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Evercore Reports Third Quarter 2017 Results; Quarterly Dividend Raised To $0.40 Per Share
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NEW YORK, Oct. 26, 2017 /PRNewswire/ -- 

Evercore (PRNewsFoto/Evercore)

 


Third Quarter 2017 Results


2017 Year to Date Results


U.S. GAAP


Adjusted


U.S. GAAP


Adjusted



vs.

Q3 2016



vs.

Q3 2016



vs.

YTD 2016



vs.

YTD 2016

Net Revenues ($ millions)

$

406.6


5%


$

402.9


5%


$

1,164.3


17%


$

1,160.3


17%

Operating Income ($ millions)

$

87.1


2%


$

103.6


(2%)


$

244.7


49%


$

292.3


16%

Net Income Attributable to

Evercore Inc. ($ millions)

$

45.9


32%


$

61.0


(2%)


$

144.9


126%


$

198.4


33%

Diluted Earnings Per Share

$

1.04


32%


$

1.22


—%


$

3.23


123%


$

3.90


35%

Operating Margin

21.4

%

(61) bps


25.7

%

(196) bps


21.0

%

454 bps


25.2

%

(27) bps

 



Business and Financial

 Highlights

- Record Net Revenues, Net Income Attributable to Evercore Inc. and Earnings Per Share for the first nine months of 2017, on both a U.S. GAAP and an Adjusted basis

- Record third quarter Net Revenues on both a U.S. GAAP and an Adjusted basis. Third quarter decline in Net Income Attributable to Evercore Inc. driven by higher compensation costs associated with talent additions. Adjusted Q3 2017 Earnings Per Share equal to record result reported in Q3 2016

- U.S. GAAP and Adjusted Operating Margins sustained above 20% and 25%, respectively, for the quarter and year to date results

- Advisory Revenues for the first nine months increased 26% versus the prior year, on a U.S. GAAP basis and 27% versus the prior year, on an Adjusted basis (for the third quarter Advisory Revenues increased 8% on a U.S. GAAP and Adjusted basis)

- 181 advisory fees in excess of $1 million for the first nine months (vs. 164 last year) and 67 advisory fees in excess of $1 million for the third quarter (vs. 65 last year)

- Advised the Scripps Family in connection with the ~$15 billion sale of Scripps Networks Interactive to Discovery Communications

- Evercore ISI again ranked #3 in the Institutional Investor All-America Equity Research team rankings

- Global Investment Banking team profiled in Euromoney for "making it into the major leagues", following on Euromoney's recognition of Evercore as the "world's best independent investment bank" earlier this year





Strategic

Transaction

- Closed the sale of the Institutional Trust and Independent Fiduciary business of Evercore Trust Company in mid October





Talent

- Michael J. Paliotta to join Evercore ISI as Chief Executive Officer of Evercore's Equities Business

- Anthony DiClemente to join Evercore ISI covering Internet stocks

- Evercore ranked #2 in Vault.com's 2018 Vault Banking 50, their annual rankings of the best investment banking firms for which to work





Capital Return

- Board approved share repurchase authorization of $750 million and increased the quarterly dividend by 18% to $0.40 per share, the tenth sequential year of growth

- $340.6 million returned to shareholders for the first nine months through dividends and repurchases, including repurchases of 3.9 million shares/units at an average price of $74.99



 

Evercore Inc., formerly known as Evercore Partners Inc., (NYSE: EVR) today announced its results for the third quarter ended September 30, 2017.

LEADERSHIP COMMENTARY

Ralph Schlosstein, President and Chief Executive Officer

"We are pleased with our third quarter and year to date results which reflect record revenues for a third quarter and record revenues, earnings and earnings per share for the year to date period. This is our fifth consecutive period of year-over-year growth in Adjusted earnings per share for a nine month period. These results are driven by the steady execution of our strategy of continually investing in and developing world class talent and focusing on businesses and services in which we have a competitive advantage."

"Our operating metrics remain strong. In Advisory, we continue to be the #1 ranked independent M&A advisor in the U.S. league tables for announced transactions, both on a year to date and a trailing twelve months basis, and the #2 advisor among independent firms in the Global league tables on a trailing twelve months basis. Our market share has grown strongly again this year. Our clients in the equities market recognized our strong research capabilities as we again ranked #3 in the Institutional Investor All-America Equity Research team rankings and #2 on a weighted basis. Importantly, we remain the highest ranked independent research firm in the U.S. In Investment Management, we continued to focus on building our wealth management business, and completed the previously announced sale of our fiduciary services business in mid October," said Ralph Schlosstein, President and Chief Executive Officer.

"We continued to deliver strong returns to our shareholders as Adjusted Operating Margins for the quarter and the first nine months of the year exceeded 25%. Our Board of Directors increased our quarterly dividend to $0.40 per share, the tenth successive year of growth in our annual dividend, and approved an increase in the share repurchase authorization to $750 million."

John S. Weinberg, Executive Chairman

"Our Advisory businesses continued to drive our results in the third quarter with all of our teams contributing. Our M&A pipeline remains strong and our broader advisory capabilities continue to reach more clients," said John S. Weinberg, Executive Chairman. "We anticipate 2017 will be another strong recruiting year adding at least nine new Senior Managing Directors - six in Advisory and three in Equities. These additions complement the four promotions to Senior Managing Director in our Advisory business at the beginning of the year."

Roger C. Altman, Founder and Senior Chairman

"Market conditions continue to be favorable for M&A broadly, supporting healthy deal activity both in the U.S. and throughout the world," said Roger C. Altman, Founder and Senior Chairman. "In fact, looking at global trends, volumes are now up year to date, with each of the major regions, U.S., Europe and Asia, contributing."

Selected Financial Data - U.S. GAAP Results:

The following is a discussion of Evercore's results on a U.S. GAAP basis.

 


U.S. GAAP


Three Months Ended


Nine Months Ended


September 30, 2017


September 30, 2016


%

Change


September 30, 2017


September 30, 2016


%

Change


(dollars in thousands, except per share data)

Net Revenues

$

406,601



$

386,314



5

%


$

1,164,318



$

994,683



17

%

Operating Income (1)

$

87,070



$

85,085



2

%


$

244,665



$

163,815



49

%

Net Income Attributable to Evercore Inc.

$

45,911



$

34,695



32

%


$

144,866



$

64,100



126

%

Diluted Earnings Per Share

$

1.04



$

0.79



32

%


$

3.23



$

1.45



123

%

Compensation Ratio

60.7

%


60.0

%




59.2

%


63.6

%



Operating Margin

21.4

%


22.0

%




21.0

%


16.5

%



Effective Tax Rate

32.4

%


45.2

%




27.8

%


47.3

%



Trailing Twelve Month Compensation Ratio

59.4

%


63.3

%





















(1) Operating Income for the nine months ended September 30, 2017 includes Special Charges of $21.5 million recognized in the Investment Banking and Investment Management segments in Q2 2017.

 

Net Revenues

For the three months ended September 30, 2017, Net Revenues of $406.6 million increased 5% versus the three months ended September 30, 2016, driven by an increase in Investment Banking revenues, primarily due to an increase in Advisory fees. For the nine months ended September 30, 2017, Net Revenues of $1.2 billion increased 17% versus the nine months ended September 30, 2016, driven by an increase in Investment Banking revenues, primarily due to an increase in Advisory fees. See the Business Line Reporting - Discussion of U.S. GAAP Results below for further information.

