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Text: I'm Hallie Miller Evercore's, Head of Investor Relations.
Joining me on the call today are Ralph Schlosstein, and John Weinberg our Co-Chairman and Co-CEOs and Bob Walsh, our CFO.
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's 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's hard to believe that this is our third earnings call, for which we are not all together in the same conference room.
For today's call, John is in our offices in New York City, it's his week in the office and I am in my office in North Salem, New York and Bob is with our traders in our office in New Jersey.
Our business thrives on in-person collaboration and teamwork, and while we have been quite effective and successful over the last seven-plus months, operating out of 1800 offices around the globe we certainly recognize that our business and our culture operate best when we are physically together.
That certainly is our ultimate goal once the virus is no longer a factor in our lives, but in the interim, we remain committed to serving our clients with distinction and to collaborating with one another, as we implement a gradual return to office around the world.
The first nine months of this year have been volatile, and have had significant challenges and uncertainties, but there also have been many opportunities to advise our clients on their most important, strategic and financial needs.
The strategic investments we have made to broaden and diversify our capabilities over the past several years have enabled us to serve our clients on a wide array of strategic and financial matters and resulted in solid quarterly and year-to-date results demonstrating both to our clients and our shareholders that Evercore very much is in all-weather firm that can produce good results in a wide variety of environments.
There unquestionably are still uncertainties ahead; the upcoming US election, Brexit, the path of the virus and the disparity between the financial market recovery and the real economic recovery with so many of our fellow Americans, Europeans and others around the globe still unemployed or with their small businesses shuttered.
However, as we see the market for merger activity improve, and we continue to see robust activity in capital advisory, restructuring, underwriting and research and trading, we have never been more confident in our ability as a firm to help our clients achieve their most important strategic financial and capital objectives.
Before I comment on our financials, I want to provide a brief update on how Evercore has broadly responded to the events of this year and on what we are focused going forward.
As I mentioned, we are beginning to implement a very deliberate and thoughtful return to our offices around the globe.
Our transition back is occurring at a measured pace and follows all local government guidelines designed to protect communities in which we work.
The health and safety of our employees and their families remains our paramount consideration, and the return of any individual has been of their own choice.
Most of our colleagues, continue to work remotely and we anticipate that this will be the case for a reasonable period of time, probably measured in quarters rather than months.
We remain focused on pivoting to meet the needs of our clients and leveraging our broad and diverse capabilities to advise them, and the changing economic and financial environment.
The result is as follows: new M&A activity is being announced, in addition to the pre-downturn matters that have begun to reengage.
We are seeing continued momentum occurring in our capital advisory business both helping clients raise equity privately and publicly and advising clients on debt opportunities.
Restructuring and refinancing transactions are continuing and we are having constant dialog with our clients about their future financing needs.
And finally, we are experiencing strong engagement with investors looking for Research and our Wealth Management clients seeking strong financial advice.
Non-M&A activity, including underwriting has been a distinct opportunity during the past several months and has become an increasingly important part of our business in the current environment.
We've been able to support clients to enhance their liquidity, raise investment capital and shore up their balance sheets.
We are particularly proud of our CAPS product, which is designed to be an alternative to SPACs which we originated during the quarter and which we are in the early stages of building our convertible securities capability, including enhancing our distribution capabilities and our origination team.
There was a significant increase in M&A announcements in the third quarter and that momentum seems to be continuing in the fourth quarter.
Despite the many potential uncertainties which I outlined earlier as we look forward to the remainder of 2020 and into 2021, our backlogs are strong and we look forward to continuing our momentum in 2021 and in finishing this year strongly, and of course, we remain committed to maintaining our strong and very liquid balance sheet.
Let me now turn to our results.
We are quite pleased with our results for the third quarter and first-nine months of 2020 as the diversity of our capabilities and the entrepreneurial spirit of our team, allowed us to deliver revenues that are essentially flat year-over-year.
Below average M&A transactions in March, April, May, June affected our third quarter advisory results.
However, as you have seen, announced global M&A volumes nearly doubled in the third quarter compared to the second quarter and increased 38% compared to last year's third quarter in the US.
In the US, announced M&A volumes increased more than three-fold versus the second quarter and increased 55% compared to last year's third quarter.
