Q2 2024 Evercore Inc Earnings Call
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Operator: Good morning and welcome to the Evercore second quarter 2024 earnings conference call. Today's call is scheduled to last about one hour, including remarks by Evercore management and a question and answer session. In order to ask a question, please press the star key followed by the number one on your telephone keypad at any time. I will now turn the call over to Katy Haber, Managing Director of Investor Relations and ESG at Evercore. Please go ahead.
Speaker Change: Good morning and welcome to the Evercore second quarter 2024 earnings conference call.
Speaker Change: Today's call is scheduled to last about one hour, including remarks by Evercore management and the question and answer session.
Katy Haber: In order to ask a question, please press the star key followed by the number 1 on your telephone keypad at any time. I will now turn the call over to Katy Haber, Managing Director of Investor Relations and ESG at Evercore. Please go ahead.
Katy Haber: Thank you, Operator. Good morning and thank you for joining us today for Evercore's second quarter 2024 Financial Results Conference call. I'm Katy Haber, Evercore's Head of Investment Relations and ESG. Joining me on the call today are John Weinberg, our Chairman and CEO, and Tim LaLonde, our CFO. After our prepared remarks, we will open up the call for questions.
Katy Haber: Thank you, operator. Good morning and thank you for joining us today for Evercore's second quarter 2024 financial results conference call.
Katy Haber: and Katy Haber, Evercore's Head of Investment Relations and ESG.
Speaker Change: Joining me on the call today is John Weinberg, our Chairman and CEO , and Tim LaLonde, our CFO . After our prepared remarks, we will open up the call for questions.
Katy Haber: Earlier today, we issued a press release announcing Evercore's second quarter 2024 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 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 the course of this conference call, we may make a number of forward-looking statements.
Speaker Change: Earlier today, we issued a press release announcing Evercore's second quarter 2024 financial results. Our discussion of our results today is complementary to the press release, which is available on our website at evercore.com.
Speaker Change: 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.
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 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.
Speaker Change: 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 than those indicated in these statements.
Katy Haber: These factors include, but are not limited to, those discussed in Evercore's 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.
Katy Haber: 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. 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 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
Katy Haber: 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.
Katy Haber: For detailed disclosures on these measures and the gap reconciliation, you should refer to the financial data contained within our press release, which is posted on our website.
Katy Haber: 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 closings. I will now turn the call over to John .
John S. Weinberg: Thank you, Katy, and good morning, everyone. This past quarter represents our best second quarter for firm-wide adjusted net revenues on record. We delivered $695 million, in part driven by our second quarter adjusted advisory fees of $568 million, which increased 52% year over year. We've been involved in a number of significant transactions, including three of the six largest global announced deals year-to-date. Broad market indicators suggest the M&A markets are in the midst of a gradual recovery, with year-to-date global M&A announced dollar volume greater than $100 million, up 24% year-over-year, following a very slow year for the market in 2023.
John S. Weinberg: Thank you, Katy, and good morning, everyone.
John S. Weinberg: This past quarter represents our best second quarter for firm-wide adjusted net revenues on record. We delivered $695 million in part driven by our second quarter adjusted advisory fees of $568 million, which increased 52% year-over-year.
John S. Weinberg: We've been involved in a number of significant transactions including three of the six largest global announced deals year-to-date.
John S. Weinberg: Broad market indicators suggest the M&A markets are in the midst of a gradual recovery.
John S. Weinberg: with year-to-date global M&A announced dollar volume greater than $100 million, up 24% year-over-year, following a very slow year for the market in 2023.
John S. Weinberg: We remain encouraged by the market outlook and the opportunity it presents for Evercore. Internally, we've seen an increase in activity levels as both our corporate and sponsor clients prepare for what is expected to be a busy second half, supporting our robust backlog. That said, we continue to monitor the economic and geopolitical risks that could impact the timing and trajectory of the recovery.
John S. Weinberg: We remain encouraged by the market outlook and the opportunity it presents for Evercore. Internally, we've seen an increase in activity levels as both our corporate and sponsor clients prepare for what is expected to be a busy second half supporting our robust backlogs.
John S. Weinberg: That said, we continue to monitor the economic and geopolitical risks that could impact the timing and trajectory of the recovery.
John S. Weinberg: Nonetheless, given current market dynamics, we expect the recovery for both the market and our results to continue through the balance of this year and into next. We believe we are well positioned to capitalize on the return of the M&A market, which has already begun, as we now provide a broader range of products than we ever have before. We also serve a larger, more diverse set of clients.
John S. Weinberg: Nonetheless, given current market dynamics, we expect the recovery for both the market and our results to continue through the balance of this year and into next. We believe we are well positioned to capitalize on the return of the M&A market, which has already begun.
John S. Weinberg: as we now provide a broader range of products than we ever have before.
John S. Weinberg: We also cover a larger, more diverse set of clients. Further, today we have approximately 25% more Investment Banking Senior Managing Directors than we did at the end of 2021, which presents significant opportunity for us.
John S. Weinberg: Further, today we have approximately 25% more investment banking senior managing directors than we did at the end of 2021, which presents a significant opportunity for us. Importantly, we continue to have success in attracting high-quality talent. As I discussed at an industry conference last month, so far this year, six senior individuals have started at or have committed to join the firm. As we have mentioned in past calls, France has been a focus as our next step in progressing our European business. We're pleased to have hired three senior professionals in Paris who will join us later this year.
John S. Weinberg: Importantly, we continue to have success in attracting high-quality talent. As I discussed at an industry conference last month, so far this year, six senior individuals have started at or have committed to join the firm.
John S. Weinberg: As we have mentioned in past calls, France has been a focus as our next step in progressing our European business. We're pleased to have hired three senior professionals in Paris who will join later this year.
John S. Weinberg: We maintain a strong pipeline of high-quality candidates and remain open to recruiting talent in strategically important areas in addition to promoting talent internally. Meanwhile, we continue to invest in our Evercore ISI business by recruiting top-tier research analysts, including three senior analysts so far this year, our chief strategist for international political affairs and public policy, our new head of sales, and a senior analyst covering semiconductors. Now, let me briefly discuss the quarter.
John S. Weinberg: We maintain a strong pipeline of high-quality candidates and remain open to recruiting talent in strategically important areas in addition to promoting talent internally.
John S. Weinberg: Separately, we continue to invest in our Evercore ISI business by recruiting top-tier research analysts, including three senior analysts so far this year.
John S. Weinberg: our Chief Strategist of International Political Affairs and Public Policy, our new Head of Sales, and a Senior Analyst covering semiconductors.
John S. Weinberg: Now, let me briefly discuss the quarter.
John S. Weinberg: There were several highlights in our investment banking business. As I mentioned at the start of this call, we advised on some of the largest announced transactions year-to-date, including GE on its spinoff of GE Vernova for nearly $36 billion, Synopsys on its approximately $35 billion acquisition of Ansys, and ConocoPhillips on its $22.5 billion acquisition of Marathon Oil.
John S. Weinberg: There were several highlights in our investment banking business. As I mentioned at the start of this call, we advised on some of the largest announced transactions year-to-date, including GE on its spinoff of GE Vernova for nearly $36 billion,
John S. Weinberg: Synopsys on its approximately $35 billion acquisition of Ansys, and ConocoPhillips on its $22.5 billion acquisition of Marathon Oil.