Compensation Ratio

For the three months ended September 30, 2017, the compensation ratio was 60.7% versus 60.0% for the three months ended September 30, 2016, driven by increased compensation costs in the Investment Banking business, principally due to costs associated with new senior hires, as well as the increase in compensation costs in Evercore ISI following our review of the outlook for the business during the first quarter of 2017. For the nine months ended September 30, 2017, the compensation ratio was 59.2% versus 63.6% for the nine months ended September 30, 2016, driven by higher revenues in our Investment Banking business as well as the decrease in costs associated with transaction consideration during the first quarter of 2017. See the Business Line Reporting - Discussion of U.S. GAAP Results below for further information.

Operating Income

For the three months ended September 30, 2017, Operating Income of $87.1 million increased 2% versus the three months ended September 30, 2016, driven by an increase in Net Revenues, partially offset by increased compensation and non-compensation costs in the Investment Banking business. For the nine months ended September 30, 2017, Operating Income of $244.7 million increased 49% versus the nine months ended September 30, 2016, driven by an increase in Net Revenues, partially offset by increased compensation and non-compensation costs in the Investment Banking business. See the Business Line Reporting - Discussion of U.S. GAAP Results below for further information.

Effective Tax Rate

For the three months ended September 30, 2017, the effective tax rate was 32.4% versus 45.2% for the three months ended September 30, 2016. For the nine months ended September 30, 2017, the effective tax rate was 27.8% versus 47.3% for the nine months ended September 30, 2016; the decrease was primarily driven by the application of a new accounting standard, effective January 1, 2017, related to share-based compensation, which requires that the tax deduction associated with the appreciation in the Firm's share price upon vesting of employee share-based awards above the original grant price be reflected in income tax expense. The effective tax rate is also impacted by the non-deductible treatment of compensation associated with Evercore LP Units/Interests.

Net Income and Earnings Per Share

For the three months ended September 30, 2017, Net Income Attributable to Evercore Inc. and Earnings Per Share of $45.9 million and $1.04, respectively, each increased 32% versus the three months ended September 30, 2016, principally driven by an increase in Net Revenues in the Investment Banking business and a decrease in the effective tax rate.

For the nine months ended September 30, 2017, Net Income Attributable to Evercore Inc. and Earnings Per Share of $144.9 million and $3.23, respectively, increased 126% and 123%, respectively, versus the nine months ended September 30, 2016, principally driven by an increase in Net Revenues in the Investment Banking business and a decrease in the effective tax rate.

Selected Financial Data - Adjusted Results:

The following is a discussion of Evercore's results on an Adjusted basis. See pages 7 and A-2 to A-13 for further information and reconciliations of these non-GAAP metrics to our U.S. GAAP results.

 


Adjusted


Three Months Ended


Nine Months Ended


September 30, 2017


September 30, 2016


%

Change


September 30, 2017


September 30, 2016


%

Change


(dollars in thousands, except per share data)

Net Revenues

$

402,857



$

383,473



5

%


$

1,160,300



$

988,948



17

%

Operating Income

$

103,625



$

106,169



(2%)



$

292,305



$

251,819



16

%

Net Income Attributable to Evercore Inc.

$

60,972



$

62,423



(2%)



$

198,373



$

148,601



33

%

Diluted Earnings Per Share

$

1.22



$

1.22



%


$

3.90



$

2.88



35

%

Compensation Ratio

59.0

%


56.8

%




59.0

%


57.3

%



Operating Margin

25.7

%


27.7

%




25.2

%


25.5

%



Effective Tax Rate

37.0

%


38.8

%




28.7

%


38.1

%



Trailing Twelve Month Compensation Ratio

58.5

%


57.7

%









 

Adjusted Net Revenues

For the three months ended September 30, 2017, Adjusted Net Revenues of $402.9 million increased 5% versus the three months ended September 30, 2016, driven by an increase in Investment Banking revenues, primarily due to an increase in Advisory fees. For the nine months ended September 30, 2017, Adjusted Net Revenues of $1.2 billion increased 17% versus the nine months ended September 30, 2016, driven by an increase in Investment Banking Revenues, primarily due to an increase in Advisory fees. See the Business Line Reporting - Discussion of Adjusted Results below for further information.

Adjusted Compensation Ratio

For the three months ended September 30, 2017, the Adjusted compensation ratio was 59.0%, versus 56.8% for the three months ended September 30, 2016, driven by increased compensation costs in the Investment Banking business, principally due to costs associated with new senior hires, as well as the increase in compensation costs in Evercore ISI following our review of the outlook for the business during the first quarter of 2017. For the nine months ended September 30, 2017, the Adjusted compensation ratio was 59.0% versus 57.3% for the nine months ended September 30, 2016, driven by increased compensation costs in the Investment Banking business, principally due to costs associated with new senior hires, as well as the increase in compensation costs in Evercore ISI following our review of the outlook for the business during the first quarter of 2017. The Adjusted compensation ratio reflects the cost associated with compensation awarded to employees based on their performance consistent with market rates, and the cost associated with the addition of senior professionals. These new hire costs reflect both the number and seniority of the personnel we recruit and have the potential to change the compensation ratio in any period. See the Business Line Reporting - Discussion of Adjusted Results below for further information.

Adjusted Operating Income

For the three months ended September 30, 2017, Adjusted Operating Income of $103.6 million decreased 2% versus the three months ended September 30, 2016, driven by an increase in compensation and non-compensation costs in the Investment Banking business. For the nine months ended September 30, 2017, Adjusted Operating Income of $292.3 million increased 16% versus the nine months ended September 30, 2016, driven by an increase in Net Revenues, partially offset by increased compensation and non-compensation costs in the Investment Banking business. See the Business Line Reporting - Discussion of Adjusted Results below for further information.

Adjusted Effective Tax Rate

For the three months ended September 30, 2017, the effective tax rate was 37.0% versus 38.8% for the three months ended September 30, 2016. For the nine months ended September 30, 2017, the effective tax rate was 28.7% versus 38.1% for the nine months ended September 30, 2016; the decrease was primarily driven by the application of a new accounting standard, effective January 1, 2017, related to share-based compensation, which requires that the tax deduction associated with the appreciation in the Firm's share price upon vesting of employee share-based awards above the original grant price be reflected in income tax expense. Changes in the Adjusted effective tax rate are also driven by the level of earnings in businesses with minority owners.

Adjusted Net Income and Earnings Per Share

For the three months ended September 30, 2017, Adjusted Net Income Attributable to Evercore Inc. and Adjusted Earnings Per Share of  $61.0 million and $1.22, respectively, decreased 2% and was flat, respectively, versus the three months ended September 30, 2016, driven by an increase in Net Revenues in the Investment Banking business, offset by increased compensation and non-compensation costs.

For the nine months ended September 30, 2017, Adjusted Net Income Attributable to Evercore Inc. and Adjusted Earnings Per Share of $198.4 million and $3.90, respectively, increased 33% and 35%, respectively, versus the nine months ended September 30, 2016, principally driven by an increase in Net Revenues in the Investment Banking business and a decrease in the effective tax rate.

