Q3 2023 Evercore Inc Earnings Call

Speaker 1: Good morning and welcome to the Effort Corps 3rd quarter, 2023 earnings conference call.

Good morning, and welcome to the Evercore third quarter 2023 earnings Conference call.

Today's call is scheduled to last about one hour, including remarks by Evercore management and the question and answer session.

Speaker 1: Today's call is scheduled to last about one hour, including remarks by Evercore Management and the Question and Answer Session.

Speaker 1: In order to ask a question, please press the star piece followed by the number one on your touchtone phone at any time.

In order to ask a question. Please press the star key followed by the number one on your Touchtone phone at any time.

Speaker 1: I will now turn the call over to Katie Haber, managing director of Investor Relations and ESG at Evercore. Please go ahead.

I will now turn the call over to Katie Haber, managing director of Investor Relations and ESG at Evercore.

Please go ahead.

Speaker 2: Thank you, operator. Good morning and thank you for joining us today for EverCourse 3rd quarter, 2023 Financial Results Conference call. I'm Katie Haver, EverCourse Head of Invest Relations in the USG. Joining me on the call today is John Weinberg, our chairman and CEO in Tim Lalonde, our CFO . After our prepared remarks, we will open up the call for questions.

Thank you operator, good morning, and thank you for joining us today for Evercore third quarter 2023 financial results conference call and Kitty Haver Evercore head of Investor Relations and ESG joining.

Joining me on the call today is John Weinberg, our chairman and CEO and Tim <unk>, our CFO. After our prepared remarks, we will open up the call for questions.

Speaker 2: Earlier today, we issued a press release announcing Evercore's third quarter 2023 financial results. Our discussion of our results today is complementary to the press release, which is available on our website at evercore.com. This conference call is being webcast live in the Foreign Business section of our website, and an archive of it will be available for 30 days beginning approximately one hour after the conclusion of this call.

Earlier today, we issued a press release announcing Evercore third quarter 2023 financial results. Our discussion of our results today is complementary to the press release, which is available on our website at Evercore Dot com.

This conference call is being webcast live in the for investors section of our website and an archive of it will be available for 30 days beginning approximately one hour after the conclusion of this call.

Speaker 2: During the course of this conference call, we may make a number of forward-looking statements. Any forward-looking statements that we make are subject to various risks and uncertainties, and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements.

During the course of this conference call. We may make a number of forward looking statements any forward looking statements that we make are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors include but are not limited to those discussed it never of course filings with the SEC inquiry.

Speaker 2: These factors include but are not limited to those discussed in Evercourt's filing for the SEC, including our annual report on Form 10K, quarterly reports on Form 10Q, and current reports on Form 8K. I want to remind you that the company assumes no duty to update any forward-looking statement.

Our annual report on Form 10-K quarterly reports on Form 10-Q, and current reports on form 8-K, I want to remind you that the company assumes no duty to update any forward looking statements.

Speaker 2: In our presentation today, unless otherwise indicated, we will be discussing adjusted financial measures, which are non-get measures that we believe are meaningful when evaluating the company's performance.

In our presentation today, unless otherwise indicated we will be discussing adjusted financial measures, which are non-GAAP measures that we believe are meaningful when evaluating the company's performance.

Speaker 2: For detailed disclosures on these measures and the GAP reconciliations, you should refer to the financial data contained within our press release, which is posted on our website. We continue to believe that it is important to evaluate Evercore's performance on an annual basis. As we have noted previously, our results for any particular quarter are influenced by the timing of transaction closing. I will now turn the call over to John .

For detailed disclosures on these measures and the GAAP reconciliations you should refer to the financial data contained within our press release, which is posted on our website.

We continue to believe that is important to evaluate evercore <unk> performance on an annual basis.

As we have noted previously our results for any particular quarter are influenced by the timing of transaction closings.

Now I'll turn the call over to John.

Thank you Katie and good morning, everyone.

Speaker 3: I want to start this morning by addressing the crisis in the Middle East and to acknowledge the profound sadness we are all feeling for the innocent victims.

I want to start this morning by addressing the crisis in the middle East and to acknowledge the profound sadness. We are all feeling for the innocent victims.

Speaker 3: At Evercore, we live by our values and I want to emphasize that terrorism and acts of hate must be condemned.

At Evercore, we live by our values and I want to emphasize the terrorism acts of hate must be condemned.

Speaker 3: Over the past quarter, we've seen a continuation of the improved market conditions that began over the summer.

Over the past quarter, we've seen a continuation of the improved market conditions that began over the summer.

Speaker 3: Internally, we see client activity level tracking at an elevated pace and moderately increasing confidence levels across management teams and in boardrooms. Greater financing accessibility, albeit at higher costs. And a slow return to equity capital.

Internally, we see client activity levels tracking at an elevated pace and moderately increasing confidence levels of cross management teams and in boardrooms greater financing accessibility, albeit at higher cost and a slow return to equity capital markets activity.

Speaker 3: The normalization of market activity takes time, but we believe these positive indicators are a first step towards an improving backdrop, which should provide a broad-based benefit to many of our markets.

The normalization of market activity takes time, but we believe these positive indicators are first step towards an improving backdrop, which should provide a broad based benefit to many of our markets.

Speaker 3: Clearly, market uncertainty remains. Driven by increased geopolitical tensions as well as higher rates.

Clearly market uncertainty remains driven by increased geopolitical tensions as well as higher rates, we do not expect the positive shift in activity levels and market sentiment has seen over the past quarter to translate into meaningfully improved results in the near term that said.

Speaker 3: We do not expect the positive shift in activity levels and market sentiment seen over the past quarter to translate into meaningfully improved results in the near term. That said, barring an unexpected significant shift in the macro environment, we expect activity levels that continue to build in 2024. Well, it is still early days. We are seeing this reflected in stronger backlogs, similar to our last quarter.

Barring an unexpected significant shift in the macro environment, we expect activity levels to continue to build in 2024.

While it is still early days, we are seeing this reflected in stronger backlogs similar to our last quarter.

Speaker 3: As discussed last quarter, the current environment has presented one of the strongest hiring opportunities seen in our firm's history and we have capitalized on it.

As discussed last quarter. The current environment has presented one of the strongest hiring opportunities seen in our firms history and we've capitalized on it.

Speaker 3: We've made significant investments in talent this year, our largest SMD hiring year ever. When paired with an improving market backdrop, we believe these investments, as well as our ramping SMD hires and promotes from the last two years, all in more than 40 ramping SMDs, will drive significant productive capacity and help us build a stronger foundation for growth over the medium and long term.

We've made significant investments in talent this year, our largest SMT hiring year ever when paired with an improving market backdrop. We believe these investments as well as our ramping SMT hires and promotes from the last two years all in more than 40 ramping Smbs will drive significant productive.

Capacity and help us build a stronger foundation for growth over the medium and long term.

Speaker 3: 9 of our 11 new SMD hires year to date have started and are working at Evercore. These new SMD hires have joined areas which we have identified as strategically significant, including TMT, both in the US and Europe , sponsor coverage, business services, industrial, real estate, and capital devised.

Nine of our 11, new SMT hires year to date have started and are working at Evercore. These new SMT hires have joined areas, which we have identified a strategically significant including TMT both in the U S and Europe sponsor coverage business service.

Industrials real estate and capital Advisory.

Speaker 3: We will continue to engage in discussions with other strong candidates, but we believe our 2023 new higher plans have largely been completed.

We will continue to engage in discussions with other strong candidates, but we believe our 2023, new hire plans have largely been completed.

Speaker 3: As we build our recruiting pipeline for 2024, we remain steadfast in the execution of our strategic initiatives, which I've outlined on past calls.

As we build our recruiting pipeline for 2024, we remain steadfast in the execution of our strategic initiatives, which I have outlined on past calls.

Speaker 3: Now I will briefly discuss the quarter. Our third quarter results while up sequentially reflect the muted market backdrop.

Now I will briefly discuss the quarter.

Our third quarter results, well up sequentially reflect the muted market backdrop.

Speaker 3: as merger activity has remained challenged and the recent improvement in market sentiment has yet to have a substantial impact on announcement and completion activity.

As merger activity has remained challenged in the recent improvement in market sentiment has yet to have a substantial impact.

An announcement and completion activity.

Speaker 3: In our global advisory business, we've advised on several transformative transactions, including notably this week, Chevron $60 billion acquisition of Hess. And in the quarter, West Rocked on its $20 billion merger with Smurf at Kappa, Danahir on its spin-off of Veraldo, as well as Bristol-Mire's Squib its $4.8 billion acquisition of Merat.

And our global Advisory business, we've had we've advised on several transformative transactions, including notably this week Chevron $60 billion acquisition of Hess and in the quarter West rock on its $20 billion merger with Smurfit Kappa Danaher on its spin off of <unk> as well as Bristol Myers.

Squibb is $4 8 billion dollar acquisition of Marathi.

Speaker 3: Are European advisory group experience strong activity levels, including in dead advisory?

Our European Advisory group experienced strong activity levels, including indebted advisory. Additionally.

Speaker 3: Additionally, we continue to make strong progress with our sponsor coverage.

Additionally, we continue to make strong progress with our sponsor coverage efforts. We're excited for what this expanded group will accomplish over time, especially as the collaboration with our private capital advisory and fundraising businesses will continue to drive synergies, we see momentum building across our sponsor related <unk>.