John S. Weinberg: Our financial sponsors practice has recently seen an uptick in activity, in part stemming from improved market conditions, including leveraged finance and pressure from LPs to return capital. We have advised on several significant sell-side-sponsored transactions, including Prometheus, a GenStar portfolio company, on a strategic investment from Advent International and Leonard Green, and Tait, a portfolio company of Providence Equity Partners, on its equity investment from Goldman Sachs Alternatives We remain highly focused on the opportunity within this client group and expect more robust sponsor activity will reinforce the broader recovery. The European advisory team saw some improvement in the market and our results compared to the first quarter. The backlog in the region continues to build, and we expect a stronger second half of the year.
John S. Weinberg: Our financial sponsors practice has recently seen an uptick in activity, in part stemming from improved market conditions, including leveraged finance and pressure from LPs to return capital.
John S. Weinberg: We have advised on several significant sell-side sponsored transactions, including Prometheus, a GenStar portfolio company, on a strategic investment from Advent International and Leonard Green, and Tait.
John S. Weinberg: a portfolio company of Providence Equity Partners on its equity investment from Goldman Sachs Alternatives private equity business.
John S. Weinberg: We remain highly focused on the opportunity within this client group and expect more robust sponsor activity will reinforce the broader recovery.
John S. Weinberg: The European advisory team saw some improvement in the market and our results.
John S. Weinberg: compared to the first quarter. The backlog in the region continues to build and we expect a stronger second half of the year. Our strategic defense business continues to be active as there is a heightened focus among activists on breakups, management changes, and cross-border listings.
John S. Weinberg: Our strategic defense business continues to be active, as there is a heightened focus among activists on breakups, management changes, and cross-border listings. Momentum on our liability management and restructuring practice has continued in line with the first quarter. Liability management, particularly with sponsors, remains a primary driver of activity.
Speaker Change: Momentum on our liability management and restructuring practice has continued in line with the first quarter. Liability management, particularly with sponsors, remains a primary driver of activity. The business continues to be active across both debtor and creditor assignments.
John S. Weinberg: The business continues to be active across both debtor and creditor assignments. Our market-leading private capital advisory business had a strong second quarter, in large part driven by robust activity in the GP part of the business. Overall, the pipeline for PCA is very strong, and we expect the remainder of the year to be active.
Speaker Change: Our market-leading private capital advisory business had a strong second quarter in large part driven by robust activity in the GP part of the business.
Speaker Change: Overall, the pipeline for PCA is very strong and we expect the remainder of the year to be active.
John S. Weinberg: Our private funds group continues to strengthen as the broader fundraising market improves. We've invested in this business over the years, positioning ourselves as a leader in this space with a top-tier client base. Following a strong first quarter, underwriting activity moderated as the much-anticipated IPO reopening has yet to fully materialize. Although our second quarter results were lower relative to a very strong first quarter, we were actively engaged in follow-ons demonstrating strong diversification across sectors and a focus on increasing our role in underwriting deals. Notably, Evercore was a left-lead bookrunner on two follow-ons in the quarter, including AZZ's $322 million offering and Lithium America's $275 million offering.
Speaker Change: Our private funds group continues to strengthen as the broader fundraising market improves. We've invested in this business over the years, positioning ourselves as a leader in this space with a top-tier client base.
Speaker Change: Following a strong first quarter, underrating activity moderated as the much-anticipated IPO reopening has yet to fully materialize.
Speaker Change: Although our second quarter results were lower relative to a very strong first quarter, we were actively engaged in follow-ons demonstrating strong diversification across sectors and a focus on increasing our role in underwriting deals.
Speaker Change: Notably, Evercore was a left-lead bookrunner on two follow-ons in the quarter, including AZZ's $322 million offering and Lithium America's $275 million offering.
John S. Weinberg: Our equities business had a solid quarter despite continued low levels of volatility, which has persisted for several quarters. As macroeconomic and geopolitical factors are of heightened focus among investors, we continue to provide our clients with preeminent content, differentiated corporate access, and exceptional execution. Lastly, in wealth management, we set another new quarterly record for assets under management, which is now over $13 billion.
Speaker Change: Our equities business had a solid quarter despite continued low levels of volatility which has persisted for several quarters.
Speaker Change: As macroeconomic and geopolitical factors are of heightened focus among investors, we continue to provide our clients with preeminent content, differentiated corporate access, and exceptional execution.
Speaker Change: Lastly, in wealth management, we set another new quarterly record for assets under management, which is now over $13 billion.
John S. Weinberg: Before I turn over to Tim to discuss the financial results, I want to reiterate a few points. We remain steadfast in the execution of our long-term strategic plan, which includes, first, continuing to build out certain industry coverage groups, including TMT, healthcare, sponsors, financials, and other fast-growing segments of the economy. And second, remaining focused on our geographic expansion, as most recently seen with our investment in Paris. And lastly, continuing to deepen and broaden our product capabilities in adjacent areas.
Speaker Change: Before I turn over to Tim to discuss the financial results, I want to reiterate a few points.
Speaker Change: We remain steadfast in the execution of our long-term strategic plan which includes first continuing to build out certain industry coverage groups including TMT, healthcare, sponsors, financials, and other fast-growing segments of the economy.
Speaker Change: Second, remaining focused on our geographic expansion, as most recently seen with our investment in Paris. And lastly, continuing to deepen and broaden our product capabilities in adjacent areas.
John S. Weinberg: Over the past several years, we've greatly expanded our client coverage, diversified our client services, and strengthened our position across key businesses. We are seeing results from the execution of our strategy. Looking forward, we will continue to invest in our firm and execute on our strategic plan, while also remaining focused on improving our expense margins over time. As the deal environment continues to improve, we're excited about what is ahead for both us and the market. Evercore is stronger today than we've ever been before. With that, I'll turn it over to Tim. Thank you.
Speaker Change: Over the past several years, we've greatly expanded our client coverage, diversified our client services, and strengthened our position across key businesses.
Speaker Change: We are seeing results from the execution of our strategy.
Speaker Change: Looking forward, we will continue to invest in our firm and execute on our strategic plan, while also remaining focused on improving our expense margins over time. As the deal environment continues to improve, we're excited for what is ahead for both us and the market.
Speaker Change: Evercore is stronger today than we've ever been before. With that, let me turn it over to Tim.
Timothy Gilbert LaLonde: Our second quarter financial results reflect an improving market environment, as John just discussed. Our pipelines remain robust.
Timothy Gilbert LaLonde: Thank you, John .
Timothy Gilbert LaLonde: Our second quarter financial results reflect an improving market environment, as John just discussed.
Timothy Gilbert LaLonde: We are monitoring the velocity at which new deals are added and existing deals in the process reach fruition. We are committed to improving our expense margins, recognizing that this improvement is positively influenced by an increase in revenue but also requires serious cost discipline, and we are actively engaged in that. Yet it is important to note that we are building the firm, making strategic investments, and we are balancing these two objectives. Accordingly, we will drive improvement gradually over the near to medium term.
Timothy Gilbert LaLonde: Our pipelines remain robust, and we are monitoring the velocity at which new deals are added and existing deals in process reach fruition.
Timothy Gilbert LaLonde: We are committed to improving our expense margins, recognizing that this improvement is positively influenced by an increase in revenue.
Timothy Gilbert LaLonde: but also requires serious cost discipline, and we are actively engaged in that.
Timothy Gilbert LaLonde: Yet it is important to note that we are building the firm, making strategic investments, and we are balancing these two objectives.
Timothy Gilbert LaLonde: Accordingly, we will drive improvement gradually over the near to medium term.