Adjusted Net Income Attributable to Evercore Inc. and Adjusted Earnings Per Share for the nine months ended September 30, 2017 was $172.3 million and $3.40, respectively, excluding the effects of the change in accounting for income taxes, up 16% and 18%, respectively, versus the nine months ended September 30, 2016.

Evercore's quarterly results may fluctuate significantly due to the timing and amount of transaction fees earned, as well as other factors. Accordingly, financial results in any particular quarter may not be representative of future results over a longer period of time.

Non-GAAP Measures:

Throughout this release certain information is presented on an Adjusted basis, which is a non-GAAP measure. Adjusted results begin with information prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), and then those results are adjusted to exclude certain items and reflect the conversion of vested and certain unvested Evercore LP Units and Interests into Class A shares. Evercore believes that the disclosed Adjusted measures and any adjustments thereto, when presented in conjunction with comparable U.S. GAAP measures, are useful to investors to compare Evercore's results across several periods and facilitate an understanding of Evercore's operating results. Evercore uses these measures to evaluate its operating performance, as well as the performance of individual employees. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP.

Evercore's Adjusted Net Income Attributable to Evercore Inc. for the three and nine months ended September 30, 2017 was higher than U.S. GAAP as a result of the exclusion of expenses associated with awards granted in conjunction with certain of the Company's acquisitions, and certain other business acquisition-related charges and Special Charges.

Acquisition-related compensation charges for 2017 include expenses and the reversal of expenses associated with performance-based awards granted in conjunction with the Company's acquisition of ISI. The amount of expense or the reversal of expense for the Class G and H LP Interests is based on the determination if it is probable that Evercore ISI will achieve certain earnings and margin targets in future periods. Acquisition-related charges for 2017 also include professional fees incurred and amortization of intangible assets. Special Charges for 2017 relate to a charge for the impairment of goodwill in the Institutional Asset Management reporting unit and a charge for the impairment of our investment in G5 | Evercore during the second quarter.

In addition, for Adjusted purposes, client related expenses have been presented as a reduction from Revenues and Non-compensation costs.

Evercore's Adjusted Diluted Shares Outstanding for the three and nine months ended September 30, 2017 were higher than U.S. GAAP as a result of the inclusion of Evercore LP Units, as well as the assumed vesting of certain Evercore LP Units/Interests and unvested restricted stock units granted to ISI employees.

This release also presents changes in Adjusted Net Revenues, Adjusted Investment Management Revenues and Adjusted Investment Management Expenses from the prior-year periods assuming that the restructuring of certain Investment Management affiliates occurred on December 31, 2015. This includes the transfer of ownership of the Mexican Private Equity Business that occurred on September 30, 2016. Evercore believes this is useful additional information for investors because it improves the comparability of period-over-period results and aligns with management's view of business performance.

Further details of these adjustments, as well as an explanation of similar amounts for the three and nine months ended September 30, 2016 are included in Annex I, pages A-2 to A-13. 

Business Line Reporting - Discussion of U.S. GAAP Results

The following is a discussion of Evercore's segment results on a U.S. GAAP basis.

Investment Banking

 


U.S. GAAP


Three Months Ended


Nine Months Ended


September 30, 2017


September 30, 2016


%

Change


September 30, 2017


September 30, 2016


%

Change


(dollars in thousands)

Net Revenues:












Investment Banking Revenue

$

388,834



$

368,434



6

%


$

1,118,303



$

936,234



19

%

Other Revenue, net

(535)



200



NM


(2,825)



270



NM

Net Revenues

388,299



368,634



5

%


1,115,478



936,504



19

%













Expenses:












Employee Compensation and Benefits

236,564



221,380



7

%


660,233



600,014



10

%

Non-compensation Costs

68,448



64,708



6

%


196,603



183,686



7

%

Special Charges





NM


14,400





NM

Total Expenses

305,012



286,088



7

%


871,236



783,700



11

%













Operating Income

$

83,287



$

82,546



1

%


$

244,242



$

152,804



60

%













Compensation Ratio

60.9

%


60.1

%




59.2

%


64.1

%



Non-compensation Ratio

17.6

%


17.6

%




17.6

%


19.6

%



Operating Margin

21.4

%


22.4

%




21.9

%


16.3

%



 

Revenues

 


U.S. GAAP


Three Months Ended


Nine Months Ended


September 30, 2017


September 30, 2016


%

Change


September 30, 2017


September 30, 2016


%

Change


(dollars in thousands)

Advisory Fees

$

332,753



$

306,993



8

%


$

939,841



$

743,853



26

%

Commissions and Related Fees

45,047



53,512



(16%)



148,292



167,908



(12%)


Underwriting Fees

11,034



7,929



39

%


30,170



24,473



23

%

Investment Banking Revenue

$

388,834



$

368,434



6

%


$

1,118,303



$

936,234



19

%













Advisory Client Transactions

210



211



%


429



418



3

%

Advisory Fees in Excess of $1 million

67



65



3

%


181



164



10

%

 

During the three months ended September 30, 2017, Advisory Fees increased 8% versus the three months ended September 30, 2016, driven primarily by the number and composition of fees in excess of $1 million, taking into account the size and type of transaction and the nature of services provided. Commissions and Related Fees for the three months ended September 30, 2017 decreased 16% from the third quarter of last year as institutional clients are adjusting the level and composition of trading volumes in light of the broad movement to passive investing strategies and lower levels of volatility, impacting both payments for research and execution services. Underwriting Fees of $11.0 million for the three months ended September 30, 2017 increased 39% versus the third quarter of last year, as we participated in 13 underwriting transactions (vs. 12 in Q3 2016); 8 as a bookrunner (vs. 4 in Q3 2016).

During the nine months ended September 30, 2017, Advisory Fees grew 26% versus the nine months ended September 30, 2016, driven primarily by the number and composition of fees in excess of $1 million, taking into account the size and type of transaction and the nature of services provided. Commissions and Related Fees for the nine months ended September 30, 2017 decreased 12% from last year as institutional clients are adjusting the level and composition of trading volumes in light of the broad movement to passive investing strategies and lower levels of volatility, impacting both payments for research and execution services. Underwriting Fees of $30.2 million for the nine months ended September 30, 2017 increased 23% from last year, as we participated in 39 underwriting transactions (vs. 30 in 2016); 19 as a bookrunner (vs. 12 in 2016).

Expenses

Compensation costs of $236.6 million for the three months ended September 30, 2017 were up 7% compared to the third quarter of last year, driven by higher compensation costs as a result of increased headcount in the business, including new senior hires, as well as higher levels of revenue earned and the increase in compensation costs in Evercore ISI following our review of the outlook for the business during the first quarter of 2017. Compensation costs of $660.2 million for the nine months ended September 30, 2017 were up 10% compared to last year, driven by higher compensation costs as a result of increased headcount in the business, including new senior hires, as well as higher levels of revenue earned and the increase in compensation costs in Evercore ISI following our review of the outlook for the business during the first quarter of 2017. This resulted in a compensation ratio of 60.9% and 59.2% for the three and nine months ended September 30, 2017, respectively, compared to 60.1% and 64.1% for the three and nine months ended September 30, 2016, respectively. Compensation costs include $4.8 million and $15.3 million of expense for the three and nine months ended September 30, 2017, respectively, related to the Class E LP Units and $2.0 million and ($12.9) million of expense for the three and nine months ended September 30, 2017, respectively, related to the Class G and H LP Interests issued in conjunction with the acquisition of ISI. The Company incurred an expense reversal in the first quarter of 2017 following a review of the outlook for the Evercore ISI business where the Company concluded that it would be appropriate to lower the level of earnings and margins that it considers probable of achievement for future periods. Compensation costs included $13.8 million and $66.1 million of expense for the three and nine months ended September 30, 2016, respectively, related to the Class E, G and H LP Units/Interests issued in conjunction with the acquisition of ISI based on the probability assumptions in place at that time.