Speaker 3: We're excited for what this expanded group will accomplish over time, especially as the collaboration with our private capital advisory and fundraising businesses will continue to drive synergies. We see momentum building across our sponsor-related business.

Yes.

The private capital advisory and fundraising businesses were resilient in the quarter, highlighting the strength of our market leading franchises.

Speaker 3: The private capital advisory and fundraising businesses were resilient in the quarter, highlighting the strengths of our market leading franchise.

Speaker 3: Continuation fund activity has persisted at an elevated pace and new business activity is strong While the broader fundraising environment remained muted our private funds business had a better quarter relative to a year ago

<unk> fund activity has persisted at an elevated pace of new business activity is strong while.

The broader fundraising environment remained muted our private funds business had a better quarter relative to a year ago.

Okay.

Speaker 3: Our strategic defense and shareholder advisory business had another busy quarter as activist campaigns continued at elevated levels.

Our strategic defense and shareholder advisory business had another busy quarter as activist campaigns continued.

Elevated levels.

Speaker 3: Restructuring remains strong, similar to what we saw in the second quarter, with activity levels driven by liability management and distressed financing advisory assignments.

Restructuring remains strong similar to what we saw in the second quarter with activity levels, driven by liability management and distress financing advisory assignments.

Speaker 3: In our underwriting practice, corporates continued with regular wave follow-ons, particularly in biotech and traditional clean-tech energy.

And our underwriting practice corporates continued with regular way follow ons, particularly in biotech and traditional clean Tech energy.

Speaker 3: The third quarter saw an opening of the IPO market. In the quarter, we served as an active book runner on the second largest biotech IPO, your to date, for raised bio.

The third quarter saw an opening of the IPO market.

In the quarter, we served as an active book runner on the second largest biotech IPO year to date for res bio.

Speaker 3: We also were an active book runner on the largest biotech overnight follow-on offering this year for madrigal pharmaceutical.

We also we're in active book runner on the largest biotech overnight follow on offering this year for magical pharmaceuticals.

Speaker 3: Our overall ECM market share continued to rise, a testament to the strength and growth of our business.

Our overall ECM market share continued to rise a testament to the strength and growth of our business.

Speaker 3: In our equities franchise, we are pleased to have been awarded, for the second year in a row, a number one ranking on the weighted basis in Institutional Investors All-America Equity Research Survey. We also had the most number one ranked analyst on Wall Street for the first time ever.

And our equities franchise, we are pleased to have been awarded for the second year in a row, our number one ranking on the weighted basis in institutional investors All America equity Research survey.

We also had the most number one ranked analysts on wall Street for the first time ever.

Lastly in wealth management, our assets under management declined modestly in the quarter, both performance and client retention rates continue to be strong.

Before I turn it over to Tim I want to wrap up with a few thoughts.

Speaker 3: 2023 has undoubtedly been a challenging year for our industry.

2023 has undoubtedly been a challenging year for our industry.

Speaker 3: Despite the operating backdrop, we've remained focused on purposefully executing on our strategic plans by continuing to invest in our franchise, pushing to strengthen and broaden our coverage and geographic reach, building out our product and execution capabilities and continuing to enhance our intellectual capital.

Despite the operating backdrop, we remained focused on purposefully executing on our strategic plans by continuing to invest in our franchise pushing to strengthen and broaden our coverage and geographic reach building out our product and execution capabilities and continuing to enhance our intellectual capital.

Speaker 3: We are hopeful that 2024 will be a better year for the market and, in turn, Evercore. Our client contact remains active and robust across our businesses. We're excited for the opportunities an improving environment will present for us. With that, let me turn it over to Tim.

We are hopeful that 2024 will be a better year for the market and in turn Evercore.

Our client contact remains active and robust across our businesses. We're excited for the opportunities and improving environment will present for us with that let me turn it over to Tim.

Thank you John.

Speaker 4: Our third quarter results show sequential improvement compared to the second quarter. Do not yet meaningfully reflect the early stage improvements in the environment.

Our third quarter results show sequential improvement compared to the second quarter did not yet meaningfully reflects the early stage improvements in the environment.

Speaker 4: We are seeing internal client activity levels discernibly picking up from earlier this year.

We are seeing internal client activity levels discernably picking up from earlier this year.

Speaker 4: However, as I mentioned on our last quarterly call, the road to significantly improved financial results is a gradual one, as there is a time lag that exists between client dialogues and announcements, and then between announcements and completion.

However, as I mentioned on our last quarterly call the road to significantly improve financial results is a gradual one.

There is a time lag that exists between client dialogues and announcements and then between announcements and completions.

Speaker 4: Additionally, we have taken advantage of an attractive partner recruiting market with a record SMD hiring year, yet coupled that with disciplined headcount management across all areas of the firm as we strive to increase our productivity. I will now discuss our third quarter.

Additionally, we have taken advantage of an attractive partner recruiting market with a record SMT hiring year, yes, coupled that with discipline to head count management across all areas of the firm as we strive to increase our productivity.

I will now discuss our third quarter financial results.

For the third quarter of 2023 net revenues net income and EPS on a GAAP basis were $570 million $52 million and $1 30 per share respectively.

Speaker 4: For the third quarter of 2023, net revenues, net income, and EPS on a gap basis were $570 million, $52 million, and $1.30 per share, respectively.

Speaker 4: My comments from here on will focus on non-GAAP metrics, which we believe are useful when evaluating our results.

My comments from Hereon will focus on non-GAAP metrics, which we believe are useful when evaluating our results our standard GAAP reporting and a reconciliation of GAAP to adjusted results can be found in our press release, which is on our website.

Speaker 4: Our standard GAAP reporting and a reconciliation of GAAP to adjusted results can be found in our press release, which is on our website.

Speaker 4: Our third quarter adjusted net revenues of $576 million to climb 1% versus the third quarter a year ago, but we're up 14% sequentially.

Our third quarter adjusted net revenues of $576 million declined 1% versus the third quarter, a year ago, but were up 14% sequentially.

Speaker 4: Third quarter adjusted operating income and adjusted net income of $83 million and $55 million. Decreased 39% and 42% respectively, versus the third quarter of 2022. Adjusted earnings per share of $1.30 decreased 41% versus the prior year of period.

Third quarter, adjusted operating income and adjusted net income of $83 million and $55 million decreased 39% and 42% respectively versus the third quarter of 2022 adjusted earnings per share of $1 30, <unk> decreased 41% versus the.

For a year period.

Speaker 4: Our adjusted operating margin was 14% for the third quarter.

Our adjusted operating margin was 14% for the third quarter.

Turning to the businesses.

Speaker 4: In investment banking, third quarter adjusted advisory fees of $468 million declined 4% year over year, compared to $489 million of advisory fees in last year's third quarter.

In investment banking third quarter, adjusted advisory fees of $468 million declined 4% year over year compared to $489 million of advisory fees in last year's third quarter.

Speaker 4: Sequentially, advisory revenues were up 25 percent as market activity levels across our various advisory businesses were modestly stronger compared to last quarter.

Sequentially Advisory revenues were up 25% as market activity levels across our various advisory businesses were modestly stronger compared to last quarter.

Speaker 4: Third-quarter underwriting fees of $31 million were up 7% compared to the third quarter of 2022. We are seeing some improvement in the market with a number of significant transactions more recently.

Third quarter underwriting fees of $31 million were up 7% compared to the third quarter of 2022.

We are seeing some improvement in the market with a number of significant transactions more recently.

Speaker 4: Commissions and related revenue of $49 million in the third quarter was down slightly year over year, which is a respectable outcome given that market trading volumes and volatility have been lower than last year's level.

Commissions and related revenue of $49 million in the third quarter was down slightly year over year, which is a respectable outcome given that market trading volumes and volatility have been lower than last year's levels.

Speaker 4: Third quarter adjusted asset management and administration fees of $19 million increased 9% year over year.

Third quarter, adjusted asset management, and administration fees of $19 million increased 9% year over year.

Speaker 4: This is primarily due to a third quarter AUM of $11.3 billion, which is up 13% year over year.

This is primarily due to a third quarter AUM of 11 $3 billion, which is up 13% year over year.

Third quarter adjusted other revenue net was a gain of approximately $10 million, reflecting approximately $15 million of interest income earned on our cash balance due to higher short term rates, partially offset by a 5 million dollar loss in our investment funds portfolio, which is used as a hedge.

For our D C P commitments driven by a decline in equity market values in the quarter.

Turning to expenses.

Adjusted compensation ratio for this third quarter is 68%.

As I discussed at some length on last quarter's earnings call our compensation ratio continues to be meaningfully impacted by.

The revenue environment.

The amortization of prior year deferred compensation awards.

The on boarding of our new senior hires five of whom have joined the firm since the middle of the third quarter as well as the market level for compensation.

Speaker 4: Given that many of these new SMDs have joined late in the year, and we recognize their 2023 compensation from their start through year-end, we would expect to see additional upward pressure on the fourth quarter compensation ratio.

Given that many of these new Smbs have joined late in the year and we recognize there are 2023 compensation from their start through year end, we would expect to see additional upward pressure on the fourth quarter compensation ratio.

Speaker 4: Based on what we know today and incorporating our current best estimates about fourth quarter revenue and market compensation rates, we would expect the comp ratios of these past two quarters to be generally representative of our full year compensation ratio estimates.

Based on what we know today and incorporating our current best estimates about fourth quarter revenue and market compensation rates, we would expect the comp ratios of these past two quarters to be generally representative of our full year compensation ratio estimates.

