Evercore Inc.

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

Thank you, Demetria. Good morning, and thank you for joining us today for Evercore's second quarter 2020 financial results conference call. I'm Hallie Miller, Evercore's Head of Investor Relations. Joining me on the call today are Ralph Lofstein and John Weinberg, our co-chairmen and co-CEOs, 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 second quarter 2020 financial results. The company's discussion of our results today is complementary to the press release, which is available on our 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 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 EverCorp'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 assumes 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 gap 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 EverCorp'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, Hallie, and good morning to everyone. Let me start by saying that it is a pleasure to be doing my first call with John as co-chairman and co-CEOs of Evercore. As we said in our press release last week, we have built a great partnership in the almost four years that John has been here, collaborating on all important decisions pertaining to the management of the firm and the strategic direction of our business. Our new titles formalize what we have been doing for several years already, And along with Roger, whose role has not changed at all, contrary to some reports in the press, we greatly look forward to a very successful future for Evercore. I am sure you will agree that the challenges of the past quarter have been myriad and significant. First, the rapid spread of COVID-19 pandemic drove lockdowns around the world and has inspired a race to develop diagnostics, treatments, and vaccines. The pandemic and lockdown then gave rise to an unprecedented global economic downturn, record levels of unemployment, and in response, fiscal and monetary stimulus that has been applied with unprecedented size and rapidity. Financial markets became predictably volatile, first down and then up, but they currently are reasonably healthy in stark contrast to the health of the real economy. And in the midst of all this, a much needed call for a higher level of equality and social justice in our society and a significantly greater commitment to diversity and inclusion in the workplace. My partnership with John and Roger and more broadly the culture within our firm has helped us navigate this challenging environment and to stay focused on both our clients and our people. Before I comment on our results, I want to provide an update on how we as a firm have responded to these events in the first half from both an operational and a business standpoint. The vast majority of our team continues to work remotely, though we are beginning to return to working in some of our offices. This transition back to the office, in contrast to our move to working remotely, is happening at a measured pace consistent with local government directives designed to protect the communities in which we work and our own policies to protect our people and their families. We have embraced new technologies that allow us to communicate with our clients and our colleagues despite our physical distance, and we remain focused on the needs of our clients, helping them by leveraging our broad and diverse capabilities. This focus has resulted in a number of things. First M&A assignments that made strategic sense before the downturn have continued to be announced, or if announced, have been completed. Capital raising assignments, both in the equity and debt markets, have been occurring at levels dramatically higher than at any time in our history. And we have seen an unprecedented surge of restructuring and refinancing transactions, often on a highly expedited basis. And finally, on our research and in our wealth management business, a greater engagement with investing clients than at any time in our history. John will cover our performance in greater detail in his remarks. Following the tragic events in Minnesota, we also saw a much needed call for higher level of social justice and more extensive commitment to diversity and inclusion in the workplace in the U.S. and elsewhere. a call that we strongly embrace. We have taken the time to reflect on calls for social justice and have thought hard about racism and prejudice that still persists in our society today. We have come away with the awareness and commitment that we need to strengthen our own diversity and inclusion efforts here at Evercore. We are a market leader for our business accomplishments, and we will expend the same energy and focus on our diversity and inclusion initiatives not just to make ourselves better, but to try and have a more positive impact on our communities and the world in which we live. As we look to the second half of the year, we are following a set of operating principles that are very similar to those that we discussed with you three months ago. First, we remain committed to ensuring the health, wellness, and safety of our team and their families, and to achieving our diversity and inclusion goals. our teams are focused on addressing the immediate needs of our corporate institutional investor and wealth management clients while helping them be better positioned for the eventual economic recovery. Third, we are sustaining our operating infrastructure to support flexible and efficient working arrangements as we plan and