Evercore Partners : Reports Record Third Quarter and Nine Months Results; Quarterly Dividend Raised to $0.28 Per Share

Evercore Partners Inc. (NYSE:EVR) today announced that its U.S. GAAP Net Revenues were $227.2 million for the quarter ended September 30, 2014, compared to $187.3 million and $217.7 million for the quarters ended September 30, 2013 and June 30, 2014, respectively. U.S. GAAP Net Revenues were $594.0 million for the nine months ended September 30, 2014, compared to $546.8 million for the nine months ended September 30, 2013. U.S. GAAP Net Income from Continuing Operations for the third quarter was $25.2 million, or $0.58 per share, compared to $20.1 million, or $0.39 per share, a year ago and $29.7 million, or $0.58 per share, last quarter. U.S. GAAP Net Income from Continuing Operations was $68.3 million, or $1.41 per share, for the nine months ended September 30, 2014, compared to $51.4 million, or $1.00 per share, for the same period last year.

Adjusted Pro Forma Net Revenues were a record $224.8 million for the quarter ended September 30, 2014, compared with $186.5 million and $217.3 million for the quarters ended September 30, 2013 and June 30, 2014, respectively. Adjusted Pro Forma Net Revenues were a record $591.0 million for the nine months ended September 30, 2014, compared with $545.5 million for the nine months ended September 30, 2013. Adjusted Pro Forma Net Income from Continuing Operations Attributable to Evercore Partners Inc. was $32.9 million, or $0.71 per share, for the third quarter, representing a record result for a third quarter, compared to $24.3 million, or $0.53 per share, a year ago and $30.7 million, or $0.66 per share, last quarter. Adjusted Pro Forma Net Income from Continuing Operations Attributable to Evercore Partners Inc. was a record $78.4 million, or $1.67 per share, for the nine months ended September 30, 2014, compared to $70.6 million, or $1.54 per share, for the same period last year.

The U.S. GAAP trailing twelve-month compensation ratio of 60.5% compares to 63.8% for the same period in 2013 and 61.2% for the twelve months ended June 30, 2014. The U.S. GAAP compensation ratio for the three months ended September 30, 2014, September 30, 2013 and June 30, 2014 was 60.1%, 63.2% and 59.4%, respectively. The Adjusted Pro Forma compensation ratio for the trailing twelve months was 59.3%, compared to 58.9% for the same period in 2013 and for the twelve months ended June 30, 2014. The Adjusted Pro Forma compensation ratio for the current quarter was 60.5%, compared to 59.2% and 58.3% for the quarters ended September 30, 2013 and June 30, 2014, respectively.

Evercore’s quarterly results may fluctuate significantly due to the timing and amount of transaction fees earned, as well as other factors. Accordingly, financial results in any particular quarter may not be representative of future results over a longer period of time.

“We are pleased with our third quarter results, as we reported record quarterly revenues and the best third quarter earnings in our history. Our record results were driven by our Advisory business with significant contributions across multiple industry sectors, including Financial Services, Health Care, Mining, Technology and Transportation. Our Equity Capital Markets team also contributed, participating in two of the largest transactions in history during the quarter. Based on our current backlog, we fully expect the momentum in our investment banking business to continue through year end. We are working hard to close our announced acquisition of International Strategy & Investment as soon as possible. This combination enables us to be relevant to our clients on their most important strategic transactions, whether they are mergers, acquisitions, divestitures, restructurings or equity offerings. We are optimistic that the transaction will enhance the growth rate in our advisory business and will provide us with a second high margin growth business,” said Ralph Schlosstein, President and Chief Executive Officer. “Our results also demonstrate our commitment to delivering returns to our shareholders as we repurchased almost 2.6 million shares and returned $165.6 million to shareholders for the first nine months of 2014. Our quarterly dividend was increased to $0.28 per share and our share buyback authorization was increased to a maximum of $350 million, or 7 million shares. The increase provides the flexibility to offset a significant portion of the equity granted in the ISI acquisition.”

“2014 is developing into another year of strong growth for Evercore, as Investment Banking revenues have grown 9% year over year for the first nine months and advisory fees grew over 10%, resulting in record earnings for the Investment Banking business for the period,” said Roger Altman, Executive Chairman. “Our core businesses are performing well as productivity continues to rise, backlogs remain strong and talented bankers continue to be attracted to our independent advisory model. Conditions remain favorable for M&A and I am optimistic we will sustain our momentum.”