Speaker 4: Note that variations in the actual fourth quarter revenues or market compensation levels could impact our future quarter and year-end comp ratios in either direction.

Note that variations in the actual fourth quarter revenues or market compensation levels could impact our future quarter and year end comp ratios in either direction.

Speaker 4: Shifting to non-compensation expenses. In the third quarter, our non-comp expenses were $102 million, up 12% from a year ago. The year-over-year increase reflects some increased rent expense for new lease space related to required relocation of part of our corporate group and higher information services fees.

Shifting to non compensation expenses in the third quarter, our non comp expenses were $102 million up 12% from a year ago. The.

The year over year increase reflects some increased rent expense for new leases space related to required relocation of part of our corporate group and higher information services fees. Additionally.

Speaker 4: Additionally, our non-comp expenses from a year ago reflected an expense reversal, which decreased our non-comp expense materially at that time, resulting in a larger increase year over year.

Additionally, our non comp expenses from a year ago reflected in expense reversal, which decreased our non comp expense materially at that time, resulting in a larger increase year over year.

Speaker 4: I would note that our non-comp expense on a per head basis is still modestly below where it was in 2019, the pre-COVID year, and modestly above a year ago. We expect our non-comps to be similar to our second and third quarter levels for the remainder of the year.

I would note that our non comp expense on a per head basis is still modestly below where it was in 2019, the pre COVID-19 year and modestly above a year ago.

We expect our non comps to be similar to our second and third quarter levels for the remainder of the year.

Speaker 4: We are continuing to diligently monitor and manage our non-comp expenses.

We are continuing to diligently monitor and manage our non comp expenses.

Speaker 4: Our adjusted tax rate for the quarter was 27.6%, virtually identical to the 27.4% tax rate from a year ago.

Our adjusted tax rate for the quarter was 27, 6%.

Actually identical to the 27, 4% tax rate from a year ago.

Speaker 4: Turning to the balance sheet, as of September 30th, our cash and investment securities totaled approximately $1.6 billion, which is up from $1.5 billion at the end of last quarter. We continue to maintain a strong cash position, taking into consideration the current economic and business environment, cash needs for the implementation of our strategic initiatives, including hiring plans, and preserving a solid financial footing.

Turning to the balance sheet as of September 30th our cash and investment securities totaled approximately $1 $6 billion, which is up from $1 5 billion at the end of last quarter.

We continue to maintain a strong cash position taking into consideration the current economic and business environment cash needs for the implementation of our strategic initiatives, including hiring plans and preserving our solid financial footing.

Speaker 4: Year to date, we have returned a total of $490 million to shareholders through dividends and repurchases of 3 million shares at an average price of $128.97.

Year to date, we have returned a total of $490 million to shareholders through dividends and repurchases of 3 million shares at an average price of $128 97.

Speaker 4: Our third quarter adjusted deluded share count is 42.8 million. As a reminder, that is down about 5 million shares from where we worked two years ago.

Our third quarter adjusted diluted share count is $42 8 million as a reminder, that is down about 5 million shares from where we were two years ago.

Speaker 4: In the past three years, we have returned to shareholders cash equating to more than one-third of our market cap.

In the past three years, we have returned to shareholders cash equating to more than one third of our market cap.

Speaker 4: We continue to maintain a strong capital position, and we remain committed to our philosophy of returning to shareholders cash not needed to implement our strategic plan and to provide financial stability for our stakeholders.

We continue to maintain a strong capital position and we remain committed to our philosophy of returning to shareholders cash not needed to implement our strategic plan and to provide financial stability for our stakeholders.

Speaker 4: As John mentioned, we are encouraged by the early signs of an improved market backdrop. That coupled with the SMDs who joined us in the third quarter, those still to join, and SMDs who are promoted or hired in the last couple of years, position Evercore for greater revenue and earnings leverage over the medium to longer term. With that, we will now open the line for questions.

As John mentioned, we are encouraged by the early signs of an improved market backdrop.

That coupled with the Smbs, who joined us in the third quarter, though still to join and Smbs, who are promoted or hired in the last couple of years position Evercore for greater revenue and earnings leverage over the medium to longer term.

With that we will now open the line for questions.

Thank you.

Speaker 1: We will now conduct the question and answer portion of the conference. Please limit to one question only.

We will now conduct a question and answer a question of the conference.

Please limit to one question only.

Speaker 1: You are welcome to rejoin the queue for additional questions, time permitting.

You are welcome to rejoin the queue for additional questions Todd permitted.

Speaker 1: Again, in order to ask a question, please press the star key followed by one on your touchtone file.

Again in order to ask a question. Please press the star key followed by one on your Touchtone phone.

Speaker 1: Our first question is from Devin Ryan with JMP Securities. Your line is open.

Our first question is from Devin Ryan with JMP Securities. Your line is open.

Yeah.

Yeah.

Okay.

Speaker 5: Devin, please make sure that you're not self muted. Oh, sorry about that. Good morning, John and Tim. Sorry about that.

Kevin Please make sure that youre not self needle.

Sorry about that good morning, John and Tim sorry about that.

Operator: Good morning and welcome to the Evercore Third Quarter 2023 Earnings Conference call Today's call is scheduled to last about one hour, including remarks by Evercore Management and the question and answer session. In order to ask a question, please press the star keys followed by the number one on your touchtone phone at any time.

Speaker 5: Yeah, first I guess the question maybe make it two parts since I have one here. So I guess first off the advisory SMD count decline by five. So I just wanted to...

Yes, first I guess question, maybe make it two parts since I have one here so.

So I guess first off the advisory SMT count declined by five so just wanted to.

Speaker 5: get any color there since you guys are hiring, just make sure you understand that dynamic.

Can you give any color there since you guys are hiring just make sure I understand that dynamic and then the other part of the question. We're getting a lot from clients recently, just about expense inflation and what that means for normalized margins for evercore and the industry more broadly and obviously I. Appreciate you had the biggest driver of that is going to be.

Katy Haber: I will now turn the call over to Katy Haber, Managing Director of Investor Relations and ESG at Evercore. Please go ahead. Thank you operator. Good morning and thank you for joining us today for Evercore Third Quarter 2023 Financial Results Conference call. I'm Katy Haber, Evercore's Head of Invest Relations and ESG.

Speaker 4: and what that means for normalized margins for Evercore and the industry more broadly. And obviously you appreciate the biggest driver of that's gonna be revenues, and we're not in a normal revenue environment today, but how are you guys thinking about kind of normalized margins over time? You know, have we structurally shifted higher, or excuse me, sorry, structurally shifted lower because of some of the expensive inflation, or do you think we can get back to levels that you guys have been at historically? Thanks. Yeah, and thanks, Devin. Let me take the first question. Okay, go ahead, John .

Revenues were not in a normal revenue environment today, but how are you guys thinking about kind of normalized margins over time have we structurally shifted higher.

Katy Haber: Joining me on the call today is John Weinberg, our chairman and CEO in Tim LaLonde, our CFO. After our prepared remarks we will open up the call for questions.

I guess structurally shifted lower.

Cause of some of the expense inflation or do you think we can get back to.

Levels that you guys had been at historically thanks.

Katy Haber: Earlier today we issued a press release announcing Evercore Third Quarter 2023 Financial Results. Our discussion of our results today is complimentary to the press release which is available on our website at Evercore.com. This conference call is being webcast live in the Foreign Buster section of our website and an archive of it will be available for 30 days, beginning approximately one hour after the conclusion of this call. During the course of this conference call we may make a number of forward-looking statements.

Speaker 4: Yeah, and thanks, Devin.

Yeah, and thanks, Devin let me take the first question. Okay go ahead, John take the second.

Speaker 3: Okay, go ahead and take a second. In terms of advisory SMDs, what we have said to the market, what we've said to you all is that we are in the mode of hiring very high quality talented people, but at the same time, we're managing our head count. And there are people who are shifting out and there are people who we were bringing in. We've obviously been aggressive about promoting high quality talented people. We've promoted 24.

In terms of the advisory Smbs, what we have said to the market. What we've said to you. All is that we are in the mode of of hiring very high quality talented people, but at the same time, we're managing our head count and there are people who are shifting out and there are people who were bringing in.

Katy Haber: Any forward-looking statements that we make are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors include but are not limited to those discussed in Evercore's filing for the SEC including our annual report on Form 10K, quarterly reports on Form 10Q, and current reports on Form 8K. I want to remind you that the company assumes no duty to update any forward-looking statements.

You've obviously been aggressive about promoting high quality talented people we have.

We promoted 24.

Speaker 3: people to SMD internally in the last two years, and as you know, this year we're hiring from the outside 11. What we've really done is we've basically tried to be disciplined, and so this is just

People to SMT internally in the last few years and as you know this year.

We're hiring from the outside 11, what we've what we've really done is we've basically tried to be disciplined and so this is just a really an execution of what we said we were going to do which is we are making sure that we are bringing in high quality people and those people who are who for for <unk>.

Speaker 3: a really an execution of what we said we were going to do, which is we are making sure that we are bringing in high quality people and those people who are, who for all different reasons may not be the right fit of their shifting out.

Katy Haber: In our presentation today unless otherwise indicated we will be discussing adjusted financial measures which are non-get measures that we believe are meaningful when evaluating the company's performance. For details and disclosures on these measures and the gap reconciliation you should refer to financial data contained within our press release which is posted on our website. We continue to believe that it is important to evaluate Evercore's performance on an annual basis. As we have noted previously our results for any particular quarter are influenced by the timing of transaction closing.

