain on track.”

John S. Weinberg, Co-Chairman and Co-Chief Executive Officer, “Our diverse capabilities and the breadth of our platform allowed our teams to work closely with our clients to address their immediate liquidity, capital and financial management needs, including the execution of several innovative assignments, during the quarter. We continue to have strong and healthy dialogues with our clients, which are beginning slowly to include preparation for opportunities and strategic transactions that will be possible in the recovery.”

Weinberg continued, “Our success is made possible by our exceptional team. We are proud of how well our people have responded to the challenges of the predominantly remote working environment and we are incredibly pleased with our ability to interact with and serve our clients.”

Roger C. Altman, Founder and Senior Chairman, “While there are still some headwinds in the merger market, the Evercore model is proving to be a resilient one for clients. The Firm’s independence, as well as our expanded ability to raise capital, is particularly valuable in this environment.”

Selected Financial Data – U.S. GAAP Results:

The following is a discussion of Evercore’s results on a U.S. GAAP basis.

 

U.S. GAAP

 

Three Months Ended

 

Six Months Ended

 

June 30, 2020

 

June 30, 2019

 

%

Change

 

June 30, 2020

 

June 30, 2019

 

%

Change

 

(dollars in thousands, except per share data)

Net Revenues

$

507,075

 

 

$

531,046

 

 

(5

%)

 

$

934,082

 

 

$

946,373

 

 

(1

%)

Operating Income(1)

$

86,729

 

 

$

126,834

 

 

(32

%)

 

$

136,032

 

 

$

210,644

 

 

(35

%)

Net Income Attributable to Evercore Inc.

$

56,412

 

 

$

81,742

 

 

(31

%)

 

$

87,587

 

 

$

148,974

 

 

(41

%)

Diluted Earnings Per Share

$

1.35

 

 

$

1.88

 

 

(28

%)

 

$

2.08

 

 

$

3.40

 

 

(39

%)

Compensation Ratio

65.9

%

 

59.2

%

 

 

 

64.7

%

 

59.4

%

 

 

Operating Margin

17.1

%

 

23.9

%

 

 

 

14.6

%

 

22.3

%

 

 

Effective Tax Rate

24.5

%

 

24.8

%

 

 

 

25.0

%

 

18.5

%

 

 

Trailing Twelve Month Compensation Ratio

62.3

%

 

58.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Operating Income includes Special Charges, Including Business Realignment Costs, of $8.6 million recognized in the Investment Banking segment for the three months ended June 30, 2020 and $32.2 million and $0.1 million recognized in the Investment Banking and Investment Management segment, respectively, for the six months ended June 30, 2020. Operating Income for the three and six months ended June 30, 2019 includes Special Charges, Including Business Realignment Costs, of $1.0 million and $2.1 million, respectively, recognized in the Investment Banking segment. See “Special Charges, Including Business Realignment Costs” below and page 9 for further information.

Net Revenues

For the three months ended June 30, 2020, Net Revenues of $507.1 million decreased 5% versus the three months ended June 30, 2019, primarily driven by a decrease in Advisory Fees of $107.1 million, partially offset by increases in Underwriting Fees and Commissions and Related Fees of $76.7 million and $5.5 million, respectively, and higher performance of our investment funds portfolio, which is used as an economic hedge against our deferred cash compensation program. For the six months ended June 30, 2020, Net Revenues of $934.1 million decreased 1% versus the six months ended June 30, 2019, primarily driven by a decrease in Advisory Fees of $74.4 million and lower performance of our investment funds portfolio, which is used as an economic hedge against our deferred cash compensation program, and legacy private equity investments. These decreases were partially offset by increases in Underwriting Fees and Commissions and Related Fees of $70.9 million and $18.9 million, respectively. See the Business Line Reporting – Discussion of U.S. GAAP Results below for further information.

