Evercore Inc. (EVR) Earnings Call Transcript & Summary

All right. Let's get started here. Up next, we have John Weinberg, Chairman and CEO of Evercore. Positions he held for nearly 4 years. Previously, he was Co-Chairman of the Board and co-CEO positions he held since July of 2020, and he has overseen the best-in-class growth at Evercore in his tenure. This is John's fourth time at the conference. Prior to joining the firm in November of 2016. John served as Vice Chairman of Goldman Sachs and Head of Investment Banking. Thank you so much for joining us, John.

Thank you very much for having me.

Okay. John, you're substantially passed the 5-year mark at the helm of Evercore. Could you walk us through your biggest successes, the biggest lessons and, I guess, the biggest opportunity and strategic priorities for Evercore going forward over the next, let's say, 3 to 5 years?

Well, thank you, James. I'd say that the thing that I'm proudest of is that we have really grown the firm with real quality, and we have expanded our footprint for covering clients extensively. And so whereas 5, 6 years ago, we were much smaller. Now we've really extended our reach in terms of industries we cover, in terms of sectors that we're involved in. In terms of businesses. For example, we've built out our Europe business tremendously. We've really built our sponsor business. And really, across the board, we have a much expanded client footprint, which allows us to do more with more clients. Second thing I think I'm really proud of is the really strong group of exceptional people that we've brought in. I think our talent level has gone up dramatically. And whereas we have -- we've brought really good people in. We've promoted really good people. And I think person for person at Evercore, we really have an incredibly strong group of people who are covering our clients and executing our deals. And so I feel really good about the talent level at the firm. I think the third thing I'm really proud of with respect to Evercore is that we've really built out our market position. So our market shares have gone up year-over-year each year. We've really become a much larger organization in terms of participating in big deals. One measure that we look at quite extensively is total revenue -- total global revenues of advisory revenues. And for total advisory revenues globally we're now #3, and we're really proud of the fact that we've really moved up there. And I think our market shares have been quite strong in terms of their improvement level. And then I think finally, the thing that I'm really happy about is our brand. Our brand has real momentum. We've really built out the brand. We have really a very different feel and look around the world. I think more and more people know who we are, more and more people are thinking about us in a very positive light. And when I first started 9 years ago, people didn't know what Evercore was, at least most of the meetings I started, I had to really explain to the firm. And now business is coming in without us even asking in many cases and people know who we are and boards know who we are, and we have a real track record. So I think those are the things. In terms of lessons learned, I'd say there are 2 things that I think a lot about. One is that a relentless focus on clients is really the most important thing that we could be doing as a firm, and we make that very, very clear to our people that we are in business for clients and we are absolutely waking up every day thinking about how can we serve them. And then I think the second thing is culture, having a collaborative culture, where we are working together and a real team really gives us, I think, an edge. We do it well, we understand that the way that we're going to win business is by putting all of our talent together and really competing really as one big team. So I think that's -- those are the big things. In terms of the forward, we can talk more about that. But we have a strategy. And the strategy has to do with expanding our client footprint, broadening and deepening our products and really being able to serve our clients with more and then really investing in places where we think that there is real growth in the economies where it's so for example, in software and AI and fintech and biotech. The areas that we see real growth, we're making sure that we're allocating capital appropriately.

Your hiring has been very strong this year. Maybe how are you thinking about the organic expansion of the talent base next year? And then maybe also if you could comment on deals, obviously, you did a deal for the first time in a very long time this past year?