All different reasons may not be the right fit.

Shifting out.

Speaker 4: And let me just add one thing to that and then I'll comment a little bit on the expenses.

And let me just add one thing to that and then I'll comment a little bit on the expenses.

Speaker 4: And that's that we've always guided research community and our investors to look at our firm on a multiple quarter and multiple year time span in order to assess what we're doing. And so if you look at our partner head count in the most recent numbers, of course, 137 in the advisory business.

And that's that we've always guided.

Research community and our investors.

To look at our firm on a multiple quarter and multiple year time span in order to assess what we're doing and so.

John Weinberg: I will now turn the call over to John. Thank you Katie and good morning everyone.

If you look at our partner head count.

The most recent numbers of course, the 137 in the advisory business.

John Weinberg: I want to start this morning by addressing the crisis in the Middle East and to acknowledge the profound sadness we are all feeling for the innocent victims. At Evercore we live by our values and I want to emphasize that terrorism and acts of hate must be condemned. Over the past quarter we have seen a continuation of the improved market conditions that began over the summer. Internally we see client activity level tracking at an elevated pace and moderately increasing confidence levels across management teams and in boardrooms.

Speaker 4: uh... that that number uh... three years ago would have been a hundred seven so it's plus thirty uh... and up about twenty eight percent if u look at that number compared to where we were in 2021 rp revenue and earnings here uh... were up about twenty percent now on on john's uh... uh... commentary about also being disciplined about headcount management over that same period of time while are headcount increase

That number.

Three years ago would have been 107, so its plus 30.

And up about 28% if you looked at that number compared to where we were in 2021, our peak revenue and earnings here.

We're up about 20% now on on Johns.

The commentary about it also being disciplined about head count management over that same period of time, while our head count increase.

John Weinberg: Greater financing accessibility albeit at higher costs and a slow return to equity capital markets activity. The normalization of market activity takes time but we believe these positive indicators are first step towards an improving backdrop which should provide a broad-based benefit to many of our markets.

Speaker 4: or pardon me, our partner headcount increased 20%. Our overall headcount increased 13.6%. And so what you can see there is some evidence of our striving to increase our productivity per person and per banker.

Pardon me our partner head count increased funding per side, our overall head count increased 13, 6% and so what you can see there is some evidence of are striving to increase our productivity.

Per person per banker.

Speaker 4: out turning for a moment to the expenses

Turning for a moment to the expenses.

Speaker 4: What you would see in our numbers is a modest amount of inflation impact.

What you would see in our numbers.

John Weinberg: Bill Gates. Clearly, market uncertainty remains, driven by increased geopolitical tensions as well as higher rates. We do not expect the positive shift in activity levels and market sentiment seen over the past quarter to translate into meaningfully improved results in the near term. That said, barring an unexpected significant shift in the macro environment, we expect activity levels to continue to build in 2024. While it is still early days, we are seeing this reflected in stronger backlogs similar to our last quarter.

A modest amount of inflation impact, but interestingly if you look at our non comps for instance on a per head basis. They are actually slightly lower still on a per head basis than they were in 2019, and only marginally higher than a year ago and so.

Speaker 4: But interestingly, if you look at our non-comps, for instance, on a per head basis, they're actually slightly lower still on a per head basis than they were in 2019, and only marginally higher than a year ago. And so we're optimistic about what we've been able to and may be able to continue to do with respect to inflation.

We're optimistic.

Domestic about what we've been able to and may be able to continue to do with respect to inflation.

Speaker 4: And in terms of returning to normal margins, certainly in our business, the largest impact on our margins is generated by revenues.

And whether it's in terms of returning to normal margins.

John Weinberg: As discussed last quarter, the current environment has presented one of the strongest hiring opportunities seen in our firm's history and we have capitalized on it. We've made significant investments in talent this year, our largest SMD hiring year ever, when paired with an improving market backdrop. We believe these investments as well as our ramping SMD hires and promotes from the last two years. All in, more than 40 ramping SMDs will drive significant productive capacity and help us build a stronger foundation for growth over the medium and long term.

Certainly in our business.

The largest impact on our margins is generated by revenues.

Speaker 4: And so when you see the market turning with respect to transaction announcements and subsequently increasing revenues, you can expect significant margin improvement. But I think it's too soon to predict exactly when that will occur and what the magnitude will be and the timeframe for returning to a more normalized margin structure.

So when you see the market turning with respect to transaction announcements.

And subsequently increasing revenues you can expect significant margin improvement.

But I think it's too soon to predict exactly when that will occur and what the magnitude will be and the timeframe for returning to a more normalized.

John Weinberg: Nine of our 11 new SMD hires year-to-date have started and are working at Evercore. These new SMD hires have joined areas which we have identified as strategically significant, including TMT, both in the U.S, and Europe, sponsor coverage, business services, industrials, real estate, and capital advisory. We will continue to engage in discussions with other strong candidates, but we believe our 2023 new higher plans have largely been completed. As we build our recruiting pipeline for 2024, we remain steadfast in the execution of our strategic initiatives which I've outlined on past calls.

Margin structure.

Got it okay terrific. Thanks, guys.

Speaker 6: Thank you.

Thank you.

Speaker 1: Our next question will come from Brennan Hawken with UBS. Your line is open.

Our next question will come from Brennan Hawken with UBS. Your line is open.

Speaker 7: Good morning, John . Morning, Tim. Thanks for taking my questions. Morning. Hi.

Hi, Good morning, John Good morning, Tim Thanks for taking my questions. Good morning.

Hi, I'd love to start Tim on your comment on the comp ratio.

Speaker 7: I think I got it, but just want to clarify and based on a Bloomberg chat, I think there's a...

I think I got it but just want to clarify and based on Bloomberg chat I think theres a few other people who are a little confused too so.

I believe what you suggested was that full year is going to look like the last couple of quarters, which would mean given <unk> in the low <unk>.

John Weinberg: Now I will briefly discuss the quarter. Our third quarter results, while up sequentially, reflect the muted market backdrop, as merger activity has remained challenged and the recent improvement in market sentiment has yet to have a substantial impact on announcement and completion activity. In our global advisory business, we have advised on several transformative transactions, including notably this week, Chevron $60 billion acquisition of Hess. And in the quarter, West Rock on its $20 billion merger with Smurf at Kappa, Danaher on its spinoff of Veraldo, as well as Bristol-Mire's Squibb's $4.8 billion acquisition of Marathi.

We're going to be looking probably at the fourth quarter.

The comp ratio in excess of 70% did I hear that correctly.

Speaker 4: well uh... had had bread and and i certainly didn't say in excess of seventy percent but i understand the uh... the mathematics that might lead you to that conclusion and so

Well hi.

Hi, Brendan and I, certainly didn't say in excess of 70%, but I understand the mathematics that might lead you to that conclusion and so.

Speaker 4: The first point I'd make is it's impossible for us to precisely predict what the comparison will be in the fourth quarter or for the full year, because it's so dependent on the revenues. And as we all know, as one approaches year-end, sometimes there are certain significant fees that fall inside the quarter, and sometimes they fall outside the quarter. And so I want to be careful about providing guidance that's too precise.

The first point I'd make is.

It's impossible for us to precisely predict what the comp ratio will be in the fourth quarter or for the full year, because it's so dependent on the revenues and as we all know is one approach as year end, sometimes there are certain significant fees that fall inside the quarter and sometimes they fall outside the quarter.

John Weinberg: Our European advisory group experienced strong activity levels, including in debt advisory. Additionally, we continue to make strong progress with our sponsor coverage efforts. We're excited for what this expanded group will accomplish over time, especially as the collaboration with our private capital advisory and fundraising businesses will continue to drive synergies. We see momentum building across our sponsor-related businesses. The private capital advisory and fundraising businesses were resilient in the quarter, highlighting the strengths of our market leading franchises.

And so I want to be careful about providing guidance.

Too precise.

Speaker 4: uh... it is the case that uh... there's some natural upward pressure on the latter part of this year which of course is who is the fourth quarter and that's due to the fact that uh... as you know we've we've announced eleven uh... partner hires this year ten of which uh... will arrive uh... before your end and of those ten uh... are arriving uh... anytime uh... from mid-august through through your at

It is the case that there is some natural upward pressure on the latter part of this year, which of course is is.

As the fourth quarter and that's due to the fact that.

As you know, we've we've announced 11 partner hires this year 10 of which will arrive.

Before year end and of those 10 six are arriving anytime.

Mid August through through year end and as we need to we don't start accruing for those people.

Speaker 4: and as we need to we don't start accruing for those people uh... until they arrive at the farm uh... what that does do is put some additional pressure on the fourth quarter uh... but i'd i'd still you know i i would say are are are best estimates are uh... what i said in my prepared remarks which is something that would look generally like what we saw in the second and third quarter for the full year

John Weinberg: Continuation fund activity has persisted at an elevated pace and new business activity is strong. While the broader fundraising environment remained muted, our private funds business had a better quarter relative to a year ago. Our strategic defense and shareholder advisory business had another busy quarter as activist campaigns continued at elevated levels. Restructuring remained strong, similar to what we saw in the second quarter, where the activity levels driven by liability management and distressed, financing advisory assignments.

They arrive at the firm.

That does do is put some additional pressure on the fourth quarter.

But I still I would say, our best estimates or what I said in my prepared remarks, which is something that would look generally liked what we saw in the second and third quarter for the full year.