As discussed in "Capital Transactions" below, in July 2017, the Board of Directors approved the exchange of all of the outstanding Class H LP Interests into 1.9 million Class J LP Units, which will continue to vest based on the completion of service through February 15, 2020. This modification did not result in any further expense and the remaining expense as of the modification date will be recorded ratably from the date of modification to the final vesting date. Compensation costs include $2.3 million of expense for the three and nine months ended September 30, 2017 related to the Class J LP Units.

Assuming the maximum thresholds for the Class G LP Interests were considered probable of achievement at September 30, 2017, an additional $16.3 million of expense would have been incurred in the third quarter of 2017 and the remaining expense to be accrued over the future vesting period extending from October 1, 2017 to February 15, 2018 would be $2.5 million. In that circumstance, the total number of Class G LP Interests that would vest and become exchangeable to Class E LP Units would be 366,000.

Non-compensation costs for the three months ended September 30, 2017 were $68.4 million, up 6% compared to the third quarter of last year. The increase in non-compensation costs versus last year reflects the addition of personnel within most parts of the business. The ratio of non-compensation costs to net revenue for the three months ended September 30, 2017 was 17.6%, flat compared to the third quarter of last year. Non-compensation costs for the nine months ended September 30, 2017 were $196.6 million, up 7% from last year. The increase in non-compensation costs versus last year reflects the addition of personnel within most parts of the business. The ratio of non-compensation costs to net revenue for the nine months ended September 30, 2017 was 17.6%, compared to 19.6% last year, driven by increased net revenues.

Special Charges for the nine months ended September 30, 2017 reflect an impairment charge of $14.4 million incurred in the second quarter of 2017 related to the Company's equity method investment in G5 | Evercore, resulting from the sustained negative economic and political climate in Brazil.

Investment Management

 


U.S. GAAP


Three Months Ended


Nine Months Ended


September 30, 2017


September 30, 2016


%

Change


September 30, 2017


September 30, 2016


%

Change


(dollars in thousands)

Net Revenues:












Investment Management Revenue

$

18,236



$

17,158



6

%


$

48,464



$

57,842



(16%)


Other Revenue, net

66



522



(87%)



376



337



12

%

Net Revenues

18,302



17,680



4

%


48,840



58,179



(16%)














Expenses:












Employee Compensation and Benefits

10,208



10,330



(1%)



28,953



32,945



(12%)


Non-compensation costs

4,311



4,811



(10%)



12,357



14,223



(13%)


Special Charges





NM


7,107





NM

Total Expenses

14,519



15,141



(4%)



48,417



47,168



3

%













Operating Income

$

3,783



$

2,539



49

%


$

423



$

11,011



(96%)














Compensation Ratio

55.8

%


58.4

%




59.3

%


56.6

%



Non-compensation Ratio

23.6

%


27.2

%




25.3

%


24.4

%



Operating Margin

20.7

%


14.4

%




0.9

%


18.9

%















Assets Under Management (in millions) (1)

$

8,961



$

8,355



7

%


$

8,961



$

8,355



7

%













(1) Assets Under Management reflect end of period amounts from our consolidated subsidiaries.

 

Revenues

 


U.S. GAAP


Three Months Ended


Nine Months Ended


September 30, 2017


September 30, 2016


%

Change


September 30, 2017


September 30, 2016


%

Change


(dollars in thousands)

Investment Advisory and Management Fees:












      Wealth Management

$

10,232



$

9,311



10

%


$

29,736



$

27,180



9

%

      Institutional Asset Management

6,052



6,105



(1%)



17,301



17,690



(2%)


      Private Equity



760



NM




3,457



NM

Total Investment Advisory and Management Fees

16,284



16,176



1

%


47,037



48,327



(3%)














Realized and Unrealized Gains (Losses):












      Institutional Asset Management

744



811



(8%)



2,412



3,213



(25%)


      Private Equity

1,208



171



606

%


(985)



6,302



NM

Total Realized and Unrealized Gains

1,952



982



99

%


1,427



9,515



(85%)














Investment Management Revenue

$

18,236



$

17,158



6

%


$

48,464



$

57,842



(16%)


 

Investment Advisory and Management Fees of $16.3 million for the three months ended September 30, 2017 increased 1% compared to the third quarter of last year, driven primarily by higher fees in Wealth Management in the third quarter of 2017.

Realized and Unrealized Gains of $2.0 million for the three months ended September 30, 2017 increased relative to the third quarter of last year, driven principally by higher gains in Private Equity.

Investment Advisory and Management Fees of $47.0 million for the nine months ended September 30, 2017 decreased 3% compared to the first nine months of last year, driven primarily by a lack of fees in Private Equity for the first nine months of 2017, partially offset by higher fees in Wealth Management in the first nine months of 2017.

Realized and Unrealized Gains of $1.4 million for the nine months ended September 30, 2017 decreased relative to the first nine months of last year, driven by losses related to the wind-down of a Private Equity fund in Mexico in 2017.

On September 30, 2016, the Company completed the transfer of ownership and control of the Mexican Private Equity Business to a newly formed entity, Glisco Partners Inc., which is controlled by the principals of the business.

Expenses

Investment Management's expenses for the three months ended September 30, 2017 were $14.5 million, a decrease of 4% compared to the third quarter of last year principally as a result of a reduction in non-compensation costs. Investment Management expenses for the nine months ended September 30, 2017 were $48.4 million, up 3% from last year due to special charges recorded during the second quarter of 2017.

Special Charges for the nine months ended September 30, 2017 reflect an impairment charge of $7.1 million incurred in the second quarter of 2017 related to goodwill in the Company's Institutional Asset Management reporting unit where the fair value has been reduced relative to the remaining goodwill as a result of the pending sale of the Institutional Trust and Independent Fiduciary business of Evercore Trust Company.

 

Business Line Reporting - Discussion of Adjusted Results

The following is a discussion of Evercore's segment results on an Adjusted basis. See pages 7 and A-2 to A-13 for further information and reconciliations of these metrics to our U.S. GAAP results.

