Evercore Inc.

Good day and welcome to the Evercore fourth quarter and full year 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 number one on your touchtone phone at any time. I will now turn a call over to Katie Haber, Managing Director of Investor Relations and ESG at Evercore. Ma'am, please begin.

Thank you, Chelsea. Good morning, and thank you for joining us today for Evercore's fourth quarter and full year 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'll open up the call for questions. Earlier today, we issued a press release announcing Evercore's fourth quarter and full year 2022 financial results. Our discussion of our results today is complimentary 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 at 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 ever court 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 is important to evaluate Evercourse performance on an annual basis. As we have noted previously, our results for any particular quarter are influenced by the timing of transaction closings. I will now turn the call over to John.

Thank you, Katie, and good morning, everyone. 2022 was undoubtedly a complex and challenging environment. Yet through all of the volatility and macro-driven headwinds, Evercore was able to serve our clients and strategically invest in our business. We continued to perform well both in the quarter and for the full year. In fact, 2022 was our second best year on record for the firm, with $2.8 billion in revenue, $529 million in net income, and $12.01 in earnings per share. For the full year and fourth quarter, we also made further progress on our goal of narrowing the gap between Evercore and the top three bulge bracket firms in terms of advisory fees. 2022 also marked a year of investment for Evercore as we continue to execute on our long-term growth strategy. We promoted and hired A-plus talent in our important strategic target areas that will drive long-term value for the firm, including seven advisory senior managing directors and one senior advisor in 2022. We also continue to build out important product capabilities and diversify our business to connect with our clients more deeply. As we've discussed previously, our revenues today are meaningfully more diverse than they have been historically. In each of the past four years, including 2022, our non-M&A businesses accounted for at least one-third of our revenues. The diversification of our business stems from the scale we've built across many capabilities, including restructuring, private capital advisory and fundraising, private capital markets, capital markets advice and execution, equity sales and trading, and wealth management. Additionally, we've managed our balance sheet to create the capacity to invest in our franchise through cycles. We will continue to execute on our long-term strategy by investing in targeted areas of growth and in areas where we see opportunities having the highest impact. Before I begin recapping the year, I'd like to quickly touch on our recent CFO announcement. Last quarter, we announced that Celeste will be leaving Evercore. This is Celeste's final quarter with us, and while we are sad to see her go, we feel fortunate to have worked with her and value the contributions she's made to the firm. As you may have seen, we are excited to share that Tim Lalonde will become our CFO effective March 6th. Over the last 22 years, Tim has been an integral part of Evercore's leadership, driving the firm's successful growth. He brings a deep knowledge of Evercore to the role and is highly respected as a partner with a superior record of delivering operational excellence. We look forward to his contributions as CFO and are confident that he will position the firm for sustainable, long-term value creation. With that, in a similar fashion to a year ago, I want to provide a more detailed view of the past year and, again, outline our plans for the future. Starting with global advisory, our teams remained very active and with constant strategic dialogue and execution with clients. Looking at our market activity more broadly, global announced M&A activity was down 36% compared to record levels in 2021. However, M&A volumes in 2022 were generally in line with historical averages. For Evercore specifically, the number of announced global transactions was down only 9% in 2022 compared to declines of about 40% for our bulge bracket peers and 25% for our independent peers. While advising on large M&A transactions globally is very much core to what we do, a meaningful portion of our business stems from deals less than $5 billion in transaction value. Over the last year, we saw an increase in clients seeking advice on highly complex and unique situations, including public to private deals, which reached record levels in 2022. As for sectors, tech continued to be active, as well as healthcare and industrials. We also saw strength in traditional energy, renewables, and infrastructure. Next, from a geographic perspective, our team in Europe had a very strong year, representative of investments we've been making in the region over the last several years. Our European advisory business had its best year in Evercore's history. We saw strength across the energy, financials, and utilities and infrastructure sectors, as well as debt advisory. We continue to focus on efforts an expansion in the region and around the globe. To that end, two of our 2022 SMD hires that I mentioned earlier were international. Within global advisory, we continue to be active in other areas outside of traditional M&A. First, our strategic defense and shareholder advisory team remained very active in 2022 as the number of campaigns, particularly in the U.S., was on par with 2021 levels. The trend of targeting large-cap companies continues, representing almost 30% of activist campaigns in 2022 from the prior year. Evercore has advised companies representing over $1.5 trillion in market value in this space, and we have the largest team of dedicated activist defense professionals