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Text: I'm Hallie Miller, Evercore's Head of Investor Relations.
At this time, it is uncertain how long our business will be negatively affected by COVID-19 and the associated economics and market downturn.
These factors include, but are not limited to, those discussed in Evercore'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.
We continue to believe that it is 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 closings.
It is certainly a very different world today compared to our last earnings call in January.
The vast majority of our firm is working remotely, and we are conducting our earnings call from widely varied locations.
I'll comment on our first quarter results in a few minutes; but first, I want to talk about our firm and how we have approached the COVID-19 pandemic from both an operational and a business standpoint.
Our global team has performed extraordinarily well in very challenging conditions and adapted quickly to our remote working arrangements.
Despite working from more than 1,800 offices globally, we are effectively communicating with our clients and each other.
Roger, John, and I could not be more proud of our entire team.
As we settle into our current work arrangement and acclimate to the current environment, John, Roger and I, and the rest of the management team are focused on four very important priorities.
First, assuring the health and safety of our team and their families.
Second, pivoting our services to address the evolving needs of our corporate, institutional investor, and wealth management clients.
Third, operating collaboratively, effectively and securely, leveraging the technology in both new and old ways.
And fourth, maintaining a strong and liquid balance sheet.
The economic issue that the United States and much of the world faces today is the rapid and unprecedented increase in unemployment, and the equally rapid decline in economic activity.
The statistics related to unemployment are truly sobering.
22 million Americans alone have lost their jobs in the last four weeks and millions more around the world have been similarly affected.
All of us at Evercore feel deeply for those who are out of work because of this pandemic.
Their hardship pains us.
The sharp increase in unemployment undoubtedly pre-stages a substantial decline in global GDP, probably starting in the first quarter and most certainly a deep decline in the second quarter and potentially in the third quarter as well.
We have seen governments and central banks respond in an aggressive and unprecedented way with monetary and fiscal stimulus to mitigate and ultimately reverse the economic decline.
And we are confident that over time the economies around the world will recover but it will take time and the recovery almost certainly will not be as sharp as the decline.
As a consequence, we expect that our business will be negatively affected in the coming quarters.
Advisory business, M&A is our largest revenue contributor and we expect that business to be negatively affected for some period of time.
As John will describe in his remarks, the conditions typically require for a strong M&A activity currently are not present.
Additionally, equity underwriting has virtually disappeared since mid-February.
So, we anticipate a strong return once market stabilizes, similar to what we saw in the second and third and fourth quarters of 2009, following the depths of the global financial crisis.
So, these are the negatives.
On the other hand, the current environment has created opportunities for us as we have rapidly redirected our advisory efforts to adjust to the evolving needs of our clients.
The investments that we have made in our platform over the last several years, both to broaden and diversify our capabilities and to expand our coverage of key sectors in geographies, have significantly expanded the scope of our expertise and are allowing us to continue to provide independent and trusted advice to our clients on the topics that are most relevant to them today.
Our restructuring, debt and equity capital markets advisory businesses are going flat-out.
Additionally, the volatility and increased trading volume of the equity markets has driven a strong increase in secondary revenues in our equities business.
These businesses are smaller than our M&A advisory business and it will take time before the increase in revenue related to restructuring and debt and equity capital markets advisory activities are recognized.
As a consequence, the increase in activity in these areas will not come quickly enough or be of sufficient scale to offset the expected near-term weakness in M&A.
Normally, at this point, I comment on our backlog.
It's way too early in this location to know the overall effect on our backlogs as they are in transition.
Restructuring and debt advisory is building rapidly while M&A transactions are currently being delayed, postponed or put on hold, as buyers and sellers assess the duration and severity of the downturn.
The dialog around M&A however, certainly has not halted as the dialog with financial sponsors is increasing and well capitalized and liquid companies are opportunistically exploring either long sought after assets or new ideas.
While we cannot be sure of the duration and severity of the downturn, I believe that as a relatively young and highly entrepreneurial firm, are ready for the challenges presented by the current environment and that we have already responded effectively.
If we continue to work collaboratively and adapt to the changing needs of our clients and communities, we will emerge from this period well positioned for future long-term growth and market share gain.
Let me now talk about our financial performance in the first quarter.
We reported the second best first quarter revenues in our history, indicative of the revenue generating power of our franchise and our business model in more normal time.
Adjusted net revenues of $435 million increased 4% versus the first quarter of 2019.
In aggregate, our total revenues of $436 million from our investment banking businesses, advisory, underwriting and commissions, increased 10% versus the first quarter of last year.