Timothy Gilbert LaLonde: With that, I will now discuss our second quarter financial results. For the second quarter of 2024, net revenues, operating income, and EPS on a GAAP basis were $689 million, $108 million, and $1.81 per share, respectively. My comments from here will focus on non-GAAP metrics, which we believe are useful when evaluating our results.
Timothy Gilbert LaLonde: With that, I will now discuss our second quarter financial results.
Timothy Gilbert LaLonde: For the second quarter of 2024, net revenues, operating income, and EPS on a gap basis were $689 million, $108 million, and $1.81 per share, respectively.
Timothy Gilbert LaLonde: 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.
Timothy Gilbert LaLonde: 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 second quarter adjusted net revenues of $695 million increased 38% versus the second quarter of 2023. These adjusted net revenues represent a record second quarter for Evercore. Second quarter adjusted operating income of $114 million increased 80% versus the second quarter of 2023. Adjusted earnings per share of $1.81 increased 89% versus the second quarter of last year. Our adjusted operating margin was 16.4% for the second quarter, up from 12.6% in the second quarter of last year. Turning to the businesses,
Timothy Gilbert LaLonde: Our second quarter adjusted net revenues of $695 million increased 38% versus the second quarter of 2023.
Timothy Gilbert LaLonde: These adjusted net revenues represent a record second quarter for Evercore.
Timothy Gilbert LaLonde: Second quarter adjusted operating income of $114 million increased 80% versus the second quarter of 2023.
Timothy Gilbert LaLonde: Adjusted earnings per share of $1.81, increased 89% versus the second quarter of last year.
Timothy Gilbert LaLonde: Our adjusted operating margin was 16.4% for the second quarter, up from 12.6% in the second quarter of last year.
Timothy Gilbert LaLonde: Second quarter adjusted advisory fees of $568 million increased 52% year-over-year, reflecting a strengthening market environment and improved market share compared to a year ago. Our second quarter underwriting fees were $31 million, down 19% from a year ago. In any quarter, the results in this business depend on the size and number of transactions in which we are involved, and that fluctuates from quarter to quarter. For the first half of 2024, underwriting fees were up nearly 42% year over year.
Timothy Gilbert LaLonde: Turning to the businesses.
Timothy Gilbert LaLonde: Second quarter adjusted advisory fees of $568 million increased 52% year-over-year, reflecting a strengthening market environment and improved market share compared to a year ago.
Timothy Gilbert LaLonde: Our second quarter underwriting fees were $31 million, down 19% from a year ago.
Timothy Gilbert LaLonde: In any quarter, the results in this business depend on the size and number of transactions in which we are involved, and that fluctuates from quarter to quarter.
Timothy Gilbert LaLonde: For the first half of 2024, underwriting fees were up nearly 42% year over year.
Timothy Gilbert LaLonde: Commissions and related revenue of $53 billion in the second quarter were up 6% year over year, despite continued low volatility and flat conventional single stock market volume. Second quarter adjusted asset management and administration fees of $21 million increased 16% year-over-year, primarily driven by higher fees as AUM increased due to market appreciation. Second quarter adjusted other revenue net was approximately $22 million, which compares to $24 million a year ago. Turning to expenses, the Adjusted Compensation Ratio for the second quarter was 66%, compared to 67% a year ago.
Timothy Gilbert LaLonde: Commissions and related revenue of $53 billion in the second quarter was up 6% year-over-year, despite continued low volatility and flat conventional single-stock market volumes.
Timothy Gilbert LaLonde: Second quarter adjusted asset management and administration fees of $21 million increased 16% year-over-year, primarily driven by higher fees as AUM increased due to market appreciation.
Timothy Gilbert LaLonde: Second quarter adjusted other revenue net was approximately $22 million, which compares to $24 million a year ago.
Timothy Gilbert LaLonde: Turning to expenses, the Adjusted Compensation Ratio for the second quarter is 66%.
Timothy Gilbert LaLonde: compared to 67% a year ago.
Timothy Gilbert LaLonde: This ratio represents our best judgment of the accrual for this quarter, taking into consideration our view of full-year revenue and compensation expense when factoring in SMD hiring, headcount levels, market levels of compensation at year end, and other relevant factors. As I discussed on our first quarter call, we are striving to make improvements in our compensation ratio while we concurrently continue to build the firm strategically. Non-compensation expenses in the quarter were $122 million, up 18% from a year ago, and the adjusted non-comp expense ratio for the quarter was 17.6%, compared to 20.5% a year ago, a 290 basis point improvement.
Timothy Gilbert LaLonde: This ratio represents our best judgment of the accrual for this quarter.
Timothy Gilbert LaLonde: taking into consideration our view of full year revenue and compensation expense.
Timothy Gilbert LaLonde: when factoring in SMD hiring, headcount levels, market levels of compensation at year-end, and other relevant factors.
Timothy Gilbert LaLonde: As I discussed on our first quarter call, we are striving to make improvements in our compensation ratio while we concurrently continue to build the firm strategically.
Timothy Gilbert LaLonde: Max
Timothy Gilbert LaLonde: Non-compensation expenses in the quarter were $122 million, up 18% from a year ago.
Timothy Gilbert LaLonde: And the adjusted non-comp expense ratio for the quarter is 17.6% compared to 20.5% a year ago.
Timothy Gilbert LaLonde: A 290 basis point improvement.
Timothy Gilbert LaLonde: Together, the comp expense ratio and the non-comp expense ratio represent a nearly 400 basis point improvement versus a year ago. The non-compensation expense increase from the year prior is primarily driven by three items. First, professional fees reflect higher client-related expenses, which are potentially recoverable, and generally are correlated with higher levels of revenue, in addition to higher consulting and search and placement costs.
Timothy Gilbert LaLonde: Together, the comp expense ratio and the non-comp expense ratio represent a nearly 400 basis point improvement versus a year ago.
Timothy Gilbert LaLonde: The non-compensation expense increase from the year prior is primarily driven by three items.
Timothy Gilbert LaLonde: First, professional fees reflect higher client-related expenses.
Timothy Gilbert LaLonde: which are potentially recoverable.
Timothy Gilbert LaLonde: and generally are correlated with higher levels of revenue.
Timothy Gilbert LaLonde: in addition to higher consulting and search and placement costs.
Timothy Gilbert LaLonde: Second, travel and related fees reflect a combination of continued post-COVID normalization of travel expenses and higher client-related activity levels. Third, an increase in other operating expenses reflects education and training costs for our summer analysts and associate classes, increased regulatory filing and annual fees, and certain other costs, some of which also may be seasonal, or in some cases, episodic. We continue to closely monitor our non-comp expenses, which on a per employee basis, for the first half of the year, are only about 7% higher than 2019, the pre-COVID year, reflecting a less than 2% compound annual increase, which is less than the rate of inflation.
Timothy Gilbert LaLonde: Second, travel and related fees reflect a combination of continued post-COVID normalization of travel expenses and higher client-related activity levels.
Timothy Gilbert LaLonde: Third.
Timothy Gilbert LaLonde: An increase in other operating expenses reflect education and training costs for our summer analysts and associate classes, increased regulatory filing and annual fees.
Timothy Gilbert LaLonde: and certain other costs, some of which also may be seasonal or in some cases episodic.
Timothy Gilbert LaLonde: We continue to closely monitor our non-comp expenses, which on a per employee basis for the first half of the year are only about 7% higher than 2019, the pre-COVID year.
Timothy Gilbert LaLonde: reflecting a less than 2% compound annual increase, which is less than the rate of inflation.