Compensation

For the three months ended June 30, 2020, the compensation ratio was 65.9% versus 59.2% for the three months ended June 30, 2019. The compensation ratio for the three months ended June 30, 2020 is 67.5% when the $8.2 million of separation and transition benefits expense, which is presented within Special Charges, Including Business Realignment Costs, is also included. For the six months ended June 30, 2020, the compensation ratio was 64.7% versus 59.4% for the six months ended June 30, 2019. The compensation ratio for the six months ended June 30, 2020 is 68.0% when the $30.2 million of separation and transition benefits expense, which is presented within Special Charges, Including Business Realignment Costs, is also included. See “Special Charges, Including Business Realignment Costs” below for further information. The increase in the amount of compensation recognized in the three and six months ended June 30, 2020 is driven by higher levels of incentive compensation, higher base salaries, primarily due to promotions, and the amortization of unvested share-based and deferred cash awards. The resulting compensation ratios are higher than the comparable periods for 2019 due to these increases, as well as lower Other Revenue earned during the six months ended June 30, 2020 resulting from lower performance of our investment funds portfolio, which is used as an economic hedge against our deferred cash compensation program, and legacy private equity investments. The compensation ratio in any given period is subject to fluctuation based, in part, on the amount of revenue earned in that period. See pages 7 and 8 for discussion of the potential impact of COVID-19.

Special Charges, Including Business Realignment Costs

In the first quarter of 2020, the Company substantially completed a review of operations focused on markets, sectors and people which have delivered lower levels of productivity in an effort to attain greater flexibility of operations and better position itself for future growth.

This review, which began in the fourth quarter of 2019, will generate reductions of approximately 6% of our headcount. In conjunction with the employment reductions, the Company expects to incur separation and transition benefits and related costs of approximately $38 million, $30.3 million of which has been recorded as Special Charges, Including Business Realignment Costs, in the first six months of 2020 and are excluded from our Adjusted results. The Company believes these actions will best position it to continue to provide clients with the highest quality of independent advice while delivering value to our shareholders.

We have entered into an agreement for the leaders of our business in Mexico to purchase Evercore Casa de Bolsa, S.A. de C.V., our Mexico based broker-dealer focused principally on providing Investment Management services. We continue to review additional opportunities in smaller markets. These opportunities could result in further charges in 2020 if pursued to completion.

The Company’s estimates of charges are based on a number of assumptions. Actual results may differ materially if actual activity deviates from these assumptions.

Special Charges, Including Business Realignment Costs, for the three and six months ended June 30, 2020 also reflect the acceleration of depreciation expense for leasehold improvements and certain other fixed assets in conjunction with the previously announced expansion of our headquarters in New York and our business realignment initiatives of $0.4 million and $1.9 million, respectively. Special Charges, Including Business Realignment Costs, for the three and six months ended June 30, 2019 reflect the acceleration of depreciation expense for leasehold improvements in conjunction with the previously announced expansion of our headquarters in New York.

Operating Income

For the three months ended June 30, 2020, Operating Income of $86.7 million decreased 32% versus the three months ended June 30, 2019, primarily driven by a decrease in Investment Banking revenue and an increase in operating costs and Special Charges, Including Business Realignment Costs, partially offset by higher performance of our investment funds portfolio, which is used as an economic hedge against our deferred cash compensation program. For the six months ended June 30, 2020, Operating Income of $136.0 million decreased 35% versus the six months ended June 30, 2019, primarily driven by a decrease in Investment Banking Net Revenues, including lower performance of our investment funds portfolio, which is used as an economic hedge against our deferred cash compensation program, and an increase in operating costs and Special Charges, Including Business Realignment Costs. See the Business Line Reporting – Discussion of U.S. GAAP Results below for further information.

Effective Tax Rate

For the three months ended June 30, 2020, the effective tax rate was 24.5% versus 24.8% for the three months ended June 30, 2019. For the six months ended June 30, 2020, the effective tax rate was 25.0% versus 18.5% for the six months ended June 30, 2019. The effective tax rate is impacted by the non-deductible treatment of compensation associated with Evercore LP Units, as well as the deduction associated with the appreciation or depreciation in the Firm’s share price upon vesting of employee share-based awards above or below the original grant price.

Net Income and Earnings Per Share

For the three months ended June 30, 2020, Net Income Attributable to Evercore Inc. and Earnings Per Share of $56.4 million and $1.35, respectively, decreased 31% and 28%, respectively, versus the three months ended June 30, 2019, principally driven by a decrease in Investment Banking revenue and an increase in operating costs and Special Charges, Including Business Realignment Costs, partially offset by higher performance of our investment funds portfolio, which is used as an economic hedge against our deferred cash compensation program.