Advisory fees of $359 million, our largest revenue source, increased 10% compared to the first quarter of 2019, and held up very well compared to our larger competitors, almost all of whom experienced double-digit declines between 10% and 20% in their advisory revenues.
As a general matter, previously announced transactions closed as expected in the quarter.
These results are especially impressive considering the fact that the dollar value of announced M&A transactions globally declined 24% in the first quarter and the dollar value of closed M&A transaction fell by 37% compared to the quarter a year ago.
Due to the strength of our advisory revenues compared to the declines experienced by our larger competitors, we expect to increase again our market share of advisory fees among all publicly reporting firms on a trailing 12-month basis, the 8.6% from 7.9% for the 12-month period ending March 31, 2019, and from 8.3% at the end of 2019.
Underwriting fees were $21.1 million, a decline of 22% from the first quarter of 2019.
This business had a very strong start to the year.
But as COVID-19 began to spread, activity in this business essentially halted in mid-February.
Commissions and related fees of $55.4 million increased 32% versus the first quarter of 2019 or our best first quarter since 2016.
Our Equities team benefited from the heightened volatility and equity trading volumes associated with the market downturn that began in mid-February.
Asset management and administration fees from our consolidated businesses were $15.3 million, an increase of 7% versus the first quarter of 2019.
Our first quarter compensation ratio of 62% was impacted by the revenue decline in other revenue, caused by the shift from gains to losses associated with the investment portfolio that hedges a portion of our deferred cash compensation plan.
The compensation ratios for the first quarter of 2020 and 2019 are essentially the same when the impact of these gains and losses are excluded.
We historically have reflected a compensation ratio in the first quarter based on our best estimates for the full year revenue expectations and compensation requirements and reassess that compensation ratio each quarter to address changes in these expectations.
Given the uncertainty of the current environment, our first quarter compensation ratio is reflective only of our first quarter performance.
We will reevaluate the appropriate amount of compensation and our compensation ratio on a quarterly basis, as we always have, but the likelihood of change will certainly be higher in the current year than in other years, due to the highly uncertain environment for the next two to three quarters.
Non-compensation costs were $82.8 million, up 2.7% from the first quarter of 2019.
The increase reflects higher occupancy costs and expenses associated with certain technology initiatives, many of which are supporting our successful work from home operations today.
The increase in these costs was partly offset by lower professional fees and travel expenses.
As we have reported to you before, we have started a number of initiatives to reduce costs at the end of last year, and these results begin to demonstrate our progress.
Bob will comment further on this.
Adjusted operating income and adjusted net income of $82.5 million and $57.8 million declined 14% and 29% respectively, and adjusted earnings per share of $1.21 declined 27% versus the first quarter of 2019.
Here again, our change in operating income was affected meaningfully by the changes in the value of the hedges for our deferred compensation plans rather than any change in our compensation philosophy, and the larger change in net income and earnings per share was significantly affected by the higher tax rate in the first quarter of 2020 as compared to 2019.
Bob will discuss this in his remarks.
We remain focused on our capital management strategy, and returned $178.1 million to shareholders during the quarter through dividends and repurchase of 1.8 million shares at an average price of $76.57.
Our commitment to offset the dilution associated with equity grants has been substantially completed for the year, so any additional share repurchases in 2020 will be dependent on future earnings and maintaining our strong liquidity position.
Our Board declared a dividend of $0.58, consistent with prior quarters and reflective of our results for the quarter.
Our Board and management will continue to evaluate the dividend on a quarterly basis, as the effect of COVID-19 virus on revenues becomes more clear.
Although the current expectation, absent a steep decline in revenues and a significant reduction in our cash position, is that our current dividend will be maintained.
Our first quarter results demonstrate the continued strength of Evercore's franchise in more normal time.
In each of the last two years, we have generated revenues in excess of $2 billion and experienced operating margins that averaged in excess of 25%.
These results were produced by essentially the same team that we have on the field today, and we really don't see any reason why those results can't be repeated when normal and less disruptive conditions return.
The market environment for much of the first quarter continued to be supportive of M&A and strategic capital raising transactions in most sectors and geographic regions.
As such, the rapid change in environment associated with the global spread of COVID-19 is not generally evident in our first quarter results.
As Ralph mentioned earlier, many of the transactions we announced continued to move toward completion throughout the quarter.
Yet today, the conditions necessary for a healthy M&A market, including stable equity valuations, readily available credit, and CEO confidence and optimism do not exist.
Demand for restructuring and, more broadly, debt advisory and liability management advisory has dramatically increased in the current environment, as companies focus on their most immediate liquidity needs.
Financial sponsors continue to have record levels of dry powder.
But with valuation so uncertain, it is difficult for them to put money to work at the moment.
