Evercore Inc. (EVR) on Q1 2022 Results - Earnings Call Transcript

Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.: Operator: 00:02 Good morning and thank you for standing by. Welcome to Evercore's First Quarter 2022 Financial Results Conference Call. During today's all parties will be in listen-only mode. Following the presentation, the conference call will be opened for questions. [Operator Instructions] As a reminder, this conference call is being recorded today, Wednesday, April 27, 2022.n 00:42 I would now like to turn the conference call over to your host, Evercore's Head of Investor Relations, ESG, Katy Haber. Please go ahead. Katy Haber: 00:51 Thank you so much. Good morning and thank you for joining us today for Evercore's first quarter 2022 financial results conference call. I'm Katy Haber, Evercore's new Head of Investor Relations and ESG. Joining me on the call today is John Weinberg, our Chairman and CEO and Celeste Mellet, our CFO. After our prepared remarks we will open up the call for questions. 01:13 Earlier today we issued a press release announcing Evercore's first quarter 2022 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 our 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. 01:38 During the course of this conference call, we may make a number of forward-looking statements. Any forward-looking statements that we make are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors include, but are not limited to, those discussed 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. 02:13 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 the timing of transaction closings. 02:45 I will now turn the call over to John. John Weinberg: 02:49 Good morning, everyone, and thank you, Katy. We are very fortunate to have Katy here to take on this important role as Head of Investor Relations and ESG, and I know you will all join me in welcoming her to our team. 03:04 It was a solid first quarter for Evercore with $728 million in adjusted net revenues, $625 million in adjusted advisory revenues and $3.80 in adjusted earnings per share. All records for our first quarter. Having said that, I want to acknowledge the challenging geopolitical backdrop that underlies the start of 2022, the war in Ukraine has increased uncertainty on a global basis resulting in capital markets volatility and wide-ranging strategic questions for corporate leaders. However, even with this recent uncertainty, the fundamental themes that drive M&A activity in the intermediate to long term-are still in place. Rates are still low from a historical perspective. Markets are accessible and CEO confidence remains high. 03:58 On the corporate side, in addition to the search for growth by corporates, we continue to see innovation and new disruptive business models that we expect will drive multi-year M&A decision making. We also anticipate increased activity with respect to the evolving energy transition landscape, ESG-related drivers and increased private equity activity as sponsors invest record levels of accumulated capital. Notably private equity dry powder now exceeds $3.4 trillion and sponsors continue to focus on numerous ways to put this money to work. Further, we see increased activist activity with M&A often catalyzed by certain activist campaigns. With these drivers our backlogs remain strong although we would note that the war, inflationary pressure, supply chain constraints and rising interest rates led to some slowing of the pace of announcements in the latter part of the quarter and an elongation of the timing of transaction closings. 05:05 Looking at the overall M&A market this quarter, global and U.S. M&A announced dollar volume decreased 21% and 19%, respectively, compared to the first quarter of 2021. Also the number of announced deals decreased 17% globally and 20% in the U.S. versus the first quarter of 2021. For the largest deals, those above $5 billion global activity cooled, dollar volume declined 10% and the number of announced deals fell sharply down over 30% as compared to the first quarter of last year. 05:42 Looking at transactions in the $1 billion to $5 billion range, dollar volumes declined 40%, while the number of transactions fell 36% versus the first quarter of 2021. That said, our teams remain active across a broad spectrum of sectors and capabilities. These high activity levels helps contribute to another strong quarter for Evercore. We remain confident that our firm is better equipped than at any point in our history to thrive in varied market environments, a testament to our broad and deep capabilities built over a decade of significant investment. Our firm today is watchful and prepared and importantly we continue to be deeply engaged with our clients advising them on pressing strategic priorities. We are optimistic about our future and continue to invest in our growth by adding talent to our team across all levels and businesses. We're pleased to have had a successful start to our external recruiting efforts in 2022 as human capital continues to be the most important investment we make in our business. 6:49 In advisering, two Senior Managing Directors joined us in the first quarter and we have two additional SMDs committed to joining the firm later this year, both focused on our technology franchise. We are in active discussions with additional talented candidates in several areas of strategic significance. Further, our new record class of 17 Senior Managing Director promotes is off to a solid start this year. We look forward to their continued growth and further contributions as they ramp. 07:24 Turning to the quarter, as I mentioned, our business diversity enabled us to achieve the best first quarter in the firm's history in terms of adjusted net revenues, adjusted EPS, advisory revenues indicative of the revenue generating power of our franchise. In advisory, we saw strength in some of the largest sectors including, technology, media and telecom, healthcare and industrials driven both by our corporate and sponsored clients. 07:53 In Capital Advisory, we see sustained strength in our GP-led transactions fundraising secondary investments, continuation fund opportunities and Real Estate Capital Advisory. In terms of restructuring, while classic Chapter 11 restructuring work remains slow given the health of corporate balance sheets, historically low default rates and relaxed covenants, we continue to be active in liability management engagements, out-of-court restructurings and in debt advisory and placements, a capability that we are actively growing. 08:32 Turning to underwriting. Activity was broadly impacted by the significant spikes in volatility and macro headwinds that weighed on issuers and kept them on the sidelines. In the first quarter, we executed 14 underwriting transactions and acted as a book runner on 13 of these. While our activity this quarter was strongest in healthcare, our ECM momentum continues and our pipeline is broad in terms of sector and product reach. We are seeing the benefits of investments in this business, which should become clear when markets reopen more broadly. 09:08 Looking at the overall ECM market in the U.S., equity issuance declined over 80% year-over-year and IPO issuance declined over 90% versus last year. Since bottoming in February, however, market activity has picked up with issuance in March, nearly doubling from February levels, in step with the decline in the VIX. When market stabilize we expect activity to rebound as many IPO issuers, who had previously targeted first quarter execution windows are now looking to the second or third quarter timelines. 