Evercore Inc.

Good day and welcome to the Evercore third quarter 2022 earnings conference call. Today's call is scheduled to last about one hour, including remarks by Evercore management and the question and answer session. In order to ask a question, please press the star key followed by the one key on your touchtone phone at any time. I will now turn the call over to Katie Haber, Managing Director of Investor Relations and ESG at Evercore. Please go ahead.

Great. Thank you, Operator. Good morning, and thank you for joining us today for Evercore's third quarter 2022 Financial Results Conference Call. I'm Katie Haber, Evercore's Head of Investor Relations and ESG. Joining me on the call today is John Weinberg, our Chairman and CEO, and Celeste Millay, 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 2022 financial results. Our 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. During the course of this conference call, we may make a number of forward-looking statements. Any forward-looking statements that we make 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 Evercourse'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 of these measures and the GAAP reconciliation, 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 have noted previously, our results for any particular quarter are influenced by the timing of transaction closing. I will now turn the call over to John.

Thank you, Katie, and good morning, everybody. Before I review our results, I'd like to share the news that Celeste will be leaving Evercore in February to pursue an entirely different area of finance. She's been approached by a large, private, international alternative asset manager, and she's decided to accept the position with her. We've all been fortunate to have worked closely with Celeste, and we wish her well on this next step in her career. We will commence a formal search process to identify her replacement, and Celeste will stay on with us into February to help and support us with this transition. Now, let me talk about our quarter. Evercore performed well in an increasingly challenging environment. As we actively monitor the current macroeconomic backdrop, we see continued uncertainty looking forward. However, we also see tremendous opportunities for our business stemming from these inherent cycles. We've been through these types of cycles before, and we've successfully navigated through them. During the last significant downturn driven by the global financial crisis, Evercore emerged stronger. Our competitive positioning and strategic focus allowed us to hire exceptional talent and strengthen our business, which was evident in the growth of our market share and marked a significant step in building our firm to where we are today. A decade ago, we were much more reliant on traditional M&A. Our M&A and strategic advisory businesses remain strong and very much at the core of what we do. but we have also invested heavily in building capabilities and products beyond mergers. We've built scale and restructuring, debt advisory, private capital advisory, fundraising, shareholder advice, capital markets advice, and execution for both equity and debt, equity sales and trading, and wealth management. In fact, in each of the last three years, our M&A businesses accounted for at least two-thirds of our businesses and our non-M&A businesses accounted for at least one-third of our revenue. We've also fortified our balance sheet and have a strong cash position. This provides us the financial wherewithal to invest in our business and to take advantage of the current hiring environment. As we look forward through the cycle, we are optimistic about the opportunities at hand and remain focused on executing our long-term strategy and investing in our future growth. Before I review our businesses, I want to speak more about the current environment. While markets briefly stabilized in the late summer, volatility returned in September as the overall economic outlook became more negative, as global economies continue to be faced with high inflation, rising interest rates, and energy challenges. These conditions led U.S. equity markets to experience their third consecutive quarter of negative returns. Debt markets have also been challenged, and bank lending has become even more selective as credit and private credit have turned more cautious. All of these factors have led to a sustained slowdown in our merger markets. Turning to backlog, based on where it stands today, our backlog remains strong, but there is greater risk to execution. Transaction announcements continue to be slow relative to last year, and the timing of transaction closings remains elongated. Economic stability and market conditions will continue to influence deal activity. As I mentioned earlier, we are committed to our strategy despite the near-term challenges facing the global economy. We continue to invest in industry sector and geographic with white space with a focus on our growth internationally as well as in the United States. We also remain focused on expanding our product capabilities, including equity capital markets, debt advisory, and private capital advisory, an area in which we continue to see opportunities evolving through the cycles. Moreover, we continue to believe there is significant upside for us as we expand our client coverage model. We continue to focus on enhancing our sponsor coverage efforts. We most recently added several senior bankers to our US financial sponsors group, which will strengthen and catalyze our efforts. I will now review our results in more detail, which underscore the strength and diversity of our model. Evercore generated $583 million in adjusted net revenues $489 million in adjusted advisory revenues and $2.20 in adjusted earnings per share. On a year-to-date basis, total net revenues were $1.9 billion. These results represent the second best third quarter and nine months year-to-date on record for our firm. In advisory, M&A activity levels were lower in the third quarter. That said, year-to-date, the number of announced global transactions for Evercore is down only 8% versus the prior year. That compares favorably to the overall market, which is down more than double that. M&A activity in our U.S. business was down, though it was partially offset by our team in Europe having a very strong quarter, led by the financial, utilities, and industrial sectors. Our activist defense business is seeing significant activity as the number of activism campaigns in the U.S. is tracking last year's record levels, and European activity remains high. Restructuring activity continues to accelerate as uncertain markets, spiking interest rates, and limited access to new capital for highly levered companies increases the need for restructuring advice. We are seeing an uptick in traditional restructuring assignments and continued opportunities in special situation financing liability management, and out-of-court restructuring. Our private capital businesses, which include fundraising, buying and selling, LP and GP stakes, and continuation funds, have been impacted by the broader environment. That said, our market-leading positions in fundraising and continuation funds continue to build momentum and drive new business opportunities. Recently, our private funds group was ranked number one in multiple categories in pre-QINs 2022 Service Provider Report for its fundraising efforts in private equity, private debt, and infrastructure space. Underwriting experienced a slight pickup compared to the prior quarter, as seen in both our business and in the overall market. Despite unfavorable market conditions, some issuers in need of capital took advantage of select windows of opportunity. Activity in the third quarter for Evercore was primarily driven by follow-ons and at-the-market offerings. IPO activity remained quite limited as it was the slowest third quarter for IPOs in over a decade. However, some first-time issuers came to the market, and Evercore served as a joint book runner on CoreBridge Financial's $1.7 billion IPO, which is the largest IPO to date. Healthcare, which is our strongest ECM sector, has been quite active. Year-to-date, we participated in 25% of all marketed healthcare deals. Our ECM pipeline remains diversified across products and sectors, and we would expect activity to pick up as the markets stabilize. In our equity business, market volatility continues to impact client portfolios and positioning. Our client interactions are on pace to hit record levels, and our research organization continues to perform at the highest levels. The team was once again recognized by Institutional Investor as the top independent research firm for the ninth straight year, and ranks number one among all firms for analysts on a weighted basis for the very first time. In our wealth management business, AUM declined in September with broader markets. Long-term performance and client retention rates remain strong. With respect to recruiting talent, we will continue to take advantage of today's recruiting environment. We've hired seven advisory SMDs year-to-date, all in areas of strategic significance to us such as TMT Tech, Debt Advisory, ECM, and Europe. In addition, we have a senior advisor who is committed to join us in 2022 who will bring new expertise and capabilities to our technology franchise. We continue to have dialogues with potential candidates and have a strong pipeline of talent heading into next year. Lastly, as it relates to our capital return strategy, we remain committed to our goal of returning excess cash not invested in the business to our shareholders through dividends and share repurchases. While we returned less capital this quarter, we've bought back a significant amount of stock this year and increased our dividends in the first quarter. We will continue to opportunistically buy back shares while maintaining a durable balance sheet. Despite the uncertainty facing the market today, we continue to see strong dialogue with our clients and believe that we are well positioned for the pickup in activity when markets stabilize and recover. We remain committed to executing our long-term strategy, and when the market returns, we believe we will emerge even better positioned than where we are today. Now, let me turn the call over to Celeste.