Investment Banking

 


Adjusted


Three Months Ended


Nine Months Ended


September 30, 2017


September 30, 2016


%

Change


September 30, 2017


September 30, 2016


%

Change


(dollars in thousands)

Net Revenues:












Investment Banking Revenue

$

380,867



$

362,374



5

%


$

1,101,393



$

919,730



20

%

Other Revenue, net

1,953



2,792



(30%)



4,669



7,216



(35%)


Net Revenues

382,820



365,166



5

%


1,106,062



926,946



19

%













Expenses:












Employee Compensation and Benefits

227,315



207,521



10

%


655,253



533,658



23

%

Non-compensation Costs

58,057



55,197



5

%


172,521



157,778



9

%

Total Expenses

285,372



262,718



9

%


827,774



691,436



20

%













Operating Income

$

97,448



$

102,448



(5%)



$

278,288



$

235,510



18

%













Compensation Ratio

59.4

%


56.8

%




59.2

%


57.6

%



Non-compensation Ratio

15.2

%


15.1

%




15.6

%


17.0

%



Operating Margin

25.5

%


28.1

%




25.2

%


25.4

%



 

Adjusted Revenues

 


Adjusted


Three Months Ended


Nine Months Ended


September 30, 2017


September 30, 2016


%

Change


September 30, 2017


September 30, 2016


%

Change


(dollars in thousands)

Advisory Fees (1)

$

324,786



$

300,933



8

%


$

922,931



$

727,349



27

%

Commissions and Related Fees

45,047



53,512



(16%)



148,292



167,908



(12%)


Underwriting Fees

11,034



7,929



39

%


30,170



24,473



23

%

Investment Banking Revenue

$

380,867



$

362,374



5

%


$

1,101,393



$

919,730



20

%













Advisory Client Transactions

210



211



%


429



418



3

%

Advisory Fees in Excess of $1 million

67



65



3

%


181



164



10

%













(1) Advisory Fees on an Adjusted basis reflect the reduction of revenues for client-related expenses and provisions for uncollected receivables of $7,892 and $5,948 for the three months ended September 30, 2017 and 2016, respectively, and $16,799 and $16,410 for the nine months ended September 30, 2017 and 2016, respectively, as well as the reclassification of earnings (losses) related to our equity investment in G5 | Evercore - Advisory of ($129) and ($112) for the three months ended September 30, 2017 and 2016, respectively, and ($222) and ($94) for the nine months ended September 30, 2017 and 2016, respectively, and the reclassification of earnings related to our equity investment in Luminis of $54 and $111 for the three and nine months ended September 30, 2017, respectively.

 

During the three months ended September 30, 2017, Advisory Fees increased 8% versus the three months ended September 30, 2016, driven primarily by the number and composition of fees in excess of $1 million, taking into account the size and type of transaction and the nature of services provided. Commissions and Related Fees for the three months ended September 30, 2017 decreased 16% from the third quarter of last year as institutional clients are adjusting the level and composition of trading volumes in light of the broad movement to passive investing strategies and lower levels of volatility, impacting both payments for research and execution services. Underwriting Fees of $11.0 million for the three months ended September 30, 2017 increased 39% versus the third quarter of last year, as we participated in 13 underwriting transactions (vs. 12 in Q3 2016); 8 as a bookrunner (vs. 4 in Q3 2016).

During the nine months ended September 30, 2017, Advisory fees grew 27% year over year, driven primarily by the number and composition of fees in excess of $1 million, taking into account the size and type of transaction and the nature of services provided. Commissions and Related Fees for the nine months ended September 30, 2017 decreased 12% from last year as institutional clients are adjusting the level and composition of trading volumes in light of the broad movement to passive investing strategies and lower levels of volatility, impacting both payments for research and execution services. Underwriting Fees of $30.2 million for the nine months ended September 30, 2017 increased 23% from last year, as we participated in 39 underwriting transactions (vs. 30 in 2016); 19 as a bookrunner (vs. 12 in 2016).

Adjusted Expenses

Adjusted compensation costs were $227.3 million for the three months ended September 30, 2017, an increase of 10% from the third quarter of last year. Evercore's Investment Banking Adjusted compensation ratio was 59.4% for the three months ended September 30, 2017, up versus the Adjusted compensation ratio reported for the third quarter of last year of 56.8%, driven by higher compensation costs as a result of increased headcount in the business, including new senior hires, as well as higher levels of revenue earned and the increase in compensation costs in Evercore ISI following our review of the outlook for the business during the first quarter of 2017. Adjusted compensation costs for the nine months ended September 30, 2017 were $655.3 million, an increase of 23% from last year, and the Adjusted compensation ratio was 59.2% for the nine months ended September 30, 2017 compared to an Adjusted compensation ratio of 57.6% for the first nine months of 2016, driven by higher compensation costs as a result of increased headcount in the business, including new senior hires, as well as higher levels of revenue earned and the increase in compensation costs in Evercore ISI following our review of the outlook for the business during the first quarter of 2017.

Adjusted non-compensation costs for the three months ended September 30, 2017 were $58.1 million, up 5% from the third quarter of last year. The increase in Adjusted non-compensation costs versus last year reflects the addition of personnel within most parts of the business. The ratio of Adjusted non-compensation costs to Adjusted net revenue for the three months ended September 30, 2017 was 15.2%, compared to 15.1% for the third quarter of last year. Adjusted non-compensation costs for the nine months ended September 30, 2017 were $172.5 million, up 9% from last year due to the addition of personnel within most parts of the business. The ratio of Adjusted non-compensation costs to net revenue for the nine months ended September 30, 2017 was 15.6%, compared to 17.0% last year, driven by increased net revenues.

Investment Management

 


Adjusted


Three Months Ended


Nine Months Ended


September 30, 2017


September 30, 2016


%

Change


September 30, 2017


September 30, 2016


%

Change


(dollars in thousands)

Net Revenues:












Investment Management Revenue

$

19,971



$

18,191



10

%


$

53,862



$

61,401



(12%)


Other Revenue, net

66



116



(43%)



376



601



(37%)


Net Revenues

20,037



18,307



9

%


54,238



62,002



(13%)














Expenses:












Employee Compensation and Benefits

10,208



10,330



(1%)



28,953



32,945



(12%)


Non-compensation Costs

3,652



4,256



(14%)



11,268



12,748



(12%)


Total Expenses

13,860



14,586



(5%)



40,221



45,693



(12%)














Operating Income

$

6,177



$

3,721



66

%


$

14,017



$

16,309



(14%)














Compensation Ratio

50.9

%


56.4

%




53.4

%


53.1

%



Non-compensation Ratio

18.2

%


23.2

%




20.8

%


20.6

%



Operating Margin

30.8

%


20.3

%




25.8

%


26.3

%















Assets Under Management (in millions) (1)

$

8,961



$

8,355



7

%


$

8,961



$

8,355



7

%













(1) Assets Under Management reflect end of period amounts from our consolidated subsidiaries.

 

Adjusted Revenues

 


Adjusted


Three Months Ended


Nine Months Ended


September 30, 2017


September 30, 2016


%

Change


September 30, 2017


September 30, 2016


%

Change


(dollars in thousands)

Investment Advisory and Management Fees:












      Wealth Management

$

10,232



$

9,311



10

%


$

29,736



$

27,180



9

%

      Institutional Asset Management (1)

5,885



5,848



1

%


17,081



17,026



%

      Private Equity



760



NM




3,457



NM

Total Investment Advisory and Management Fees

16,117



15,919



1

%


46,817



47,663



(2%)














Realized and Unrealized Gains (Losses):












      Institutional Asset Management

744



811



(8%)



2,412



3,213



(25%)


      Private Equity

1,208



171



606

%


(985)



6,302



NM

Total Realized and Unrealized Gains

1,952



982



99

%


1,427



9,515



(85%)














Equity in Earnings of Affiliates (2)

1,902



1,290



47

%


5,618



4,223



33

%

Investment Management Revenue

$

19,971



$

18,191



10

%


$

53,862



$

61,401



(12%)














(1) Management fees from Institutional Asset Management on an Adjusted basis reflect the reduction of revenues for client-related expenses of $167 and $257 for the three months ended September 30, 2017 and 2016, respectively, and $220 and $664 for the nine months ended September 30, 2017 and 2016, respectively.