However, opportunities for innovative assignments do exist and our investment in and build out of our financial sponsors team continues.
The cash equities business tends to perform better when volatility and volumes increase.
The VIX spiked dramatically late in the first quarter, and it remains elevated.
Clearly, three weeks into the second quarter, we faced challenging conditions.
CEOs are assessing a volatile and uncertain environment and dialogues are more focused on operations and liquidity requirements as opposed to strategic and growth initiatives.
Volatility in the market remains high and valuations are in flux.
Many activists have dialed back on large campaigns and are starting fee renewal, paralleling the M&A slowdown, and access to public capital is challenging.
Despite these more challenging conditions, we are confident that the breadth and capabilities that we have, position us well with clients to evaluate all situations, and our independent advice model will be of increasing value in the current environment.
We are focusing our efforts on maintaining constant and high quality dialogs with our clients to assist them in the areas where they currently seek advice, and are working hard to build relationships with new clients, looking to broaden their relationship with an independent advisor.
When the markets begin to show sustained stability, we believe that we will begin to see an increase in proactive attention to strategic matters.
Until then, we are actively communicating and engaging with all of our clients to help them navigate the current environment and be there for them when the eventual recovery comes.
Our performance during the first quarter was solid despite increasingly challenging conditions as the quarter progressed and came to a close.
We sustained our number-one ranking for volume of announced transactions over the past 12 months, both globally and in the U.S., among independent firms.
Among all firms, we were once again number-six globally and number-four in the U.S.
We continued to advise on a large number of the most prominent M&A assignments of the quarter, including three of the four largest transactions in the United States.
Our underwriting business had a very strong first six weeks of the quarter and we are pleased to have served as a joint bookrunner on two of the top-three largest IPOs priced during the quarter.
However, activity has significantly decreased since mid-February.
Our Private Capital Advisory business performed well during the quarter and completed assignments already in progress.
Our Equities business, had a very strong quarter as a result of the heightened volatility and volume associated with the market downturn precipitated by COVID-19.
The strategic investments in senior talent we made last year have contributed to our success.
We've been able to increase our connectivity with investors and advisory clients and provide valuable insights during a period of significant market dislocations.
Our healthcare analysts are digging deep into the science of COVID-19 and collaborating with our macro and other fundamental analysts to determine investment implications across many different sectors.
Our macro analysts are also providing insights on government stimulus programs and the overall state of the economies worldwide.
We've also found more ways to connect with institutional clients and interactions are 35% higher than in prior periods.
Our Advisory clients have had an intense interest in our research, and over the past months we've added more than 1,800 corporate executives to our research distribution.
As we enter a slower market for M&A activity and a more restructuring, debt advisory and liability management focused environment, our business is pivoting to meet the changing needs of our clients.
With a number of sectors and markets badly impaired by COVID-19, our industry M&A bankers are collaborating with our restructuring and debt advisory teams to meet increased activity in these areas.
We've spoken about our flexible business model in the past and we are seeing it in full effect now.
The solutions we are exploring with our clients are broad-based, involving both in and out of court bankruptcies, exchange offerings, and amend and extend agreements and private placements.
The breadth of experience and talent of our independent team enables us to help clients analyze and execute their strategies and solutions.
While major activist campaigns have dialed back, our shareholder advisory business has been working with clients to help them understand the issues they are currently facing, including potential stealth accumulations by activists and hospital raters, capital return decisions, what to do about guidance and balance sheet and liquidity issues.
Many of our private capital advisory assignments are currently on hold as investors are sidelined and are resetting their expectations.
We believe many funds will need help raising money and managing their portfolios, as markets stabilize.
Let me briefly touch on our talented team.
Our greatest asset is our people and every one at Evercore has been working incredibly hard and diligently to make sure the firm is fully functioning in our current remote working environment, and they make sure that our clients are well served in this difficult time.
Our efforts to uphold our core values of client focus integrity and teamwork, remains central to everything we do.
We are pleased with our two new Advisory SMDs we've recruited so far in 2020, and we will remain open to opportunistically adding other high-quality individuals who can bring value to our clients.
We are extremely proud of the promotions across all levels that were announced during the first quarter.
As we move forward, we are very much aware of the difficult road ahead.
We will continue to work together in support of our clients through this downturn and the inevitable recovery.
We are confident that if we continue to collaborate and communicate with each other and adapt quickly with the changing needs of our clients, we will emerge from this downturn, well positioned for future opportunities.
For the first quarter of 2020, net revenues, net income and earnings per share on a GAAP basis were $427 million, $31.2 million and $0.74 respectively.
Net revenue of approximately $40 million was recognized in the first quarter as transactions that closed at the beginning of the second quarter of 2020.