Timothy Gilbert LaLonde: We believe we can make progress on our non-comp ratio in the near to medium term, though we face some pressures from increased information services costs, investment in technology, and headcount related to the implementation of our strategic growth plan, in line with my comments from our first quarter earnings call. We anticipate that our full-year non-comp expense ratio should be consistent with or compare favorably to our pre-COVID non-comp expense ratio. Our adjusted tax rate for the quarter was 26.9% compared to 29.6% in the second quarter of last year.
Timothy Gilbert LaLonde: We believe we can make progress on our non-comp ratio in the near to medium term, though we face some pressures from increased information services costs, investment in technology, and headcount related to implementation of our strategic growth plan.
Timothy Gilbert LaLonde: In line with my comments from our first quarter earnings call, we anticipate that our full-year non-comp expense ratio should be consistent with or compare favorably to our pre-COVID non-comp expense ratio.
Timothy Gilbert LaLonde: Our adjusted tax rate for the quarter was 26.9% compared to 29.6% in the second quarter of last year.
Timothy Gilbert LaLonde: We anticipate that our tax rate in the third and fourth quarters will continue to be similar to our recent historical tax rates in those quarters. Turning to our balance sheet, As of June 30, our cash and investment securities totaled nearly $1.7 billion, which is approximately $200 million higher than last year's levels at this time. In the first six months of this year, we returned a total of $396 million to shareholders through dividends and repurchases of 1.8 million shares at an average price of $178.61.
Timothy Gilbert LaLonde: We anticipate that our tax rate in the third and fourth quarters will continue to be similar to our recent historical tax rates in those quarters.
Timothy Gilbert LaLonde: Turning to our balance sheet, as of June 30th, our cash and investment securities totaled nearly 1.7 billion dollars, which is approximately 200 million higher than last year's levels at this time.
Timothy Gilbert LaLonde: In the first six months of this year, we returned a total of $396 million to shareholders through dividends and repurchases of 1.8 million shares at an average price of $178.61.
Timothy Gilbert LaLonde: Our second quarter diluted share count was $43.4 million, up slightly from the prior year. The increase in our share count primarily was due to the impact of our higher share price on unvested RSUs. We are encouraged by what we see and proud of what we have accomplished in the first half of the year. We believe the broader market recovery will progress throughout 2024 and into 2025 based on what we see internally and the continued improvement in market conditions.
Timothy Gilbert LaLonde: Our second quarter diluted share count was $43.4 million, up slightly from the prior year. The increase in our share count primarily was due to the impact of our higher share price on unvested RSUs.
Timothy Gilbert LaLonde: We are encouraged by what we see and proud of what we have accomplished in the first half of the year.
Timothy Gilbert LaLonde: We believe the broader market recovery will progress throughout 2024 and into 2025 based on what we see internally and the continued improvement in market conditions.
Timothy Gilbert LaLonde: We remain focused on the build-out of our firm while managing our expenses responsibly. We are appreciative of our shareholders and are focused on increasing Evercore's value over the medium and longer term. With that, we will now open the line for questions.
Timothy Gilbert LaLonde: We remain focused on the build-out of our firm while managing our expenses responsibly.
Timothy Gilbert LaLonde: We are appreciative of our shareholders and are focused on increasing Evercore's value over the medium and longer term.
Speaker Change: With that, we will now open the line for questions.
Operator: Thank you. We will now conduct the question and answer portion of the conference. Please limit your questions to one only.
Speaker Change: Thank you. We will now conduct the question and answer portion of the conference.
Operator: 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 1 on your telephone keypad now. Our first question will come from James Yaro of Goldman Sachs, please go ahead.
Speaker Change: Please limit to one question only.
Speaker Change: 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 1 on your telephone keypad now.
Speaker Change: Our first question will come from James Yaro with the Goldman Sachs. Please go ahead.
John S. Weinberg: Good morning, and thanks for taking my question. As the part of the market that has lagged so far this cycle, maybe, John, could you speak to the sponsor dialogues that you are having on the M&A side, whether these have improved, and also perhaps the perspective on sponsor engagement around IPOs and whether those could increase from here?
James Edwin Yaro: Good morning, and thanks for taking my question.
Speaker Change: As the part of the market that has lagged so far this cycle, maybe, John , could you speak to the sponsor dialogues that you are having on the M&A side, whether these have improved, and also perhaps the perspective on sponsor engagement around IPOs and whether those could increase from here?
John S. Weinberg: So activity levels for sponsors are definitely picking up. And as you've seen, statistically, it's up about 17% to 20% year-to-date and half-year. Having said that, I think our experience would be that there is a continual ramp-up right now. We're seeing a significant number of Bake Offs significantly larger than we have seen in the past.
Speaker Change: Sure.
Speaker Change: So, activity levels for sponsors are definitely picking up, and as you've seen, statistically it's up about 17-20% year-to-date, half-year.
Speaker Change: Having said that, I think our experience would be that there's a constant, there's a continual ramp up right now. We're seeing a significant number
Speaker Change: of bake-offs significantly larger than we have seen in the past.
John S. Weinberg: We are also seeing real activity among sponsors, looking at portfolios and trying to figure out how they can get moving with their portfolios. Some portfolios, companies that have been invested in over a period of time, I think sponsors are really trying to think about bringing them out. And there's a dynamic here that I think is at play, which is really positive toward ramping. And that is that I think LPs are looking for a return on capital, and they're pretty vocal about the fact that they want that to happen.
Speaker Change: We also are seeing real activity in the sponsors looking at portfolios and trying to figure out Real how do they get moving with their portfolios some portfolios companies that have been really been been
Speaker Change: have been invested in over a period of time, I think sponsors are really trying to think about bringing them out. And there's a dynamic here that I think is at play, which is really positive toward ramping.
Speaker Change: And that is that I think LPs are looking for a return of capital and they're pretty vocal about the fact that they want that to happen. In addition...
John S. Weinberg: In addition, I think that the sponsors have a significant amount of dry powder, some of it aging, and I think if it doesn't get used, it may go away. And so I think that you have this very positive dynamic of real pressure to get moving with the portfolios.
Speaker Change: I think that...
Speaker Change: The sponsors have a significant amount of dry powder Some of it aging and I think if it doesn't get used it may go away and so I think that you have this very positive dynamic of real pressure to get moving with for portfolios in addition
Speaker Change: The markets are positive, both the leveraged finance side and private credit. There's really an appetite for real activity. And so all of those things together, I think, are really...
John S. Weinberg: The markets are positive, both on the leveraged finance side and private credit. There's really an appetite for real activity. And so all of those things together, I think, are really building the ramp. And from our perspective, it's going to ramp up over time. It's not going to happen all at once, but we're feeling a very positive tone in the market. And in terms of the IPO, I think IPOs are being considered as well as the M&A side for these portfolios.
Speaker Change: building
Speaker Change: The ramp, and from our perspective, it's going to ramp over time.
Speaker Change: It's not going to happen all at once, but we're feeling a very positive tone to the market.
Speaker Change: And in terms of the IPO, I think IPOs are being considered as well as the M&A side for these portfolios. And so I think what we're seeing is just a very, very high activity level in our leverage, our...
John S. Weinberg: And so I think what we're seeing is just a very, very high activity level in our leveraged Sponsor coverage group is really seeing tremendous activity right now. So from our perspective, I think the momentum is growing. Thank you.
Speaker Change: Sponsor coverage group is really seeing tremendous activity right now. So, from our perspective, I think the momentum is growing.
Speaker Change: Thank you very much.