Sure. So maybe I'll start with the deal. So we -- many of you know, we have brought Robey Warshaw into Evercore. It was a very strategic acquisition in that they have an extraordinary client base and a really strong footprint in the U.K., especially but through Europe, very strong firm. And they have really outstanding relationships with big cap. And we have really bring to the table, we have relationships, but we also have extensive product reach and also we have geographic reach. And so taking their expertise and their large-cap relationship and marrying that with what we bring to the table was really a very strategic thing. And it's been a big part of what we've done in terms of building out Europe. In terms of the recruiting year, it's been a very good year for us. We've really made sure that what we really do is we're looking for just A+ talent. And this year, we were able to find some really extensive, really strong people. And so we have 18 people currently in SMDs that we've recruited. We promoted another strong group of people, and we have a very good pipeline going forward. In terms of how we're thinking about it, we're going to continue to be in a build mode. Organically, we're going to be continuing to promote and develop talent, but we're also going to be out in the market. We have a very good pipeline right now, and I can easily see us doing something similar to what we did this year. But it's really going to be more driven by the opportunities in front of us rather than a goal that we have to bring in a certain number of people because really, we're just recruiting for quality. And in terms of deals, a big deal, I don't see one in the horizon for us, but you never say never. If something comes up, that really makes sense and really helps us with a strategic imperative that we see in terms of building out the business, we'll certainly look at it carefully.

I know you're still heavily focused with clients. And I get the sense that that's your favorite part of this job still. What's top of mind in the boardroom? And maybe within that answer, you could talk about the art of the possible regulation has improved, it seems like. So maybe the art of the possible has evolved as well over the past year?

Well, I think that there is a feeling in boardrooms with management teams, but also with the Board members themselves that there is -- that really, there isn't anything that people aren't looking at right now. Not that everybody -- each company thinks they can do exactly what they want. But you're seeing a real attitude of can do and there's really nothing off the table. So I've been in several Board meetings in the last 3 weeks where we've looked at things that we would never have looked at this time last year for any number of reasons, financing is plentiful and people really believe they can get things done. The regulatory environment seems to be more accepting, we'll see. But clearly, that looks to the case. I think people are more comfortable with the geopolitical stability and whereas we still have things going on geopolitically. But I think people are more comfortable that there won't be dramatic interruption. So I think the Boards are quite open. There is real discussion. In terms of our backlogs, we're seeing really consequential really interesting things going on. And there's -- it comes in many different ways. It's strategic just in terms of growth. It's something to do with kind of building technology or capability. And it's also looking at really trying to make more -- give more breadth to businesses. So you're seeing it across the board. So I guess your -- the premise of your question was is, are things much more open? And the answer is yes.

Excellent. Maybe digging one level deeper, maybe you could differentiate a little bit between what's top of mind in the corporate boardroom versus what you're hearing with the key sponsor private equity decision makers.

Well, there's no question that sponsors is beginning to open up. There is real pressure on sponsors to really start to do some deals. They have a tremendous number of companies in their portfolios, and there hasn't been quite as much movement. And we've all heard about the fact that limited partners are getting anxious to get money returned. And so there's real pressure. Also, the sponsors have a huge amount of dry powder. And they've got to put some of that to work because some of it's going to start drying up over time now. And so there's real impetus for sponsors to be moving. Couple that with the fact that the markets are open and people are actually looking at things carefully. And you're seeing the sponsors business really start to pick up. And you're seeing it really up and down the size line, which is that the larger deals we're getting done early on, and they still are being out there to get done. I think we're seeing many more of the more middle portfolio companies start to come to market. We're at record bake-off activity in our firm right now. We are in the middle of so many different solicitations and bake-off. And I think a lot of that is that the sponsors want really to get going. And so whereas not every one of the things that we're baking off right now will come to market in the next 3, 4 months but we are seeing a real activity, and I anticipate there'll be a substantial buildup in sponsor activity in terms of deals being done.

Okay. So maybe on Europe, you actually delivered a record quarter that even before Robey Warshaw, and you've added in addition to our inorganic a lot of organic talent or getting hiring there over the past few years and especially this year. So maybe you could just talk a little bit about the opportunity or your outlook for Europe into next year?

Sure. So over the last couple of years, we've really focused on how we're going to move strategically in Europe. And we've really tried to lay down the building book to really establish a very strong market-leading business. And so we've gone out, we added Spain originally. And then we've added in France. We've built a business in France. We have -- we've added building blocks in Italy with a very senior banker. We've just recently brought in someone in the Nordics and then up Robey Warshaw. And really, what we've tried to do is lay the building blocks for a really sound extraordinary business. We're working really hard on building these long-term relationships, which we are seeing some real activity pick up there. We -- you may have seen that we just in France 3 weeks ago, did a deal for hearing where we sold beauty business to L'Oréal. And that's just the beginning of a lot of the bigger cap business that we're starting to see, and a lot of that's coming in. We had a record -- we were on a record before Robey Warshaw in terms of record quarter in the third quarter. We continue to see high activity level in our European business. And I think what we're really looking for is to really build that business and really invest long term in Europe and build it into a really enduring sustainable top quality business.

