Q1 2024 Earnings Summary
- Evercore's restructuring and liability management business is expected to remain strong, benefiting from higher for longer interest rates, with robust backlogs supporting continued high performance.
- High activity levels and strong backlogs across the firm indicate potential revenue growth over the balance of the year and into next year, suggesting a positive outlook for Evercore's advisory business.
- Underwriting revenues increased by 143% year-over-year, reflecting a noticeable change in the environment and robust backlog levels, suggesting a recovery in the underwriting market that could continue to benefit Evercore.
- Decline in Advisory Fees: Adjusted advisory fees decreased 7% year-over-year to $431 million in the first quarter of 2024, indicating challenges in generating advisory revenue despite increased activity levels.
- High Compensation Ratio with Limited Revenue Visibility: The adjusted compensation ratio remains elevated at 66%, and management acknowledges limited visibility on full-year revenues, which could impact efforts to improve the compensation ratio.
- Slowdown in European Advisory Business: The European advisory team had a slower start to the year, with deal closing timelines remaining elongated, potentially affecting overall results and revenue recognition in the near term.
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Restructuring Business Outlook
Q: How will restructuring perform amid higher rates?
A: John Weinberg expects the restructuring business to remain strong, positively impacted by higher interest rates. He notes that many companies need refinancing due to capital structures built on low rates, and anticipates continued strength in liability management, with robust backlogs supporting this view. -
Sponsor Activity Levels
Q: How are sponsors acting in higher rate environment?
A: John Weinberg observes that sponsor activity levels are very high, with intentions to move forward despite higher rates. He mentions $3.8 trillion of dry powder ready to deploy, and notes that sponsors feel they need to act, driven by LPs wanting capital returned. -
Advisory Revenue Decline
Q: Why did advisory revenue decline this quarter?
A: John Weinberg explains that the business is naturally lumpy, and a few big transactions can significantly impact results. He notes that activity levels are high and backlogs are strong, attributing the decline partly to a weaker quarter in Europe. Despite this, he remains constructive about future performance. -
Underwriting Revenue Surge
Q: Is underwriting revenue growth sustainable?
A: John Weinberg acknowledges that underwriting can be lumpy but feels constructive about its continued strength, citing robust backlogs. Timothy LaLonde adds that equity issuance is up 131% over last year, with their revenues up 143%, and they are optimistic about the improved environment. -
Compensation Ratio Outlook
Q: Will comp ratio improve this year?
A: Timothy LaLonde states they are committed to improving the comp ratio and believe they can do better than pre-COVID levels. However, the outcome will depend on revenue trends and factors like headcount and market compensation for non-partners. They intend to balance this objective with the firm's growth plans. -
Revenue per Partner Potential
Q: Can revenue per partner increase materially?
A: John Weinberg believes that with high-quality talent and favorable market conditions, revenue per partner can increase materially. While returning to 2021 levels may not happen immediately, he sees positive indicators like CEO confidence and market stability pointing in the right direction. -
Recruiting Expectations
Q: What are hiring plans for senior bankers?
A: John Weinberg says they are actively recruiting A+ talent, with a robust pipeline of discussions. They are not constrained by specific numbers and expect to have a good year in hiring, continuing to strengthen the firm with high-caliber individuals. -
Election Impact on M&A
Q: Will the election affect M&A activity?
A: John Weinberg does not expect the upcoming election to have a major impact on the merger market, based on historical trends. He notes that other factors like market performance, geopolitical stability, inflation, and interest rates are more significant influences.
Research analysts covering Evercore.