(2) Equity in G5 ǀ Evercore - Wealth Management, ABS and Atalanta Sosnoff on a U.S. GAAP basis are reclassified from Investment Management Revenue to Income from Equity Method Investments.

 

Adjusted Investment Advisory and Management Fees of $16.1 million for the three months ended September 30, 2017 increased 1% compared to the third quarter of last year, driven primarily by higher fees in Wealth Management.

Realized and Unrealized Gains of $2.0 million for the three months ended September 30, 2017 increased relative to the third quarter of last year, driven principally by higher gains in Private Equity.

Equity in Earnings of Affiliates of $1.9 million for the three months ended September 30, 2017 increased relative to the third quarter of last year principally as a result of higher income earned in the third quarter of 2017 by ABS.

Adjusted Investment Advisory and Management Fees of $46.8 million for the nine months ended September 30, 2017 decreased 2% compared to the first nine months of last year, driven primarily by a lack of fees in Private Equity during the first nine months of 2017, partially offset by higher fees in Wealth Management in the first nine months of 2017.

Realized and Unrealized Gains of $1.4 million for the nine months ended September 30, 2017 decreased relative to the first nine months of last year, driven principally by losses related to the wind-down of a Private Equity fund in Mexico in 2017.

Equity in Earnings of Affiliates of $5.6 million for the nine months ended September 30, 2017 increased relative to the first nine months of last year principally as a result of higher income earned in the first nine months of 2017 by ABS.

On September 30, 2016, the Company completed the transfer of ownership and control of the Mexican Private Equity Business to a newly formed entity, Glisco Partners Inc., which is controlled by the principals of the business.

Adjusted Expenses

Investment Management's Adjusted expenses for the three months ended September 30, 2017 were $13.9 million, down 5% compared to the third quarter of last year principally due to a reduction in non-compensation costs. Assuming the restructuring of certain Investment Management affiliates had occurred on December 31, 2015, Adjusted Investment Management expenses would have increased 1% when compared to the third quarter of last year. Adjusted Investment Management expenses for the nine months ended September 30, 2017 were $40.2 million, down 12% from last year due to a decrease in compensation and non-compensation costs. Assuming the restructuring of certain Investment Management affiliates had occurred on December 31, 2015, Adjusted Investment Management expenses would have decreased 7% when compared to the nine months ended September 30, 2016.

Balance Sheet

The Company continues to maintain a strong balance sheet, holding cash, cash equivalents, marketable securities and certificates of deposit of $555.6 million at September 30, 2017. Current assets exceed current liabilities by $440.7 million at September 30, 2017. Amounts due related to the Long-Term Notes Payable and Subordinated Borrowings were $175.1 million at September 30, 2017.

On October 18, 2017, the Company completed the sale of the Institutional Trust and Independent Fiduciary business of Evercore Trust Company for a purchase price of $34.4 million. This transaction resulted in a decrease of $28.4 million to Goodwill.

Capital Transactions

On October 23, 2017, the Board of Directors of Evercore declared a quarterly dividend of $0.40 per share to be paid on December 8, 2017 to common stockholders of record on November 24, 2017.

During the three months ended September 30, 2017 the Company repurchased approximately 800,000 shares/units at an average price per share/unit of $75.87. During the nine months ended September 30, 2017, the Company repurchased a total of 3.9 million shares/units at an average price per share/unit of $74.99.

During the first quarter, after consideration of the market environment in which our equities business operates and the intermediate term cost structure of that business, we reduced the shares we expect to deliver, included in our Adjusted share base, for the 2014 acquisition of ISI from approximately 7.0 million shares to 5.4 million shares. Further, in July 2017, the Board of Directors approved the exchange of all of the outstanding Class H LP Interests into 1.9 million Class J LP Units, reducing the aggregate number of units to 5.3 million. The new units contain the same service vesting terms as the Class H LP Interests and are not entitled to distributions. The Class J LP Units do not have performance thresholds and the holders will be issued one share each of Class B common stock of Evercore Inc., which will entitle them to one vote on all matters submitted generally to holders of Class A and Class B common stock for each Class E LP Unit and Class J LP Unit held.

The total shares available to be granted in the future under the Amended and Restated 2016 Evercore Inc. Stock Incentive Plan was approximately 7.4 million as of September 30, 2017.

Conference Call

Evercore will host a related conference call beginning at 8:00 a.m. Eastern Time, Thursday, October 26, 2017, accessible via telephone and the internet. Investors and analysts may participate in the live conference call by dialing (877) 359-9508 (toll-free domestic) or (224) 357-2393 (international); passcode: 96579176. Please register at least 10 minutes before the conference call begins. A replay of the call will be available for one week via telephone starting approximately one hour after the call ends. The replay can be accessed at (855) 859-2056 (toll-free domestic) or (404) 537-3406 (international); passcode: 96579176. A live audio webcast of the conference call will be available on the Investor Relations section of Evercore's website at www.evercore.com. The webcast will be archived on Evercore's website for 30 days after the call.

About Evercore

Evercore (NYSE: EVR) is a premier global independent investment banking advisory firm. We are dedicated to helping our clients achieve superior results through trusted independent and innovative advice on matters of strategic significance to boards of directors, management teams and shareholders, including mergers and acquisitions, strategic shareholder advisory, restructurings, and capital structure. Evercore also assists clients in raising public and private capital and delivers equity research and equity sales and agency trading execution, in addition to providing wealth and investment management services to high net worth and institutional investors. Founded in 1995, the Firm is headquartered in New York and maintains offices and affiliate offices in major financial centers in North America, Europe, South America and Asia. For more information, please visit www.evercore.com.