Operator: Thank you. Our next question will come from Ryan Kenny with Morgan Stanley. Please go ahead. Hi, good morning.
Speaker Change: Thank you. Our next question will come from Ryan Kenny with Morgan Stanley . Please go ahead.
Ryan Michael Kenny: Hi, good morning. You mentioned that European M&A is picking up. Can you stick into what's driving that and how the pipeline in Europe compares to U.S.? Are they growing at roughly the same pace or is one stronger than the other?
John S. Weinberg: Our experience is that the U.S. market is out ahead, that the European market is actually finding a positive tone, but the U.S. market is ahead. There's just, I think, a real activity buildup in the U.S. I think there is one in Europe, but if you ask which is really ahead, I think the U.S. is slightly ahead. I think the activity on both markets, though, is positive, and we think there's a real build.
Speaker Change: Our experience is that the U.S. market is out ahead, that the European market is actually
Speaker Change: finding a positive tone.
Speaker Change: But the U.S. market is ahead. There's just, I think, a real activity build in the U.S.
Speaker Change: I think there is also in Europe , but I think if you ask which is really ahead, I think the U.S. is slightly ahead.
Speaker Change: I think the activity on both markets, though, is positive.
Speaker Change: and we think there's a real build.
Operator: Thank you. Our next question will come from Brennan Hawken with UBS. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question will come from Brennan Hawken with UBS. Please go ahead.
Operator: Morning. Thank you for taking my questions.
Brennan Hawken: Good morning. Thank you for taking my questions.
Brennan Hawken: I was a little unclear on the comp ratio commentary, so hoping you could maybe clarify, were you saying that 66% is in line with the full year expectation, or were you suggesting that there's a chance for lower downward pressure, you know, based on, of course, you guys have a decent handle on the revenue outlook.
Timothy Gilbert LaLonde: Tim, I was a little unclear on the comp ratio commentary, so I'd like to maybe clarify: were you saying that 66% is in line with the full-year expectation, or were you suggesting that there's a chance for lower downward pressure, you know, based on, of course, you guys have a decent handle on the revenue outlook, usually about six months out. So I would think by this point you would have a, it would, there's always uncertainty, but maybe a little less uncertainty at this stage. Thanks. Yeah,
Speaker Change: usually about six months out. So I would think by this point you would have a it would there's always uncertainty but maybe a little less uncertainty at this stage.
Timothy Gilbert LaLonde: Yeah, sure Brennan. 66% is what I would say is generally similar to what we would expect for the full year, and we do, you know, we do foresee a strengthening environment and, along with that, strengthening revenue. It's impossible for us to know exactly the steepness of the ramp or the timing of transaction closings, but there is a possibility, and we're certainly striving to achieve some improvement, but we lack the clarity at this point with respect to the ramp and timing to be more precise than that.
Speaker Change: Thanks.
Speaker Change: Yeah, sure Brennan. 66% is what I would say is generally similar.
Speaker Change: to what we would expect for the full year, and we do, you know, we do foresee a strengthening environment and along with that, strengthening revenue.
Speaker Change: It's impossible for us to know exactly the steepness of the ramp or the timing of transaction closings.
Speaker Change: But there is, you know, there's a possibility, and we're certainly striving,
Speaker Change: to achieve some improvement.
Speaker Change: But it's just we lack the clarity at this point with respect to ramp and timing to be more precise than that.
Timothy Gilbert LaLonde: That's fair. Would you categorize the 66 as maybe a bit on the conservative side, and so, if you know sort of a worst-case scenario, or is it more, is it possible to give us an indication about where it sits on that skew?
Speaker Change: That's fair. I would you categorize the 66 as maybe a bit on the conservative side and so therefore if You know sort of a worst-case scenario, or is it more?
Speaker Change: you know.
Speaker Change: Is it possible to...
Speaker Change: give us an indication about.
Timothy Gilbert LaLonde: Yeah, I wouldn't characterize it as one way or another other than to say it reflects our best judgment of the appropriate accrual for this.
Speaker Change: where it's, where it sits on that.
Speaker Change: Yeah, I wouldn't characterize it as one way or another other than to say it reflects our best judgment of the appropriate accrual for this quarter.
Operator: Okay, thanks for taking my questions.
Speaker Change: Okay, thanks for taking my questions.
Operator: Thank you. Our next question will come from Devin Ryan with Citizens JMP. Please go ahead.
Operator: Oh, great. Good morning, John. Good morning, Tim.
John S. Weinberg: Just a question on some of the non-M&A advisory businesses. It sounds like really healthy activity, both in restructuring and shareholder advisory. Just want to think about kind of, maybe not even the next couple quarters, but just over the next couple years, like how you expect those businesses to grow and the contribution at the overall firm-wide level to evolve. Meaning, if we get into an M&A recovery scenario, do those businesses just become smaller pieces but larger in the absolute? Or, just based on what you're seeing in the environment and, obviously, restructuring feels like it could be a multi Thanks. Sure.
Speaker Change: Oh, great. Good morning, John . Good morning, Tim.
John S. Weinberg: Just a question on some of the non-M&A advisory businesses. Sounds like a really healthy activity, both in restructuring and shareholder advisory. I just want to think about kind of...
John S. Weinberg: As we look out, maybe not even the next couple quarters, but just over the next couple years.
John S. Weinberg: Like, how do you expect those businesses to grow and the contribution at the overall firm-wide level to evolve? Meaning, if we get into an M&A recovery scenario, do those businesses just become smaller pieces but larger in the absolute?
Speaker Change: just based on what you're seeing in the environment and obviously restructuring feels it could be a multi-year cycle here. They could actually become larger proportional to the overall firm-wide revenues. Thanks.
John S. Weinberg: The restructuring business continues apace, and I think our view of the restructuring business is that it will continue at this level, and it will be at this healthy level for quite some time. We do have, as you said, several businesses which are not M&A related. Obviously, about over a third of our businesses are non-M&A related. Our private capital advisory businesses are very healthy. We see real growth in those businesses. They're actually performing extremely well right now.
Speaker Change: Sure.
Speaker Change: The restructuring business continues apace and I think our view of the restructuring business is that it will continue really at this level and it will
Speaker Change: be at this healthy level for for quite some time.
Speaker Change: We do have, as you said, several businesses which are not M&A related. Obviously about over a third of our businesses are non-M&A related.
Speaker Change: Our private capital advisory businesses are very healthy. We see real growth in those businesses. They're actually performing extremely well right now. And we anticipate that there will be real growth in those businesses.
John S. Weinberg: And we anticipate that there will be real growth in those businesses. Our equity capital markets business is also performing well. We anticipate that it will continue, and there will be a ramp-up in that business also. But, you know, the one thing I would really say, though, is that the merger business is really our biggest business. And I don't know whether the businesses that are non-mergers are going to grow in terms of their proportion of our business, just because I think that the merger business is going to continue to grow.
Speaker Change: Our equity capital markets business is also performing well. We anticipate that it will continue and there will be a ramp in that business also.
Speaker Change: But, you know, the one thing I would really say, though, is that merger business is really our biggest business.
Speaker Change: and I don't know whether the businesses that are non-mergers are going to grow in terms of their their proportion of our business just because I think that the the merger business is going to continue to ramp.
John S. Weinberg: The merger business will take some time to ramp all the way up. As we've said, it's going to take the balance of this year and into next to really get to what we would call full recovery. But that is a very powerful engine for us.
Speaker Change: The merger business will take some time to ramp all the way up.
