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Text: I'm Hallie Miller, Evercore's Head of Investor Relations.
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 have noted previously, our results for any particular quarter are influenced by the timing of transaction closings.
Let me begin by expressing my affection and respect for Ralph.
He's been an outstanding leader, partner, and friend.
I will have a lot more to say about Ralph at the end of our comments.
But first, let's talk about the quarter.
The positive environment for M&A and capital raising experience during the first half of the year extended into the third quarter.
Our results reflect this momentum and the success of our strategic initiatives aimed at broadening and diversifying our platform.
The strength and depth of our talented teams, coupled with our broad and expanding platform of capabilities, provides us with the tools and the intellectual capital to advise our clients on their most important strategic capital and financial needs.
Dollar volume of announced M&A globally was more than $1.5 trillion in the third quarter, representing a 9% sequential increase.
It was also the fifth straight quarter that announced M&A activity surpassed $1 trillion.
Strong economic conditions and thematic trends around growth and technological disruption continue to drive activity.
The ongoing high level of activity has positively affected our results, and it has sustained our backlogs as well.
Activist activity remains high with a 23% year-over-year increase in the number of new activist positions in the last 12 months.
Equity issuance continues to outpace historical levels with a greater total amount raised year-to-date than any year other than 2020 and larger than 2019 and 2018 combined.
Levels have stabilized somewhat from earlier in the year when SPAC underwriting activity was substantial.
In the private capital advisory space, momentum in capital raising for financial sponsors continues, and secondary market activity remains high, particularly activity related to single-asset structures.
The strong availability of credit and the pace of economic recovery has limited the need for traditional restructuring work.
The leverage remains elevated.
There continue to be opportunities for bespoke financings and assignments with financial sponsors and creditors.
In equities, despite the usual third quarter seasonality, we benefited from heightened volatility at the end of the quarter and our expanded offering set for clients.
In summary, with the backdrop of a strong economic environment.
Our business continues to perform exceptionally well.
Our teams are busy helping clients, and we are pleased to have the majority of our workforce back in the office in some form.
We did not see anything that would indicate an imminent pullback in the momentum, but we continue to monitor inflation, Fed actions, interest rates, the regulatory environment, supply chain disruption, and COVID's impact on the reopening process.
Of course, our results are always affected by the timing of deal closings.
With that, let me turn to key business highlights from the quarter.
We ranked number 1 in the Refinitiv League Tables for dollar volume of announced M&A, both globally and in the U.S. among independent firms for the latest 12-month period, and we rank 7 among all firms in the U.S. for the same period.
Celeste will discuss our financials in more detail later in the call.
However, I would like to highlight that we achieved a fourth straight quarter of Advisory revenues greater than $500 million, and our year-to-date advisory revenues of $1.78 billion are more than all of 2020, which was a record year for us.
Based on current consensus estimates and actual results, we expect to maintain our number 4 ranking based on advisory fees among all publicly traded investment banking firms over the last 12 months and to grow our market share relative to these same firms.
We are working on several of the top 25 announced global M&A transactions this year, including advising GE Capital Aviation on its pending $30 billion sale to AerCap Holdings, advising the board of directors of Canadian Pacific on its pending $29 billion acquisition of Kansas City Southern, serving as the lead advisor to Grab on its $40 billion SPAC merger, serving as the sole advisor to Nuance on a pending $19.7 billion sale to Microsoft, and advising MGM Growth Properties on its $17.2 billion sale to VICI Properties.
Our underwriting business had another solid quarter booking more than $50 million in revenues and the pipeline for activity remained strong.
It's clear that further investment on our ECM business, including building out our sector coverage and enhancing our capabilities with convertibles, is contributing meaningfully to the growth of this business and the firm overall.
We continue to achieve increasingly better leadership positions in the ECM transactions in which we participate.
We served as active bookrunner on, approximately, 60% of the 24 equity deals and equity-linked deals we completed during the quarter.
We continue to diversify the mix of our revenues.
