Evercore Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Evercore First Quarter 2020 Financial Results Conference Call. During today's presentation, all parties will be in listen-only mode. Following the presentation, the conference call will be open for questions. If you have a question, please press the star followed by the one on your touchtone telephone. Please press star zero for operator assistance at any time. For participants using speaker equipment, it may be necessary to pick up your headset before making your selection. This conference call is being recorded today, Wednesday, April 22, 2020. I would now like to turn the conference call over to your host, Evercore's Head of Investor Relations, Hallie Miller. Please go ahead, ma'am.

Thank you, Sydney. Good morning, and thank you for joining us today for Evercore's first quarter 2020 financial results conference call. I'm Hallie Miller, Evercore's Head of Investor Relations. Joining me today on the call today are Ralph Schlossheim, our President and CEO of John Weinberg, our Executive Chairman, and Bob Walsh, our CFO. After our prepared remarks, we will open up the call for questions. Earlier today, we issued a press release announcing Evercore's first quarter 2020 financial results. The company's discussion of our results today is complementary to the press release, which is available on the website at evercore.com. This conference call is being webcast live in the For Investors section of our website, and an archive of it will be available for 30 days, beginning approximately one hour after the conclusion of this call. I want to point out that during the course of this conference call, we may make a number of forward-looking statements, including with respect to COVID-19. As discussed in our earnings release this morning, filed on Form 8K, the worldwide COVID-19 pandemic has negatively affected our business and is expected to continue to negatively and significantly affect our business. At this time, it is uncertain how long our business will be negatively affected by COVID-19 and the associated economic and market downturn. Any forward-looking statements that we make, including those about COVID-19 and its effect on our business, are subject to various risks and uncertainties, and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors include, but are not limited to, those discussed in Evercore's filings with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. I want to remind you that the company has seen no duty to update any forward-looking statements. In our presentation today, unless otherwise indicated, we will be discussing adjusted financial measures, which are non-GAAP measures that we believe are meaningful when evaluating the company's performance. For detailed disclosures on these measures and the GAAP reconciliations, you should refer to the financial data contained within our press release, which is posted on our website. We continue to believe that it is important to evaluate Evercore's performance on an annual basis. As we've noted previously, our results for any particular quarter are influenced by the timing of transaction closing. I'll now turn the call over to Ralph.

Thank you very much, Hallie, and good morning to everyone. It is certainly a very different world today compared to our last earnings call in January. The vast majority of our firm is working remotely, and we are conducting our earnings call from widely varied locations. I'll comment on our first quarter results in a few minutes, but first I want to talk about our firm and how we have approached the COVID-19 pandemic from both an operational and a business standpoint. Our global team has performed extraordinarily well in very challenging conditions and adapted quickly to our remote working arrangement. Despite working from more than 1,800 offices globally, we are effectively communicating with our clients and each other. Roger, John, and I could not be more proud of our entire team. As we settle into our current work arrangements and acclimate to the current environment, John, Roger, and I and the rest of the management team are focused on four very important priorities. First, assuring the health and safety of our team and their families. Second, pivoting our services to address the evolving needs of our corporate institutional investor and wealth management clients. Third, operating collaboratively, effectively, and securely, leveraging the technology in both new and old ways. And fourth, maintaining a strong and liquid balance sheet. The economic issue that the United States and much of the world faces today is the rapid and unprecedented increase in unemployment. and the equally rapid decline in economic activity. The statistics related to unemployment are truly sobering. Twenty-two million Americans alone have lost their jobs in the last four weeks, and millions more around the world have been similarly affected. All of us at Evercore feel deeply for those who are out of work because of this pandemic. Their hardship pains us. The sharp increase in unemployment undoubtedly presages a substantial decline in global GDP, probably starting in the first quarter and most certainly a deep decline in the second quarter and potentially in the third quarter as well. We have seen governments and central banks respond in an aggressive and unprecedented way with monetary and fiscal stimulus to mitigate and ultimately reverse the economic decline. And we are confident that over time, economies around the world will recover. But it will take time, and the recovery almost certainly will not be as sharp as the decline. As a consequence, we expect that our business will be negatively affected in the coming quarters. In our advisory business, M&A is our largest revenue contributor, and we expect that business to be negatively affected for some period of time. As John will describe in his remarks, the conditions typically required for strong M&A activity currently are not present. Additionally, equity underwriting has virtually disappeared since mid-February, though we anticipate a strong return once markets stabilize, similar to what we saw in the second and third and fourth quarters of 2009 following the depths of the global financial crisis. So these are the negatives. On the other hand, the current environment has created opportunities for us, as we have rapidly redirected our advisory efforts to adjust to the evolving needs of our clients. The investments that we have made in our platform over the last several years, both to broaden and diversify our capabilities and to expand our coverage of key sectors and geographies, have significantly expanded the scope of our expertise and are allowing us to continue to provide independent and trusted advice to our clients on the topics that are most relevant to them today. Our restructuring debt and equity capital markets advisory businesses are going flat out. Additionally, the volatility and increased trading volume of the equity markets has driven a strong increase in secondary revenues in our equities business. These businesses are smaller than our M&A advisory business, and it will take time before