Q1 2024 Evercore Inc Earnings Call
Good morning, and welcome to the Evercore first quarter 2024 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 key followed by the number one on your Touchtone phone at any time.
I will now turn the call over to Katie Hayes.
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 first quarter 2024 financial results Conference call I'm, Katy Haber Evercore as head of Investor Relations and ESG joining me on the call today is John Weinberg, our chairman and CEO and Tim <unk>, our CFO after our prepared.
Our remarks, well open up the call for questions.
Earlier today, we issued a press release announcing Evercore first quarter 'twenty 'twenty four 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 during.
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 in everquest filings with the SEC, including 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.
In our presentation today, unless otherwise indicated we will be discussing adjusted financial measures, which are non-GAAP measures, which we believe are meaningful when evaluating the company's performance.
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.
You need to believe that it is important to evaluate everquest performance on an annual basis. As we've 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.
Thank you Katie and good morning, everyone. We started 2024, a strong note having advised on five of the 15 largest global deals announced in the first quarter based on the current competitive landscape and our success. So far this year and announced transactions Evercore finished the first quarter among all.
Firms ranked fourth in the Global League tables and third in the U S.
Consistent with our commentary from a few months ago, we continue to see momentum build as client activity levels remain high. Additionally, the dollar value of industrywide global deal announcements, particularly of larger sized transactions has increased we also continue to see the broader market environment.
Improve including significantly increased equity issuance and leveraged finance volumes, indicating better financing availability for transactions.
This has led to a further build of our backlogs that said activity levels in smaller to mid sized transactions have been less robust and while it is encouraging to see a significant increase in larger deals the timeline to close these transactions can be longer than the process more complex.
As for sponsor activity, we've seen sizable.
Transactions in April and we believe sponsor activity should continue to gain momentum.
We continue to watch the trajectory of interest rates, which may have some impact.
Overall, our first quarter financial results do not yet meaningfully reflect the improvement in the announcement activity levels, which we expect to see realized in revenue later this year and into next year that said, we continue to closely monitor the geopolitical economic and regulatory environment, which could.
Further alter the trajectory of the recovery.
As we have discussed at length last year, we hired our largest class of investment banking senior managing directors in the firms history and we are pleased to have all 11, new S. M. D's now at Evercore, including one who joined US in January who covers the real estate sector.
Building on that momentum, we recently hired an investment banking as somebody who has committed to join later this quarter to cover the asset management sector.
Continued to recruit a plus talent into areas, where we see significant opportunities, including those of geographic sector and product white space.
We currently have a strong pipeline of high quality candidates.
It's too early in the year to know the outcome of many of these discussions in addition to our externally hired S. M. DS we started the year off with a class of seven promoted investment banking smbs.
This newly promoted group coupled with our other ramping S. M. D has continued to be critical to our future growth.
In our equities business three S. Mds have joined including our Chief Strategist International political affairs and public policy, our new head of sales.
And a senior analyst covering semiconductors.
Now, let me briefly discuss the quarter.
There were several highlights in our investment banking business during the first quarter.
We advised on some of the most notable transactions that have been announced year to date, including general electric on its spinoff of GE for Nova for 37 billion synopsis on its $35 billion acquisition of <unk>.
C D and are on its acquisition alongside stone point capital of Truest insurance from truest financial for $15 $5 billion.
Global infrastructure partners on its $12 $5 billion sale to Blackrock.
In Chesapeake energy on its $11 $3 billion combination with southwestern energy.
Our European Advisory team had a slower start to the year and deal closing timelines remain elongated compared to years past. However, we are seeing an encouraging pickup in deal announcement activity and we expect that to be significantly more heavily weighted in our results toward the second half of the year.
Our strategic defense and shareholder Advisory business started the year on an active note as the team continues to maintain leadership in many high profile defenses and expand its footprint.
The momentum in our liability management and restructuring practice.
Has continued in the first quarter.
Credit markets have been accommodative.