While healthcare still makes up the bulk of our underwriting revenues, we are seeing more variety within healthcare sector beyond biotech, as well as greater contribution from sectors such as TMT, industrials, and consumer, which in aggregate, more than tripled their share of ECM revenues in the third quarter compared to this time last year.
A few notable transactions from the quarter include: in pharma, active book runner on Ascendis Pharmacy's $450 million follow-on offering; in consumer, passive bookrunner on Olaplex's $1.8 billion IPO; in TMT, passive bookrunner on Bumble's $1.1 billion follow-on offering; in consumer, we were financial advisor to Warby Parker for its direct listing.
Even with the slowdown in the market for SPAC underwriting, we completed five during the quarter, including three as lead-left bookrunner.
We once again ranked in the top 20 for underwriting revenue as estimated by Dealogic for the latest 12-month period for deals listed on the U.S. exchanges, excluding bought deals and ATMs. We remain focused on working our way toward the top 10 for the market share.
Our work with financial sponsors in our private capital advisory groups, our secondary [Phonetic] advisory business and our primary fundraising business continue at a strong pace.
These businesses continue to show significant momentum, and their impact on our results continues to grow.
Our success here is driven by three things: first, our strong client relationships; second, our strong track record; and third, our comprehensive coverage approach, which includes the sale of assets, LP positions, and GP stakes and our capability in raising capital.
As I commented, our momentum continues to build as many of our clients are repeat clients and our reputation attracts more opportunities.
The breadth and interconnectivity of our platforms means that we can work with financial sponsors on the fundraising side, then work with them on the advisory side as they deploy capital which can then lead to the next fund raise.
In restructuring, the strong economic recovery and access to capital is enabling companies to restructure out of court.
Our team continues to work through prior assignments.
liability management engagements and creditor assignments and continues to partner with our debt advisory team in private financing activity.
In equities, we remain engaged with our clients and focused on producing and delivering high-quality research and service for them.
Clients continue to use our excellent research and value the service we provide them through our core product.
Independent third-party data indicates that while the market wallet declined in the second quarter both sequentially and year-over-year, we successfully increased our market share versus both prior periods.
In fact, we were the largest share gainer of any firm globally transacting in U.S. cash equities.
We are extremely proud that Evercore ISI was once again highly ranked in Institutional Investor's All-America Research survey.
Highlights include top-ranked independent research firm for the eighth straight year; number 2 ranked firm among all firms for analysts; record 43 individual positions and 40 team positions; and Ed Hyman and was awarded the number 1 position in economics for the 41st time.
The convertibles business that we added a year ago continues to gain momentum as we build out the team and integrate it with our capabilities in research and sales.
Finally, AUM and our Wealth Management business finished the quarter at $11.3 billion as long-term performance remains solid and new business continues to be positive.
John and I will remain in our current roles until then, at which time he will become the sole Chairman and CEO of Evercore, and I will become Chairman Emeritus.
I will have more to say about my almost 13 years here on my last earnings call in early February, but I want to say that John and I have been partners in running Evercore for the last five years, for the first 3.5 years with John as Executive Chairman and I as CEO, and for the last 15 months as Co-Chairman of the Board and Co-CEOs.
It has been a great partnership.
When I convinced John to un-retire five years ago, and it took me 18 months to convince him, it was my deep hope that he would succeed me as CEO.
Today that hope has been fulfilled.
He is beyond ready to take on this role.
He is excited about taking on this role, and I couldn't be more optimistic about the future of the firm under his leadership.
I'm also very proud that we have put in place a next generation of leadership in almost every part of the firm.
Of the four leaders of U.S. advisory, three are in their 40s.
Of our two leaders of our advisory business in Europe, one is in his early 50s.
Our CEO of Evercore ISI is in his early 50s.
Our new see FFO and our General Counsel are in their 40s.
Our new Head of ECM is in her early 40s, and our new head of Evercore Wealth Management is in his early 50s.
With these extraordinarily capable young men and women in leadership positions, our firm is in a great position for the next decade or two.
I'm also proud of the incredible strength of our culture, which truly has allowed us to thrive over the last 20 months and the last 12.5 years.