There's a lot of positive sentiment here across much of advisory. One thing I just want to touch on quickly. You noted in the last earnings call that 4Q seasonality might be a little bit less pronounced than is typical given the record results in the third quarter. As well as the impact of the market volatility and then maybe the government shutdown as well. So given that, maybe you could just an update on the near term on the business?

Well, fourth quarter is tracking well. And we feel good about kind of the way this is going to all play out for the year and really going forward. I'd say that the seasonality for the fourth quarter, which we've seen over the last couple of years may not be as pronounced as it has been. Part of that is that we have had a record second quarter and a record third quarter. Our business is very much influenced in some respect by the timing of the closings of the big things we do. And we have -- we're running at very high backlogs right now -- record backlogs. In fact, we -- I think we said in our third quarter earnings that we were at a record -- we were at record backlog levels significant. And we continue to add to that backlog. So our backlog continue to build in a very healthy way. And so we feel like things are going along well, but we think that there -- from a timing standpoint, as I said, I think that the seasonality uplift may not be quite as extensive as it was in other fourth quarters, but we feel like we have a very, very strong -- we have a very strong business in terms of the fourth quarter and really going into the first quarter of next year.

Maybe just one more on the advisory side. So you've been in this business for more than 40 years, by my count. So in your view, what inning of the M&A? And maybe throw in ECM cycles do you think we're in right now?

I think we're relatively early on the merger cycles, which I think all of you may know, is the merger cycles have historically been 2 bad years to 4 to 5 really significant uplift years. And we had a couple of years that were not as good. The last year and the year before that, we were starting to see lift and think '23 -- '24 was better than '23 and '25 is better than '24. And so we're seeing the lift. But everything that we see right now, and I mean really -- you only can really plan ahead or think about 6 months ahead in this business, things change so dramatically. But what we're seeing right now, there's a real strength in the market. The activity level is across the board very strong. We talked about sponsors. We've talked about strategics. We've talked about the fact that boards are feeling quite empowered to look at lots of different things. And so we think that there will be a continued strength in the market. And so I think that we're in the early stages, and I think it's going to continue to build.

Great. Okay. So let's turn to equity capital markets. We saw a strong IPO momentum in the third quarter, and you had strong activity in convertibles. Active tech and industrials and solid follow-on activity. But then we saw the government shut down, and there was a bit of a blip there. Maybe you could just help us think through the near-term ECM picture and then maybe longer term as well?

Well, what we're seeing is that ECM is building, and you're seeing it in really across the board, different sectors, and we're -- we've been investing in diversifying our Equity Capital Markets business, and we're seeing some fruit for that labor. But what we're seeing is that the market is strengthening. And I think that the IPO market is actually quite strong right now, and there's a lot of possibility there. And we think that there's no reason to believe that it's not going to continue to build through. And so I think that really across sectors, and we've seen a lot of activity in the health care side, which is -- and biotech, which is really a place that we do spend a lot of time we're seeing those things build. And so I think that the equity market is going to continue to build. I think it's not quite at the level that the merger market has been but it's actually building quite well, and I think there's no reason to believe that it's not going to continue to strengthen.

So we touched on this, I think, on the advisory side, but -- maybe we can talk about in the couple of ECM as well, which is how do you differentiate your ease? You just touched on biotech. Is it that product? Is it sector? Is it geography? Or is it something else?