For the six months ended June 30, 2020, Net Income Attributable to Evercore Inc. and Earnings Per Share of $87.6 million and $2.08, respectively, decreased 41% and 39%, respectively, versus the six months ended June 30, 2019, principally driven by a decrease in Investment Banking Net Revenues, including lower performance of our investment funds portfolio, which is used as an economic hedge against our deferred cash compensation program, and an increase in operating costs and Special Charges, Including Business Realignment Costs. The decrease was also driven in part by a higher effective tax rate.

Selected Financial Data – Adjusted Results:

The following is a discussion of Evercore’s results on an Adjusted basis. See pages 9 and A-2 to A-11 for further information and reconciliations of these non-GAAP metrics to our U.S. GAAP results.

 

Adjusted

 

Three Months Ended

 

Six Months Ended

 

June 30, 2020

 

June 30, 2019

 

%

Change

 

June 30, 2020

 

June 30, 2019

 

%

Change

 

(dollars in thousands, except per share data)

Net Revenues

$

513,922

 

 

$

535,803

 

 

(4

%)

 

$

948,899

 

 

$

955,605

 

 

(1

%)

Operating Income

$

102,739

 

 

$

138,500

 

 

(26

%)

 

$

185,270

 

 

$

234,151

 

 

(21

%)

Net Income Attributable to Evercore Inc.

$

71,767

 

 

$

100,996

 

 

(29

%)

 

$

129,585

 

 

$

182,696

 

 

(29

%)

Diluted Earnings Per Share

$

1.53

 

 

$

2.07

 

 

(26

%)

 

$

2.74

 

 

$

3.73

 

 

(27

%)

Compensation Ratio

65.0

%

 

58.0

%

 

 

 

63.6

%

 

58.0

%

 

 

Operating Margin

20.0

%

 

25.8

%

 

 

 

19.5

%

 

24.5

%

 

 

Effective Tax Rate

26.2

%

 

25.2

%

 

 

 

25.6

%

 

19.4

%

 

 

Trailing Twelve Month Compensation Ratio

60.8

%

 

56.8

%

 

 

 

 

 

 

 

 

 

Adjusted Net Revenues

For the three months ended June 30, 2020, Adjusted Net Revenues of $513.9 million decreased 4% versus the three months ended June 30, 2019, primarily driven by a decrease in Advisory Fees of $107.3 million, partially offset by increases in Underwriting Fees and Commissions and Related Fees of $76.7 million and $5.5 million, respectively, and higher performance of our investment funds portfolio, which is used as an economic hedge against our deferred cash compensation program. For the six months ended June 30, 2020, Adjusted Net Revenues of $948.9 million decreased 1% versus the six months ended June 30, 2019, primarily driven by a decrease in Advisory Fees of $74.3 million and lower performance of our investment funds portfolio, which is used as an economic hedge against our deferred cash compensation program, and legacy private equity investments. These decreases were partially offset by increases in Underwriting Fees and Commissions and Related Fees of $70.9 million and $18.9 million, respectively. See the Business Line Reporting – Discussion of Adjusted Results below for further information.

Adjusted Compensation

For the three months ended June 30, 2020, the Adjusted compensation ratio was 65.0% versus 58.0% for the three months ended June 30, 2019. For the six months ended June 30, 2020, the Adjusted compensation ratio was 63.6% versus 58.0% for the six months ended June 30, 2019. The increase in the amount of Adjusted compensation recognized in the three and six months ended June 30, 2020 is driven by higher levels of incentive compensation, higher base salaries, primarily due to promotions, and the amortization of unvested share-based and deferred cash awards. The resulting Adjusted compensation ratios are higher than the comparable periods for 2019 due to these increases, as well as lower Other Revenue earned during the six months ended June 30, 2020 resulting from lower performance of our investment funds portfolio, which is used as an economic hedge against our deferred cash compensation program, and legacy private equity investments. The Adjusted compensation ratio in any given period is subject to fluctuation based, in part, on the amount of revenue earned in that period. See pages 7 and 8 for discussion of the potential impact of COVID-19.