Speaker 7: Yep, yep. All that's totally in completely fair. And it's gonna make answering my next question even more challenging, but I'm gonna try anyway. So you guys do have the benefit of having a decent, forward lock just given how long it takes to close deals and how great franchise.

Yep Yep.

That's totally and completely fair and it's going to make answering my next question you have been more challenging.

John Weinberg: In our underwriting practice, corporates continued with regular wave follow-ons, particularly in biotech and traditional clean tech energy. The third quarter saw an opening of the IPO market. In the quarter, we served as an active book runner on the second largest biotech IPO year-to-date for raised bio. We also were an active book runner on the largest biotech overnight follow-on offering this year for magical pharmaceuticals. Our overall ECM market share continued to rise, a testament to the strengths and growth of our business.

I'm going to try anyway.

So.

You guys do have the benefit of having.

A decent forward look just given how long it takes to close deals and how what a great franchise you have in large cap M&A in particular.

Speaker 7: So given what you're seeing and at least based upon expectations for the beginning of 2024, you know, when I go through the model...

Given what you're seeing and at least based upon expectations for the beginning of 2024.

I go through the model and take my best guess at where your fixed comp base works out at and and all of this it's hard for me not see continued upward pressure.

Speaker 7: my best guess is where your fixed pump base works out at.

Speaker 7: all of this, it's hard for me not to see continued upward pressure even giving a pretty substantial ramp in advisory revenue.

Even giving a pretty substantial ramp in advisory revenues and a decent recovery here in 2024 and I continue.

John Weinberg: In our equity franchise, we are pleased to have been awarded for the second year in a row a number one ranking on the weighted basis in institutional investors all America equity research survey. We also had the most number one ranked analyst on Wall Street for the first time ever. Lastly, in wealth management, our asset center management declined modestly in the quarter, both performance and client retention rates continue to be strong.

Speaker 7: recovery here in 2024, and I continue to kind of like shake out at an upward, at an above historical range comp ratio for 24. Of course, there's a ton of uncertainty still embedded in 24 we have no idea what the magnitude of the ramp and, and maybe even

Continue to kind of like shake out at an upward.

Above historical range comp ratio for 24 of course does a ton of uncertainty still embedded in 'twenty. Four we have no idea what the magnitude of the ramp in <unk> and maybe even given maybe im not giving enough of a ramp which could end up.

Speaker 7: Maybe I'm not giving enough of a ramp, which could end up helping to drive that comp ratio down. But is it reasonable to think that at least for the first half of the year, we'd probably be continuing to deal with an elevated comp ratio until we can get these revenues really moving strongly and back down?

Helping to drive that comp ratio down but.

John Weinberg: Before I turn it over to Tim, I want to wrap up with a few thoughts. 2023 has undoubtedly been a challenging year for our industry. Despite the operating backdrop, we've remained focused on purposefully executing on our strategic plans by continuing to invest in our franchise. Pushing to strengthen and broaden our coverage and geographic reach, building out our product and execution capabilities and continuing to enhance our intellectual capital. We are hopeful that 2024 will be a better year for the market and in turn ever core. Our client contact remains active and robust across our businesses. We're excited for the opportunities and improving environment will present for us.

Is it is it reasonable to think that at least for the first half of the year, we'd probably be continuing to deal with an elevated comp ratio until we can get these revenues really moving.

Strongly and back to the potential that you can achieve.

Right so.

Speaker 4: Right, and so, um, look, and we, of course, as a matter of practice, don't provide guidance. And so I want to be very careful about what I say, but...

Luckily we of course as a matter of practice don't provide guidance and so I want to be very careful about what I say, but.

Speaker 4: The right, there's a mathematics behind all of this. And the mathematics are that the prior year amortization awards hit you in a larger than normal way on a percentage basis when you're in a market where revenues are declining.

Youre right Theres, a mathematics behind all of this and the mathematics are that the prior year amortization Awards hit you and a larger.

The normal way.

On a percentage basis when it when you're in a market where revenues are declining and when youre in a market where revenues are improving sometimes that can provide some tailwind.

Timothy LaLonde: With that, let me turn it over to Tim. Thank you, John. Our third quarter results show sequential improvement compared to the second quarter and do not yet meaningfully reflect the early stage improvements in the environment. We are seeing internal client activity levels discernibly picking up from earlier this year. However, as I mentioned on our last quarterly call, the road to significantly improve financial results is a gradual one. As there is a time lag that exists between client dialogues and announcements and then between announcements and completions.

Speaker 4: And when you're in a market where revenues are improving, sometimes that can provide some tailwind. In addition, as you pointed out, it's too soon to know what the ramp rate will be for the new hires. All we know is we're really glad they've joined us, and we're really positive about their prospects. But too soon to really say more than that. OK.

In addition, as you pointed out.

It's too soon to know what the ramp rate will be for the new hires.

All we know is we're really glad they've joined us and we're really positive about their prospects.

But but but too soon to really say more than that.

Okay. Thanks for taking my questions.

Thank you.

Timothy LaLonde: Additionally, we have taken advantage of an attractive partner recruiting market with a record SMD hiring year. Yet coupled that, with this supplement headcount management across all areas of the firm as we strive to increase our productivity.

Speaker 1: Our next question will come from James Yarrow with Goldman Sachs. Your line is open.

Our next question will come from James <unk> with Goldman Sachs. Your line is open.

Good morning, and thank you for taking my question.

Speaker 8: morning and thank you for taking my question. So it does feel like the M&A recovery continues.

So it does feel like the M&A recovery continues to be pushed out obviously you've had some success in the past few months and that's been positive, but overall the industry continues to recover quite slowly and it doesn't appear to be the 2020 to 2021 recovery. So I guess.

Timothy LaLonde: I will now discuss our third quarter financial results. For the third quarter of 2023, net revenues, net income, and EPS on a gap basis were $570 million, $52 million, and $1.30 per share respective. My comments from here on will focus on non-GAP metrics which we believe are useful when evaluating our results.

Speaker 8: in the past few months, and that's been positive.

Speaker 8: recover quite slowly. This doesn't appear to be the 2020-2021 recovery. So I guess, what is your view of the likelihood that this M&A recovery ends up taking a number of years to build back to a more robust level like we saw post-2008?

What is your view of the likelihood that this M&A recovery ends up taking a number of years to build back to a more robust level like we saw post 2008.

Thanks James.

Speaker 3: It's really hard to call the pace of recovery. I would just say that if you look at really some of the firm indicators internally, our backlogs are building, our other internal indicators seem to be strengthening. And I would just say anecdotally, inside the firm, the activity level, and the client dialogues are very robust.

It's really hard to call the pace of recovery I would just say that if you. If you look at really some of the firm indicators internally. Our backlogs are building our other internal indicators seem to be strengthening and I would just say anecdotally inside the firm the.

Timothy LaLonde: Our standard GAP reporting and a reconciliation of GAP to adjusted results can be found in our press release which is on our website. Our third quarter adjusted net revenues of $576 million to climb 1% versus the third quarter a year ago, but were up 14% sequentially. Third quarter adjusted operating income and adjusted net income of $83 million and $55 million decreased 39% and 42% respectively versus the third quarter of 2022. Adjusted earnings per share of $1.30 decreased 41% versus the prior year period.

<unk> level and the client dialogues are very robust.

Speaker 3: But as you said, it does take time, and the fact that activity takes time to lead to announcements.

But as you said it does take time and the fact that activity takes time to lead two announcements, which then take time to lead the closings that is absolutely true and there's no question that there is an elongation with respect to deals right now.

Speaker 3: which then take time to lead to closings. That is absolutely true, and there's no question that there's an elongation with respect to deals right now.

Speaker 3: We feel optimistic about the activity level we have right now. I think it's probably safe to say that there is going to be a ramp in 24. We just don't know exactly what the pace will be. Very hard to call. But I think that, you know, if our indicators say that we have a very healthy amount of activity inside, and we'll just see how that translates. We'll see how that plays out. Thank you.

We feel optimistic about the activity level, we have right now I think it's probably safe to say that that there is going to be a ramp in 'twenty. Four we just don't know exactly what the pace will be very hard to call, but I think that.

Timothy LaLonde: Our adjusted operating margin was 14% for the third quarter. Turning to the businesses, in investment banking, third quarter adjusted advisory fees of $468 million to climb 4% year over year compared to $489 million of advisory fees in last year's third quarter. Sequentially advisory revenues were up 25% as market activity levels across our various advisory businesses were modestly stronger compared to last quarter. Third quarter underwriting fees of $31 million were up 7% compared to the third quarter of 2022.

Our indicators say that that we have a very healthy.

Amount of activity inside and we'll just see how that translates.

That's very helpful. Thanks, John.

Thank you.

Speaker 1: Our next question will come from Steven Chewback with Wolf Research. Your line is open.

Our next question will come from Steven <unk> with Wolfe Research. Your line is open.

Hi, good morning.

Speaker 9: Good morning. I was hoping to unpack some of the commentary you made on 24, really trying to distinguish between strategic and sponsor activity. We've seen a number of large strategic transactions announced, most recently in the energy space. At the same time, sponsor activity has remained fairly muted, and the commentary from the public authority suggests that it's likely to remain subdued, at least in the near-to-intermediate term.

So good morning, I was hoping to I was hoping to unpack some of the commentary you made on 24, I'm really trying to distinguish between strategic and sponsor activity and we've seen a number of large strategic transactions and now its most recently in the energy space at the same time sponsor activity.

