Evercore(EVR) - 2024 Q3 - Quarterly Results

Evercore Q3 2024 Earnings Release Evercore's Q3 2024 earnings release details strong financial performance, strategic business achievements, and robust capital return Financial & Business Highlights Evercore reported strong Q3 2024 financial growth with 28% adjusted net revenue increase and $2.04 adjusted diluted EPS, driven by advisory and talent expansion Q3 & YTD 2024 Financial Performance Summary (Adjusted) | Metric | Q3 2024 | Q3 2023 | YoY Change | YTD 2024 | YTD 2023 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Revenues ($ mm) | $739.5 | $576.1 | +28% | $2,022.1 | $1,659.0 | +22% | | Operating Income ($ mm) | $134.6 | $82.7 | +63% | $339.5 | $261.6 | +30% | | Diluted EPS | $2.04 | $1.30 | +57% | $5.98 | $4.43 | +35% | | Operating Margin | 18.2% | 14.4% | +380 bps | 16.8% | 15.8% | +100 bps | - The Advisory business was active in key investment areas, advising on significant transactions such as TIH's $7.8 billion sale of McGriff Insurance Services and CVC's acquisition of a position in Epicor[1] - In Equity Capital Markets, Evercore served as lead-left bookrunner on Diamondback Energy's $2.6 billion follow-on offering and has been a bookrunner on 5 of the 8 U.S. Tech IPOs year-to-date[1] - The company continued to invest in talent, adding three Investment Banking Senior Managing Directors in its Paris office and securing commitments from three more focused on structured finance, financial institutions, and sponsors[1] - A quarterly dividend of $0.80 per share was declared. Year-to-date, the company returned $528.8 million to shareholders through dividends and the repurchase of 2.2 million shares[1] Leadership Commentary Leadership expressed confidence in Evercore's market position and future success, highlighting strong activity and strategic talent and platform investments - John S. Weinberg, Chairman and CEO, stated, "We believe we are in the midst of a gradual recovery, with strong activity levels across nearly all of our businesses, and that Evercore is positioned for success as the market continues to improve"[3] - Roger C. Altman, Founder and Senior Chairman, commented, "Our continued, aggressive investments in both talent and in broadening our platform are bearing fruit"[3] U.S. GAAP Financial Results U.S. GAAP Q3 2024 net revenues grew 29% to $734.2 million, with operating income surging 59%, driven by strong Advisory and Underwriting fees Net Revenues (U.S. GAAP) U.S. GAAP net revenues saw a 29% increase in Q3 2024, primarily driven by significant growth in Advisory and Underwriting fees U.S. GAAP Net Revenues Breakdown ($ thousands) | Revenue Source | Q3 2024 | Q3 2023 | YoY Change | YTD 2024 | YTD 2023 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Advisory Fees | $592,980 | $467,401 | +27% | $1,591,049 | $1,304,519 | +22% | | Underwriting Fees | $44,132 | $30,814 | +43% | $130,666 | $91,897 | +42% | | Commissions & Related | $54,559 | $48,697 | +12% | $155,996 | $146,810 | +6% | | Asset Mgmt & Admin Fees | $20,555 | $17,304 | +19% | $58,454 | $49,837 | +17% | | Other Revenue, net | $21,996 | $6,004 | +266% | $68,096 | $48,719 | +40% | | Total Net Revenues | $734,222 | $570,220 | +29% | $2,004,261 | $1,641,782 | +22% | - The 27% YoY increase in Q3 Advisory Fees was driven by higher revenue from large transactions and an increase in the number of advisory fees earned[13] - Underwriting Fees grew 43% YoY in Q3, reflecting a greater number of transactions the company participated in during 2024[14] - Other Revenue increased significantly, primarily due to higher performance of the investment funds portfolio (used to hedge deferred cash compensation) and higher interest income[15] Expenses (U.S. GAAP) U.S. GAAP expenses increased 24% in Q3 2024, primarily due to higher employee compensation and non-compensation costs, with an improved compensation ratio U.S. GAAP Expenses Breakdown ($ thousands) | Expense Category | Q3 2024 | Q3 2023 | YoY Change | YTD 2024 | YTD 2023 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Employee Compensation | $488,010 | $391,730 | +25% | $1,334,650 | $1,096,976 | +22% | | Non-Compensation Costs | $116,914 | $101,664 | +15% | $347,950 | $300,439 | +16% | | Special Charges | $7,305 | $0 | N/M | $7,305 | $2,921 | +150% | - The Q3 compensation ratio improved to 66.5% from 68.7% in the prior year, as revenue growth outpaced the increase in compensation accruals, base salaries, and amortization of deferred awards[16] - Non-Compensation Costs rose 15% YoY in Q3, driven by increased travel and related expenses due to higher business activity and headcount, as well as higher professional and license fees[17] - Special Charges of $7.3 million in Q3 2024 relate to the write-off of the remaining carrying value of the company's investment in Luminis[19] Effective Tax Rate (U.S. GAAP) The U.S. GAAP effective tax rate for Q3 2024 increased to 28.4%, with the YTD rate at 17.7% reflecting larger tax benefits from share-based awards - The effective tax rate for Q3 2024 was 28.4%, compared to 25.1% for the same period in 2023[20] - The year-to-date effective tax rate was 17.7% in 2024 versus 21.5% in 2023, reflecting a larger tax benefit ($32.0 million vs. $14.1 million) from the appreciation of the firm's share price upon vesting of employee share-based awards[20] Adjusted (Non-GAAP) Financial Results Adjusted Q3 2024 net revenues increased 28% to $739.5 million, with operating income surging 63%, reflecting strong core operational performance and margin expansion Adjusted Net Revenues Adjusted net revenues for Q3 2024 rose 28%, driven by a 27% increase in Advisory Fees and 14% growth in Asset Management and Administration Fees Adjusted Net Revenues Breakdown ($ thousands) | Revenue Source | Q3 2024 | Q3 2023 | YoY Change | YTD 2024 | YTD 2023 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Advisory Fees | $593,187 | $467,581 | +27% | $1,592,091 | $1,304,913 | +22% | | Underwriting Fees | $44,132 | $30,814 | +43% | $130,666 | $91,897 | +42% | | Asset Mgmt & Admin Fees | $21,420 | $18,788 | +14% | $62,666 | $54,117 | +16% | | Other Revenue, net | $26,237 | $10,188 | +158% | $80,714 | $61,255 | +32% | | Total Net Revenues | $739,535 | $576,068 | +28% | $2,022,133 | $1,658,992 | +22% | - Adjusted Advisory Fees increased 27% YoY in Q3, reflecting higher revenue from large transactions and an increased number of advisory fees[25] - Adjusted Asset Management and Administration Fees grew 14% YoY in Q3, driven by higher fees from Wealth Management clients due to a 23% increase in AUM, partially offset by a decrease in earnings from affiliates following the sale of the interest in ABS[26] Adjusted Expenses Adjusted expenses increased in Q3 2024, with employee compensation up 25% and non-compensation costs up 15%, while the compensation ratio improved to 66.0% Adjusted Expenses Breakdown ($ thousands) | Expense Category | Q3 2024 | Q3 2023 | YoY Change | YTD 2024 | YTD 2023 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Employee Compensation | $488,010 | $391,730 | +25% | $1,334,650 | $1,096,976 | +22% | | Non-Compensation Costs | $116,914 | $101,664 | +15% | $347,950 | $300,439 | +16% | - The adjusted compensation ratio for Q3 2024 improved to 66.0% from 68.0% in the prior year, as higher net revenues more than offset increased incentive compensation, salaries, and amortization[29] - Adjusted Non-Compensation Costs increased 15% YoY in Q3, driven by higher travel, professional fees, and information services costs associated with increased business activity and headcount[30] Adjusted Effective Tax Rate The adjusted effective tax rate for Q3 2024 was 28.9%, with the YTD rate at 18.2% reflecting a larger tax benefit from vested employee share-based awards - The adjusted effective tax rate for Q3 2024 was 28.9%, up from 27.6% in Q3 2023[31] - The year-to-date adjusted effective tax rate was 18.2% in 2024, compared to 22.5% in 2023, reflecting a significantly larger tax benefit ($34.3 million vs. $15.0 million) related to vested employee share-based awards[32] Balance Sheet and Operations Evercore maintained a strong balance sheet with $533.1 million cash and $1.3 billion investment securities, alongside 7% headcount growth and deferred compensation details Liquidity As of September 30, 2024, Evercore maintained strong liquidity with $533.1 million in cash and $1.3 billion in investment securities - As of September 30, 2024, the company held $533.1 million in cash and cash equivalents and $1.3 billion in investment securities and certificates