Speaker Change: As we've said, it's going to take the balance of this year and into next to really get to what we would call full recovery. But that is a very powerful engine for us. And so what I say is I feel like we have good balance. We will continue to have good balance.
John S. Weinberg: And so what I'd say is that we have a good balance. We will continue to have a good balance. I feel like our businesses are generally all quite healthy. And so I don't really see any weakening in any of those businesses. But I do think that the merger business is going to continue to strengthen. I hope that helps.
Speaker Change: I feel like our businesses generally are all quite healthy and so I don't really see any weakening in any of those businesses but I do think that the merger business is going to continue to strengthen. I hope that helps.
Speaker Change: It does. Thank you.
Operator: Thank you, our next question will come from Aidan Hall with KBW. Please go ahead.
Speaker Change: Thank you. Our next question will come from Aidan Hall with KBW. Please go ahead.
Operator: Great, thanks for taking my question. Maybe just a follow-up on the comp ratio commentary. Seems like given the elevated level of hiring and just the way that the year's playing out, the comp ratio would be coming in, you know, maybe a little higher than initially expected for the year. So I know it's still early, but is there any way to frame how to think about leverage in 2025 as it relates to kind of compensation expense, especially as a rebound in activity remains pretty sustainable, or at least that's the base case expectation Yeah, sure, I can talk a little bit about that.
Aidan Patrick Hall: Great, thanks for taking my question. Maybe just a follow-up on the comp ratio commentary.
Aidan Patrick Hall: It seems like, given the elevated level of hiring and just the way that the year's playing out, you know, the comp ratio...
Speaker Change: be coming in, you know, maybe a little higher than initially expected for the year. So I know it's still early, but is there any way to frame how to think about leverage in 2025 as it relates to kind of compensation expense?
Speaker Change: especially as a rebound in activity remains pretty sustainable, or at least that's the base case expectation here on the revenue side. Thank you.
Timothy Gilbert LaLonde: First, let me start, in order to create the context, by reminding people what our comp ratio was last year. It was 67.6% for the full year. As you'll recall, last year, we started a little bit lower, but as conditions did not improve in the latter part of the year, and we also had a full slate of high-quality candidates we had hired, there was an upward drift. And so, comparing this quarter over last year's quarter is probably not quite appropriate.
Timothy Gilbert LaLonde: Yeah, sure. I can talk a little bit about that.
Speaker Change: Yeah, sure. I could talk a little bit about it. First, let me start, in order to create the context, with what our comp ratio, reminding people what our comp ratio was last year, was 67.6% for the full year. As you'll recall, last year
Speaker Change: We started a little bit lower but as conditions did not improve in the latter part of the year and we also had a full slate.
Speaker Change: of high-quality candidates we had hired.
Speaker Change: There was an upward drift.
Speaker Change: Comparing quarter over last year quarter is probably not quite appropriate. I would think about looking at this quarter in relation to last full year, again, which was 67-6.
Timothy Gilbert LaLonde: I would think about looking at this quarter in relation to the last full year, which was 67.6%, and of course, higher than that in the latter part of the year. So, we have made some progress already this year, and we're focused on that. And we think that, number one, we will get some leverage from increased revenues over time. We expect that And so, we don't look at this current comp ratio for this quarter as being our steady state, in terms of going forward in the near to medium term. We're looking to improve on it, but that improvement will be gradual. This is not something that happens during a return to normal.
Speaker Change: higher than that in the latter part of the year. So, we have made some progress already here today.
Speaker Change: And we're focused on this, and we think that, number one, we will get some leverage from increased revenues over time. We expect that.
Speaker Change: And so we don't look at this current comp ratio for this quarter as being our steady state.
Speaker Change: in terms of go forward in the near to medium term. We're looking to improve on it, but that improvement will be a gradual improvement. This is not something that happens overnight.
Speaker Change: Return to normalcy.
Timothy Gilbert LaLonde: Thank you. Our next question will come from Jim Mitchell with Seaport Global. Please go ahead.
Speaker Change: Understood, thank you.
Speaker Change: Thank you. Our next question will come from Jim Mitchell with Seaport Global. Please go ahead.
Operator: Hey, good morning. Maybe you could have mentioned velocity, Tim. So could you talk to us about the elongation of the process? So are we starting to see timing from announcement to closings get better? How are you thinking about all this activity and the speed at which it could turn into revenue? So any thoughts on that and your comments on the second half being better? Is that an activity level comment or a revenue comment? Thank you. Sure.
James Francis Mitchell: Hey, good morning. Maybe you mentioned velocity, Tim, so could you talk to, we haven't talked about elongation of the of the process, so are we starting to see
James Francis Mitchell: Timing from announcement to closings get better. How are you thinking about all this activity and the speed at which it could turn into revenue? So any thoughts on that and your comments on second half being better? Is that an activity level comment or a revenue comment? Thanks.
Timothy Gilbert LaLonde: First, let me start by just repeating, to create a base for this, a comment you heard in our prepared remarks, which is that we've characterized the backlogs as being robust, uh... and and that's certainly the case uh... but the in order for revenues to materialize we look at a combination of both the size of the backlog and the rate at which transactions are moving through now we're at a uh... a point in the ramp where that is not going to show up uh... as we look at from a uh... backward looking standpoint that's not going to show up yet uh... what we do have is is uh... anecdotal feedback from our bankers uh... that processes are more active they're moving a little more quickly you heard john's comments about uh... the the the leverage finance markets which for which issuance is up uh... about uh... you know if you if you look at the aggregate of high-yield uh... issuance and leverage loans uh... it's up about a hundred percent year-over-year so the pieces of the puzzle are in place and we are anticipating improvement in velocity as we move forward and uh... and then with regard to the second part of your question about activity levels uh... is it just activity levels or or is it revenue We started noticing improved activity levels months ago, and we in fact commented on that in our first quarter earnings call, and then there's of course a lag time, but we would expect some of this increased activity to be reflected in revenues as we approach the end of the year and into next year.
James Francis Mitchell: Sure.
Speaker Change: First, let me start by just repeating, to create a base for this, a comment you heard in our prepared remarks, which is that we've characterized the backlogs as being robust.
Operator: Thank you. As a reminder, if you would like to ask a question, please press star one. Our next question will come from Brendan O'Brien with Wolf Research. Please go ahead.
Speaker Change: And that's certainly the case.
Speaker Change: But in order for revenues to materialize,
Speaker Change: We look at a combination of both the size of the backlog and the rate at which transactions are moving through. Now, we're at a point in the ramp where that is not going to show up.
Speaker Change: from a backward-looking standpoint, that's not going to show up yet.
Speaker Change: What we do have is anecdotal feedback from our bankers.
Speaker Change: that processes are more active. They're moving a little more quickly. You heard John's comments about the leveraged finance markets for which issuance is up about, you know, if you look at the aggregate of high yield issuance and leveraged loans,
John S. Weinberg: It's up about 100% year-over-year, so the pieces of the puzzle are in place.
Speaker Change: And we are anticipating improvement in velocity as we move forward. And then with regard to the second part of your question about activity levels, is it just activity levels or is it revenues?
Speaker Change: We started noticing improved activity levels months ago, and we in fact commented on that in our first quarter earnings call.
Speaker Change: And then there's of course a lag time, but we would expect some of this increased activity to be reflected in revenues as we approach the end of the year and into next year.
Speaker Change: Okay, thanks.
Speaker Change: Thank you. As a reminder, if you would like to ask a question, please press star 1. Our next question will come from Brendan O'Brien with Wolf Research. Please go ahead.
