Evercore Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Evercore Third Quarter 2020 Financial Results Conference Call. During today's presentation, all parties will be in listening 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 handset before making your selection. This conference call is being recorded today, Wednesday, October 21, 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, Shannon. Good morning, everyone, and thank you for joining us today for Evercore's Third Quarter 2020 Financial Results Conference Call. I'm Hallie Miller, Evercore's Head of Investor Relations. Joining me on the call today are Ralph Schlossstein 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 third quarter 2020 financial results. The company's discussion of our results today is complementary to that 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 posed and is expected to continue to pose significant challenges for our business. 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 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 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's 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, Allie, and good morning to everyone. It's hard to believe that this is our third earnings call for which we are not all together in the same conference room. For today's call, John is in our offices in New York City. It's his week in the office, and I am in my office in North Salem, New York. And Bob is with our traders in our office in New Jersey. Our business thrives on in-person collaboration and teamwork. And while we have been quite effective and successful over the last seven plus months operating out of 1,800 offices around the globe, we certainly recognize that our business and our culture operate best when we are physically together. That certainly is our ultimate goal once the virus is no longer a factor in our lives. But in the interim, we remain committed to serving our clients with distinction and to collaborating with one another as we implement a gradual return to office around the world. The first nine months of this year have been volatile and have had significant challenges and uncertainties. But there also have been many opportunities to advise our clients on their most important strategic and financial need. The strategic investments we have made to broaden and diversify our capabilities over the past several years have enabled us to serve our clients on a wide array of strategic and financial matters and resulted in solid quarterly and year-to-date results, demonstrating both to our clients and our shareholders that Evercore very much is an all-weather firm that can produce good results in a wide variety of environments. There unquestionably are still uncertainties ahead. The upcoming US election, Brexit, the path of the virus and the disparity between the financial market recovery and the real economic recovery with so many of our fellow Americans, Europeans and others around the globe still unemployed or with their small businesses shuttered. However, as we see the market for merger activity improve and we continue to see robust activity In capital advisory, restructuring, underwriting, and research and trading, we have never been more confident in our ability as a firm to help our clients achieve their most important strategic financial and capital objectives. Before I comment on our financials, I want to provide a brief update on how Evercore has broadly responded to the events of this year and on what we are focused going forward. As I mentioned, we are beginning to implement a very deliberate and thoughtful return to our offices around the globe. Our transition back is occurring at a measured pace and follows all local government guidelines designed to protect communities in which we work. The health and safety of our employees and their families remains our paramount consideration. And the return of any individual has been of their own choice. Most of our colleagues continue to work remotely, and we anticipate that this will be the case for a reasonable period of time, probably measured in quarters rather than months. We remain focused on pivoting to meet the needs of our clients and leveraging our broad and diverse capabilities to advise them in the changing economic and financial environment. The result is as follows. New M&A activity is being announced in addition to the pre-down turn matters that have begun to re-engage. We are seeing continued momentum occurring in our capital advisory business of helping clients raise equity privately and publicly and advising clients on debt opportunities. Restructuring and refinancing transactions are continuing and we are having constant dialogue with our clients about their future financing needs. And finally, we are experiencing strong engagement with investors looking for research and our wealth management clients seeking strong financial advice. Non-M&A activity, including underwriting, has been a distinct opportunity during the past several months and has become an increasingly important part of our business in the current environment. We have been able to support clients to enhance their liquidity, raise investment capital, and shore up their balance sheets. We are particularly proud of our CAPS product, which is designed to be an alternative to SPACs, which we originated during the quarter, in which we are in the early stages of building our convertible securities capability, including enhancing our distribution capabilities and our origination team. There was a significant increase in M&A announcements in the third quarter, and that momentum seems to be continuing in the fourth quarter. Despite the many potential uncertainties, which I outlined earlier, as we look forward to the remainder of 2020 and into 2021, our backlogs are strong and we look forward to continuing our momentum in 2021 and in finishing this year strongly. And of course, we remain committed to maintaining our strong and very liquid balance sheet. Let me now turn to