Lower quality credits still face financing challenges, which will continue to drive activity.
Our private capital advisory and fundraising groups have had an active start and the pipeline continues to grow while the fundraising environment industry wide has faced some headwinds our business has performed well.
Our teams once again continued to be recognized for their achievements, including having been named secondaries advisor of the year in the Americas, and Europe and placement agent of the year by private equity International.
Turning to underwriting both the market and Evercore has seen a robust return of activity in the market generally and the beginning of recovery among ipos.
Our first quarter results in this business represented our best quarter since the fourth quarter of 2021, our activity in the quarter was diversified across sectors, including health care Tech and consumer.
Evercore was a book runner on two of the three largest ipos in the quarter, including a stirrer labs $820 million offering which is the best performing IPO year to date, among ipos greater than $50 million.
Our equities business had a solid quarter, despite operating in a market with the lowest levels of volatility to start the year since 2017.
Our sales and trading teams remain highly engaged with our clients, especially with our increased ECM activity.
Our research analysts continue to produce some of the best content on Wall Street, and hosted numerous high impact and differentiated corporate access events for clients.
Lastly in wealth management, we ended the quarter with a record AUM of approximately $13 billion and long term performance and client retention rates remain very strong.
Looking forward, we remain optimistic we have a stronger and deeper team of professionals that at anytime in our history.
Economy to date has been more stable and resilient than broadly anticipated, though we continue to monitor it closely the capital raising environment has shown signs of strengthening.
And we are experiencing a pickup in transaction activity.
This environment should provide a solid foundation for Evercore as we continue to execute on our strategy and we believe we are well positioned for sustained growth and success in the medium and long term.
With that let me now turn it over to Tim who will discuss our financial results in more detail.
Thank you John.
Through the end of the first quarter, we saw several themes play out many of which we have discussed on our previous earnings call.
Global announced M&A activity on a dollar volume basis in the first quarter was up 42% year over year and.
In the U S M&A volume on the same basis was up 81%.
Larger transactions have led the way.
The total number of deals announced globally above 100 million down 7%, but the number of announced deals over $1 billion is up 47%.
Evercore has played a meaningful role in that with as John said advising on five of the 15 largest global transactions year to date.
Our larger announced transactions are generally expected to close in the latter part of this year and into the following year.
Given this dynamic our first quarter financial results do not yet fully reflect the increased momentum we are experiencing.
Overall, we continue to feel positive about the trajectory of the broader M&A capital markets and financing environment is our backlogs continue to build and we expect to see greater revenue strength in the second half of this year and into the next year.
I will now discuss our first quarter financial results.
For the first quarter of 'twenty 'twenty four net revenues operating income and EPS on a GAAP basis were $581 million $84 million and $2.09 per share respectively.
My comments from here 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.
Our first quarter adjusted net revenues of $587 million increased 2% versus the first quarter of 2023 <unk>.
First quarter adjusted operating income of $91 million decreased 22% versus the first quarter of 2023.
Adjusted earnings per share of $2.13 decreased 1% versus the first quarter of last year.
Our adjusted operating margin was 15% for the first quarter in line with our operating margin in the last couple of quarters, and we had a net tax benefit this quarter for which we will provide additional commentary.
Turning to the businesses.
First quarter adjusted advisory fees of $431 million declined 7% year over year.
While our advisory fees were lower versus the prior year period, we believe the trajectory of the business today is much better than a year ago.
After two difficult years, our first quarter underwriting revenues were $56 million up 143% from a year ago.
Commissions and related revenue of $48 million in the first quarter was flat year over year, primarily reflecting higher subscription fees, partially offset by lower trading commissions.
First quarter, adjusted asset management and administration fees of $20 million increased 17% year over year, primarily reflecting an increase in AUR.
First quarter adjusted other revenue net was approximately $33 million, which compares to $27 million a year ago.
The primary driver of the other revenue reflects higher interest income earned on short term investments.
The balance primarily reflects gains in our investment funds portfolio, which is used as a hedge for our D. C. C. P commitments as equity market values increased in the quarter.