Investor Contact:   

Robert B. Walsh


Chief Financial Officer, Evercore


212-857-3100



Media Contact:     

Dana Gorman


The Abernathy MacGregor Group, for Evercore


212-371-5999

 

Basis of Alternative Financial Statement Presentation

Our Adjusted results are a non-GAAP measure. As discussed further under "Non-GAAP Measures", Evercore believes that the disclosed Adjusted measures and any adjustments thereto, when presented in conjunction with comparable U.S. GAAP measures, are useful to investors to compare Evercore's results across several periods and better reflect management's view of operating results. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP. A reconciliation of our U.S. GAAP results to Adjusted results is presented in the tables included in Annex I.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which reflect our current views with respect to, among other things, Evercore's operations and financial performance. In some cases, you can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "probable," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. All statements other than statements of historical fact included in this presentation are forward-looking statements and are based on various underlying assumptions and expectations and are subject to known and unknown risks, uncertainties and assumptions, and may include projections of our future financial performance based on our growth strategies and anticipated trends in Evercore's business. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. Evercore believes these factors include, but are not limited to, those described under "Risk Factors" discussed in Evercore's Annual Report on Form 10-K for the year ended December 31, 2016, subsequent quarterly reports on Form 10-Q, current reports on Form 8-K and Registration Statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release. In addition, new risks and uncertainties emerge from time to time, and it is not possible for Evercore to predict all risks and uncertainties, nor can Evercore assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, you should not rely upon forward-looking statements as a prediction of actual results and Evercore does not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. Evercore undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

With respect to any securities offered by any private equity fund referenced herein, such securities have not been and will not be registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

 


ANNEX I

 

Schedule

Page Number

Unaudited Condensed Consolidated Statements of Operations for the  Three and Nine Months Ended September 30, 2017 and 2016

A-1

Adjusted:


Adjusted Results (Unaudited)

A-2

U.S. GAAP Reconciliation to Adjusted Results (Unaudited)

A-4

U.S. GAAP Segment Reconciliation to Adjusted Results for the Three and Nine Months ended September 30, 2017 (Unaudited)

A-8

 U.S. GAAP Segment Reconciliation to Adjusted Results for the Three and Nine Months ended September 30, 2016 (Unaudited)

A-9

 U.S. GAAP Segment Reconciliation to Consolidated Results (Unaudited)

A-10

 Notes to Unaudited Condensed Consolidated Adjusted Financial Data

A-11

 

 


EVERCORE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016

(dollars in thousands, except per share data)

(UNAUDITED)










Three Months Ended September 30,


Nine Months Ended September 30,


2017


2016


2017


2016









Revenues








Investment Banking Revenue

$

388,834



$

368,434



$

1,118,303



$

936,234


Investment Management Revenue

18,236



17,158



48,464



57,842


Other Revenue

4,944



5,509



12,542



12,650


Total Revenues

412,014



391,101



1,179,309



1,006,726


Interest Expense (1)

5,413



4,787



14,991



12,043


Net Revenues

406,601



386,314



1,164,318



994,683










Expenses








Employee Compensation and Benefits

246,772



231,710



689,186



632,959


Occupancy and Equipment Rental

13,531



12,627



40,191



33,983


Professional Fees

16,151



15,419



43,432



39,872


Travel and Related Expenses

15,113



12,440



46,976



42,258


Communications and Information Services

10,613



10,155



30,865



29,944


Depreciation and Amortization

6,421



5,907



18,267



18,915


Special Charges





21,507




Acquisition and Transition Costs

599



339



976



10


Other Operating Expenses

10,331



12,632



28,253



32,927


Total Expenses

319,531



301,229



919,653



830,868










Income Before Income from Equity Method Investments and Income Taxes

87,070



85,085



244,665



163,815


Income from Equity Method Investments

1,827



1,178



5,507



4,129


Income Before Income Taxes

88,897



86,263



250,172



167,944


Provision for Income Taxes

28,815



38,980



69,566



79,390


Net Income

60,082



47,283



180,606



88,554


Net Income Attributable to Noncontrolling Interest

14,171



12,588



35,740



24,454


Net Income Attributable to Evercore Inc.

$

45,911



$

34,695



$

144,866



$

64,100










Net Income Attributable to Evercore Inc. Common Shareholders

$

45,911



$

34,695



$

144,866



$

64,100










Weighted Average Shares of Class A Common Stock Outstanding:








Basic

39,045



38,912



39,873



39,259


Diluted

44,036



43,734



44,887



44,085










Net Income Per Share Attributable to Evercore Inc. Common Shareholders:








Basic

$

1.18



$

0.89



$

3.63



$

1.63


Diluted

$

1.04



$

0.79



$

3.23



$

1.45










(1)  Includes interest expense on long-term debt and interest expense on short-term repurchase agreements.

 

 

Adjusted Results

Throughout the discussion of Evercore's business segments, information is presented on an Adjusted basis (formerly called "Adjusted Pro Forma"), which is a non-generally accepted accounting principles ("non-GAAP") measure. Adjusted results begin with information prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), adjusted to exclude certain items and reflect the conversion of vested and certain unvested Evercore LP Units and Interests, as well as Acquisition Related Share Issuances and Unvested Restricted Stock Units granted to ISI employees, into Class A shares. Evercore believes that the disclosed Adjusted measures and any adjustments thereto, when presented in conjunction with comparable U.S. GAAP measures, are useful to investors to compare Evercore's results across several periods and facilitate an understanding of Evercore's operating results. The Company uses these measures to evaluate its operating performance, as well as the performance of individual employees. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP. These Adjusted amounts are allocated to the Company's two business segments: Investment Banking and Investment Management. The differences between the Adjusted and U.S. GAAP results are as follows:

  1. Assumed Vesting of Evercore LP Units and Exchange into Class A Shares.  The Company incurred expenses, in Employee Compensation and Benefits, resulting from the vesting of Class E LP Units issued in conjunction with the acquisition of ISI, as well as Class G and H LP Interests and Class J LP Units. The amount of expense or the reversal of expense for the Class G and H LP Interests is based on the determination if it is probable that Evercore ISI will achieve certain earnings and margin targets in 2017 and in future periods. The Adjusted results assume these LP Units and certain Class G and H LP Interests have vested and have been exchanged for Class A shares. Accordingly, any expense or reversal of expense associated with these units and interests, and related awards, is excluded from the Adjusted results, and the noncontrolling interest related to these units is converted to a controlling interest. The Company's Management believes that it is useful to provide the per-share effect associated with the assumed conversion of these previously granted equity interests, and thus the Adjusted results reflect the exchange of certain vested and unvested Evercore LP partnership units and interests and IPO related restricted stock unit awards into Class A shares.
  2. Adjustments Associated with Business Combinations.  The following charges resulting from business combinations have been excluded from the Adjusted results because the Company's Management believes that operating performance is more comparable across periods excluding the effects of these acquisition-related charges:
  3. a.  Amortization of Intangible Assets and Other Purchase Accounting-related Amortization.  Amortization of intangible assets and other purchase accounting-related amortization from the acquisitions of ISI, SFS and certain other acquisitions.

    b.  Acquisition and Transition Costs.  Primarily professional fees incurred, as well as the reversal of a provision for certain settlements in 2016 and costs related to transitioning acquisitions or divestitures.

    c.  Fair Value of Contingent Consideration.  The expense associated with changes in the fair value of contingent consideration issued to the sellers of certain of the Company's acquisitions is excluded from the Adjusted results.

    d.  Gain on Transfer of Ownership of Mexican Private Equity Business.  The gain resulting from the transfer of ownership of the Mexican Private Equity business in the third quarter of 2016 is excluded from the Adjusted Results.