Well, the way we think about our business is we really look at it by sector. And so we've invested in industrial. We have consumer business. We have a strong health care business. And I think that we have done a lot in the technology side. And so we're investing in each one of those. And as you know, the way firms like ours get Equity Capital Markets businesses, we have to have relationships with companies. We have to have strong research coverage. And then we bring all that together in terms of trying to be able to add value when they try to raise -- when they're thinking about raising equity. And in many respects, we're not the biggest in the business. But we like to think that we have a tremendous amount of value-added and expertise that we can bring to the party. And I think that, that seems to be working quite well now. I think we have some momentum. And we're really going to be continuing to invest in that business.

So the other side of equities is on the secondary side of the equities trading side where you've had really strong results over the past few quarters. How much of that is environmentally driven versus investments that you've made? And how should we think about the growth algorithm on that side of the business?

Well, we have very strong research. And it's -- I think it's the fourth year in a row, we've had the #1 rated research group. And that certainly is an important part. We've done a lot of work in terms of investing in the relationships with the buy side. And a lot of that work is really actually starting to see real returns. And I think that what we're doing is we are continuing to build those relationships. We're continuing to build the service that we're providing those clients. And I think those are actually really yielding a continuing market share pickup for us over time. I think we're going to continue that. I think it's been a very solid business. They've had a very good year this year so far. And I think we're feeling good about where they stand. And really we're just going to continue to invest.

I asked you about this last year, but the secondary has continued for another year to grow at a really strong pace, and you have the leading secondaries franchise out there. By my math, I guess, has anything changed over the past year for the better or for worse? And I guess, when or if does this powerful growth drivers start to subside?

Well, we don't see any ebbing of that business. It just continues to be strong. The first 3 quarters of this year exceeded all of last year. And so they're on, obviously, a record pace. There's real acceptance of the products. And I think that those products really provide real value to the clients, especially on the sponsor side. So that continues to be powerful. . We don't see that there's a flagging of that business. We actually see that there's continuing to strengthen. And we add new -- we're adding new products. So we collateralized fund obligation transactions we build. We're really looking at all kinds of different other LP type transactions. There's just so much really in that sector that we are able to build on. So I think that we're seeing it. We have a really strong business. 10 years ago, we had 10 people in that business. We now have over 150 people in that business. And we have really collected data over that 10 years, and so we've got really strong data that we can use to help build transactions. We have a very strong group of people. We've been really developing and recruiting people into that area for 10 years. And so we have a really good established strong group. And we have a great client base where we've been able to provide real value to those clients, and they come back because really, those relationships have been really sound and the transactions have gone well.

So a regular way sponsor ECM and M&A does pick up, how much of an impact do you expect that to have on the secondaries business? And I guess if you're -- if you'd like to maybe just comment on the difference on the GP side versus the LP secondary side, whether there could be divergent trends going forward in that -- in those 2?

We haven't seen any cannibalization between GP LP. They're both very different. I think what -- the way I would classify it is that each one of those provide a service to sponsors that is actually very well received. And I don't see any weakening of the need for those businesses to really provide the opportunity for sponsors to manage their portfolios. The GP side of the business, which has a lot of continuation vehicle type business, has been very helpful to managing the portfolios, managing the return to shareholders and really providing liquidity for its sponsors. The LP side, of the business really is that there's LPs that want to really have a marketplace where they can come in and out of their positions. And each of those is a very different service. Each of those and they don't really contrast or conflict that we can see. So I can see each of those business independently growing and actually leading quite really a healthy set of market and results.

Maybe just one more on sponsor, which is -- we've talked about the sponsor recovery picking up for a number of years now. What gives you the confidence that 2026 might be the year where we actually see that big acceleration or not?

Well, my confidence is ceded by the fact that we're seeing such extraordinarily busy and robust levels inside our firm in terms of the conversations and the activities that we're being asked by sponsors to undertake, whether that's bake-offs or whether it's that we're being asked literally without a bake-off to really get involved in thinking about things. And in some respects, it's just help us think about what to do next with this set of portfolio companies. In other cases, it could be things like there may be some portfolio of companies in distress and they're coming to us for the restructuring/liability management work. Those things just continue to build. And the better we do at developing those relationships, the more business we're going to see. And one of the most important things, I think, what I said earlier, which is we've built our client footprint, we've invested really high-quality people to really address client needs. And I think we're able to serve them better. We're able to give them even better advice. We're able to really come up with very creative solutions for them. And in terms of things where there are places where they really need help, I think there's a view that our people, our bankers are strong and can really help with those difficult situations.

