Evercore(EVR) - 2020 Q3 - Quarterly Report

Part I. Financial Information Financial Statements Evercore's unaudited financial statements detail its financial position, operations, and cash flows, showing increased cash, stable net revenues, and lower net income due to higher expenses Condensed Consolidated Statements of Financial Condition Key Balance Sheet Items (as of Sep 30, 2020 vs. Dec 31, 2019) | Metric | September 30, 2020 ($ thousands) | December 31, 2019 ($ thousands) | Change | | :--- | :--- | :--- | :--- | | Cash and Cash Equivalents | 1,149,291 | 633,808 | +81.3% | | Total Current Assets | 1,642,188 | 1,690,422 | -2.9% | | Total Assets | 2,645,458 | 2,598,613 | +1.8% | | Total Current Liabilities | 617,839 | 668,653 | -7.6% | | Total Liabilities | 1,438,444 | 1,472,363 | -2.3% | | Total Equity | 1,207,014 | 1,126,250 | +7.2% | Condensed Consolidated Statements of Operations Q3 2020 vs Q3 2019 Performance | Metric | Q3 2020 ($ thousands) | Q3 2019 ($ thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Advisory Fees | 270,662 | 320,885 | -15.6% | | Underwriting Fees | 66,499 | 17,598 | +277.9% | | Total Revenues | 407,518 | 407,864 | -0.1% | | Net Revenues | 402,515 | 402,198 | +0.1% | | Total Expenses | 338,829 | 331,854 | +2.1% | | Net Income Attributable to Evercore Inc. | 42,610 | 43,278 | -1.5% | | Diluted EPS | $1.01 | $1.01 | 0.0% | Nine Months 2020 vs Nine Months 2019 Performance | Metric | Nine Months 2020 ($ thousands) | Nine Months 2019 ($ thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Advisory Fees | 965,662 | 1,090,309 | -11.4% | | Underwriting Fees | 181,182 | 61,428 | +195.0% | | Total Revenues | 1,352,969 | 1,362,492 | -0.7% | | Net Revenues | 1,336,597 | 1,348,571 | -0.9% | | Total Expenses | 1,136,879 | 1,067,583 | +6.5% | | Net Income Attributable to Evercore Inc. | 130,197 | 192,252 | -32.3% | | Diluted EPS | $3.09 | $4.43 | -30.2% | Condensed Consolidated Statements of Cash Flows Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity | 2020 ($ thousands) | 2019 ($ thousands) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | 283,195 | 90,955 | | Net Cash Provided by (Used In) Investing Activities | 481,244 | (353,989) | | Net Cash Provided by (Used in) Financing Activities | (248,357) | (218,614) | | Net Increase (Decrease) in Cash | 514,780 | (486,517) | - Financing activities for the first nine months of 2020 included $144.3 million for the purchase of treasury stock and noncontrolling interests, and $81.3 million for dividend payments[30][31] Notes to Unaudited Condensed Consolidated Financial Statements - The company's business is divided into two segments: Investment Banking (advisory, capital markets, research, and trading) and Investment Management (wealth management, institutional asset management, and private equity interests)[34][35] - In Q1 2020, the company completed a review of operations, resulting in an 8% headcount reduction and expected aggregate separation and transition costs of approximately $43.0 million. For the nine months ended Sep 30, 2020, the company recognized $39.6 million in Special Charges, primarily for these realignment costs[67][68][282] - On July 2, 2020, the company sold the trust business of Evercore Casa de Bolsa, S.A. de C.V. (ECB), part of its Investment Management segment, for $1.83 million, resulting in a pre-tax gain of $1.355 million[66] Segment Pre-Tax Income (Nine Months Ended Sep 30) | Segment | 2020 ($ thousands) | 2019 ($ thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Investment Banking | 195,646 | 275,273 | -28.9% | | Investment Management | 12,624 | 12,941 | -2.5% | | Total Pre-Tax Income | 208,270 | 288,214 | -27.7% | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the 32% decline in nine-month net income to higher operating expenses and realignment charges, with flat net revenues from underwriting offsetting advisory declines Results of Operations - For Q3 2020, Net Revenues were flat year-over-year at $402.5 million, as a $48.9 million (278%) increase in Underwriting Fees offset a $50.2 million (16%) decrease in Advisory Fees[267] - For the nine months ended Sep 30, 2020, Net Income Attributable to Evercore Inc. decreased 32% to $130.2 million from $192.3 million in the prior year period, primarily due to higher operating expenses and special