Evercore Inc. (EVR) Earnings Call Transcript & Summary

Good morning, and welcome to Evercore's Second Quarter 2026 Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Evercore management and the question-and-answer session. [Operator Instructions]. I will now turn the call over to Katy Haber, Head of Investor Relations at Evercore. Please go ahead.

Thank you, operator. Good morning, and thank you for joining us today for Evercore's Second Quarter 2026 Financial Results Conference Call. I'm Katy Haber, Evercore's Head of Investor Relations. Joining me on the call today is John Weinberg, our Chairman and CEO; and Tim LaLonde, CFO. After our prepared remarks, we will open up the call for questions. Earlier today, we issued a press release announcing Evercore's second quarter 2026 financial results. Our discussion of our results today is complementary to the press release, which is available on our website at evercore.com. This conference call is being webcast live in the -- for Investors section of our website, and an archive of it will be available for 30 days beginning approximately 1 hour after the conclusion of this call. During the course of this conference call, we may make a number of forward-looking statements. Any forward-looking statements that we make are subject to various risks and uncertainties, and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. 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. I want to remind you that the company assumes no duty to update any forward-looking statements. In our presentation today, unless otherwise indicated, we will be discussing adjusted financial measures, which are non-GAAP measures that we believe are meaningful when evaluating the company's performance. For detailed disclosures on these measures and the GAAP reconciliation, you should refer to the financial data contained within our press release, which is posted on our website. We continue to believe that it is 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 closing. I will now turn the call over to John.

Thank you, Katy, and good morning, everyone. Our record second quarter revenues capped off a record first half for the firm, underscoring the strength of our platform and strategy. For the quarter, we generated $1 billion of adjusted net revenues and adjusted diluted earnings per share of $2.91, up 19% and 20%, respectively, from the second quarter of last year. And for the first half, our revenues were $2.4 billion, up 56% year-over-year. Performance in the quarter continued to be broad-based across nearly all of our businesses, with record second quarter revenues in our North American Strategic Advisory business, the Private Funds Group and the equities business. And it was the best quarter ever for underwriting and wealth management. Our results reflect the strength of our client franchise, the benefits of our diversified business model and the continued execution of our long-term strategy despite pockets of market uncertainty experienced throughout the year. Global industry-wide announced M&A activity remains healthy and is currently tracking well above last year's year-to-date levels, which was the second most active year for M&A on record. Large-cap strategic M&A remains the primary driver of activity, while middle market and sponsor-related deals, though active continue to run below historical levels. Equity markets have been resilient, reaching all-time highs in the quarter and broader financing markets remain active. All in all, the building blocks are in place for a healthy dealmaking environment. As it relates to Evercore, we continue to see solid activity across a broad range of sectors, products and geographies. Looking ahead to the second half of the year, client engagement remains strong. and our backlog currently sits near record levels. Though as is always the case, the timing of backlog conversion into revenue can vary from quarter-to-quarter, and it is best to evaluate our business on a longer-term basis. We believe the M&A cycle has further room to run over the medium to longer term, supported by both large cap activity and increased participation from financial sponsors in the middle market. We are also seeing more companies pursue M&A to achieve scale and to respond to the technological transformation and disruption brought on by AI, which we expect to be a driver of activity across a number of sectors over time. While the market backdrop remains dynamic, we are encouraged by the outlook for our business and expect to see continued activity in the latter part of this year and into next. Turning to talent. Since our last earnings call, 4 senior managing directors have joined our investment banking practice in health care, industrials, private capital advisory and our private capital markets group, all based in New York. Further, 7 additional SMDs have committed to join our growing global investment banking franchise in key areas, including restructuring in the U.S. and Europe, health care, chemicals and equity capital markets as well as 2 new hires based in our Frankfurt office. As of today, we have 19 new SMD additions year-to-date, 11 external hires including those that have committed but not yet joined and 8 internal promotions. That brings the total of SMDs in our global investment banking practice to 188 with more than 50 currently ramping. In addition, we had 1 SMD join our equities business and equity trading. Investing in talent is core to our strategy, and we remain committed to thoughtfully expanding our platform over time. Now let me turn to our businesses. In North America, strategic advisory activity was robust in nearly all sectors with particular strength in health care, technology and industrials. While industry-wide announcement trends among financial sponsors are still below historical average levels, our sponsor-related activity is up meaningfully year-over-year as we expand our coverage effort with that client base. Our EMEA Strategic Advisory business had a strong quarter and a record first half. In 2025, we announced the Robey Warshaw transaction. and we also established local presence in new European markets. Our enhanced and integrated teams across the region are seeing a real pickup in activity. Our strategic defense and shareholder advisory group continued to be busy as activist campaigns push companies to explore sales and strategic reviews. Globally, in the second quarter, we advised on a number of significant transactions, including Arcosa's $8.5 billion sale to CRH. Iridium Communications sale to Rocket Lab, National Grid's $1.75 billion investment in [ Celent ] and Victoria's Secret in its successful proxy fight against BBRC. We also continued to see strong performance across our non-M&A businesses, which generated more than 40% of total revenues over the last 12 months as of the second quarter. Liability management and restructuring business maintained strong activity and dialogue levels consistent with trends we have seen over the last several quarters. Our private capital markets and debt advisory team remains active with particular strength in structured equity transactions and securitizations as clients continue to seek innovative capital solutions. Private Capital Advisory maintained its position as the market-leading business in this space and delivered another strong quarter. Our Private Funds Group delivered a record second quarter even as the fundraising market remains subdued, driven by continued strong demand for the highest quality funds. Our Equity Capital Markets business had its best quarter ever, supported by more receptive issuance markets and strong investor demand. We served as an active book runner on 19 transactions with a balanced mix of IPOs and follow-on offerings and benefited from a resurgence in health care activity as well as strength across several other sectors. In the second quarter, we were active book runner on Paravalos, medicines, $771 million IPO, the largest biotech IPO of all time and lead left bookrunner on Red Cap's $259 million follow-on offering. Our equities business had record second quarter revenues as our team continues to deliver best-in-class content corporate access and execution services to our institutional client base. And finally, our Wealth Management business delivered its best revenue quarter and finished with quarter end AUM of $16.2 billion. In summary, our record first half results reflect the breadth and durability of our platform and the continued execution of our long-term strategy. We remain encouraged by the level of client dialogue and engagement we are seeing across our global franchise. We continue to invest in our business, positioning us to capture opportunities as they emerge. With that, let me turn it over to Tim.