One last business question. So restructuring activity remains robust with an increase in larger traditional segments and a strong backlog that you've highlighted. Maybe you can just talk about the 2026 key catalysts, I don't know, maturity walls, maybe the rate path, maybe private credit? And do you think this strong pace that we've seen in recent years can continue?

I definitely think -- well, our restructuring business is running at a very healthy level, and it will -- and it was last year and it will continue this year. And we don't see anything insight that would prevent it from continuing. I think a lot of it is that there is a different interpretation of what the restructuring business can be in that it is looked upon as much as a liability management tool as it is a restructuring or bankruptcy business. We're seeing many more big restructuring come in. And those are big and they are also high fees. But we're also seeing a lot of sponsor portfolio companies coming in. And so there's a there's a real healthy influx of activity from those. And some of that is that there's -- there are companies that have been put together with -- in a period where they paid a lot of money to bring those companies in, and there's a little bit of a mismatch with the capital structure. One of the things that happens with sponsors is you do a really good job with sponsors, you end up getting a lot of their business because they don't really want to go out to everybody with the weakened portfolio companies they have. They really want to stick with one. And so we've block by block we've built very strong relationships with some very strong, very good sponsors where they're trusted go to. And obviously, that's a very good place to be because then you're going to be able to be a trusted adviser and you're going to be able to help them with those things. I think that the restructuring business right now is very healthy. And I don't -- we always used to say 5 years ago or 4 years ago, restructuring business was a counter to the merger business. They kind of they acted in opposite ways. We don't see that right now. The merger business is strengthening and the restructuring business is going quite well. And I think part of that is that the restructuring business is fulfilling needs of helping people manage their liabilities in a different way than people had thought about them before. And it's not just sort of as a bankruptcy business.

Maybe just shifting to expenses broadly. How do you think about balancing investing for growth with margin improvement over time?

Well, our job is to create value. And clearly, what we want to do is make sure that we are balancing all the different interests of shareholders and stakeholders. One of the things that, obviously, we think a lot about is our comp ratio. We have, over the last couple of years, continued to improve our comp ratio, and it continues to be a focus for us. And so we're going to be working to bring that comp ratio down over time. I think that. We also spend a lot of time making sure that we are trying to manage our noncomp expenses. And so I think that right now, we're really looking at the different opportunities, which is making sure that we're growing appropriately into growing market, making sure that we continue to build this firm and leverage a brand that seems to have real momentum and really create value by actually taking market share and becoming a company that has real growth in our sector. On the other hand, we are not at all turning a blind eye to the fact that I think people want us to make sure that we're very focused on the different expenses that we're incurring and making sure that we're responsible with shareholder wealth.

You stepped up your capital return on a gross basis in recent years, but also issued some shares and may issue future shares through the Robey Warshaw acquisition. Could you just update us on your capital return priorities?

Sure. We continue to repurchase shares. We've done significant repurchase even in this quarter. We have pretty much already repurchased all of the stock that we've done for Robey Warshaw. And we continue to have the same philosophy that we've always had, which is that capital that we don't need to run our business, we're going to make sure that we're focusing on returning it. And I think that we're going to continue to do that. So we've pretty consistently repurchased shares all through the year, this year, and we continue to have the same philosophy going forward, which is we're going to continue to repurchase shares. And we're going to continue to make sure that we are returning capital back to shareholders.

Okay. John, last one. Any final thoughts that you want to leave us with as we approach the end of 2025?

Yes. I'd say that we feel really good about 2025, and we feel good about 2026. And we are in a build mode. I think we've been be able to bring in really strong talent. I think that we are able -- we're building a business that I think is enduring has real growth opportunities, and we have the people that are going to continue to passionately pursue it. We feel really good about the culture we have so that we're all working hard together. And I really think that this firm is really in a very good place right now.

Excellent. With that. We're out of time. Thank you so much. Hope we can do it again next year, John.

Thank you very much.