Each of the three months of the third quarter both global and US announced M&A transaction volumes were higher than the monthly average of the last two years and in September, global announced monthly volume surpassed $450 billion for only the second time in the past few years.
Third quarter adjusted net revenues of $408.5 million and year-to-date adjusted net revenues of $1.36 billion were both flat versus the prior year periods.
As revenues from capital advisory, restructuring, underwriting and commissions and related fees largely offset the decline in revenues from lower M&A activity.
Third quarter advisory fees of $271.2 million declined 16% year-over-year and year-to-date advisory fees of $966.8 million declined 11% compared to the prior year period.
Based on the current consensus estimates and actual results, we expect our market share of advisory fees among all publicly reporting firms, on a trailing 12-month basis to be 8.3% compared to 8.1% at the end of June and 8.3% at year-end 2019.
Third quarter underwriting fees of $66.5 million increased more than 275% year-over-year, and the year-to-date underwriting fees of $181.2 million nearly tripled versus the prior year period.
The diversification of our underwriting business has contributed to a real step up in momentum.
Now, we continued to invest in broadening our industry coverage and our product capabilities.
We are working hard to sustain this momentum in the fourth quarter and have a meaningful and diversified pipeline of IPOs follow-ons and convertible securities.
Third quarter commissions and related fees of $43.9 million declined 6% year-over-year as the heightened volume and volatility of the first six months of the year subsided.
Year-to-date commissions and related fees of $153.4 million increased 12% versus the prior year period.
Asset management and administration fees were $16.6 million in the third quarter and $47.1 million for the year.
To date, an increase of 11% for the nine months and 7% -- I'm sorry, 11% for the quarter and 7% for the 9 months.
Turning to expenses, our adjusted comp ratio for the third quarter and the first nine months of 2020 is 63.6%, the 63.6% accrual for the first nine-months reflects, as it has in past years our estimate for the full year compensation ratio, which includes an estimate of 2020 incentive compensation.
This year, however, as we have pointed out on previous earnings calls there is higher level of uncertainty than in prior years about both the full-year revenues and full year market compensation.
Third quarter non-compensation costs of $71 million declined 18% year-over-year and year-to-date non-compensation costs of $230.9 million declined 9% versus the prior period.
Third quarter adjusted operating income and adjusted net income of $77.7 million and $52.6 million declined 8% and 13% respectively and adjusted earnings per share of $1.11 declined 12% versus the third quarter of 2019.
Year-to-date, operating income and adjusted net income of $262.9 million and $182.2 million declined 18% and 25% respectively and adjusted earnings per share of $3.85 declined 23% versus the prior period.
We remain committed to our historical capital return strategy in which we return earnings not needed in our business to shareholders through dividends and share repurchases.
Given our solid results for the first nine months of the year, we have -- which have resulted in good cash flow generation.
We are beginning to turn to that pre-COVID strategy.
Consistent with that view, our Board declared a dividend of $0.61 a $0.03 per quarter increase which is a 5% increase from the prior quarter.
We plan to return to our normal reassessment of the dividend in April of 2021, and to begin to restart our practice of returning our cash earnings that are not required in the business to investors through share repurchases.
Bob will provide additional detail on our cash position in his remarks.
We continue to see opportunities to further build out our capabilities and to expand geographically and we are building a pipeline of senior level A+ talent positions.
We also remain highly focused on developing and promoting our high talent professionals from within the firm.
Finally, we are especially proud of Evercore ISI's most recent showing in Institutional Investors Annual All-America Research Survey where we were recognized as the top ranked independent firm by a wide margin for the seventh year in a row and ranked number two or number three among all firms, large or small, depending upon how you count.
Ed Hyman Evercore ISI's Founder and Chairman was awarded the number one position in economics, a recognition he has earned 40 times.
Furthermore, Evercore ISI claimed a record 39 individual positions and tied its 2019 record of 36 team positions.
After several months of muted merger activity immediately following the onset of the global pandemic I believe that absent a negative event which could certainly happen, we are in the early stages of a recovery as many of the key conditions necessary for a healthy M&A market continue to improve.