our results. We're quite pleased with our results for the third quarter and first nine months of 2020 as the diversity of our capabilities and the entrepreneurial spirit of our team allowed us to deliver revenues that are essentially flat year over year. Below average M&A transactions in March, April, May, June affected our third quarter advisory results. However, as you have seen, announced global M&A volumes nearly doubled in the third quarter compared to the second quarter and increased 38% compared to last year's third quarter in the U.S. In the U.S., announced M&A volumes increased more than threefold versus the second quarter and increased 55% compared to last year's third quarter. During each of the three months of the third quarter, Both global and U.S. announced M&A transaction volumes were higher than the monthly average over the last two years, and in September, global announced monthly volumes surpassed $450 billion for only the second time in the past two years. Third quarter adjusted net revenues of $408.5 million and year-to-date adjusted net revenues of $1.36 billion were both flat versus the prior year periods. as revenues from capital advisory, restructuring, underwriting, and commissions, and related fees largely offset the decline in revenues from lower M&A activity. Third quarter advisory fees of $271.2 million declined 16% year-over-year, and year-to-date advisory fees of $966.8 million declined 11% compared to the prior year period. Based on the current consensus estimates and actual results, we expect our market share of advisory fees among all public reporting firms on a trailing 12-month basis to be 8.3% compared to 8.1% at the end of June and 8.3% at year-end 2019. Third quarter underwriting fees of $66.5 million increased more than 275% year-over-year and the year-to-date underwriting fees of $181.2 million nearly tripled versus the prior year period. The diversification of our underwriting business has contributed to a real step up in momentum, and we continue to invest in it, broadening our industry coverage and our product capabilities. We are working hard to sustain this momentum in the fourth quarter and have a meaningful and diversified pipeline of IPOs, follow-ons, and convertible securities. Third quarter commissions and related fees of $43.9 million declined 6% year-over-year as the heightened volume and volatility of the first six months of the year subsided. Year-to-date commissions and related fees of $153.4 million increased 12% versus the prior year period. Asset management and administration fees were $16.6 million in the third quarter and $47.1 million for the year to date, an increase of 11% for the quarter and 7% for the nine months. Turning to expenses, our adjusted comp ratio for the third quarter and the first nine months of 2020 is 63.6%. The 63.6 percent accrual for the first nine months reflects, as it has in past years, our estimate for the full-year compensation ratio, which includes an estimate of 2020 incentive compensation. This year, however, as we have pointed out on previous earnings calls, there is a higher level of uncertainty than in prior years about both the full-year revenues and full-year market compensation. Third quarter non-compensation costs of $71 million declined 18% year over year. And year to date non-compensation costs of $230.9 million declined 9% versus the prior period. Third quarter adjusted operating income and adjusted net income of $77.7 million and $52.6 million declined 8% and 13% respectively. And adjusted EPS of $1.11 declined 12% versus the third quarter of 2019. Year-to-date operating income and adjusted net income of $262.9 million and $182.2 million declined 18% and 25%, respectively. An adjusted EPS of $3.85 declined 23% versus the prior period. We remain committed to our historical capital return strategy in which we return earnings not needed in our business to shareholders through dividends and share repurchases. Given our solid results for the first nine months of the year, which have resulted in good cash flow generation, we are beginning to return to that pre-COVID strategy. Consistent with that view, our board declared a dividend of $0.61, a $0.03 per quarter increase which is a 5% increase from the prior quarter. We plan to return to our normal reassessment of the dividend in April of 2021 and to begin to restart our practice of returning our cash earnings that are not required in the business to investors through share repurchases. Bob will provide additional detail on our cash position in his remarks. Before I turn the call over to John to discuss the current market environment and to comment further on our investment banking business, I'd like to talk about the environment for talent. We continue to see opportunities to further build out our capabilities and to expand geographically, and we are building a pipeline of senior-level A-plus talent additions. This quarter, we welcomed Mike Myers to the firm as an SMB in our equities business to help expand the firm's convertible debt underwriting capabilities and distribution capabilities. We also remain highly focused on developing and promoting our high-talent professionals from within the firm. Finally, we are especially proud of Evercore ISI's most recent showing in Institutional Investors' annual All-America Research Survey, where we were recognized as the top-ranked independent firm by a wide margin for the seventh year in a row, and ranked number two or number three among all firms, large or small, depending upon how you count. Ed Hyman, Evercore ISI's founder and chairman, was awarded the number one position in economics, a recognition he has earned 40 times. Furthermore, Evercore ISI claimed a record 39 individual positions and tied its 2019 record of 36 team positions. Thank you so much to our institutional investor clients for their ongoing support, and kudos to the entire Evercore ISI research, sales, and trading team for their extraordinary performance. With that, let me turn the call over to John.