Evercore Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Performance: For the third quarter of 2024, adjusted net revenues were $740 million, up 28% year-over-year. Adjusted operating income was $135 million, up 63% year-over-year. Adjusted earnings per share (EPS) was $2.04, up 57% year-over-year. The adjusted operating margin was 18.2%, an improvement of approximately 385 basis points from the prior year.
• Talent: 2024 was a successful recruiting year with 8 investment Banking Senior Managing Directors and 1 Senior Adviser joining. New senior leaders in France started, and the Equities business added a top-tier research analyst to lead fintech and IT services sector coverage.
• Business Activity: Despite summer seasonality and equity market volatility, Evercore had strong activity in nearly all businesses. Notable transactions in Strategic Advisory included large deals like TIH's sale and CVC's acquisition. The European Advisory Team showed progress, Financial Sponsors business momentum, Strategic Defense business remained busy, Private Capital Advisory had robust performance, Underwriting business was strong in September, Equities franchise had its strongest third quarter in nearly a decade, and Wealth Management AUM reached $13.9 billion.

Segment Performance

• Advisory Fees: Third quarter adjusted Advisory Fees were $593 million, up 27% year-over-year. The number of Advisory Fees greater than $1 million rose by 30%.
• Underwriting Fees: $44 million, up 43% from the previous year, demonstrating improved sector diversification and engagement in large follow-ons.
• Commissions and Related Revenue: $55 million, nearly the strongest third quarter to date in this business, up 12% year-over-year, driven by strong trading commissions and subscription fees.
• Asset management and Administration Fees: $21 million, up 14% year-over-year, primarily due to record assets under management (AUM) benefiting from market appreciation.
• Other Revenue net: Approximately $26 million, compared to $10 million a year ago. About two-thirds is interest income and one-third is a gain on the DCCP hedge.

Guidance

• Expect gradual recovery in market activity and financial results, with activity levels expected to increase into 2025. The exact timing of impact on financials is uncertain due to transaction timing and market factors. Committed to executing the long-term strategic roadmap while carefully managing the expense base. Anticipate continued gradual increase in activity levels into 2025, though timing of financial impact is uncertain.

Risks

• Uncertainty related to the upcoming U.S. election and geopolitical tensions. Competition for talent and associated hiring costs remain significant. Regulatory environment uncertainties could impact larger merger and acquisition deals.

Question and Answer

• Q: Touch on comp ratio A: Tim LaLonde discussed the comp ratio improvement, noting it's a gradual process, balancing firm building with gradual improvement, and the intense competition for bankers affecting hiring costs.
• Q: Color on size of deals in pipeline A: John Weinberg mentioned a robust pipeline with deals of all sizes, activity in larger M&A, and the regulatory environment could impact some larger deals but not the middle market significantly.
• Q: Restructuring momentum A: John Weinberg stated the restructuring business is busy with no slowdown, and rate cuts are not slowing client dialogues regarding capitalizations or bespoke financing.
• Q: ECM business market share A: John Weinberg said Evercore is around 11th in ECM market share, aiming to be top 10, with growth in IPO and equity coverage across sectors.
• Q: Private Capital Advisory growth A: John Weinberg said the Private Capital Advisory business is strong, with synergy across related advisory services and continuing to build for growth.
• Q: Sponsor activity A: John Weinberg noted sponsor activity is picking up, with dry powder pressure, narrowing buyer-seller spreads, and increasing dialogues indicating a potential pickup in 2025.
• Q: Europe Advisory business A: John Weinberg updated on European franchise growth, continued investment focus, and expansion with high-quality talent, seeing progress in the region.
• Q: Comp ratio leverage A: Tim LaLonde discussed comp ratio components, balancing investment in the firm to build long-term value with gradual improvement, and not focusing solely on minimizing the comp ratio in the near term