charges[278] - Employee Compensation and Benefits as a percentage of Net Revenues increased to 64.7% for the first nine months of 2020, up from 59.6% in the same period of 2019. Including separation benefits, the ratio was 67.5%[284] Business Segments - Investment Banking: Pre-tax income for the first nine months of 2020 fell 29% to $195.6 million. A 195% increase in Underwriting Fees to $181.2 million was offset by an 11% decrease in Advisory Fees to $965.7 million and a 91% increase in 'Other Expenses', which included business realignment costs[291][299] - Investment Management: Pre-tax income for the first nine months of 2020 was relatively flat at $12.6 million. Assets Under Management (AUM) increased to $10.9 billion at September 30, 2020, from $10.7 billion at year-end 2019, driven by market appreciation in the Wealth Management division[304][305] Assets Under Management (AUM) Activity (Nine Months Ended Sep 30, 2020) | AUM Activity ($ millions) | Wealth Management | Institutional Asset Management | Total | | :--- | :--- | :--- | :--- | | Balance at Dec 31, 2019 | 9,058 | 1,634 | 10,692 | | Inflows | 645 | 530 | 1,175 | | Outflows | (569) | (502) | (1,071) | | Market Appreciation (Depreciation) | 383 | (242) | 141 | | Balance at Sep 30, 2020 | 9,517 | 1,420 | 10,937 | Liquidity and Capital Resources - The company's liquidity position strengthened, with Cash, Cash Equivalents and Restricted Cash increasing by $514.8 million during the first nine months of 2020 to reach $1.16 billion[323] - The COVID-19 pandemic has adversely impacted M&A activity, but the company's broad capabilities in underwriting, restructuring, and capital markets advisory have helped offset the weakness[333] - During the first nine months of 2020, the company repurchased 1,886,691 Class A shares for $143.5 million, at an average price of $76.07 per share. This includes 854,134 shares under the public repurchase program and the remainder for employee tax withholding[335][336][337] Quantitative and Qualitative Disclosures About Market Risk The company discloses primary market risks from investments, private equity, and foreign exchange, with a 10% adverse change in investments potentially decreasing pre-tax income by $9.6 million - A hypothetical 10% adverse change in the market value of the company's investments used to hedge its deferred compensation program would result in a decrease in pre-tax income of approximately $9.6 million for Q3 2020[367] - The company faces foreign exchange risk from its operations in Europe, Asia, and Mexico. For the nine months ended September 30, 2020, the net impact of foreign currency fluctuations recorded in Other Comprehensive Income was a loss of $2.9 million[373] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal controls during Q3 - The CEO and CFO concluded that as of the end of the period, the company's disclosure controls and procedures were effective[385] - No changes were made during Q3 2020 that materially affected, or are reasonably likely to materially affect, the company's internal controls over financial reporting[386] Part II. Other Information Legal Proceedings The company is involved in various judicial or regulatory proceedings but believes no pending material proceedings would significantly affect its financial condition - The company states that it is not currently party to any material pending legal proceedings that would have a material effect on its financial results[389] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's equity security repurchases, totaling 1,886,691 shares for $143.5 million during the nine months ended September 30, 2020 Issuer Purchases of Equity Securities (Q3 2020) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Public Program | | :--- | :--- | :--- | :--- | | July 1 - 31, 2020 | 5,275 | $57.53 | 0 | | August 1 - 31, 2020 | 5,229 | $55.30 | 0 | | September 1 - 30, 2020 | 5,372 | $62.19 | 0 | | Total Q3 2020 | 15,876 | $58.37 | 0 | - As of September 30, 2020, the company had authorization to repurchase a maximum of 3,265,267 additional shares under its publicly announced plan[391] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files - The report includes certifications from the Co-CEOs and the CFO pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act of 2002[395][396][397][398]