Our core values of clients first, excellence, integrity, teamwork, respect for each other, investment in our talent, and diversity, equity, and inclusion have sustained us during this very challenging period, and they will allow us to continue to gain market share in the coming years.
He often jokes about our founder, Howard Evercore, who of course never existed.
But from the beginning, he simply wanted the firm to provide high-quality honest advice to clients and to maintain the highest standards of integrity.
Roger and I have worked together in four different places, and this is the first time that we've worked closely together.
And like my partnership with John, it has been a great partnership.
Roger's a very modest man, but I don't think he would mind me saying that he is today the single best person on the planet at what he does, and he has been a great partner to me over the last 12.5 years.
Let me now talk about our growth aspirations and our return of capital approach.
Our growth aspirations have evolved over the years from our goal of achieving $1 billion in advisory revenues to becoming the largest independent investment banking advisory firm in the world and the fourth largest in advisory fees among all firms, a goal that we first achieved in 2018 and have achieved every year since.
And our goal lately is to steadily gain market share and to narrow the gap between Evercore and the top 3 global firms by advisory revenues, all of whom, of course, are universal banking firms.
The breadth and diversity of our capabilities and, of course, a strong environment for M&A and capital raising have supported our growth trajectory and our industry-leading advisory SMD productivity.
But we believe that we certainly have meaningful growth opportunities in both revenues and market share gains in the future.
We have many opportunities to seize, but let me highlight three: first, we are highly focused on filling sector and geographic white space, both in North America and in Europe in our advisory business; and on continuing our client coverage initiatives focused on financial sponsors and large multinational corporations.
Second, we are deepening and broadening our product capabilities, particularly in ECM and debt advisory, including the addition of SPAC expertise and convertibles capability so that we have more fee opportunities with each of our clients and can increase our share of fees paid by our clients.
And third, we are investing heavily in advisory capabilities that serve the fastest growing segments of the economy, including the four techs: FinTech, Biotech, Cleantech, and traditional tech, particularly software.
Hiring A-plus talent and developing strong talent from within is critical to continuing to grow, and we have made notable progress on our hiring objectives this year.
Two new advisory SMDs joined us earlier this year, Kristy Grippi as our new Head of ECM and Juan Pedro Cozar as our Head of Iberia, and they already are having significant and positive impact on our business.
Three additional Advisory SMDs, Brad Wolff covering Biotech, Brad David covering financial sponsors, and Adi Jayaraman covering FinTech have joined us, and we expect them to begin to have an impact soon.
Three additional Advisory SMDs have left their firms and will join Evercore later this year covering the power and renewable space and basic materials.
These SMD additions in 2021 put us at the top end of our historical range of four to eight Advisory SMD recruits per year, and we continue to have meaningful and ongoing conversations with other potential recruits in areas of strategic significance.
Add to that the two Advisory SMDs who were promoted earlier this year, and we have 10 new SMDs in Advisory that are ramping up in areas of strategic importance to us.
In addition to hiring at the most senior levels, we are adding talent at all levels of seniority to continue to enhance our coverage, to meet the needs of our clients, and to support the elevated pace of activity that John described.
If we can continue to hire strong talent at all levels and offer more capabilities to serve clients, we will be able to enhance our already-strong and industry-leading Advisory SMD productivity levels and continue to grow the firm.
And, of course, there is additional inherent growth potential from the 30-plus Senior Managing Directors, including the 10 from this year, that have joined or have been promoted over the past three years and are still ramping up to full productivity.
And finally, we continue to add world-class senior research analyst like Mark Mahaney, the I.I.-ranked Internet analyst who joined us earlier this year.
Now let me discuss our capital return approach.
Our goal has always been to return to our shareholders all of our earnings not invested in the business in the form of dividends and share repurchases.
We achieved this goal in aggregate over a multi-year period through 2019.
And during the period 2015 to 2020, we reduced our adjusted weighted share count by 9%, or a little over 2% a year.
2020, of course, was an anomalous year.
We took several actions in 2020 to build a fortress balance sheet for our business.
First, in the early days of the pandemic, when there was heightened uncertainty about the length and depth of the economic slowdown, we became more conservative in our capital return policy, temporarily suspending discretionary buybacks and keeping our dividend flat for two quarters.