Turning to expenses the adjusted compensation ratio for the first quarter is 66%.
It is still early in the year and so this figure represents our best current estimate based on things like expected revenue head count market levels of compensation at year end and other relevant factors, but our visibility on full year revenues at this point in the year is still limited.
It is important to note. However that we are striving to make improvements in our compensation ratio and to appropriately balance. This with our plan to continue building the firm in an effort to best serve our clients and create value for our shareholders in the medium and long term.
Shifting to non compensation expenses, they were $109 million this quarter up 14% from a year ago and up 2% from last quarter.
The increase from a year ago is primarily driven by three things first professional fees increased reflecting higher client related expenses, including certain billable fees, which were collected but not offset in this expense line.
Second travel unrelated fees reflected an increase in client engagements and consequently, an increase in the number of flight and hotel bookings in this quarter compared to a year ago.
As we have said previously so we work hard to manage our expenses increased activity with our clients is a good thing and we expect to see a corresponding increase in revenues.
Third communications and information services expense increased due to continued investment in our it services to support firm growth, including certain technology initiatives as well as higher license and research fees.
However to provide some perspective I would mentioned two things first our non comp expenses have been roughly correlated with our employee head count and on that basis, our non comp expense per employee is up from the first quarter of 2019, the pre COVID-19 year about.
Five 6% or a little more than 1% per year.
Second we anticipate that our full year non comp expense ratio should be consistent with or compare favorably to our pre COVID-19 non comp expense ratio.
Our adjusted tax rate for the quarter was a benefit of nine 3% compared to an expense of 15, 2% in the first quarter of last year.
The tax rate for this quarter reflects a tax benefit associated with the vesting of stock compensation awards similar to a year ago and most prior years prior to that which is why our first quarter effective tax rate typically is lower than that of subsequent quarters.
This year, we received a greater benefit as our stock price appreciation was higher than last year and in fact than in any prior year.
We would anticipate that our effective tax rate for the remaining three quarters of this year should be similar to what we have experienced in prior years in those periods.
Turning to our balance sheet.
As of March 31st our cash and investment securities totaled nearly $1 $4 billion, which is down approximate from approximately $2 billion at the end of last year due to the payout of bonus compensation in March and repurchase of one 5 million shares.
We continued 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.
We remain committed to our goal of returning excess capital to our shareholders.
In the first quarter, we returned a total of $309 million to shareholders through dividends and repurchases of 1.5 million shares at an average price of $177.04.
Consistent with historic practice in the quarter, we bought back stock through net settlements and in the open market offsetting the dilution from the R. S. <unk> grants that were issued in the quarter as part of our annual bonus compensation process.
Additionally, our board declared a dividend of <unk> 80 per share an increase of 5% from the prior dividend declared.
Our first quarter diluted share count was $43 7 million.
It's essentially flat from the prior year and prior quarter.
As John mentioned it is still early in the year, but we are pleased with our position thus far.
Based on our increased backlogs and building on the momentum from announcements in the last couple of quarters, we have confidence in the trajectory of the market recovery and in our results as the year progresses.
We also expect to see improvement in our comp and non comp ratios this year and into the future.
We believe we are well positioned to continue to execute on our strategy and deliver strong performance.
With that we will now open the line for questions.
Thank you.
The floor is now open for your questions.
We ask that you please limit to one question only.
You are welcome to rejoin the queue for additional questions time permitting.
And in order to ask a question. Please press the Starkey followed by one on your Touchtone phone at this time.
Our first question will come from Devin Ryan with citizens JMP. Please go ahead.
Hey, Thanks, Good morning, Jonathan how are you.
Good morning.
Great.
I ask a question digging a little bit more around.
What youre seeing in the sponsor community.
In the prepared remarks, you talked about sponsor activity picking up again on the other hand interest rates could play a factor.
So just wanted to talk a little bit about what youre seeing with that client segment and how much the mood has shifted with.