Adjusted Operating Income

For the three months ended June 30, 2020, Adjusted Operating Income of $102.7 million decreased 26% compared to the three months ended June 30, 2019, primarily driven by a decrease in Investment Banking revenue and an increase in operating costs, partially offset by higher performance of our investment funds portfolio, which is used as an economic hedge against our deferred cash compensation program. For the six months ended June 30, 2020, Adjusted Operating Income of $185.3 million decreased 21% compared to the six months ended June 30, 2019, primarily driven by a decrease in Investment Banking Net Revenues, including lower performance of our investment funds portfolio, which is used as an economic hedge against our deferred cash compensation program, and an increase in operating costs. See the Business Line Reporting – Discussion of Adjusted Results below for further information.

Adjusted Effective Tax Rate

For the three months ended June 30, 2020, the Adjusted effective tax rate was 26.2% versus 25.2% for the three months ended June 30, 2019. For the six months ended June 30, 2020, the Adjusted effective tax rate was 25.6% versus 19.4% for the six months ended June 30, 2019. The Adjusted effective tax rate is impacted by the deduction associated with the appreciation or depreciation in the Firm’s share price upon vesting of employee share-based awards above or below the original grant price.

Adjusted Net Income and Earnings Per Share

For the three months ended June 30, 2020, Adjusted Net Income Attributable to Evercore Inc. and Adjusted Earnings Per Share of $71.8 million and $1.53, respectively, decreased 29% and 26%, respectively, versus the three months ended June 30, 2019, principally driven by a decrease in Investment Banking revenue and an increase in operating costs, partially offset by higher performance of our investment funds portfolio, which is used as an economic hedge against our deferred cash compensation program. The decrease was also driven in part by a higher effective tax rate.

For the six months ended June 30, 2020, Adjusted Net Income Attributable to Evercore Inc. and Adjusted Earnings Per Share of $129.6 million and $2.74, respectively, decreased 29% and 27%, respectively, versus the six months ended June 30, 2019, principally driven by a decrease in Investment Banking Net Revenues, including lower performance of our investment funds portfolio, which is used as an economic hedge against our deferred cash compensation program, and an increase in operating costs. The decrease was also driven in part by a higher effective tax rate.

Adjusted Operating Expenses

Adjusted Operating Expenses exclude adjustments relating to Special Charges, Including Business Realignment Costs, as described in more detail on page 4.

COVID-19 Update

The worldwide COVID-19 pandemic has continued to have, and is expected to continue having, a significant negative effect on our business. During these unprecedented times, we have continued to operate our business while prioritizing our people, our clients, our shareholders and our communities, and we are doing our part to continue reducing the spread of COVID-19. The health, safety and wellness of our employees and their families remains our top priority. We are progressing with our plans for returning to office based on conditions and guidance in the applicable local market, although currently the substantial majority of our employees are working from home, including senior corporate and business leaders.

Within the current environment caused by COVID-19, we have seen a significant decline in global and domestic M&A transactions, and a prolonging of transaction closings as the conditions typically required for global and domestic M&A are generally not present. Accordingly, we have pivoted our services to meet the evolving priorities and needs of our clients. While we observed an initial decline in equity underwriting activity during the early stages of the COVID-19 pandemic, subsequently our equity underwriting activity levels have meaningfully increased. Our restructuring, debt advisory and capital markets advisory businesses remain very active, and the volatility and increased volume in the equity markets have allowed our Equities business to maintain elevated levels of secondary revenues. However, as we have previously indicated, given that these businesses produce less revenue than our M&A advisory business, the increased activity will not be sufficient to offset weakness in M&A activity.

At this time, it is uncertain how long our business will be negatively impacted by COVID-19 and any associated economic and market downturn. Although we anticipate that the decline in revenue will have a significant impact on our results of operations and cash flows, it is uncertain at this time how significant that impact will be. The degree of the impact will likely be directly correlated to the length and depth of any economic slowdown and the speed of any recovery. Market access to working capital, access to both short-term and long-term financing and/or the ability to raise capital will be impacted, and may be impacted significantly, during any resulting periods of economic distress.

Contacts

Investor Contact:

Hallie Miller

Head of Investor Relations, Evercore

917-386-7856

Media Contact:

Dana Gorman

Abernathy MacGregor, for Evercore

212-371-5999

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