09:42 In our equity business, we remain connected and engaged with our clients providing research insights, particularly around Ukraine developments and the Fed and inflation implications. A research combined with solid sales and trading execution led to record levels of client interactions and in turn, strong and improving broker votes. Further, we are seeing the positive impact of our most recent investments with options and converts activity posting their best quarterly revenue contributions to-date. 10:12 In Wealth Management, long-term performance remains strong. We are pleased that the Evercore Equity Fund was named among the best diversified mutual funds of 2022 by Investors’ Business Daily. This award recognizes funds that have beaten their S&P 500 benchmark for the past one, three, five and 10-years. 10:34 Before I turn the call over to Celeste to review our GAAP results and other financial matters, I want to discuss our capital return strategy. We remain committed to our goal of returning excess cash not invested in the business to our shareholders in the form of dividends and share repurchases. Even in this less certain environment, we were able to raise our dividend, a testament to the power of our diverse business model. Our buyback activity was also very strong to start the year, despite a pause following the Russian invasion of Ukraine. 11:06 We returned $298 million to shareholders during the quarter through dividends and the repurchase of 2 million shares. Our Board declared a dividend of $0.72 per share, an increase of 6% from the prior dividend declared. We intend to return all other excess cash not reinvested in the business or set aside to fund future compensation obligations in the form of share repurchases. 11:34 As previously announced during the quarter, our Board also approved our share repurchase authorization of the lesser of $1.4 billion or 10 million shares and/or LP units, reflecting our continued commitment to our capital return objectives. Looking ahead, we remain excited about the opportunities in front of us and have a clear vision for the firm going forward. As I laid out on our fourth quarter call, our consistent roadmap for growth, including investment in talent and in broadening and deepening our capabilities will allow us to continue to serve our clients and address their needs in almost any environment. 12:12 Let me now turn the call over to Celeste. Celeste Mellet: 12:15 Thank you, John. For the first quarter of 2022 net revenues, net income and EPS on a GAAP basis were a record for our first quarter at $723 million, $158 million and $3.79 respectively. My comments from here will focus on non-GAAP measures, 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. 12:46 First quarter adjusted net revenues were $728 million, up 9% year-over-year. First quarter adjusted advisory fees of $625 million or 22% higher year-over-year, which was another first quarter record. As John mentioned our underwriting business had a slower start to the year along with the rest of the market with $36 million in revenue, down 54% from the year ago period. Our equities business continue to perform well given the market environment with commissions and related fees of $51 million, down 5% year-over-year. 13:24 Adjusted asset management and administration fees were $19 million, up 8% versus a year ago, driven by higher AUM, due to positive flows in markets. Adjusted net income was $173 million for the quarter, up 7% versus the year ago period. Adjusted EPS of $3.80 increased 16% from the prior year. As for our margins, we delivered first quarter adjusted operating margin of 29.5% versus 30.1% in the first quarter of last year. 13:57 First quarter adjusted other revenue was a loss of $3 million, reflecting our losses on our investment funds portfolio, which is used as an economic hedge against a portion of our deferred cash compensation program. This amount fluctuates with market values and the market declined during the quarter drove the losses. 14:14 In accordance with relevant accounting principles, our revenue includes approximately $45 million of advisory fees that were driven primarily from transactions that closed in early April. To compare, we recognized $21 million in the fourth quarter of 2021 and $31 million in the first quarter of 2021 in accordance with the same accounting principles. 14:37 Turning to expenses, our adjusted compensation ratio for the first quarter was 59%. We historically have reflected a compensation ratio in the first quarter based on our best estimates for the full-year. As we always do, we will continue to evaluate the key drivers of our compensation expense as the year progresses and make adjustments as appropriate. 15:00 As John indicated, our backlog is strong. But given the elevated uncertainty globally, we are carefully monitoring the timing of deal closings. First quarter, adjusted non-compensation cost of $84 million, were up 15% from $73 million a year ago, primarily driven by higher travel expenses and search and placement fees. Travel levels of the first quarter dropped from the fourth more than our usual seasonality, due to the Omicron variant, so picked up as the quarter progressed. We expect travel levels will continue to normalize overtime they will remain below historical levels. 15:37 As we previously mentioned, our non-comps this year will continue to reflect firm growth, which drives increases in occupancy and equipment, related depreciation and amortization, certain tech-related expenses and several other items. We anticipate that expenses will increase as the year progresses as travel picks up and deal expenses ramp upon the execution of our ECM pipeline, as well as overall inflationary pressures as we've discussed with you previously. 16:07 Our adjusted tax rate for the quarter was 17.1%, reflecting the tax deduction associated with the appreciation in the firm's share price upon delivery of employee share based awards above the original grant price, which reduced our effective tax rate. As John mentioned, we remain committed to returning excess capital to our shareholders. With the 2 million shares repurchased year-to-date we offset part of the RSUs granted earlier in the year and finished the return of all of our 2021 cash flow. 16:41 Our repurchases were made at an average price of $128.14. Our first quarter adjusted average diluted share count declined to $45.7 million from $47.3 million in the fourth quarter of 2021, reflecting repurchases, tailwinds from the treasury stock method due to the decline in the share price during the quarter and partially offset by vesting. 17:08 Turning to our balance sheet. As of March 31st, our cash and investment securities totaled $1.55 billion. Our excess cash as a percentage of our total cash and investment securities was again in the low double-digits. As a reminder, our cash generation and needs are dynamic and are heavily influenced by our business needs, expected compensation obligations and timing of capital return, which can result in a fluctuation of our relative excess cash position. As John said, although the near-term is uncertain, we will continue to execute on our long-term plan and remain optimistic about our future. 17:50 With that, we will now open the line for questions. Operator: 17:56 Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Brennan Hawken with UBS. Operator: 22:58 Our next comes from the line of Devin Ryan with JMP Securities. Operator: 29:05 Our next question is from the line of James Yaro with Goldman Sachs. Operator: 34:49 Our next question is from the line of [Technical Difficulty] with Seaport Global. Operator: 39:34 Our next question is from the line of Manan Gosalia with Morgan Stanley. Operator: 46:45 Our next question is from the line of Steven Chubak with Wolfe Research. Operator: 53:11 Our next question is from the line of Michael Brown with KBW. Operator: 58:47 [Operator Instructions] Our next question is from the line of Jeff Harte with Piper Sandler. Operator: 59:11 Jeff your line is open, please check your mute button. Operator: 64:22 We're approaching end of a lot of time, I would like to turn the floor to John Weinberg for closing comments. Operator: 64:39 This concludes Evercore's first quarter 2022 financial results conference call. You may now disconnect.
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Goldman Sachs Updates Price Target for Evercore (NYSE:EVR)