  4. Client Related Expenses.  Client related expenses and provisions for uncollected receivables have been classified as a reduction of revenue in the Adjusted presentation. The Company's Management believes that this adjustment results in more meaningful key operating ratios, such as compensation to net revenues and operating margin.
  5. Special Charges.  Expenses during 2017 relate to a charge for the impairment of goodwill in the Institutional Asset Management reporting unit and a charge for the impairment of our investment in G5 | Evercore in the second quarter.
  6. Income Taxes.  Evercore is organized as a series of Limited Liability Companies, Partnerships, C-Corporations and a Public Corporation and therefore, not all of the Company's income is subject to corporate-level taxes. As a result, adjustments have been made to the Adjusted earnings to assume that the Company has adopted a conventional corporate tax structure and is taxed as a C-Corporation in the U.S. at the prevailing corporate rates and that all deferred tax assets relating to foreign operations are fully realizable within the structure on a consolidated basis. This assumption is consistent with the assumption that certain Evercore LP Units and interests are vested and exchanged into Class A shares, as discussed in Item 1 above, as the assumed exchange would change the tax structure of the Company. In addition, the Adjusted presentation can reflect the netting of changes in the Company's Tax Receivable Agreement against Income Tax Expense.
  7. Presentation of Interest Expense.  The Adjusted results present interest expense on short-term repurchase agreements, within the Investment Management segment, in Other Revenues, net, as the Company's Management believes it is more meaningful to present the spread on net interest resulting from the matched financial assets and liabilities. In addition, Adjusted Investment Banking and Investment Management Operating Income are presented before interest expense on debt, which is included in interest expense on a U.S. GAAP basis.
  8. Presentation of Income from Equity Method Investments.  The Adjusted results present Income from Equity Method Investments within Revenue as the Company's Management believes it is a more meaningful presentation.

This release also presents changes in Adjusted Net Revenues, Adjusted Investment Management Revenues and Adjusted Investment Management Expenses from the prior-year periods assuming that the restructuring of certain Investment Management affiliates occurred on December 31, 2015. This includes the transfer of ownership of the Mexican Private Equity Business that occurred on September 30, 2016. Evercore believes this is useful additional information for investors because it improves the comparability of period-over-period results and aligns with management's view of business performance.

 

 


EVERCORE INC.

U.S. GAAP RECONCILIATION TO ADJUSTED RESULTS

(dollars in thousands, except per share data)

(UNAUDITED)








Three Months Ended


Nine Months Ended


September 30, 2017


September 30, 2016


September 30,
2017


September 30, 2016

Net Revenues - U.S. GAAP

$

406,601



$

386,314



$

1,164,318



$

994,683


Client Related Expenses (1)

(8,059)



(6,205)



(17,019)



(17,074)


Income from Equity Method Investments (2)

1,827



1,178



5,507



4,129


Interest Expense on Debt (3)

2,488



2,592



7,494



7,616


Gain on Transfer of Ownership of Mexican Private Equity Business (4)



(406)





(406)


Net Revenues - Adjusted

$

402,857



$

383,473



$

1,160,300



$

988,948










Compensation Expense - U.S. GAAP

$

246,772



$

231,710



$

689,186



$

632,959


Amortization of LP Units / Interests and Certain Other Awards (5)

(9,249)



(13,859)



(4,980)



(66,356)


Compensation Expense - Adjusted

$

237,523



$

217,851



$

684,206



$

566,603










Operating Income - U.S. GAAP

$

87,070



$

85,085



$

244,665



$

163,815


Income from Equity Method Investments (2)

1,827



1,178



5,507



4,129


Pre-Tax Income - U.S. GAAP

88,897



86,263



250,172



167,944


Gain on Transfer of Ownership of Mexican Private Equity Business (4)



(406)





(406)


Amortization of LP Units / Interests and Certain Other Awards (5)

9,249



13,859



4,980



66,356


Special Charges (6)





21,507




Intangible Asset Amortization / Other Purchase Accounting-related Amortization (7a)

2,392



2,538



7,176



8,628


Acquisition and Transition Costs (7b)

599



339



976



10


Fair Value of Contingent Consideration (7c)



984





1,671


Pre-Tax Income - Adjusted

101,137



103,577



284,811



244,203


Interest Expense on Debt (3)

2,488



2,592



7,494



7,616


Operating Income - Adjusted

$

103,625



$

106,169



$

292,305



$

251,819










Provision for Income Taxes - U.S. GAAP

$

28,815



$

38,980



$

69,566



$

79,390


Income Taxes (8)

8,627



1,211



12,139



13,536


Provision for Income Taxes - Adjusted

$

37,442



$

40,191



$

81,705



$

92,926










Net Income Attributable to Evercore Inc. - U.S. GAAP

$

45,911



$

34,695



$

144,866



$

64,100


Gain on Transfer of Ownership of Mexican Private Equity Business (4)



(406)





(406)


Amortization of LP Units / Interests and Certain Other Awards (5)

9,249



13,859



4,980



66,356


Special Charges (6)





21,507




Intangible Asset Amortization / Other Purchase Accounting-related Amortization (7a)

2,392



2,538



7,176



8,628


Acquisition and Transition Costs (7b)

599



339



976



10


Fair Value of Contingent Consideration (7c)



984





1,671


Income Taxes (8)

(8,627)



(1,211)



(12,139)



(13,536)


Noncontrolling Interest (9)

11,448



11,625



31,007



21,778


Net Income Attributable to Evercore Inc. - Adjusted

$

60,972



$

62,423



$

198,373



$

148,601










Diluted Shares Outstanding - U.S. GAAP

44,036



43,734



44,887



44,085


LP Units (10)

5,898



7,604



5,975



7,443


Unvested Restricted Stock Units - Event Based (10)

12



12



12



12


Diluted Shares Outstanding - Adjusted

49,946



51,350



50,874



51,540










Key Metrics: (a)








Diluted Earnings Per Share - U.S. GAAP

$

1.04



$

0.79



$

3.23



$

1.45


Diluted Earnings Per Share - Adjusted

$

1.22



$

1.22



$

3.90



$

2.88










Compensation Ratio - U.S. GAAP

60.7

%


60.0

%


59.2

%


63.6

%

Compensation Ratio - Adjusted

59.0

%


56.8

%


59.0

%


57.3

%









Operating Margin - U.S. GAAP

21.4

%


22.0

%


21.0

%


16.5

%

Operating Margin - Adjusted

25.7

%


27.7

%


25.2

%


25.5

%









Effective Tax Rate - U.S. GAAP

32.4

%


45.2

%


27.8

%


47.3

%

Effective Tax Rate - Adjusted

37.0

%


38.8

%


28.7

%


38.1

%









(a) Reconciliations of the key metrics from U.S. GAAP to Adjusted results are a derivative of the reconciliations of their components above.

 

 


 

EVERCORE INC.

RECONCILIATION TO RESTRUCTURING OF INVESTMENT MANAGEMENT ADJUSTED RESULTS

(dollars in thousands)

(UNAUDITED)










Three Months Ended


Nine Months Ended


September 30, 2017


September 30, 2016


%
Change


September 30, 2017


September 30, 2016


%

Change













Net Revenues - U.S. GAAP

$

406,601



$

386,314



5

%


$

1,164,318



$

994,683



17

%

Adjustments - U.S. GAAP to Adjusted (a)

(3,744)



(2,841)



(32%)



(4,018)



(5,735)



30

%

Net Revenues - Adjusted

402,857



383,473



5

%


1,160,300



988,948



17

%

Transfer of Ownership of Mexican Private Equity Business (11)



(608)



NM




(2,708)



NM

Adjusted Net Revenues - Including Restructuring of Investment Management Adjustments

$

402,857



$

382,865



5

%


$

1,160,300



$

986,240



18

%