implement our return to office on a thoughtful and disciplined basis. And finally, we remain committed to maintaining our strong and liquid balance sheet. Our results for the second quarter and the first half reflect both the momentum that we had in M&A before the onset of the pandemic and our ability to pivot to meet our clients' changing needs in currently challenging economic and financial markets. As a general matter, previously announced M&A transactions continued towards completion and the broader advisory capabilities that we have built and strengthened over the last several years have allowed us to continue to serve our clients on their most pressing financial and strategic issues. Let me turn specifically to the numbers. Second quarter adjusted net revenues of $513.9 million decreased 4% versus the second quarter of 2019. For the first six months of 2020, adjusted net revenues of $948.9 million decreased 1 percent versus the prior year, although our revenues from investment banking, that is, advisory fees, underwriting fees, and commissions, increased by 2 percent versus the prior period. Second quarter advisory fees of $336.5 million declined 24 percent compared to the second quarter of 2019. which was an unusually strong quarter. In fact, our third best quarter for advisory fees in our history. Advisory fees for the six months of 2020 were $695.6 million, a decline of 10% compared to the prior year period. We expect our market share in advisory fees among all publicly reported firms on a trailing 12-month basis to be 8.2%. compared to 8.3% at year end 2019. Second quarter underwriting fees of 93.6 million increased more than 450% compared to the second quarter of 2019. Underwriting fees in the second quarter were higher than our underwriting fees for all of 2019, which was a record year in underwriting fees for us. For the first six months of the year, underwriting fees were 114.7 million an increase of more than 160% versus the prior year period. Third quarter underwriting fees are already off to a strong start, and we are working hard to sustain this momentum. Commissions and related fees of 54.1 million increased 11% versus the second quarter of 2019. For the first six months of 2020, commissions and related fees of 109.5 million increased 21% versus the prior year period. Asset management and administration fees from our consolidated businesses were $15.2 million, an increase of 4% compared to the second quarter of 2019. For the first six months of 2020, asset management and administration fees from our consolidated businesses were $30.5 million, an increase of 5% from the prior year period. Turning to expenses, our compensation ratio for the second quarter is 65%, and our compensation ratio for the first six months of 2020 is 63.6%. A word of explanation about the compensation ratio. The 63.6% accrual in the first half reflects, as it has in past years, an estimate for the full-year compensation ratio, which includes an estimate for 2020 incentive compensations. Given the uncertainty about revenues for the remainder of the year and the uncertainty about the level of market compensation for our younger employees in 2020, we have significantly more uncertainty about the full-year compensation ratio than at this time in prior years. Our intention is to pay our younger employees at market rates, as we always have, and to pay our more senior employees in a way that fairly balances the short-term and longer-term interests of our shareholders, the short-term interest being higher earnings this year, and the longer-term interest being keeping the team together that has produced more than $2 billion of revenue in 2018 and 2019 and investing in new talent for our future growth. So we are doing our best to have our six-month compensation ratio be within the range of possible outcomes for the full year, although the uncertainty about both revenues and market compensation for our employees is considerably higher than in prior years. Non-compensation costs of $77.1 million in the second quarter declined 11% from the second quarter of 2019. For the first six months, non-compensation costs of $159.9 million declined 4%. Bob will comment on this further in his remarks. Adjusted operated income and adjusted net income of $102.7 million and $71.8 million declined 26% and 29% respectively, and adjusted earnings per share of $1.53 declined 26%, all versus the second quarter of 2019. For the first six months of 2020, adjusted operating income and adjusted net income of $185.3 million and $129.6 million declined 21% and 29% respectively, and adjusted earnings per share of $2.74 declined 27% versus the prior six-month period. We remain focused on our capital return and management strategy. Year-to-date, we returned $206 million to shareholders through dividends and the repurchase of 1.9 million shares at an average price of $76.22. We have offset the dilution associated with equity grants for the year. So any additional share repurchases in 2020 will be dependent on our second half revenues and earnings balanced by our intention to maintain 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 the pandemic on revenues becomes more clear, although the current expectation absent any extraordinary steep decline in revenues and a significant reduction in our cash position is that our current dividend will be maintained. Let me now turn the call over to John to discuss the current market environment and to comment further on our investment banking business.