The equity markets are strong for many sectors, access to financing and readily available credit remains, CEO confidence continues to improve and there appears to be greater stability in the markets.
As a result of these improving conditions, we are seeing increased opportunities to serve our clients across multiple industry sectors globally.
In financing, we have found multiple opportunities to help advise our clients in both equity and debt capital raises.
Despite the rapid government stimulus at the onset of the pandemic and the swift recovery in the credit markets, we expect restructuring and refinancing activity to stay elevated as leverage remains high across all sectors, especially those that are distressed.
Our restructuring group remains busy and continues to work through assignments and advise clients in sectors most hard hit by the pandemic.
Private Capital transactions for sponsors have increased and active assignments are beginning to reemerge, again as well.
While we are not yet back to pre-COVID levels, we are encouraged by the current pace of activity.
Returning to our investor clients, both institutional and wealth management clients remain focused on the evolving financial markets during the quarter and we continue to provide valuable research insights and wealth management advice.
We expect this focus to continue, particularly as we head into the year end.
Trading activity in the third quarter however has not been as high as the first six months of the year, as volatility has subsided.
I'm optimistic about the trajectory of the merger market overall, and I am pleased with our capital raising performance and our restructuring and debt advisory teams that have stepped up over these months.
Let me now turn to our performance in Investment Banking.
I'm encouraged to see activity levels with both corporate clients and financial sponsors broadly increasing across our platform in many sectors.
As announced, M&A activity increased during the quarter, we sustained our number one league table ranking for volume of announced M&A transactions over the last 12 months, both globally and in the US, among independent firms.
Among all firms we were once again number four, in the US in announced volume over the last 12 months.
As I said, our restructuring and debt advisory teams remain busy.
Our US restructuring group has already completed more transactions year-to-date than in all of 2019 and has been involved in nine of the 15 largest bankruptcies by total liabilities year-to-date.
We believe there will be further opportunities to advise our clients throughout what we expect to be an elongated restructuring cycle.
The team continues to do a great job partnering with and leveraging the expertise of our industry-focused bankers.
In shareholder advisory and activism defense and our Private Capital Advisory businesses, origination activity is beginning to pick up momentum.
There has been a pickup in unsolicited activity and we are pleased to be the financial advisor to CoreLogic, which is the biggest hostile situation at the moment.
Our Private Funds Group has successfully adapted to the virtual environment and has been a leader in this space, successfully completing virtual fund raises for both existing clients and new clients where the relationship has been developed entirely in remote environments.
Our equity capital markets business is performing extremely well.
We continue to gain momentum, and we are maintaining our focus on building our team.
We served as an active book runner or co-manager on six of the 11 largest US IPOs in the first nine months of 2020 and we played a key role in 30 underwriting transactions in the third quarter alone.
We are very proud to have served as the sole book runner -- our first US book run mandate ever on Executive Network Partnering Corporation's $360 million CAPS IPO.
This unique CAPS offering was pioneered, structured and developed here at Evercore and brings innovation to the increasingly popular SPACs market.
Clients continue to look opportunistically to raise capital and we are pleased with the breadth of the conversations and activity we are experiencing across a broad range of sectors including healthcare, financials, technology and energy.
We also continue to invest in broadening the business and building out the convertible origination team with important strategic hires.
Although it is still early days for us in the convertible space, we have served as an active book runner for Helix Energy Solutions Group's $200 million convertible bond offering during the quarter.
In our equities business our Investor and Corporate clients continue to rely on us for valuable macro and fundamental insights and our traders continue to help our clients execute in volatile markets.
As Ralph mentioned earlier, we are very proud of the team's institutional investor results.
I am very much encouraged by the current pace of activity and the momentum we are experiencing in our business.
Let me begin with a few comments on our GAAP results.
For the third quarter of 2020 net revenues, net income and earnings per share on a GAAP basis were $402.5 million, $42.6 million and $1.01 respectively.
For the first nine-months of 2020, net revenues, net income and earnings per share on a GAAP basis were $1.3 billion, $130.2 million and $3.09 respectively.
Our adjusted results exclude certain items related to the realignment strategy that began in the fourth quarter of 2019.
