Sign in

    Evercore Inc (EVR)

    Q2 2024 Earnings Summary

    Reported on Feb 14, 2025 (Before Market Open)
    Pre-Earnings Price$244.18Last close (Jul 23, 2024)
    Post-Earnings Price$243.00Open (Jul 24, 2024)
    Price Change
    $-1.18(-0.48%)

    What went well

    • Evercore expects increased M&A activity to drive revenue growth in the latter part of the year and into next year, as they see a strengthening environment and robust backlogs. Management notes improved activity levels and anticipates that the increased activity will be reflected in revenues as they approach the end of the year and into next year. ,
    • The company's sponsor business is experiencing significant growth, with activity levels for sponsors definitely picking up. There is a positive dynamic with sponsors looking to deploy dry powder, pressured by LPs to return capital, leading to more M&A and IPO activity involving sponsors. Evercore's enhanced sponsor coverage model positions it to capture a greater share of this activity. ,
    • Non-M&A advisory businesses are performing well and expected to continue contributing to revenue growth, providing diversification and resilience. The restructuring business continues at a healthy level and is expected to remain strong. The Private Capital Advisory business is seeing robust activity and is performing extremely well. ,

    What went wrong

    • Persistently high compensation ratios are expected to continue into the full year at around 66% , with management indicating only gradual improvement over the near to medium term. This ongoing high compensation expense could pressure margins and limit earnings growth.
    • Rising non-compensation expenses due to factors like increased travel, professional fees, and investments in technology are putting upward pressure on costs. Management noted that non-compensation expenses rose 12% quarter-on-quarter , which could impact the firm's operating leverage and profitability.
    • Uncertainty in the timing of deal closures and the rate at which transactions move through the pipeline could delay the anticipated revenue recovery. Management acknowledged that the realization of revenues depends on both the size of the backlog and the velocity at which transactions are moving through, and they lack clarity on the steepness of the ramp or timing of transaction closings.

    Q&A Summary

    1. Compensation Ratio Outlook
      Q: Is 66% comp ratio expected for the full year?
      A: Management expects the 66% compensation ratio to be similar for the full year, anticipating strengthening revenue but lacking clarity on ramp and timing. There is potential for improvement, but it's impossible to be more precise now.

    2. 2025 Compensation Leverage
      Q: How to think about compensation expense leverage in 2025?
      A: Given elevated hiring and wage inflation, management foresees gradual improvement in the comp ratio over the near to medium term as revenues grow. They are focused on achieving meaningful improvements but it's premature to determine whether it will return to sub-60% levels.

    3. Normalized Comp Ratio Targets
      Q: Will normalized comp ratio remain higher than historical sub-60%?
      A: Management aims for gradual improvement in the comp ratio with increasing revenue. While they expect meaningful improvements over this year and the next, it's too early to speculate if they'll reach sub-60% levels.

    4. Fixed vs Variable Comp Growth
      Q: How does fixed comp growth compare to total comp expense?
      A: While exact figures weren't disclosed, fixed compensation growth is linked to headcount growth, which is up 4% year-over-year. Fixed comp might grow at a lower rate than discretionary bonuses since revenues are expected to grow faster than headcount.

    5. Sponsor M&A and IPO Activity
      Q: Are sponsor M&A dialogues and IPO engagements improving?
      A: Sponsor activity levels are definitely picking up, with bake-offs significantly larger than in the past. There's pressure for sponsors to move portfolios due to LPs seeking return of capital and abundant dry powder needing deployment. Both M&A and IPOs are being considered, and momentum is growing.

    6. U.S. vs Europe M&A Pipeline
      Q: How does European M&A pipeline compare to U.S.?
      A: The U.S. market is slightly ahead, showing a real activity build, while Europe is finding a positive tone but lags behind. Activity in both markets is positive with an expected real build.

    7. M&A Transaction Velocity
      Q: Is transaction timing improving, and is second-half guidance on activity or revenue?
      A: Processes are more active and moving a bit more quickly anecdotally. Management expects increased activity to reflect in revenues towards the end of the year and into next year, as enhanced velocity and robust backlogs contribute to revenue materialization.

    8. Private Capital Advisory Growth
      Q: How significant could PCA growth be, and will it boost sponsor M&A share?
      A: Management expects the Private Capital Advisory business to continue strengthening and growing, bringing together diverse services to holistically serve sponsors. They anticipate real opportunities for revenue growth and increased share in sponsor M&A by leveraging these skill sets.

    9. Non-M&A Advisory Growth
      Q: How will non-M&A businesses contribute over the next years?
      A: Restructuring and other non-M&A businesses are performing extremely well and are expected to grow. While M&A remains the biggest business and is expected to ramp up, management foresees good balance across all businesses with no weakening in any area.

    10. Non-Compensation Expenses
      Q: Will non-comp expenses grow versus 2Q, or is there seasonality?
      A: There's some seasonality due to factors like SEC fees and training costs. Travel expenses have increased but are still at 73% of pre-COVID levels on a headcount-adjusted basis. Management is closely monitoring non-comp costs and exercising significant discipline.

    Related Publications