Consolidated U.S. GAAP and Adjusted Pro Forma Selected Financial Data (Unaudited)

The U.S. GAAP and Adjusted Pro Forma results present the continuing operations of the Company, which exclude amounts related to Evercore Pan-Asset Capital Management (“Pan”), whose operations were discontinued during the fourth quarter of 2013. See page A-1 for the full financial results of the Company including its discontinued operations.

Throughout the discussion of Evercore’s business segments, information is presented on an Adjusted Pro Forma basis, which is an unaudited non-generally accepted accounting principles (“non-GAAP”) measure. Adjusted Pro Forma results begin with information prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and then those results are adjusted to exclude certain items and reflect the conversion of vested and unvested Evercore LP Units into Class A shares. Evercore believes that the disclosed Adjusted Pro Forma measures and any adjustments thereto, when presented in conjunction with comparable U.S. GAAP measures, are useful to investors to compare Evercore’s results across several periods and facilitate an understanding of Evercore’s operating results. Evercore uses these measures to evaluate its operating performance, as well as the performance of individual employees. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP. For more information about the Adjusted Pro Forma basis of reporting used by management to evaluate the performance of Evercore and each line of business, including reconciliations of U.S. GAAP results to an Adjusted Pro Forma basis, see pages A-2 through A-11 included in Annex I. These Adjusted Pro Forma amounts are allocated to the Company’s two business segments: Investment Banking and Investment Management.

Business Line Reporting

Investment Banking

For the third quarter, Evercore’s Investment Banking segment reported Net Revenues of $198.5 million, which represents an increase of 23% year-over-year and 5% sequentially. Operating Income of $47.6 million increased 24% from the third quarter of last year and 7% sequentially. Operating Margins were 24.0% in comparison to 23.7% for the third quarter of last year and 23.6% for the second quarter of 2014. For the nine months ended September 30, 2014, Investment Banking reported Net Revenues of $513.5 million, an increase of 9% from last year. Year-to-date Operating Income was $115.2 million compared to $111.7 million last year. Year-to-date Operating Margins were 22.4%, compared to 23.7% last year.

Revenues

During the quarter, Investment Banking earned advisory fees from 162 clients (vs. 136 in Q3 2013 and 150 in Q2 2014) and fees in excess of $1 million from 50 transactions (vs. 31 in Q3 2013 and 40 in Q2 2014). For the first nine months of the year, Investment Banking earned advisory fees from 310 clients (vs. 269 last year) and fees in excess of $1 million from 117 transactions (vs. 95 last year).

Expenses

Compensation costs were $121.5 million for the third quarter, an increase of 26% year-over-year and 8% sequentially. The trailing twelve-month compensation ratio was 60.5%, up from 59.2% a year ago and 60.2% the previous quarter. Evercore’s Investment Banking compensation ratio was 61.2% for the third quarter, up versus the compensation ratio reported for the three months ended September 30, 2013 of 60.0% and June 30, 2014 of 59.4%. Year to-date compensation costs were $309.1 million, an increase of 9% from the prior year.

Non-compensation costs for the current quarter were $29.5 million, up 12% from the same period last year and down 8% sequentially. The increase in costs versus the prior year reflects the addition of personnel within the business, increased new business costs associated with higher levels of global transaction activity and higher professional fees associated with a limited number of investment bankers serving under consulting contracts. The ratio of non-compensation costs to net revenue for the current quarter was 14.9%, compared to 16.3% in the same quarter last year and 17.1% in the previous quarter. Year-to-date non-compensation costs were $89.2 million, up 15% from the prior year. The ratio of non-compensation costs to net revenue for the nine months ended September 30, 2014 was 17.4%, compared to 16.4% last year.

Institutional Equities

The Institutional Equities business reported a loss in the third quarter of 2014 as secondary revenues softened following the announcement of the plan to acquire ISI and to integrate ISI with Evercore’s institutional equity business. Revenues of $8.2 million in the quarter were down 3% in comparison to the third quarter of 2013 and down 27% versus the second quarter of 2014. Expenses were $13.8 million for the third quarter. The losses resulted in a reduction in Adjusted Pro Forma EPS of $0.03 in the quarter after taxes and non-controlling interest, an increase in the compensation ratio to 60.5% from 57.4%, and a reduction in operating margins to 22.9% from 26.3% without the equities business.

Investment Management

For the third quarter, Investment Management reported Net Revenues and Operating Income of $26.2 million and $3.9 million, respectively. Investment Management reported a third quarter Operating Margin of 14.8%. For the nine months ended September 30, 2014, Investment Management reported Net Revenues and Operating Income of $77.5 million and $14.0 million, respectively. The year-to-date Operating Margin was 18.1%, compared to 16.0% last year.