Timothy LaLonde: We are seeing some improvement in the market with a number of significant transactions more recently. Commission's and related revenue of $49 million in the third quarter was down slightly year over year which is a respectable outcome given that market trading volumes and volatility have been lower than last year's levels. Third quarter adjusted asset management and administration fees of $19 million increased 9% year over year. This is primarily due to a third quarter AUM of $11.3 billion which is up 13% year over year.

Has remained fairly muted and the commentary from the public call. It suggests that it's likely to remain subdued at least in the call. It the near to intermediate term and I was hoping you could speak to the dialogue, you're having with sponsors and strategics and any differentiation would be really helpful.

Speaker 9: I was hoping you could speak to the dialogue you're having with sponsors and strategics and any differentiation would be really.

Speaker 3: Sure, Steve, and by the way, I don't want to frustrate you, but it's very hard to call what's going to happen with sponsors.

Sure, Steve and by the way I I don't want to frustrate you, but it's very hard to call, what's going to happen with sponsors.

Timothy LaLonde: Third quarter adjusted other revenue net was a gain of approximately $10 million. Reflecting approximately $15 million of interest income earned on our cash balance due to higher short-term rates, partially offset by a $5 million loss in our investment fund portfolio which is used as a hedge for our DCCP commitments driven by a decline in equity market values in the quarter. Turning to expenses, the adjusted compensation ratio for this third quarter is 68%.

The.

Speaker 3: The interest rates are higher, which does really impact kind of the economics of sponsor deals. But sponsors really want to get going. They've got a lot of dry powder. They've got real need to actually monetize and return capital. And so there's pressures at the sponsor level to really get going. And I think that on the other hand, they don't want to capitulate and take lower prices on their assets.

Yes.

The interest rates are higher which does really impact kind of the economics of sponsored deals.

But sponsors really want to get going they've got they've got a lot of dry powder, they've got real need to actually monetize and return capital and so there is pressures at the sponsor level to really get going.

And I think that on the other hand, they don't want to capitulate and take lower prices on their assets, but sponsors are in business to do transactions that they can monetize and then bring back to their to their <unk>.

Timothy LaLonde: As I discussed at some length on last quarter's earnings call, our compensation ratio continues to be meaningfully impacted by the revenue environment, the amortization of prior year deferred compensation awards, the onboarding of our new senior hires, five of whom have joined the firm since the middle of the third quarter, as well as the market level for compensation. Given that many of these new SMDs have joined late in the year and we recognize their 2023 compensation from their start through year end, we would expect to see additional upward pressure on the fourth quarter compensation ratio.

Speaker 3: are in business to do transactions that they can monetize and then bring back to their investors. And so there's a real pressure going on there. And I think that what you'll really see is you'll see

<unk> and so there's a real pressure going on there and I think that what youll really see is youll see youll see deals start to happen, but we don't think that there will be massive rash of deals immediately coming from sponsors having said that if.

Speaker 3: You'll see deals start to happen, but we don't think that there will be a massive rash of deals immediately coming from sponsors, having said that, if you look at some of the other activities in sponsors that we engage with, which is...

If you look at some of the other activities and sponsors that we that we engage with which is.

Speaker 3: continuation funds and a fundraising. We see the fundraising environment feeling a little bit better.

Continuation funds and our fundraising we.

We see the fundraising environment, feeling a little bit better.

Timothy LaLonde: Based on what we know today in incorporating our current best estimates about fourth quarter revenue and market compensation rates, we would expect the comparations of these past two quarters to be generally representative of our full year compensation ratio estimates. Note that variations in the actual fourth quarter revenues or market compensation levels could impact our future quarter and year end comparations in either direction. Shifting to non-compensation expenses, in the third quarter our non-comp expenses were $102 million, up 12% from a year ago.

Speaker 3: we see the continuation fund activity building. And I'd say that the way that we're seeing sponsors on that side of the business.

We see the continuation fund activity building and I'd say that the the way that we're seeing sponsors on that side of the business.

Speaker 3: seems to be building and so in general we think sponsors have on the one hand some concern with respect to going you know that it hasn't gone faster on the other hand we do see what we think is a strengthening and we do think that there'll be there will be activity that builds

Seems to be building and so in general we think sponsors.

Have on the one hand.

Some concern with respect to that.

Glen faster on the other hand, we do see what we think is a.

Strengthening and we do think that there'll be there will be activity that builds on the strategic side as you've seen there has been quite a bit more activity.

Speaker 3: on the strategic side, as you've seen.

Timothy LaLonde: The year-over-year increased reflects some increased rent expense for new lease space related to required relocation of part of our corporate group and higher information services fees. Additionally, our non-comp expenses from a year ago reflected an expense reversal which decreased our non-comp expense materially at that time resulting in a larger increase year over year. I would note that our non-comp expense on a per-head basis is still modestly below where it was in 2019, the pre-COVID year, and modestly above a year ago.

Speaker 3: There has been quite a bit more activity publicly. You've seen some deals which have come out that are somewhat larger.

Publicly you've seen some deals which have come out that are somewhat larger relatively recently.

Speaker 3: relatively recently, you know, it's hard to say.

It's hard to say whether that will continue and build at this point, but I think it's safe to say that activity levels dialogue levels are at quite a high pace as I said earlier in the call.

Speaker 3: whether that will continue and build at this point, but I think it's

Speaker 3: It's safe to say that activity levels, dialogue levels...

Speaker 3: are at quite a high pace as i said earlier in the call you know if you look at us anecdotally we think that there's a lot of dialogue inside that is

If you look at US anecdotally, we think that Theres a lot of dialogue inside that is that's not just in terms of number but also quality. So I would say that the strategic side.

Speaker 3: that's not just in terms of number, but also quality. So I'd say that the strategic side is starting to begin to build some momentum. It will take time, as I said, it's hard to call the timing. And I do think sponsors will start to move forward, but it may take a little bit longer. So that's what I think.

Timothy LaLonde: We expect our non-comp to be similar to our second and third quarter levels for the remainder of the year. We are continuing to diligently monitor and manage our non-comp expenses. Our adjusted tax rate for the quarter was 27.6%, virtually identical to the 27.4% tax rate from a year ago. Turning to the balance sheet, as of September 30, our cash and investment securities totaled approximately $1.6 billion, which is up from $1.5 billion at the end of last quarter.

Is starting to to begin to build some momentum.

It will take time as I said, it's hard to call the timing and I do think sponsors will start to move forward, but it may take a little bit longer at least what I think.

Very helpful. Thanks for taking my question.

Thank you.

And as a reminder, that is star one to ask a question.

Speaker 1: And our next question comes from Ryan Kimmy with Morning Stanley. Your line is open. Hey, good morning.

And our next question comes from Ryan <unk> with Morgan Stanley. Your line is open.

Timothy LaLonde: We continue to maintain a strong cash position, taking into consideration the current economic and business environment, cash needs for the implementation of our strategic initiatives, including hiring plans, and preserving a solid financial footing. Year-to-date, we have returned a total of $490 million to shareholders through dividends and repurchases of $3 million shares at an average price of $128.97. Our third quarter adjusted deluded share count is $42.8 million. As a reminder, that is down about 5 million shares from where we were two years ago.

Hey, good morning, Thanks for taking my question.

Speaker 10: So you've talked about encouragement from leading indicators. And it's when we think about the last few weeks specifically where we've seen 10-year yield briefly spike above 5%. Is that recent volatility enough to have any significant impact on moving deals forward? And does that push things out a quarter or is the impact more or less?

You've talked about encouragement from leading indicators and so when we think about the last few weeks, specifically, where we've seen 10 year yields briefly spike above 5% is that recent volatility enough to have any significant impact on moving deals forward and does that push things out a quarter or is the impact of more limited.

Speaker 3: I think that that interest rates certainly impact the way people think about financing for for deals. It has a bigger impact, I think, on sponsors. Will it push it out? It could.

I think that that interest rates certainly impact the way people think about financings for for deals.

It has a bigger impact I think on sponsors.

Will it push it out.

It could I do think though that the deal activity will move forward. If for example, there tends to be a stabilizing of what I think are the risk conditions existing in the market I think one of the things that are holding back some of the deal environment is that.

Speaker 3: I do think though that the deal activity will move forward.

Timothy LaLonde: In the past three years, we have returned to shareholders cash equating to more than one-third of our market cap. We continue to maintain a strong capital position, and we remain committed to our philosophy of returning to shareholders cash not needed to implement our strategic plan and to provide financial stability for our stakeholders. As John mentioned, we are encouraged by the early signs of an improved market backdrop. That coupled with the SMDs who joined us in the third quarter, those still to join, and SMDs who are promoted or hired in the last couple of years, position Evercourt for greater revenue and earnings leverage over the medium to longer term.

Speaker 3: If, for example, there tends to be a stabilizing of what I think are the risk conditions existing in the market.

Speaker 3: I think one of the things that is holding back some of the deal environment is that we have real uncertainties, both geopolitically and economically, and I think people are watching that really carefully. So I think it's not necessarily, I think rates will impact to a degree, but I think the bigger impact is people watching what's happening in the environment and really how the equity market's going to look at deals generally. So I think that's the case.

We have real uncertainties both geopolitical.

And economically and I think people are watching that really carefully.

So I think it's not necessarily I think rates will impact to a degree, but I think the bigger impact is people watching what's happening in the environment and really how the equity market is going to look at deals generally so.

I think thats the case I mean.