At this juncture, we are finalizing all of the required communications that remain and are associated with the realignment strategy and we are working hard to complete its execution by year-end.
Ultimately, we expect to incur separation and transition benefits and related costs of approximately $43 million which reflect a modest increase in the cost for our prior estimate.
During the third quarter of 2020, we recorded $7.3 million as special charges, which are excluded from our adjusted results.
Year-to-date we have recorded $37.6 million of special charges related to the realignment initiative.
As we mentioned earlier this year, 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 is subject to regulatory approval, which was submitted in June and is expected to occur shortly after that approval is received.
In addition, leaders from our advisory business in Mexico announced earlier this month that they are departing Evercore to form a new strategic advisory firm TACTIV, which we will partner with under a new strategic alliance.
We believe this alliance model best positions the team in Mexico to address client needs and build a diverse and growing array of capabilities.
Our adjusted results in the third quarter and first nine months of 2020 also exclude special charges of $0.1 million and $2.1 million respectively related to accelerated depreciation expense.
Turning to other revenues; in the third quarter other revenues increased compared to the prior-year period, primarily as a result of a gain of approximately $8 million on the investment funds portfolio which is used as an economic hedge against a portion of our deferred compensation program.
Other revenues for the first nine months of 2020 decreased versus the prior-year period, primarily reflecting a net gain of $1 million from this portfolio compared to $9.2 million for the first nine months of 2020.
Of course, this amount fluctuates as market values move and the continued strength of the market during the quarter, drove this quarter's gains.
Focusing on non-compensation costs, firmwide non-compensation costs per employee approximated $39,000 for the quarter, down 17% on a year-over-year basis.
The decrease in non-compensation costs per employee versus last year primarily reflects lower travel and related costs and lower professional fees.
As we continue to evolve toward more normal operation, costs associated with travel, professional fees and some other expenses will begin to recur.
Our GAAP tax rate for the third quarter was 23.5% compared to 28% for the prior year period.
On a GAAP basis, our share count was 42.3 million shares for the third quarter, our share count for adjusted earnings per share was 47.4 million shares.
Wrapping up and looking at our financial position, we held $1.1 billion of cash and cash equivalents at approximately $100 million of investment securities or $1.2 million of liquid assets as of September 30, 2020.
By comparison, at September 30, 2019 we held approximately $305 million at cash and cash equivalents and $620 million of investment securities or $920 million of liquid assets.
As we have discussed in the past, we hold cash and investment securities both for operations and to fund our deferred compensation obligations.
At the outset of the downturn, we shifted our holdings to a highly liquid portfolio, reducing expenditures and buybacks to maximize our financial flexibility.
We plan to begin to reestablish our longer-term investment portfolio, so that funds held to satisfy our deferred compensation obligations as well as a portion of our permanent capital base, generate a greater return.
This investment strategy will result in shifting funds to investment securities relative to cash and cash equivalents.
We continue to monitor our cash levels, liquidity, regulatory capital requirements, debt covenants and our other contractual obligations, including deferred compensation regularly, and as Ralph noted, we will begin to return cash earnings not needed to support these needs -- to our investors.
Just a couple of comments before we go to questions.
Second, during our last call, we talked about the importance of diversity and inclusion at Evercore.
We remain committed to pursuing our diversity and inclusion goals and I'm proud to share that during the quarter, we added diversity and inclusion as a stand-alone core value.
We are committed to holding ourselves both as individuals and as a firm, accountable in this important area and we look forward to continuing to make progress.
Finally, as Ralph and I shared with our employees during a recent virtual town hall that we conducted while socially distanced in the office we are all very much focused on finishing the year strongly and preparing for 2021.
While there are still uncertainties ahead, we have never been more optimistic about the strength, breadth and diversity of our platform to help our clients regardless of the environment.
Now, I'd like to invite you to ask questions.

user
compname reports third quarter 2020 quarterly diluted earnings per share $1.01.
compname reports third quarter 2020 results; increases quarterly dividend to $0.61 per share.
qtrly diluted earnings per share $1.01.
q3 revenue $402.5 million versus $402.2 million.
qtrly adjusted diluted earnings per share $1.11.
cash position and balance sheet continue to remain strong, and capital return strategies remain on track.

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