Operator: Good morning. So I just want to touch on the private capital advisory business. You know, secondary activity was very strong in the first half and is expected to accelerate meaningfully over the next couple of years as sponsors look to return capital to investors. I just wanted to get a sense as to how meaningful of a growth engine this could be for your firm going forward. And as we think about the potential recovery and sponsor M&A activity, do you expect the strength of this franchise and your improved sponsor coverage model to enable you to capture a greater share?
Brennan Hawken: Good morning. So I just want to touch on the private capital advisory business. You know, secondary activity was very strong in the first half and is expected to accelerate meaningfully over the next couple of years as sponsors look to return capital to LPs.
Brennan Hawken: I just wanted to get a sense as to how meaningful of a growth engine this could be for your firm going forward. And as we think about the potential recovery and sponsor M&A activity, do you expect the strength of this franchise and your improved sponsor coverage model to enable you to capture a greater share?
John S. Weinberg: We have really made great efforts to bring together all of the businesses that touch sponsors so that we can really holistically service sponsors and bring a much more diverse and broad set of skill sets to bear on what they're trying to accomplish. And I think that, clearly, the private capital advisory businesses are strengthening. The market is growing for those businesses, especially for continuity-type vehicles. And frankly, as sponsors make decisions about portfolio companies, they really look at a much more diverse set of options, whether it's an IPO, whether it's a sale, whether it's more investment, whether there's some continuity vehicle, all of those things are options.
Speaker Change: We would hope so.
Speaker Change: We have really made great efforts to make sure that we bring together all of the
Speaker Change: the businesses that are touching sponsors so that we really can holistically service sponsors and bring
Speaker Change: a much more diverse and broad set of skill sets to bear on what they're trying to accomplish.
Speaker Change: And I think that, clearly, the private capital advisory businesses are strengthening. There is – the market is growing for those businesses, especially for continuity-type vehicles. And, frankly, as –
Speaker Change: Sponsors make decisions about portfolio companies, they really look in a much more diverse set of options.
Speaker Change: You know, whether it's an IPO, whether it's a sale, whether it's more investment, whether there's some continuity vehicle, all of those things are options. And so...
John S. Weinberg: And so we think that really bringing it all together, which we've worked hard to do, is giving us real leverage upward with respect to those businesses. I think that the sponsor business for us is going to continue to grow and improve. I think that it will cover an increasingly high percentage of the things that we do. Having said that, obviously, we're developing all of our businesses broadly across the whole portfolio of advisory services.
Speaker Change: We think that really bringing it all together, which we've worked hard to do, is giving us a real leverage upward with respect to those businesses.
Speaker Change: I think that the sponsor business for us is going to continue to grow.
Speaker Change: We have an increasingly high percentage of the things that we do. Having said that, obviously we're developing...
Speaker Change: All of our businesses broadly throughout the whole portfolio of advisory services. And so, you know, hoping, we're hoping the strategy of investing broadly is going to bring real opportunity for
John S. Weinberg: And so we're hoping the strategy of investing broadly is going to bring real opportunity for revenue growth. Having said that, I think your question about sponsors and the concentration of private capital advisory services is that those businesses will continue to improve and grow. And we feel really good about the investments we're making there.
Speaker Change: For our revenue growth having said that I think your question about
Speaker Change: sponsors, and the concentration of
Speaker Change: of private capital advisory services is that those businesses will continue to improve and grow and we feel really good about the investments we're making there.
Timothy Gilbert LaLonde: Great. And if I could just squeeze in a follow-up on the comp ratio, When you think about the normalized comp ratio, we've heard from some of your peers that, you know, given the structural increase in the costs of tuning your talent, wage inflation, and the like, that their comp ratio is going to be structurally higher going forward. I just, when you speak to a normalized comp ratio, how do you think about that relative to the, you know, sub-60 level that you've run at historically? Yeah, sure.
Speaker Change: Great. And if I could just squeeze in a follow-up.
Speaker Change: on the comp ratio. When you think about normalized comp ratio, we've heard from some of your peers that
Speaker Change: you know, given the structural increase in the costs of, you know, junior talent, wage inflation and the like.
Speaker Change: that, you know, their comp ratio is going to be structurally higher going forward. I just, when you speak to a normalized comp ratio, how do you think about that relative to the, you know, sub-60% level that you've run at historically?
Timothy Gilbert LaLonde: Yeah, sure. Look, as I mentioned in my last comment, what we foresee is gradual improvement. We're focused on this. There's certainly a correlation with increasing revenue and improvement in the comp ratio, uh... and uh... uh... and we expect gradual improvement over the near to medium term and and we you know relative to last year running right now at a one hundred sixty basis point improvement relative to last year and and we're working hard to make sure we can uh... deliver additional improvements uh... as i said over the near medium term it's it would be premature for us or for anyone at this point to speculate on whether we're going to get back down uh... to something sub sixty percent uh... what i can tell you is we're looking to make meaningful improvements uh... over this year and next year and the year after uh... and uh... as we approach that point will bet will be able to better assess where we think the uh... the ultimate settling spot is
Speaker Change: Yeah, sure. Look, as I mentioned in my last comment, what we foresee is gradual improvement. We're focused on this.
Speaker Change: There is certainly a correlation with increasing revenue and improvement in the comp ratio.
Speaker Change: And we expect gradual improvement over the near-to-medium term.
Speaker Change: You know, relative to last year, running right now at a 160 basis point improvement relative to last year.
Speaker Change: and and we're working hard to make sure we can.
Speaker Change: deliver additional improvements, as I said, over the near to medium term, it would be premature for us or for anyone.
Speaker Change: at this point, to speculate on whether we're going to get back down to something sub-60%. What I can tell you is we're looking to make meaningful improvements over this year and next year and the year after.
Speaker Change: And as we approach that point, we'll be able to better assess where we think the ultimate settling spot is.
Operator: All right, thank you for taking my questions.
Speaker Change: All right, thank you for taking my questions.
Operator: Thank you. Our next question will come from James Yaro of Goldman Sachs. Please go ahead.
Speaker Change: Thank you. Our next question will come from James Yaro with Goldman Sachs. Please go ahead.
Operator: Thanks for taking my follow-up. Tim, the non-comp expenses rose 12% quarter-on-quarter. You noted that much of this was from travel expenses, which is obviously a positive for the top line, but you did also talk about some inflationary factors. How should we think about non-comp expense dollars from here? Should they grow versus the 2Q level, or is there some sort of seasonality in the quarter?
James Edwin Yaro: Thanks for taking my follow-up. Tim, the non-comp expenses rose 12% quarter-on-quarter. You noted that much of this is from travel expenses, which is obviously a positive for the top line, but you did also talk about some inflationary factors. How should we think about non-comp expense dollars from here? Should they grow versus the 2Q level, or is there some sort of seasonality in the quarter?
Timothy Gilbert LaLonde: Yeah, I think that there's at least a small amount of seasonality, and that has to do with things like, you know, SEC filing fees, annual fees, you know, our audit costs, our training costs for the analysts and associates that come in, et cetera. And so I think there's at least a small amount of seasonality in that figure. But just to – and you mentioned travel. Now there's also upward pressure, right?
Timothy Gilbert LaLonde: Yeah, I think that there's at least a small amount of seasonality.
Speaker Change: And that has to do with things like, you know, SEC filing fees, annual fees, you know, our audit costs.
Speaker Change: are training costs for the analysts and associates that arrive, etc. And so, I think there's at least a small amount of seasonality in that figure.