This resulted in increased cash holdings, particularly as our business recovered toward the end of the year.
Second, we decided to become more conservative in our long-term capital management approach.
In addition to what we historically held cash for, minimum working capital requirements, including capital to support our underwriting activities, accrued cash bonuses and a portion of upcoming and a historical deferred compensation, we decided to prefund all of our awarded deferred cash compensation obligations, thus building a truly fortress balance sheet for our business.
This catch-up was a one-time event.
Finally, we meaningfully increased the capital levels of our U.S. broker-dealer in the third quarter of 2020 to support our significantly expanded underwriting business, which as you may recall, had two very large transactions in the second quarter and is operating at a considerably higher level with a broader array of products than it has prior to 2020.
Ultimately, because of our surprise in the fourth quarter, we ended 2020 with an excess cash position even when considering the funding of all of these capital requirements for the underwriting business and fully funding our awarded deferred compensation obligations.
We also ended the first quarter of 2021 with an excess cash position.
And while we have been working down our excess cash position, we still have more cash than we need to meet our fortress balance sheet requirements.
So far this year we have returned $631.5 million to shareholders through dividends and share repurchases.
We intend from this point forward to continue our pre-2020 practice of returning to shareholders all of our earnings not invested in the business, and also to work down opportunistically over time our excess cash position.
This will in turn shrink our adjusted diluted weighted average share count over time as we did from 2015 until now, although going forward at a more accelerated pace than the 2-plus percentage shrinkage over the last five years.
It also will drive meaningful earnings per share growth.
Of the first 12 years that I have been doing Evercore earnings calls, in 11 of those 12 years, we have had record revenues and earnings per share.
So here we go.
Sitting where we are today, with year-to-date revenues roughly $100 million below last year's full-year record and nine month earnings per share about $0.80 above last year's full-year record, let me guide all of you by saying that 2021 will be another record year in revenues and earnings for Evercore.
By the way, I got permission from our General Counsel to say that.
And it's really a pleasure to be here doing my first earnings call with you and John as Evercore's CFO.
For the third quarter of 2021, net revenues, net income, and earnings per share on a GAAP basis were $824 million, $160 million, and $3.74, respectively.
Year-to-date, net revenues, net income, and earnings per share on a GAAP basis were $2.17 billion, $444 million, and $10.19, respectively.
My comments from here will focus on non-GAAP measures, which we believe are useful when evaluating our results.
Third quarter adjusted net revenues of $832 million grew 104% year-over-year.
Year-to-date adjusted net revenues of $2.19 billion increased 62% compared to the prior year period.
This represents our best third quarter ever, our second-best quarter ever overall, and the first time adjusted net revenue surpassed $2 billion in the first nine months of the year.
Third quarter Advisory fees of $709 million grew 161% year-over-year.
Year-to-date advisory fees of $1.78 billion increased 84% versus the prior year period.
Our advisory fees include, approximately, $93 million of revenue from transactions that closed in early October.
As a reminder, in accordance with relevant accounting principles, we recognize revenue for deals that close early in the following quarter and certain closing conditions were satisfied at quarter-end.
To compare, we recognized $59 million in the second quarter of 2021 and $20 million in the third quarter of 2020.
Third quarter underwriting fees of $54 million reflected a decline of 18% year-over-year.
This compares favorably to the overall market for U.S. equity and equity-linked issuance which declined nearly 25% year-over-year as SPAC activity slowed dramatically.
We have been selective in SPAC underwriting activity, which helps protect our revenues from experiencing volatility associated with this market.
Year-to-date underwriting fees of $182 million are essentially flat versus the prior-year period, which as a reminder, included two sizable transactions in the second quarter of 2020 that totaled nearly $45 million in revenues.
Third quarter commissions and related revenue of $47 million increased 6% year-over-year even as market volumes and volatility declined.
Check collections, which are driven by research votes, were strong.
Convertible securities, which we began trading in January, continued to contribute positively.
Year-to-date commissions and related revenue of $151 million declined 2% versus the prior year period as market volatility declined significantly.