of deposit[33] - Current assets exceeded current liabilities by $1.6 billion, and amounts due for Notes Payable were $375.9 million[33] Headcount Total headcount increased by 7.4% year-over-year to approximately 2,395 employees, including a 6.3% rise in Investment Banking & Equities SMDs Headcount Comparison | Category | As of Sep 30, 2024 | As of Sep 30, 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Total Employees | ~2,395 | ~2,230 | +7.4% | | Total Inv. Banking & Equities SMDs | 186 | 175 | +6.3% | | Investment Banking SMDs | 145 | 137 | +5.8% | Deferred Compensation The company granted 1.8 million RSUs and $143.2 million in deferred cash awards year-to-date, with $753.9 million in unvested RSUs outstanding - Year-to-date, the company granted 1.8 million RSUs with a grant date fair value of $323.0 million and $143.2 million in deferred cash awards[34][35] - As of September 30, 2024, there were 5.1 million unvested RSUs with an aggregate grant date fair value of $753.9 million[35] - The company expects to pay an aggregate of $393.3 million through 2028 related to its deferred cash compensation program[36] Capital Return Evercore declared a $0.80 per share quarterly dividend and repurchased 0.4 million shares in Q3, contributing to $528.8 million returned to shareholders YTD - The Board of Directors declared a quarterly dividend of $0.80 per share, payable on December 13, 2024[39] Share Repurchase Activity | Period | Shares Repurchased (millions) | Average Price per Share | Notes | | :--- | :--- | :--- | :--- | | Q3 2024 | 0.4 | $235.96 | Includes employee net settlement and open market purchases | | YTD 2024 | 2.2 | $189.69 | Includes employee net settlement and open market purchases | Appendix: Financial Statements and Reconciliations The appendix provides detailed U.S. GAAP and Adjusted financial statements, including comprehensive reconciliations and segment-level data, explaining key adjustments Condensed Consolidated Statements of Operations (U.S. GAAP) This section presents the condensed consolidated statements of operations for Q3 2024 and Q3 2023 on a U.S. GAAP basis Q3 2024 Condensed Consolidated Statement of Operations (U.S. GAAP, $ thousands) | Line Item | Q3 2024 | Q3 2023 | | :--- | :--- | :--- | | Net Revenues | $734,222 | $570,220 | | Total Expenses | $612,229 | $493,394 | | Income Before Income Taxes | $123,065 | $78,490 | | Provision for Income Taxes | $34,971 | $19,717 | | Net Income | $88,094 | $58,773 | | Net Income Attributable to Evercore Inc. | $78,393 | $52,148 | | Diluted Earnings Per Share | $1.86 | $1.30 | Reconciliation of U.S. GAAP to Adjusted Results This section details the reconciliation between U.S. GAAP and Adjusted results, outlining key adjustments for LP unit conversion and specific charges - Adjusted results assume the conversion of substantially all Evercore LP Units into Class A shares, which reallocates noncontrolling interest to controlling interest and alters the tax basis[50] - Key adjustments for Q3 2024 include excluding the release of foreign exchange losses from the Luminis redemption, the gain on the sale of interests in ABS, and the special charge for the Luminis investment write-off[50] Q3 2024 GAAP to Adjusted Reconciliation Summary ($ thousands) | Metric | U.S. GAAP | Adjustments | Adjusted | | :--- | :--- | :--- | :--- | | Net Revenues | $734,222 | +$5,313 | $739,535 | | Operating Income | $121,993 | +$12,618 | $134,611 | | Net Income Attributable to Evercore Inc. | $78,393 | +$12,532 | $90,925 | | Diluted EPS | $1.86 | +$0.18 | $2.04 | Segment Results (U.S. GAAP and Adjusted) This section provides segment-level financial data for Investment Banking & Equities and Investment Management on both U.S. GAAP and Adjusted bases Q3 2024 Operating Income by Segment (U.S. GAAP, $ thousands) | Segment | Net Revenues | Operating Income | Operating Margin | | :--- | :--- | :--- | :--- | | Investment Banking & Equities | $712,775 | $116,387 | 16.3% | | Investment Management | $21,447 | $5,606 | 26.1% | Q3 2024 Operating Income by Segment (Adjusted, $ thousands) | Segment | Net Revenues | Operating Income | Operating Margin | | :--- | :--- | :--- | :--- | | Investment Banking & Equities | $717,838 | $128,755 | 17.9% | | Investment Management | $21,697 | $5,856 | 27.0% |