Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Evercore Inc (EVR, Financial) reported its best second quarter for firm-wide adjusted net revenues on record, with $695 million.
- Adjusted advisory fees increased by 52% year over year, reaching $568 million.
- The company has been involved in significant transactions, including three of the six largest global announced deals year to date.
- Evercore Inc (EVR) has successfully attracted high-quality talent, with six senior individuals joining or committing to join the firm this year.
- The wealth management division set a new quarterly record for assets under management, now exceeding $13 billion.
Negative Points
- Underwriting fees were down 19% from the previous year, reflecting a slower IPO market.
- Non-compensation expenses increased by 18% year over year, driven by higher client-related expenses, travel costs, and consulting fees.
- The adjusted compensation ratio remains high at 66%, indicating ongoing cost pressures.
- The European M&A market is lagging behind the US, although it is showing signs of improvement.
- The company faces economic and geopolitical risks that could impact the timing and trajectory of market recovery.
Q & A Highlights
Q: As part of the market that is 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 some perspective on sponsor engagement around IPOs and whether those could increase from here?
A: Activity levels for sponsors are definitely picking up, with a significant number of bake-offs and real activities in sponsors looking at portfolios. LPs are vocal about wanting returns, and sponsors have significant dry powder. This positive dynamic is building momentum, and IPOs are being considered alongside M&A. Overall, there's a very high activity level in our sponsor coverage group. β John Weinberg, CEO
Q: You mentioned that European M&A is picking up. Can you just dig into what's driving that and how the pipeline in Europe compares to the US? Are they growing at roughly the same pace, or is one stronger than the other?
A: The US market is ahead of the European market, which is finding a positive tone. The US is slightly ahead in terms of real activity, but both markets are positive and building. β Timothy Lalonde, CFO
Q: Tim, I was a little unclear on the comp ratio commentary. 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?
A: 66% is generally similar to what we would expect for the full year. We foresee a strengthening environment and increased revenue, but the exact steepness of the ramp or timing of transaction closings is uncertain. β Timothy Lalonde, CFO
Q: Just a question on some of the non-M&A advisory business. It sounds like there is healthy activity in restructuring and other advisory. How do you expect these businesses to grow and contribute to the overall firm level over the next couple of years?
A: The restructuring business will continue at healthy levels. Non-M&A businesses like private capital advisory and equity capital markets are performing well and expected to grow. However, the merger business remains our biggest business and will continue to ramp up. β John Weinberg, CEO
Q: Given the elevated level of hiring and the way the year is playing out, is the non-comp ratio coming in higher than initially expected for the year? How should we think about leverage in 2025 as it relates to compensation expense?
A: We have made progress on the comp ratio and expect gradual improvement over the near to medium term. The current comp ratio is not our steady state, and we are focused on improving it gradually as we return to normalcy. β Timothy Lalonde, CFO
Q: Could you talk about the velocity of deals and the speed at which they could turn into revenue? Are we starting to see timing from announcement to closings improve?
A: We have robust backlogs, and anecdotal feedback from our bankers indicates that processes are more active and moving more quickly. We expect improved velocity as we move forward, with increased activity levels translating into revenues by the end of the year and into next year. β Timothy Lalonde, CFO
Q: How meaningful of a growth engine could the private capital advisory business be going forward, especially with the potential recovery in sponsor M&A activity?
A: We have made efforts to holistically service sponsors, and the private capital advisory business is strengthening. Sponsors are considering a diverse set of options, and we expect the sponsor business to continue to grow and improve. β John Weinberg, CEO
Q: When you speak to a normalized comp ratio, how are you thinking about that relative to the sub-60% level that you've run at historically?
A: We foresee gradual improvement in the comp ratio over the near to medium term. While it is premature to speculate on returning to sub-60%, we are focused on making meaningful improvements over this year and next. β Timothy Lalonde, CFO
Q: 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?
A: There is some seasonality in non-comp expenses, such as SEC filing fees and training costs. Travel expenses are also normalizing, and professional expenses are correlated with increased revenues. We are exercising significant discipline in managing non-comp costs moving forward. β Timothy Lalonde, CFO
Q: If we drill down and think about just the fixed component of the comp expense, how much would that be up year to date compared to the reported number?
A: The fixed component of comp expense is related to headcount growth, and as revenues grow faster than headcount, the fixed component might grow at a lesser rate than the discretionary component. β Timothy Lalonde, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