For comparison purposes, net revenue was approximately $34 million in the first quarter of $2019 and $3 million for the first quarter of 2019.
Consistent with prior periods, our adjusted results exclude certain items that relate to our acquisitions and dispositions, and also include the full share count associated with those acquisitions.
Our adjusted results also exclude charges associated with the realignment strategy announced in January.
Specifically, we adjusted for costs associated with divesting of Class J LP Units, granted in conjunction with the ISI acquisition.
For the quarter, we expensed $1.1 million related to those units.
Our adjusted results for the quarter also exclude costs related to the realignment strategy that began in the fourth quarter of 2019.
As we noted last quarter, we expect to incur separation and transition benefits and related costs of approximately $38 million, $22.1 million of which was recorded as special charges in the first quarter of 2020.
Those charges are excluded from our adjusted results.
Last quarter, we noted that we are continuing to pursue opportunities to restructure operations in certain smaller markets.
We have entered into an agreement with the leaders of our business in Mexico to purchase our broker-dealer there, which principally provides investment management services.
Completion of this sale, which is subject to regulatory approval, is expected to occur by the end of 2020.
We continue to review additional opportunities in smaller markets.
And these opportunities could result in further charges in 2020, if pursued to completion.
Our adjusted results for the quarter also exclude special charges of $1.5 million related to accelerated depreciation expense for leasehold improvements and our business realignment initiatives.
Finally, during the quarter, we adopted the new accounting guidance for credit losses, the adoption did not have a material impact on our results.
As we noted, other revenue in the first quarter declined significantly compared to the prior year period as a result of losses on the investment funds portfolio, which is used as an economic hedge against a portion of our deferred cash compensation program obligations.
This amount fluctuates as market values fluctuate and the significant market decline during the quarter drove the loss.
As you will recall from prior discussions, this loss is offset by lower compensation expense over the term of these awards.
Turning to non-compensation costs, our firmwide non-compensation cost per employee was $44,000.1 [Phonetic] for the first quarter, down 6% on a year-over-year basis.
The decrease in non-compensation cost per employee versus last year primarily reflects lower professional fees and travel and related expenses.
We began reviewing our non-compensation costs before the COVID-19 pandemic became an issue.
We continue to adapt our operations in response to the current downturn and remain focused on reducing our non-compensation expense.
We are cutting nonessential costs, including in areas pertaining to travel and entertainment, research and subscriptions, and deferring certain capital projects, so that we are well positioned throughout the downturn as well as in the inevitable recovery.
Our GAAP tax rate for the first quarter was 25.8% compared to 9.1% in the prior year period.
The effective tax rate is affected by a number of permanent differences, including the non-deductible treatment of certain compensation expenses.
The principal driver of the year-over-year difference in the effective tax rate is a lower deduction associated with the appreciation of the firm's share price upon vesting of employee share based awards above the original grant price, as the firm's share price at the time of vesting in 2020 was more in line with the share price or those at the time of grant.
On a GAAP basis, our share count was 42.3 million shares for the first quarter.
On an adjusted basis, the share count was 47.7 million, down versus the prior-year period, driven by share repurchases and a lower average share price.
Finally, we hold approximately $588 million of cash and $264 million in investment securities as of March 31, 2020, with our current assets exceeding current liabilities by approximately $880 million.
By comparison, at year-end, we held $634 million of cash and $624 million in investment securities.
The sequential decline is in line with the seasonal trend driven by bonus payments in the first quarter.
As we continue to navigate in the downturn, we are focused on maintaining our strong and liquid balance sheet and we continue to monitor cash levels, liquidity, regulatory capital requirements, debt covenants and our other contractual obligations regularly.
Evercore celebrated its 25th anniversary in March.
While we have never faced a dislocation like the one we are facing now, we have spent the last 25 years building a firm that has a broad range of capabilities and products to serve our clients in all kinds of markets, including the one that we are in now.

user
compname reports qtrly adjusted earnings per share $1.21.
compname reports first quarter 2020 results; quarterly dividend of $0.58 per share.
evercore inc - qtrly u.s. gaap revenue $427.0 million up 3%.
evercore inc - qtrly u.s. gaap earnings per share $0.74.
evercore inc - qtrly adjusted earnings per share $1.21.
evercore inc - implementing cost reduction initiatives and downsizing or deferring capital investments.
evercore inc - review of operations will generate reductions of about 6% of headcount.
evercore inc - expect impact from covid-19 to be significant.
evercore inc - expects to incur separation and transition benefits and related costs of about $38 million in q1 of 2020.
evercore inc - continue to review additional opportunities in smaller markets.

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