Sponsors just with maybe the view that we're going to be higher for longer interest rate environment, and how that has kind of evolved over the last few months just like how the tone has changed with that group and whether their enthusiasm has been shifting with that interest rate change as well. Thanks.
Yeah.
Thank you Devin.
It's interesting I think the sponsor community is becoming more set on moving.
Forward.
Than has been in the past and I think part of it is that there's just an intensity level that they need to get back to business.
I think that there is clearly going to be a higher for longer that there is that people are looking at.
But I think that there is a lot of dynamics in and around the sponsor population that really is going to play into how the deals go forward and I think our observation would be that there is the activity levels are very high and there is a real intention to start making things happen.
One very important factor is the LP community, which really is very much of the view that they would like to see transactions happen and get some capital returned frankly, so they can put capital back to work. It's been a long time since they've really had really healthy returns and they really need that GPS or thinking about how they raised funds.
And I think generally there is a view that it's important to start really showing activity. As you know there is about three eight trillion dollars of.
Dry dry capital ready to go and I think that really the sponsors are feeling like they need to move our experience with the sponsors is that theres a level of intensity and intention that we haven't seen for quite some time. So our view is that it's going to pick up.
Clearly rates will have some impact I certainly don't want to paint the picture that's not important but I think that there are some other factors at play here that are going to make sponsors push much harder.
Yes, that's great color. Thanks, John.
Thank you. Our next question will come from Brennan Hawken with UBS. Please go ahead.
Good morning, Thanks for taking my questions I would like to clarify on it on the Tim's comments on the non comp ratio. So when you say pre COVID-19.
If I take a look at the average of years 2013 to 19 I get to about 17%.
Is that the sort of approach that you would suggest or were you looking at a narrower band of years and how should we interpret that.
And thanks for the question Brian.
If you look at the pre Covid years, it bounced around a bit and some of it depends on how the revenue is.
And.
Honestly, we think we can do better than that.
Is what we're anticipating.
Okay. So we shouldn't really going to depend of course.
Where the revenues fall out right because.
That's part of the equation, but we think we can do better than that.
Okay. Okay. So we should more think about it like the range of the pre COVID-19 years, rather than like just as average okay. Yes. Thanks for clarifying.
<unk>.
Okay.
Thank you. Our next question will come from Steven <unk> with Wolfe Research. Please go ahead.
Good morning, This is Brendan O'brien filling in for Steven.
So I guess I just wanted to touch on the election, I mean last quarter. It sounded like you and your peers have yet to see the election have any noticeable impact on your dialogues with clients.
However, with the election at least in the U S. Now.
Seven months away I wanted to get a sense as to whether that has changed at all and if you see any risk of the election, having a dampening effect on M&A activity in the back half of the year.
It's it's always hard to look forward that far having said that if you look at past elections. They haven't really had a major impact on the merchant market generally now that can always change and this could be different our premise really in the way.
We're thinking about the world is that it's not going to change with respect to how people think now there are other factors that we are looking at very closely whether it's how the market performs.
The geopolitical stability, how what's going to happen with inflation. Those are all things that are important and obviously interest rates, which we've already mentioned will be something that I think will have a real impact, but with respect to the election, we're not looking for that to have really major game changing.
Impact.
Great. Thanks for taking my question.
Okay.
Thank you. Our next question will come from James <unk> with Goldman Sachs. Please go ahead.
And thanks for taking my question you did talk about continued strength in restructuring in the quarter, maybe if you could just help us contextualize your outlook for this business over the course.
The balance of 'twenty, 'twenty, four and maybe into 2025, given higher for longer interest rates.
Our view on restructuring has been consistent which is it's a very strong business for us.
And it's continuing that way and.
Higher for longer obviously will impact the business in a positive way, but even when we thought that rates were going to go down.
Very big part of our business is liability management. There are many companies that really have capital structures built on very low interest rate environment and some of those are coming up for refinancing and so the.