As of September 30, 2014, Investment Management reported $14.5 billion of AUM, a decrease of 1% from June 30, 2014.

Investment Advisory and Management Fees of $21.7 million for the quarter ended September 30, 2014 increased 8% compared to the same period a year ago, driven primarily by higher fees in Wealth Management and Institutional Asset Management, partially offset by lower fees in Private Equity.

Realized and Unrealized Gains of $3.0 million in the quarter decreased relative to the prior year; the change relative to the prior period was driven principally by lower Private Equity gains which by their nature may fluctuate significantly in both timing and amount.

Equity in Earnings of Affiliates of $1.2 million in the quarter increased relative to the prior year principally as a result of higher income earned in the third quarter of 2014 by ABS and G5 ǀ Evercore.

Expenses

Investment Management’s third quarter expenses were $22.4 million, up 7% compared to the third quarter of 2013 and 4% compared to the previous quarter. Year-to-date Investment Management expenses were $63.5 million, up 3% from a year ago.

Acquisition of ISI

On August 3, 2014, Evercore announced its intent to acquire the operating businesses of ISI. Since that time we have made considerable progress in planning for the integration of the Evercore Institutional Equities team with the ISI business. To date, we are pleased with the progress and the performance of the business.

• In October, Institutional Investor announced that ISI was ranked #5 overall in the annual ranking of research analysts, increasing from #10 in 2013.
• Despite a falloff in revenues in the first month after announcement, ISI generated approximately $45 million of revenues for the third quarter, up modestly in comparison with the third quarter of 2013. ISI has also begun to implement new policies and procedures to reduce the impact of non-compensation costs on operating margins.
• The combined research and distribution teams have been announced. We have retained virtually all of the senior professionals that we targeted for the team.
• Closing of the acquisition is expected in November.

Other U.S. GAAP Adjustments

Evercore’s Adjusted Pro Forma Net Income Attributable to Evercore Partners Inc. for the three and nine months ended September 30, 2014 was higher than U.S. GAAP as a result of the exclusion of expenses associated with awards granted in conjunction with the Lexicon acquisition, Special Charges, certain business acquisition-related charges and other professional fees. These acquisition-related charges for the third quarter of 2014 include professional fees incurred related to the announcement of the Company’s intent to acquire all of the outstanding equity interests of the operating businesses of ISI. Given the size of the transaction and the fact that the nature of these costs is not in line with our core business expenses, the Company has excluded these costs from its Adjusted Pro Forma results. In addition, for Adjusted Pro Forma purposes, client related expenses have been presented as a reduction from Revenues and Non-compensation costs.

Evercore’s Adjusted Pro Forma Diluted Shares Outstanding for the three and nine months ended September 30, 2014 was higher than U.S. GAAP as a result of the inclusion of all Evercore LP partnership units, as well as the assumed vesting of all acquisition-related share issuances and unvested restricted stock units granted to Lexicon employees.

Further details of these adjustments, as well as an explanation of similar amounts for the three and nine months ended September 30, 2013 and the three months ended June 30, 2014, are included in Annex I, pages A-2 to A-11.

Non-controlling Interests

Non-controlling Interests in certain subsidiaries are owned by the principals and strategic investors in these businesses. Evercore’s equity ownership percentages in these businesses primarily range from 62% to 73%. For the periods ended September 30, 2014, June 30, 2014 and September 30, 2013 the gain (loss) allocated to non-controlling interests was as follows:

Income Taxes

For the three and nine months ended September 30, 2014, Evercore’s Adjusted Pro Forma effective tax rate was 38.0% and 37.2%, respectively, compared to 38.0% for the three and nine months ended September 30, 2013. The effective tax rate for 2014 reflects the higher level of losses allocated to non-controlling interest holders relating to the Institutional Equities business.

For the three and nine months ended September 30, 2014, Evercore’s U.S. GAAP effective tax rate was approximately 37.7% and 35.9%, respectively, compared to 38.1% and 42.0% for the three and nine months ended September 30, 2013. The effective tax rate for U.S. GAAP purposes for 2014 reflects significant adjustments relating to the tax treatment of non-controlling interest associated with Evercore LP Units, state, local and foreign taxes, and other adjustments. In addition, for 2013, the effective tax rate for U.S. GAAP reflects the tax treatment of compensation transactions related to the vesting of Evercore LP Units, which were fully vested as of December 31, 2013.

