Evercore Revenue Dips in Third-Quarter 2008

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Evercore Partners' third-quarter fiscal 2008 consolidated revenues fell 15.9% to $65.72 million from $78.11 million in third-quarter 2007. The company swung to a loss of $470,000 or 4 cents per share from a profit of $2.32 million or 19 cents per share in the year-ago quarter, hurt by lower advisory revenue. However, on a pro forma basis, net income declined 76.9% to $2.27 million or 7 cents per share.

Geographically, revenue from Latin America surged 162.3% to $12.52 million, while revenue from U.S. and Europe and other slipped 34.5% and 31.0% to $38.81 million and $4.42 million, respectively. At the end of Sept. 30, 2008, assets under management (AUM) in Mexico increased 28.2% year-over-year to $786.60 million, whereas in the U.S., AUM declined 42.2% to $258.70 million.

Segment-wise, net advisory business revenue declined 23.9% to $52.52 million, hurt by a decrease in the number of large advisory transactions. The company generated advisory revenue from 39 different clients in the U.S. and European advisory business and 40 different clients in Mexican advisory business.

Net revenue from the investment management segment grew 25.8% to $4.30 million from $3.42 million in the prior year's quarter. Within the segment, private equity revenue dropped 11.1% to $3.56 million, primarily due to a step-down in management fees from 2% of committed capital to 1% of invested capital in accordance with the Evercore Capital Partners II partnership agreement.

Institutional asset management and other generated revenue of $737,000 compared to a loss of $722,000 a year earlier, helped by smaller losses in its Evercore asset management (EAM) business and on seed capital investments in EAM's funds, as well as increased fees on assets under management in Mexico.

For third-quarter 2008, employee compensation and benefits dropped 5.8% to $40.31 million, while occupancy and equipment rental expenses decreased 17.1% to $3.17 million. The expense associated with professional fees was $4.47 million, down 37.7% over the previous year's quarter.

Subsequently, operating margin contracted 452 basis points to 18.98% from 23.50%. Interest coverage ratio worsened to 1.40 from 3.21 as interest expense soared 56.0% to $8.91 million.

Evercore's cash and cash equivalents rose 17.7% to $649.98 million from $552.18 million in the last year's quarter. A quick ratio of 1.54 reflects the company's ability to meet short-term cash needs. Total debt mounted 24.4% to $460.91 million from $370.42 million, while shareholders' equity climbed 31.4% to $218.51 million from $166.27 million.

As a result, the debt-to-equity ratio decreased marginally to 2.11 from 2.23. However, return on assets swung to a positive 0.45% from a negative 4.73%, while return on equity improved to a positive 1.72% from a negative 20.54% in the year-ago quarter.

During the quarter under review, the total number of advisory clients increased to 79 from 68 a year ago, while clients with fees of at least $1 million declined to 15 from 16 in the year-ago quarter. Moreover, Evercore signed an agreement with G5 Advisors, a Sao-Paulo-based investment banking boutique and investment management firm, to jointly advise on cross-border transactions involving Brazilian companies. Recently, the company paid a quarterly dividend of $0.12 per share.

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