The liability management side of the business is going to continue strong at and really from the prospects that we see in our backlogs.
Continuing along at the pace.
We feel very comfortable that they are going to continue to perform at a high level. So.
As we look at our projections and we're looking at how things are going we believe the business will continue.
Along the path of being quite strong.
Thank you.
Once again that is star one for your questions. We will go next to Brian Kinney with Morgan Stanley.
Hey, good morning, Thanks for taking my question.
Just wanted to again, a little bit on the comp ratio side and the comment around aiming to improve this year. So is that an improvement from last year's level or from the first quarter level and how should we think about the likelihood of comp ratio, maybe decreasing in the back half of the year as revenues pick up.
Right. So so let me just expand my commentary a little bit around the comp ratio and so.
We talked about it.
Being.
Kind of generally similar to our full year estimate.
Based on what we know today.
And more importantly is our best estimate of the appropriate accrual for the quarter.
But ultimately where our comp ratio will finish the year is going to depend heavily on the timing and magnitude of improvement in revenue.
Among other factors, which also of course include things like head count market level of comp for non partners and so on.
But we are committed to making progress on our comp ratio.
We are intending to balance that objective with our plan to continue building the firm.
And.
As I said.
Where we land at the end of the year is largely going to be a function of the strength of the revenue in the latter part which is not perfectly knowable at this point.
Thanks.
Yeah.
Speaker Change: Thank you. Our next question comes from eight in Hull with <unk>. Please go ahead.
Great. Thanks for taking my question just wanted to dig in on the.
The recruiting commentary it sounds like conversations remain robust, but I guess can you just give us a better sense of your expectations on the SMT hiring front as it relates to the remainder of the year and as we think of.
Building pipelines across the industry how that might.
Maybe you elongate some of the recruiting timelines. Thanks.
Sure.
Thanks for the question and obviously, we focus a great deal on on recruiting and really making sure that we continue that momentum of the organization and our growth.
This the pipeline.
Pipeline is from our standpoint for us is robust, although I would say that there is it's really hard to know exactly where that's going to come out.
Recruiting and the numbers of people we bring in is more oven.
Speaker Change: Output than an input meaning that really we have a.
A very strong set of dialogues going on with some very talented people and its hard to know which ones are going to actually land.
I would say that if you are trying to figure out where we are is we're going to continue to look for a plus talent in areas, where we think theres real significant growth ahead for us.
We've always what we said in the past is it's four to eight that last year as you know we went to 11.
Speaker Change: We're not going to be constrained by any number but we think we will have.
A good year this year and we are very much in the middle of.
Many different dialogues that we think are with very strong people. So I think you can assume that we're not going to we're not going to change dramatically.
Great I appreciate the color.
Okay.
Thank you we do have a follow up question from James <unk> with Goldman Sachs. Please go ahead.
James: Thanks for taking the follow up just a quick one on the advisory revenue.
Quarter on quarter decline this quarter. So I think the state appear somewhat weaker than the publicly available data, which is all that we have to go on and I think your quarterly kind of a little bit weaker than some of the peers that have reported so far so.
Maybe you can just help us understand what the drivers were or was that M&A.
Anything that you could just add on the pull forward of revenue into the fourth quarter, and then again into the into the first quarter and maybe that would help.
Some of those moving parts sure well as you know the business is quite lumpy for us and.
What you really will see if you look at it quarter to quarter is hard because.
Several big transactions are three or four big transactions can change a lot and.
I would just generally say activity levels for us are high.
Our backlogs are robust and strong.
And really anywhere you look across our system the dialogues internally R V.
Very very active and so I would say that from our standpoint. There is just tremendous activity inside even if you look at things like engagement letters or conflict checks very strong.
Last quarter Europe had.
Lumpy quarter to quarter before which was strong in the last quarter. They were they were they were relatively weaker but I would say that that would that's not an indication of the strength of the business. It's just a fact of what happens.
So I would.
If you're really thinking about how to think about us I think you should really assume that.
We're feeling.