Speaker Change: Now, but just to, and you mentioned travel. Now, there's also upward pressure, right? And so travel, in the most recent quarter,
Timothy Gilbert LaLonde: And so travel in the most recent quarter was – and this is measured by the number of trips – 95% of where we were in the first part of 2019, the pre-COVID year. Now, that has to be adjusted for the fact that our head count is up about 23%. And so, on a headcount adjusted basis, our travel is at about 73% of where it was pre-COVID, and, you know, we're closely monitoring that and trying to form a view on where we think that will ultimately reach full normalization.
Speaker Change: was, and this is measured by number of trips, is about 95 percent.
Speaker Change: of where we were in the first part of 2019, the pre-COVID year, about 95 percent. Now, that has to be adjusted for the fact that our head count is up about 23 percent.
Speaker Change: And so, on a head count adjusted basis, our travel is at about 73% of where it was pre-COVID.
Speaker Change: And, you know, we're closely monitoring that and trying to form a view on where we think.
Speaker Change: that will ultimately reach full normalization.
Timothy Gilbert LaLonde: There may be some continued normalization as we move forward, but as you mentioned, we're happy to see that kind of activity because that means we're out there servicing our clients. And so that's one thing. The second thing is...
Speaker Change: There may be some continued normalization as we move forward, but as you mentioned, we're happy to see that kind of activity because that means we're out there servicing our clients. So that's one thing. The second thing is...
Timothy Gilbert LaLonde: There are professional expenses that are related to increased revenue. And that's another type of expense we're happy to have, which is expenses that are around the winning of new business and the execution of deals. Lastly, what I would mention is, and this will get to your answer, how you ought to think about it going forward.
Speaker Change: There are professional expenses that are related to increased revenues.
Speaker Change: And that's another type of expense we're happy to occur, which is expenses that are around the winning of new business and the execution of deals.
Speaker Change: Lastly, what I would mention is, and this will get to your answer, is how you ought to think about it going forward.
Timothy Gilbert LaLonde: There's a very close correlation, if you look at it over a number of years, with respect to headcount and non-comp costs, right? And so it's not perfect in the short term. But in the medium to longer term, there's a very significant correlation. If you look at that metric for us... from the pre-Covid period, which is 2019 through the present, the increase is about 7%. That's non-compensation costs per employee. If you look at that on an annual basis, it would be less than 2%, which is below the rate of inflation.
Speaker Change: There's a very close correlation, if you look at it over a number of years, with respect to head count.
Speaker Change: and non-comp costs, right? And so it's not perfect in the short term, but in the medium to longer term, there's a very significant correlation.
Speaker Change: If you look at that metric for us...
Speaker Change: from pre-COVID period, which is 2019 through the present, the increase is about 7%. That's non-comp costs per employee.
Speaker Change: If you look at that on an annual basis, that would be less than 2%, which is below the rate of inflation.
Timothy Gilbert LaLonde: So, you know, we feel like we've done a solid job to date, and we, of course, realize that with certain upward pressures, and we've talked about travel and professional costs, and there will also be some investment in technology and information services costs, which adds a little pressure. So, you can rest assured that internally, we've mobilized our troops and are exercising significant discipline as we think about those non-comp costs moving forward.
Speaker Change: So, you know, we feel like we've done a solid job to date.
Speaker Change: And we, of course, realize that with certain upward pressures, and we talked about travel and professional costs, and...
Speaker Change: There will also be some investment in technology and...
Speaker Change: information services costs adds a little pressure.
Speaker Change: You know, you can rest assured that internally we've mobilized our troops and are exercising significant discipline as we think about those non-comp costs moving forward.
Operator: Excellent. Thanks a lot, Tim.
Speaker Change: Excellent. Thanks a lot, Tim.
Operator: Thank you. Our next question will come from Brennan Hawken with UBS. Please go ahead.
Speaker Change: Thank you. Our next question will come from Brennan Hawken with UBS. Please go ahead.
Operator: Good morning. Thanks for taking my follow-up appointment. Tim, apologies about another question on comp here, but I was hoping to take a slightly different tack. So your reported adjusted comp expense year-to-date is up about 20% versus last year. If we drill down and think about just the fixed component of the comp expense, in other words, salary and benefits and deferred comp amortization, how much should that be up year-to-date as compared to the reported number?
Brennan Hawken: Good morning, thanks for taking my follow-up. Tim, apologies about another question on comp here, but I was hoping to take a slightly different tack. So your reported adjusted comp expense year-to-date is up about 20% versus last year.
Brennan Hawken: If we drill down and think about just the fixed component of the comp expense, in other words salary and benefits and deferred comp amortization, how much should that be up year-to-date as compared to the reported number?
Timothy Gilbert LaLonde: Yeah, and apologies to you Brennan, but that's just, it's not a figure we disclosed. Okay, fine. How about...
Speaker Change: Yeah, and apologies to you Brennan, but that's just, it's not a figure we disclose.
Operator: Is the fixed comp growth rate less than the reported number, or is it greater?
Operator: Okay, fine. How about this?
Speaker Change: Okay, fine. How about this? Is the fixed comp growth rate less than the reported number or is it greater than the reported?
Timothy Gilbert LaLonde: Yeah, it's, it's, look, um... The fixed comp growth rate, this is a little bit of advice I gave on the non-comp, the growth in that is going to be related to growth in headcount, uh... and and uh.., uh... and and then it is revenues go up uh... certainly to probably a greater expanded their partner level of little lesser extent the non-partner level there will be some increase in bonuses that correlates to the increase in revenues and so you know from that you could probably surmise that uh... that the fixed component of it, You know, since revenues, I think, are anticipated to grow at a faster rate than headcount, you could surmise that the fixed component might grow at a little less of a rate than the bonus.
Speaker Change: Yeah, it's, it's, look, um...
Speaker Change: The fixed comp growth rate, you know, this is a little bit of advice I gave on the non-comp. You know, the growth in that is going to be related to growth in headcount.
Speaker Change: And then as revenues go up, certainly to probably a greater extent at the partner level and a little lesser extent at the non-partner level, there will be some increase in bonuses that correlates to the increase in revenues.
Speaker Change: And so, you know, from that, you could probably surmise that the fixed component of it...
Speaker Change: You know, since revenues, I think, are anticipated to grow at a faster rate than head count, you could surmise that the fixed component might grow at a little less of a rate than the bonus.
Operator: A little less, even though the headcount's only up above. That's how it would be...
Speaker Change: A little less, even though the headcount's only up about 4% year-over-year.
Timothy Gilbert LaLonde: That's why it would be less. Yes, it would be less than the discretionary component.
Speaker Change: Reader.
Speaker Change: It would be less, yes, it would be less than the discretionary component.
Operator: Thanks for the patience; I will always have it. Always.
Speaker Change: All right.
Operator: I am always happy to talk with you, Brennan.
Speaker Change: Thanks for the patience with my...
Speaker Change: Persistent.
Brandon: We're always happy to talk with you, Brennan.
Operator: Thank you. At this time, there are no further questions in queue. This concludes today's Evercore second quarter 2024 earnings conference call. You may now disconnect.
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Speaker Change: Thank you. At this time there are no further questions in queue.
Speaker Change: This concludes today's Evercore second quarter 2024 earnings conference call. You may now disconnect.
Speaker Change: This is a production of the Center for Autonomous Vehicle Research and the Center for Autonomous Vehicle Research and Development. This is a production of the Center for Autonomous Vehicle Research and the Center for Autonomous Vehicle Research and Development.
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