Speaker 3: From our standpoint, we think that, you know, the dialogues that have been high quality are continuing to move forward. So, I don't necessarily think that the interest rates are going to materially impact exactly the things that get done, but I do think it will moderate to a degree, and I think people are watching it carefully.

From our standpoint, we think that the.

Operator: With that, we will now open the line for questions. We will now conduct the question and answer portion of the conference. Please limit to one question only. You are welcome to rejoin the queue for additional questions time permitting. Again, in order to ask a question, please press the star key followed by one on your touchtone phone.

The dialogues that have been high quality are continuing to move forward. So.

Don't necessarily think that the interest rates are going to materially impact exactly. The fact, the things that get done, but I do think it will it'll moderate to a degree and I think people are watching it carefully.

Thank you.

Thank you.

Devin Ryan: Our first question is from Devin Ryan with JMP Securities. Your line is open. Devin, please make sure that you're not self muted. Oh, sorry about that. Good morning, John and Tim. Sorry about that. Yeah, first I guess the question maybe make it two parts since I have one here. So I guess first off the advisory SMD count the client by five. So just wanted to get any color there since you guys are hiring, just make sure to understand that dynamic.

Speaker 1: Our next question comes from Jim Mitchell with Seaport Global. Your line is open.

Our next question comes from Jim Mitchell with Seaport Global Your line is open.

Okay.

Speaker 11: Hey, good morning. Maybe we could talk a little bit about restructuring. It seems like it's been pretty active increasingly so. I take a lot of out of court restructurings. Can you just sort of discuss the impact in the quarter and how you're looking at activity and your thoughts going forward? That would be great.

Hey, good morning.

Maybe we can talk a little bit about restructuring it seems like it's been pretty active.

Recently, so I think a lot of out of court restructuring can you just sort of discuss the impact in the quarter and how youre looking at activity and your thoughts going forward that'd be great.

Speaker 3: Sure. Restructuring is quite robust right now, and our business is doing quite well. We're very busy, and as you said, there's a lot of liability management going on, and there is out-of-court restructurings, as well as from our standpoint, both the debtor and the credit aside advisory work. I think that,

Sure.

Structuring.

Is quite robust right now and our business is.

Doing quite well.

We're very busy and as you said there is a lot of liability management going on and there is out of court restructurings.

Devin Ryan: And then the other part of the question, we're getting a lot from the clients recently just about expense inflation and what that means for normalized margins for Evercore and the industry more broadly. And obviously appreciate the biggest driver that's going to be revenues or not in a normal revenue environment today. But how are you guys thinking about kind of normalized margins over time? Have we structurally shifted lower because of some of the expense inflation? Or do you think we can get back to levels that you guys have been at historically?

As well as from our standpoint, both the debtor and creditor side advisory work.

Think that.

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Speaker 3: That velocity continues and will continue.

That velocity continues and will continue.

Speaker 3: interest rates going up does actually impact restructuring and we think that there is as you know there's a maturity wall coming in in that to 2024 and 2025 and also with higher rates if

Interest rates going up does actually impact restructuring.

And we think that there is as you know there is a maturity wall coming in in 2024, and 2025 and also with higher rates.

Speaker 3: There are more companies that have capital structures that will need to basically get advice and to actually restructure some.

There is there are more companies that have capital structures that will need to basically get advice and to actually restructure. Some so I think our restructuring business is quite robust.

John Weinberg: Thanks. Yeah, and thanks, Devin. Let me take the first question. Okay, go ahead and take a second. In terms of advisory SMDs, what we have said to the market, what we said to you all is that we are in the mode of hiring very high quality talented people. But at the same time, we're managing our headcount. And there are people who are shifting out and there are people who we were bringing in.

Speaker 3: So I think our restructuring business is quite robust and we think the prospect of it will, that will continue even if the merger market picks up. So this is our nation positive.

John Weinberg: And we've obviously been aggressive about promoting high quality talented people. We've promoted 24 people to SMD internally in the last few years. And as you know, this year we're hiring from the outside 11. What we've really done is we've basically tried to be disciplined. And so this is just a really an execution of what we said we were going to do. Which is we are making sure that we are bringing in high quality people and those people who are who for all different reasons may not be the right fit of their shifting out.

And we think the prospects of it will that will continue even if the mercury market picks up.

Okay, great. Thanks.

Okay.

Thank you.

Speaker 1: Our next question will come from Brennan Hawking with UBS. Your line is open.

Our next question will come from Brennan Hawken with UBS. Your line is open.

Okay.

Speaker 7: Good morning. Thanks for taking my follow up. I'm curious about the non-MNA revenue. You know previously running around, I believe it was at least a third of of total advisory. So if you could give an update there and then also speak to maybe the private capital advisory and private funds business and how that's doing in an environment like this.

Hi, good morning, Thanks for taking my follow up.

Curious about the non M&A revenue.

Previously running around.

Alright, I believe it was at least a third of total advisory.

So if you could give an update there and then also speak to maybe the private capital advisory and private funds business and how that's doing in an environment like this.

Speaker 4: Yeah, sure. And so, you know, if you look at the non-MNA revenue, I think we've said that for the past four years, it's represented more than a third of our overall revenue. And during periods of challenging MNA, it tends to be even higher. And I think it's reasonable to assume that's the case current.

Yes, sure and so.

If you look at the non M&A revenue I think we've said that for the past four years as represented more than a third of our overall revenue and during periods of challenging M&A.

John Weinberg: Sure. And let me just add one thing to that and then I'll comment a little bit on the expenses. And that's that we've always guided research community and our investors to look at our firm on a multiple quarter. And multiple year time span in order to assess what we're doing. And so if you look at our partner headcount in the most recent numbers, of course, 137 and the advisory business. That that number three years ago would have been 107.

Tends to be even higher and I think it's reasonable to assume that's the case currently.

Speaker 4: And so on the PCA and PFG, as John mentioned, a little...

So on the PCA in PFG.

As John mentioned, a little earlier.

Speaker 4: We feel that the PFG fundraising environment is a returning to a more normalized fundraising environment and we think that the results reflect that and with respect to PCA we would characterize it as a strengthening market for PCA where we're seeing increased, certainly increased activity levels

We feel that the PFG fundraising environment.

Is that right.

Turning to a more normalized.

Fund raising environment, and we think that the results reflect that.

John Weinberg: So it's plus 30 and up about 28%. If you look at that number compared to where we were in 2021, our peak revenue and earnings year. We're up about 20%. Now on John's commentary about also being disciplined about headcount management over that same period of time while our headcount increased or partner headcount increased 20%. And our overall headcount increased 13.6%. And so what you can see there is some evidence of our striving to increase our productivity per person and per banker.

And with respect to PCA.

We would.

Characterize it as a strengthening.

Market for PCA.

Where we're seeing increased certainly increased activity levels.

Speaker 4: and we're hopeful that those will continue for a while.

And we're hopeful that those will continue for a while.

Speaker 12: And just to make sure everybody knows, PCA is more our secondary business and PFG is our fundraising business. You guys that's helpful. Thanks for coming.

And just to make sure everybody knows PCA is more our secondaries business and PFG is our fundraising business.

That's helpful. Thanks for clarifying I appreciate the color.

Uh huh.

Yes.

Thank you.

Speaker 13: Ladies and gentlemen, this concludes today's EvoRc 3rd quarter, 2023 Financial Results Conference call. You may now disconnect.

Ladies and gentlemen, this concludes today's Evercore third quarter 2023 financial results Conference call.

Timothy LaLonde: Now turning for a moment to the expenses. What you would see in our numbers is a modest amount of inflation impact. But interestingly, if you look at our non-comps, for instance, on a per head basis, they're actually slightly lower still on a per head basis than they were in 2019. And only marginally higher than a year ago. And so we're optimistic about what we've been able to and maybe able to continue to do with respect to inflation.

You may now disconnect.

Yeah.

[music].

Okay.

Uh-huh.

[music].

Okay.

Hum.

Hmm.

Yes.

Uh-huh.

Timothy LaLonde: And in terms of returning to normal margins, certainly in our business, the largest impact on our margins is generated by revenues, and so when you see the market turning with respect to transaction announcements and subsequently increasing revenues, you can expect significant margin improvement, but I think it's too soon to predict exactly when that will occur and what the magnitude will be and the time frame for returning to a more normalized margin structure. Got it. Okay, terrific. Thanks, guys. Thank you.

[music].

Speaker 13: My.

Brennan Hawken: Our next question will come from Brennan Hawken with UBS. Your line is open. Good morning, John. Morning, Tim. Thanks for taking my questions. Morning.

Timothy LaLonde: Hi, I'd love to start Tim on your comment on the Compreh Show. I think I got it, but just want to clarify and based on Bloomberg chat, I think there's a cause. A few other people who are a little confused too. So I believe what you suggested was that full year is going to look like the last couple quarters, which would mean given 1Q in the lowest fifties that we're going to be looking probably at the fourth quarter to Compreh Show in excess of 70%.

Timothy LaLonde: Did I hear that correctly? Well, I'd breaded and I certainly didn't say in excess of 70%, but I understand the mathematics that might lead you to that conclusion. And so the first point I'd make is it's impossible for us to precisely predict what the Compreh Show will be in the fourth quarter or for the full year because it's so dependent on the revenues. And as we all know, is one approach is year end.

Timothy LaLonde: Sometimes there are certain significant fees that fall inside the quarter and sometimes they fall outside the quarter. And so I want to be careful about providing guidance that's due precise. It is the case that there's some natural upward pressure on the latter part of this year, which of course is the fourth quarter. And that's due to the fact that as you know, we've announced 11 partner hires this year, 10 of which will arrive before year end.