on Wall Street. Turning to restructuring, the business won a significant increase in assignments over the past 12 months, And we are entering 2023 with a robust pipeline of opportunities. The growth in the business reflects a mix of company and credit assignments ranging from bankruptcies and out of court settlements to liability management and distress financing. While default rates are still relatively low, rising rates and corporate margin pressure should present significant additional opportunities for our restructuring team. We are well positioned for this upcoming cycle, and our restructuring team continues to collaborate with industry bankers to provide our clients with the most comprehensive advice. Next, our market-leading businesses focused on private capital, which includes fundraising, buying and selling of LP and GB stakes, continuation funds, as well as our real estate capital team. 2022 represented the second best year on record for these businesses in aggregate. Collaboration across these teams and the sponsor M&A and industry teams has driven synergies and will continue to be a great platform for growth. We've also continued to build out our private capital markets team, which advises and executes on privately placed equity and debt financings, as well as complex balance sheet and capital structure issues. The underwriting business had a challenging year, with industry issuance down 80%, resulting in the lowest year of issuance since the great financial crisis. While broad industry trends impacted our business, we outperformed on a relative basis and continued to gain share once activity returned in the second half of the year. While the IPO market was quiet, Evercorporate participated in one-third of all U.S. IPOs greater than 50 million and in four of five largest U.S. IPOs in 2022. Notably, our role continued to elevate as we were a book runner on all of our equity and equity-linked underwriting transactions in 2022. Healthcare continued to be a standout sector for us, and we were involved in almost 50% of all healthcare underwriting deals in 2022. Additionally, we've continued to invest in other products, such as convertibles, which continue to gain momentum and provide an additional product offering for our clients. We are pleased with the advancement of our underwriting business and expect to see a pickup in activity when the market stabilizes. Next, our equities franchise continues to focus on providing our clients with the highest quality research and service as they navigate volatile and uncertain markets. Our research franchise had a noteworthy year. We were ranked number one by institutional investor on an individual weighted basis for the first time ever and had the highest number of top three analysts of any firm on Wall Street. And finally, in wealth management, while the broad market decline impacted our clients' portfolios and assets under management for the year, the business continued to have strong long-term performance and client retention. Now, I want to turn to our growth roadmap for the long term. An important pillar of our strategy is tied to the expansion and enhancement of our client base and coverage model. We have a very strong traditional M&A business, and we continue to fill areas of sector and geographic white space where there is ample room to expand. We remain focused on investing in the fastest growing segments of the economy, including fintech, cleantech, biotech, and more traditional areas of technology, such as software, as well as expanding our global footprint. We continue to invest in and develop our sponsor coverage efforts. We've increased focus on expanding our private client capital businesses and believe there are incremental opportunities to serve this client base both in this business and our sponsor M&A practice. In addition, as we mentioned last quarter, we added several senior bankers to our U.S. financial sponsors group as we continue to invest in this important space. Overall, we see real opportunities from deepening and broadening many of our product capabilities. We're opportunistically investing selectively across our business and see strong returns from doing so. As we make these investments, we will continue to navigate the market for talent. We'll stay active and selectively recruit A-plus talent while maintaining a high bar for all hires. We begin 2023 with seven newly promoted SMDs in our advisory and underwriting businesses, across various sectors and capabilities, as well as one in our equities business. Cultivating the next generation of talent is core to our success, and we are excited about our pipeline of talent. Already this year, we have had an additional SMD commit to joining our private capital advisory business later this quarter. Before I turn the call over to Celeste to review our financials, I want to make a few final comments. 2023 will be another complex year and it will be difficult to repeat the record results that we had in the first half of 2022. That said, we remain focused on our expense base, both comp and non-comp, and maintaining a durable and liquid balance sheet. There's quite a bit of discussion around the probability of a recession as we begin 2023. While some believe we will enter one, others do not. Either way, we feel we are well positioned. We are starting off the new year with a strong backlog, although it is down from where it was a year ago, which followed the strongest year for M&A activity on record. Similar to last quarter, there remains greater risk to execution as transaction announcements continue to be slower and the timing of closings is elongated. And while economic stability and market conditions will continue to influence deal activity, strategic dialogue with clients continues at very high levels. As we look forward, we are confident in the outlook for our business. We believe the firm is well positioned to capitalize on the current environment and the opportunity that lies ahead as markets stabilize. With that, let me turn it over to Celeste.