Third quarter asset management and administration fees of $20 million increased 21% year over year on higher AUM.
Year-to-date asset management and administration fees of $57 million increased 21% versus the prior year period.
Our adjusted compensation ratio for the third quarter is 58.5%, which brings our year-to-date comp ratio to 58.8%.
This reflects our current best estimate on compensation for the full year.
As John indicated, our backlog is strong, but as always, our revenue in a given period depends on the timing of deal closings and that is even more so this year than in others.
Additionally, as has been widely reported, market pressures on compensation levels for junior and mid-level bankers remains high and hiring has been strong.
As we always do, we will continue to evaluate the key drivers of our compensation as the year progresses and make adjustments in the fourth quarter if appropriate.
Third quarter non-compensation costs of $83 million increased 17% year over year driven by higher professional fees due to higher activity levels and strong recruiting efforts, higher T&E due to both increased travel and entertainment, and higher occupancy expense due to more space as we grow as well as expenses relating to our return to the office.
On a sequential basis, non-compensation expenses increased 14% driven by higher professional fees which reflected the aforementioned recruiting costs, higher other operating expenses, and higher T&E.
Within other operating expenses, the increase was a result of higher bad debt expense.
As many other firms have likely experienced, T&E has not rebounded as quickly as we anticipated earlier in the year.
We expect non-comp expenses, including T&E, to continue to increase as we evolve toward more normal operations and T&E will naturally also tick up as we add SMDs and teams over time.
In 2019, of our T&E expense, 83% was related to travel.
Year-to-date travel is running at about 20% of 2019 levels, and we expect that to settle at 70% to 80% of pre-pandemic levels.
We expect other T&E expenses to return to those experienced before the pandemics.
Third quarter adjusted operating income and adjusted net income of $262 million and $188 million increased 237% and 258%, respectively.
Year-to-date adjusted operating income and adjusted net income of $674 million and $505 million increased 156% and 177%, respectively, versus the prior year period.
We delivered a third quarter adjusted operating margin of 31.5%, while third quarter adjusted earnings per share of $3.96 increased 257% year over year.
Our year-to-date adjusted margin is 30.7%.
Adjusted earnings per share of $10.41 increased 170% versus the prior year period.
Turning to our balance sheet, as of September 30th, we held $479 million in cash and equivalents and $1.3 billion in investment securities.
As Ralph mentioned earlier, even with our strong return of capital, our balance sheet grows throughout the year as we accrue for annual bonus compensation that is paid in the first quarter.
Our balance sheet also reflects the minimum levels of cash for operating our business, including capital to support our underwriting activities, commitments related to deferred cash compensation previously awarded, and cash needs for anticipated deferred compensation to be awarded in the first quarter, plus earnings that we recorded in the third quarter that have not yet been returned.
Year-to-date we have bought back 4.1 million shares in total; approximately, half of which is in excess of what we bought back to offset dilution from RSU grants.
Ralph has led this firm over the last 13 years guiding us with vision, extraordinary leadership, and management skills, building a firm of broad and deep capability with the highest quality talent on the street.
Over the last five years, I've had the great good fortune to partner with Ralph and Roger to work together to continue our journey of growth, supported by the same underpinning of principles on which Roger founded the firm 25 years ago.
I've loved being Ralph's partner and friend.
Beyond being an extraordinary business leader, he is an extraordinary person.
I will miss his active involvement in the running of the firm but plan to continue to call upon his sound counsel and judgment.
As I consider the current state of the firm, I feel both pride and optimism, proud of what we've accomplished, our expanded client base, a platform of broad, diverse, and growing capabilities and the quality of our people who deliver each day for our clients and our shareholders and an optimistic about what is ahead.
We have the right strategy to build upon our successes to date, and I along with all of our business leaders intend to stay focused on long-term growth.
As we look ahead, I believe the prospects for Evercore are clear and exciting.
With that, I'm pleased for us to answer questions.

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compname posts quarterly adjusted earnings per share $3.96.
qtrly diluted earnings per share $3.74.
qtrly adjusted earnings per share $3.96.

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