the increase in revenue related to restructuring and debt and equity capital markets advisory activities are recognized. As a consequence, the increase in activity in these areas will not come quickly enough or be of sufficient scale to offset the expected near-term weakness in M&A. Normally, at this point, I comment on our backlog. It's way too early in this location to know the overall effect on our backlogs as they are in transition. Restructuring and debt advisory is building rapidly while M&A transactions are currently being delayed, postponed, or put on hold as buyers and sellers assess the duration and severity of the downturn. The dialogue around M&A, however, certainly has not halted as the dialogue with financial sponsors is increasing and well-capitalized and liquid companies are opportunistically exploring either long-sought-after assets or new ideas. While we cannot be sure of the duration and severity of the downturn, I believe that as a relatively young and highly entrepreneurial firm, we are ready for the challenges presented by the current environment and that we have already responded effectively. If we continue to work collaboratively and adapt to the changing needs of our clients and communities we will emerge from this period well-positioned for future long-term growth and market share gains. Let me now talk about our financial performance in the first quarter. We've reported the second-best first quarter revenues in our history, indicative of the revenue-generating power of our franchise and our business model in more normal times. Adjusted net revenues of $435 million increased 4% versus the first quarter of $29 million, In aggregate, our total revenues of $436 million from our investment banking businesses, advisory, underwriting, and commissions increased by 10% versus the first quarter of last year. Advisory fees of $359 million, our largest revenue source, increased 10% compared to the first quarter of 2019 and held up very well compared to our larger competitors, almost all of whom experienced double-digit declines between 10% and 20% in their advisory revenues. As a general matter, previously announced transactions closed as expected in the quarter. These results are especially impressive considering the fact that the dollar value of announced M&A transactions globally declined 24% in the first quarter, and the dollar value of closed M&A transactions fell by 37% compared to the quarter a year earlier. Due to the strength of our advisory revenues compared to the declines experienced by our larger competitors, we expect to increase again our market share of advisory fees among all publicly reporting firms on a trailing 12-month basis to 8.6%, from 7.9% for the 12-month period ending March 31, 2019, and from 8.3% at the end of 2019. Underwriting fees were 21.1 million, a decline of 22% from the first quarter of 2019. This business had a very strong start to the year, but as COVID-19 began to spread, activity in this business essentially halted in mid-February. Commissions and related fees of 55.4 million increased 32% versus the first quarter of 2019, for our best first quarter since 2016. Our equities team benefited from the heightened volatility and equity trading volumes associated with the market downturn that began in mid-February. Asset management and administration fees from our consolidated businesses were 15.3 million, an increase of 7% versus the first quarter of 2019. Our first quarter compensation ratio of 62%, was impacted by the revenue decline in other revenue caused by the shift from gains to losses associated with the investment portfolio that hedges a portion of our deferred cash compensation plan. The compensation ratios for the first quarter of 2020 and 2019 are essentially the same when the impact of these gains and losses are excluded. We historically have reflected a compensation ratio in the first quarter based on our best estimate for the full year revenue expectations and compensation requirements, and reassessed that compensation ratio each quarter to address changes in these expectations. Given the uncertainty of the current environment, our first quarter compensation ratio is reflective only of our first quarter performance. We will reevaluate the appropriate amount of compensation and our compensation ratio on a quarterly basis, as we always have, but the likelihood of change will certainly be higher in the current year than in other years due to the highly uncertain environment for the next two to three quarters. Non-compensation costs were 82.8 million, up 2.7% from the first quarter of 2019. The increase reflects higher occupancy costs and expenses associated with certain technology initiatives many of which are supporting our successful work from home operations today. The increase in these costs was partly offset by lower professional fees and travel expenses. As we had reported to you before, we had started a number of initiatives to reduce costs at the end of last year, and these results begin to demonstrate our progress. Bob will comment further on this. Adjusted operating income and adjusted net income of $82.5 million and $57.8 million declined 14% and 29% respectively, and adjusted earnings per share of $1.21 declined 27% versus the first quarter of 2019. Here again, our change in operating income was affected meaningfully by the changes in the value of the hedges for our deferred compensation plans rather than any change in our compensation philosophy, and the larger change in net income and earnings per share was significantly affected by the higher tax rate in the first quarter of 2020 as compared to 2019. Bob will discuss this in his remarks. We remain focused on our capital management strategy and returned $178.1 million to shareholders during the quarter through dividends and the repurchase of 1.8 million shares at an average price of $76.57. $76.57. Our commitment to offset the dilution associated with equity grants has been substantially completed for the year. So any additional share repurchases in 2020 will be dependent on future earnings and maintaining our strong liquidity position. Our board declared a dividend of 58 cents consistent with prior quarters and reflective of our results for the quarter. Our board and management will continue to evaluate the dividend on a quarterly basis. as the effect of COVID-19 virus on revenues becomes more clear, although the current expectation absent a steep decline in revenues and a significant reduction in our cash position is that our current dividend will be maintained. Our first quarter results demonstrate the continued strength of Evercore's franchise in more normal times. In each of the last two years, we have generated revenues in excess of $2 billion and experienced operating margins that averaged in excess of 25%. These results were produced by essentially the same team that we have on the field today, and we really don't see any reason why those results can't be repeated when normal and less disrupted conditions return. Let me now turn the call over to John to discuss the current market environment and comment further on our investment banking business. John?