  • Goldman Sachs analyst James Yaro has raised the price target for Evercore (NYSE:EVR) to $251, indicating a potential upside of 6.18%.
  • The updated price target was announced in conjunction with Evercore's Q2 2024 Earnings Conference Call, suggesting a positive outlook based on the firm's financial performance and strategic initiatives.
  • Despite the optimistic price target, Evercore's stock experienced a decrease, highlighting the volatile nature of the stock market.

Goldman Sachs analyst James Yaro recently updated the price target for Evercore (NYSE:EVR) to $251, suggesting a potential upside of 6.18%. This adjustment was announced on July 24, 2024, when Evercore's shares were trading at $236.39. The new price target from Goldman Sachs indicates a positive outlook for Evercore, a leading global independent investment banking advisory firm. Evercore specializes in mergers and acquisitions, financial restructuring, and other strategic advisory services. It competes with other financial advisory firms but stands out due to its focus on complex, high-value transactions.

The timing of Goldman Sachs' updated price target coincided with Evercore's Q2 2024 Earnings Conference Call, which featured discussions led by Chairman & CEO John Weinberg, CFO Tim LaLonde, and Managing Director of Investor Relations & ESG, Katy Haber. The call provided insights into Evercore's financial performance and strategic direction, engaging with analysts from several notable financial institutions, including Goldman Sachs. This suggests that the positive outlook from Goldman Sachs may be based on the detailed financial outcomes and strategic initiatives discussed during the earnings call.

Evercore's stock was trading at $236.39, after experiencing a decrease of $7.79 or approximately 3.19% on the day of the announcement. This decline in stock price occurred despite the optimistic price target set by Goldman Sachs, highlighting the volatile nature of the stock market. The stock's performance over the past year, with prices ranging from $124.53 to $248.03, and a market capitalization of about $9.1 billion, underscores Evercore's significant growth and its position in the market.

The trading volume of 718,246 shares on the NYSE on the day of the announcement reflects active trading activity, possibly influenced by the earnings call and the updated price target from Goldman Sachs. The fluctuation in Evercore's stock price, with a low of $234.68 and a high of $246.405 on the same day, further illustrates the market's reaction to both the earnings report and the new price target. This level of activity and interest from the investment community indicates the importance of Evercore's financial performance and future prospects in the eyes of investors.

In summary, the updated price target for Evercore (NYSE:EVR) by Goldman Sachs, set against the backdrop of the company's Q2 2024 earnings call, paints a picture of a firm with strong financial health and strategic direction. Despite the stock's recent dip, the positive outlook from one of the leading financial institutions suggests confidence in Evercore's ability to navigate the complex landscape of investment banking and advisory services.