Balance Sheet

The Company continues to maintain a strong balance sheet, holding cash, cash equivalents and marketable securities of $269.8 million at September 30, 2014. Current assets exceed current liabilities by $264.2 million at September 30, 2014. Amounts due related to the Long-Term Notes Payable were $104.8 million at September 30, 2014.

Capital Transactions

On October 20, 2014, the Board of Directors of Evercore declared a quarterly dividend of $0.28 per share to be paid on December 12, 2014 to common stockholders of record on November 28, 2014.

During the three months ended September 30, 2014 the Company repurchased approximately 843,000 shares at an average cost per share of $50.00, and a total of 2,565,000 shares in the nine months ended September 30, 2014 at an average price of $52.69.

Conference Call

Evercore will host a related conference call beginning at 8:00 a.m. Eastern Time, Wednesday, October 22, 2014, accessible via telephone and the internet. Investors and analysts may participate in the live conference call by dialing (877) 359-9508 (toll-free domestic) or (224) 357-2393 (international); passcode: 18253034. Please register at least 10 minutes before the conference call begins. A replay of the call will be available for one week via telephone starting approximately one hour after the call ends. The replay can be accessed at (855) 859-2056 (toll-free domestic) or (404) 537-3406 (international); passcode: 18253034. A live webcast of the conference call will be available on the Investor Relations section of Evercore’s website at www.evercore.com. The webcast will be archived on Evercore’s website for 30 days after the call.

About Evercore

Evercore is a leading independent investment banking advisory firm. Evercore’s Investment Banking business advises its clients on mergers, acquisitions, divestitures, restructurings, financings, public offerings, private placements and other strategic transactions and also provides institutional investors with high quality equity research, sales and trading execution that is free of the conflicts created by proprietary activities. Evercore’s Investment Management business comprises wealth management, institutional asset management and private equity investing. Evercore serves a diverse set of clients around the world from 21 offices in North America, Europe, South America and Asia. More information about Evercore can be found on the Company’s website at www.evercore.com.

Basis of Alternative Financial Statement Presentation

Adjusted Pro Forma results are a non-GAAP measure. Evercore believes that the disclosed Adjusted Pro Forma measures and any adjustments thereto, when presented in conjunction with comparable U.S. GAAP measures, are useful to investors to compare Evercore’s results across several periods and better reflect management’s view of operating results. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP. A reconciliation of U.S. GAAP results to Adjusted Pro Forma results is presented in the tables included in Annex I.

Forward-Looking Statements

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which reflect our current views with respect to, among other things, Evercore’s operations and financial performance. In some cases, you can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. All statements other than statements of historical fact included in this presentation are forward-looking statements and are based on various underlying assumptions and expectations and are subject to known and unknown risks, uncertainties and assumptions, and may include projections of our future financial performance based on our growth strategies and anticipated trends in Evercore’s business. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. Evercore believes these factors include, but are not limited to, those described under “Risk Factors” discussed in Evercore’s Annual Report on Form 10-K for the year ended December 31, 2013, subsequent quarterly reports on Form 10-Q, current reports on Form 8-K and Registration Statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release. In addition, new risks and uncertainties emerge from time to time, and it is not possible for Evercore to predict all risks and uncertainties, nor can Evercore assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, you should not rely upon forward-looking statements as a prediction of actual results and Evercore does not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. Evercore undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

With respect to any securities offered by any private equity fund referenced herein, such securities have not been and will not be registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

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Adjusted Pro Forma Results

Throughout the discussion of Evercore’s business segments, information is presented on an Adjusted Pro Forma basis, which is a non-generally accepted accounting principles (“non-GAAP”) measure. Adjusted Pro Forma results begin with information prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), adjusted to exclude certain items and reflect the conversion of vested and unvested Evercore LP Units, other IPO related restricted stock unit awards, as well as Acquisition Related Share Issuances and Unvested Restricted Stock Units granted to Lexicon employees, into Class A shares. Evercore believes that the disclosed Adjusted Pro Forma measures and any adjustments thereto, when presented in conjunction with comparable U.S. GAAP measures, are useful to investors to compare Evercore’s results across several periods and facilitate an understanding of Evercore’s operating results. The Company uses these measures to evaluate its operating performance, as well as the performance of individual employees. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP. These Adjusted Pro Forma amounts are allocated to the Company’s two business segments: Investment Banking and Investment Management. The differences between Adjusted Pro Forma and U.S. GAAP results are as follows:

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