No.
Quite constructive about how we're going to go and as we said we could see a real build over the balance of the year and then the next year in terms of both announcements and revenue.
Okay, that's very clear thank you.
Thank you and we'll take our next follow up question from Brennan Hawken with UBS. Please go ahead.
Good morning, again, thanks for taking the follow up.
Would love to sort of take a step back and hear about your perspective as you guys have added a lot of senior banking talent and one of the big metrics that.
Brennan Hawken: I like to focus on is.
Revenue for trailing M D right. So looking at trailing 12 months MD count and excluding the Gogo years of 2021 and two.
The prior high watermark was about 20 million Bucks and that was in 2018.
When you think about the level and caliber of.
Some of these stemwinding bankers, John as you refer to them.
How.
How should we think about that productivity number and how much upside do you think there could be thinking about an upcoming cycle given what you've done to the team on the field.
Thanks.
Brandon Thanks for the question and.
We think about a lot of the same things that you just mentioned and really kind of.
Obsess really what the impact of bringing really high quality people is with respect to our growth.
We've always taken the approach and we continue to and we will continue to.
Really take the approach that that high quality talent is going to be significantly additive to the growth of the firm.
We have right now.
30, plus people ramping.
Both the high level of recruits that we brought in as well as the partner promotes that we've had over the last couple of years. So we think it's going to keep going in terms of the the revenue per partner level. We actually think it's going to be strong now we'll get to the 2021 level maybe not immediately.
<unk>.
Certainly you have to have a really strong market to get to something like that but we think that the revenue per partner is going to reflect the fact that we have a really strong high quality partners, who are really focused on their clients right now and activity levels across the board are picking up and as you know.
One of the big things to think about is.
Are the are the right factors in place for the market to pick up and those as we've talked about before things like CEO confidence access the capital stack.
Stability of the markets and sponsor recovery and if you think about it each one of those right now.
It looks to be pointing in the right direction and so with those.
Coming together in the right way I could easily see revenue per partner levels picking up materially.
Yes.
Okay. Thanks for taking my follow up.
Okay.
Our next question will come from Brian Kinney with Morgan Stanley. Please go ahead.
Hey, Thanks for taking my follow up question on underwriting. So there's a really large increase year over year revenues more than doubled strongest quarter in several years should we think of that as lumpy in the first quarter.
Maybe it was exceptionally good for Evercore or is this a good base to build off of as underwriting activity picks up.
It's always hard to take one quarter and make that be multiplied out for the year.
The underwriting business tends to be somewhat lumpy, although it is building.
Were feeling strength in our underwriting business in the backlogs are good we've been involved in several and we certainly have a lot of activity going on so I guess, the best and most fair way to answer. Your question is we feel very constructive we think that the first quarter was a good first quarter we.
Paste it throughout the next three quarters of the year will come together in a.
In a way that.
We certainly outperformed last year, and we think we will feel good about really the results, but it's very hard for me to call. The shots with respect to the second and third quarters at this point, but I would say that the backlog levels are are very robust.
Great. Thanks.
Look I think.
Just to add a little bit of detail if.
If you look at the equity markets in terms of dollar value.
Issuance is up 131% over last year, our revenues were up 143% over last year and we're certainly not sitting here, saying you should annualize what you saw in the first quarter, but what we are saying is there is a.
Noticeable change in the environment and the deals that we have seen getting price in this last quarter.
<unk> tended to have better performance, both with respect to the pricing itself and to where they traded in the aftermarket.
Brennan Hawken: And so so we're optimistic that at least those days of 2023 are kind of behind us.
Speaker Change: Thank you.
Thank you we have no further questions in queue at this time I would like to turn the call back to management for any additional or closing remarks.
Thank you all for joining us.
We look forward to next quarter.
Yes.
And this does conclude todays Evercore first quarter 2024 earnings Conference call. You may disconnect. Your line at this time and have a wonderful day.
Okay.
Yes.
Yeah.
Hum.
Okay.