Timothy LaLonde: And of those 10, 6 are arriving anytime from mid-August through year end. And as we need to, we don't start accruing for those people until they arrive at the firm, what that does do is put some additional pressure on the fourth quarter. But I still, you know, I would say our best estimates are what I said in my prepared remarks, which is something that would look generally like what we saw in the second and third quarter for the full year. Yep, yep. All that's totally completely fair.

Timothy LaLonde: And it's going to make answering my next question even more challenging, but I'm going to try anyway. So you guys do have the benefit of having a decent forward lock just given how long it takes to close. Beals and how great franchise you have in an orange cap M&A in particular. So given what you're seeing and at least based upon expectations for the beginning of 2024, you know, when I go through the model and take my best guess at where your fixed comp base works out at and all of this, it's hard for me not to see continued upward pressure, even giving a pretty substantial ramp in advisory revenues and a decent recovery here in 2024.

Timothy LaLonde: And I continue to kind of like shake out at an upward and an above historical range comp ratio for 24. Of course, there's a ton of uncertainty still embedded in 24. We have no idea with the magnitude of the ramp and maybe even given, maybe I'm not giving enough of a ramp which could end up, you know, helping to drive that comp ratio down. But, you know, is it is it reasonable to think that at least for the first half of the year, we'd probably be continuing to deal with an elevated comp ratio until we can get these revenues really moving strongly and back to the potential that you can achieve?

Timothy LaLonde: Right. And so, look, we, of course, as a matter of practice, don't provide guidance. And so I want to be very careful about what I say. But the right, there's a mathematics behind all of this. And the mathematics are that the, you know, prior year memorization awards hit you in a larger than normal way on a percentage basis when, when you're in a market where revenues are declining. And when you're in a market where revenues are improving, sometimes that can provide some tailwind.

Timothy LaLonde: In addition, as you pointed out, you know, it's too soon to know what the ramp rate will be for the new hires. All we know is we're really glad they've joined us. And we're really positive about their prospects. But, but too soon to really say more than that. Okay.

Brennan Hawken: Thanks for taking my questions. Thank you.

James Yarrow: Our next question will come from James Yarrow with Goldman Sachs. Your line is open.

John Weinberg: Good morning. And thank you for taking my question. So it doesn't seem like the M&A recovery continues to be pushed out. Obviously you've had some success in the past few, you know, months, and that's been positive. But, you know, overall the industry continues to recover quite slowly. And it doesn't appear to be the 2020 to 2021 recovery. So I guess what is your view of the likelihood that this M&A recovery ends up taking a number of years to build back to a more robust level, like we saw in post 2008.

John Weinberg: Thanks James. It's really hard to call the pace of recovery. I would just say that if you look at really some of the firm indicators internally, our backlogs are building, our other internal indicators seem to be strengthening. And I would just say anecdotally inside the firm, the activity level and the client dialogues are very robust. But as you said, it does take time and the fact that activity takes time to lead to announcements which then take time to lead the closing.

John Weinberg: That is absolutely true. And there's no question that there's an elongation with respect to deals right now. We feel optimistic about the activity level we have right now. I think it's probably safe to say that there is going to be a ramp in 24. We just don't know exactly what the pace will be. It's very hard to call, but I think that you know, if our indicator say that we have a very healthy amount of activity inside and we'll just see how that translates.

James Yarrow: That's very helpful. Thanks John.

James Yarrow: Thank you.

Steven Chubak: Our next question will come from Steven Chubak with Wolf Research. Your line is open.

Steven Chubak: Good morning. I was hoping to, yeah, I was hoping to unpack some of the comments are you made on 24. I'm really trying to distinguish between strategic and sponsor activity. And we've seen a number of large strategic transactions and now it's most recently in the energy space. At the same time, sponsor activity has remained fairly muted. And the commentary from the public all suggests that it's likely to remain subdued at least in the call at the near-intermediate term. And what's over you could speak to the dialogue you're having with sponsors and strategic and any differentiation would be really helpful.

John Weinberg: Sure. And by the way, I don't want to frustrate you, but it's very hard to call what's going to happen with sponsors. The interest rates are higher, which does really impact kind of the economics of sponsor deals. But sponsors really want to get going. They've got, they've got a lot of dry powder. They've got real need to actually monetize and return capital. And so there's pressures at the sponsor level to really get going.

John Weinberg: And I think that on the other hand, they don't want to capitulate and take lower prices on the assets. But sponsors are in business to do transactions that they can monetize and then bring back to their investors. And so there's a real pressure going on there. And I think that, you know, what you'll really see is you'll see deals start to happen. But we don't think that there will be an massive rash of deals immediately coming from sponsors.

John Weinberg: Having said that, if you look at some of the other activities in sponsors that we engage with, which is Continuation funds and fund raising, we see the fundraising environment feeling a little bit better. We see the continuation fund activity building. And I'd say that the way that we're seeing sponsors on that side of the business seems to be building. And so in general, we think sponsors have, on the one hand, some concern with respect to going, you know, that it hasn't gone faster. On the other hand, we do see what we think is a strengthening and we do think that there will be, there will be activities at bills.

John Weinberg: On the strategic side, as you've seen, there has been quite a bit more activity. Publicly, you see in some deals, which have come out that are somewhat larger, relatively recently. You know, it's hard to say whether that will continue and build at this point, but I think it's safe to say that activity levels, dialogue levels are at quite a high pace. As I said earlier in the call, you know, if you look at us anecdotally, we think that there's a lot of dialogue inside that is, it's not just in terms of number, but also quality.

John Weinberg: So I'd say that the strategic side is starting to begin to build some momentum. It will take time, as I said, it's hard to call the timing. And I do think sponsors will start to move forward, but it may take a little bit longer, at least what I think.

Steven Chubak: Very helpful. Thank you for taking my question. Thank you.

Operator: And as a reminder, that is star one to ask a question.

Ryan Kenny: And our next question comes from Ryan Kenny with Morning Stanley. Your line is open. Hey, good morning. Thanks for taking my question. So you talked about encouragement from leading indicators. And this is when we think about the last few weeks specifically where we've seen 10-year yield briefly spike above 5%. Is that recent volatility enough to have any significant impact on moving deals forward? And does that push things out of quarter or is the impact more limited?

Ryan Kenny: I think that interest rates certainly impact the way people think about financing for deals. It has a bigger impact, I think, on sponsors. Will it push it out? It could. I do think, though, that the deal activity will move forward if, for example, there tends to be a stabilizing of what I think are the risk conditions existing in the market. I think one of the things that are holding back some of the deal environment is that we have real uncertainties, both geopolitically and economically.

Ryan Kenny: And I think people are watching that really carefully. So I think it's not necessarily, I think rates will impact to a degree, but I think the bigger impact is people watching what's happening in the environment and really how the equity market is going to look at deals generally. So I think that's the case. I mean, for our standpoint, we think that the dialogues that have been high quality are continuing to move forward.

Ryan Kenny: So I don't necessarily think that the interest rates are going to materially impact exactly the fact that things that get done. But I do think it will, it'll moderate to a degree. And I think people are watching it carefully.

John Weinberg: Thank you.

Jim Mitchell: Our next question comes from Jim Mitchell with Seaport Global. Your line is open.

Jim Mitchell: Hey, good morning.

John Weinberg: May we talk a little bit about restructuring? It seems like it's been pretty active, increasingly so. I think a lot of out of court restructurings. Can you just sort of discuss the impact in the quarter and how you're looking at activity and your thoughts going forward? That would be great. Sure. Restructuring is quite robust right now. And our business is doing quite well. We're very busy. And as you said, there's a lot of liability management going on, and there is out of court restructurings, as well as from our standpoint, both the debtor and the creditor side advisory work.

John Weinberg: I think that that velocity continues and will continue, interest rates going up does actually impact restructuring. And we think that there is, as you know, there's a maturity wall coming in 2024 and 2025. And also with higher rates, if there is, there are more companies that have capital structures that will need to basically get advice and to actually restructure some. So I think our restructuring business is quite robust. And we think the prospect of it will that will continue even if the merger market picks up. Okay, great. Thanks.

John Weinberg: Thank you.

Brennan Hawken: Our next question will come from Brennan Hawken with UBS. Your line is open. Good morning. Thanks for taking my follow-up. I'm curious about the non-MNA revenue. You know, previously running around, I believe it was at least third of total advisory. So if you could give an update there and then also speak to maybe the private capital advisory and private funds business and how that's doing in an environment like this. Yeah, sure.

Brennan Hawken: And so, you know, if you look at the non-MNA revenue, I think we've said that for the past four years, it's represented more than a third of our overall revenue. And during periods of challenging MNA, it tends to be even higher. And I think it's reasonable to assume that's the case, currently. And so, on the PCA and PFG, as John mentioned a little earlier, we feel that the PFG fundraising environment is a return to a more normalized fundraising environment.

Brennan Hawken: And we think that the results reflect that. And with respect to PCA, we would characterize it as a strengthening market for PCA where we're seeing increased, certainly increased activity levels. And we're hopeful that those will continue for a while. And just to make sure everybody knows, PCA is more our secondary business, and PFG is our fundraising business. Yeah, that's helpful. Thanks for clarifying. Appreciate the color. Thank you.

Operator: Ladies and gentlemen, this concludes today's ever core third quarter, 2023 Financial Results Conference call. You may now disconnect.

Operator: Thank you.