Thank you, John. We are pleased with our results, which reflect the progress we have made growing and strengthening our firm and diversifying our revenue streams. For the second quarter of 2026, net revenues, operating income and EPS on a GAAP basis were $990 million, $147 million and $2.32 per share, respectively. My comments from here will focus on non-GAAP metrics, which we believe are useful when evaluating our results. Our standard GAAP reporting and a reconciliation of GAAP to adjusted results can be found in our press release, which is on our website. Our adjusted net revenues of approximately $1 billion were a record for the second quarter, up 19% versus a year ago. Throughout the quarter, activity levels and revenues strengthened relative to our expectations at the start of the quarter as the market environment experienced some improvement and deal activity increased. We have consistently said that our business, both revenues and expenses should be evaluated across multiple quarters, and that continues to be the case. For the first half of 2026, adjusted net revenues were approximately $2.4 billion, up 56% versus the first half of last year and represents a record first half for the firm. Adjusted operating income was $190 million for the second quarter and $544 million for the first half, up 21% and 99%, respectively, year-over-year. Adjusted earnings per share were $2.91 for the second quarter and $10.48 for the first half up 7% year-over-year, respectively. Our adjusted operating margins for the second quarter and first half were 19% and 22.7%, respectively. Turning to the businesses. Adjusted advisory fees were approximately $776 million in the quarter, up 11% year-over-year. For the first half, advisory revenues were up 61%. Our advisory revenues are a record for the second quarter with strength across nearly every area as well as increased productivity levels. Underwriting fees of $97 million represented our best quarter to date, increased 21% from the prior year period. In the first half, underwriting revenues were up 76%. The strength was driven by robust follow-on and IPO issuance. Commissions and related revenue was $64 million, a record second quarter and up 9% year-over-year. Adjusted asset management and administration fees were approximately $25 million, up 15% versus the prior year. Adjusted other revenue net was approximately $39 million with a little over half due to gains on our DCCP hedge portfolio as equity markets rallied in the quarter and a little less than half due to interest income. Turning to expenses. Our adjusted compensation ratio for the quarter was 63.5%, down approximately 190 basis points from the second quarter of last year and down approximately 50 basis points from last quarter. We remain focused on making gradual progress over time and balancing that with continued investment in our business. Adjusted non-compensation expenses were $175 million, resulting in a 17.5% noncomp ratio. While this is up significantly from last quarter and from the year ago quarter, like revenues, noncomp expenses and ratios are best evaluated across multiple quarters. Our noncomp expense ratio for the first 6 months is 13.5%. Nonetheless, the increase for the quarter was larger than normal and is primarily due to investments that are intended to yield near-term results for the firm, such as conferences and client events or expenses incurred in deal pitching and execution. Also investments that are intended to build our business with medium- to longer-term results such as technology, including AI and data management strategies, search and placement fees related to SMD and non-SMD hiring and occupancy costs related to offices for our growing team of professionals. Further, there is some element of seasonality or episodic costs, which we expect may be reduced in coming quarters. For the full year, we would expect to see a modestly higher growth rate in noncomps relative to what we have experienced over the last couple of years. We are striving to achieve an annual non-comp ratio that is approximately in line with what we achieved last year. Our adjusted tax rate for the quarter was 29.4% and compared to 30% a year ago. We anticipate that our effective tax rate for the remaining quarters of the year will be similar to what we have experienced in those quarters over the last few years. Turning to our balance sheet. As of June 30, our cash and investment securities totaled nearly $2.4 billion. In the quarter, we returned a total of $150 million of capital through the repurchase of approximately 330,000 shares and the payment of dividends. For the first half of the year, we have returned a total of $823 million of which $734 million was through share repurchases at an average price of approximately $325 per share. We have already surpassed the full year record for share repurchases based on dollar amount. Our second quarter adjusted diluted share count was 43.7 million shares, down over 730,000 shares from the first quarter. We continue to maintain a strong cash position which enables us to meet regulatory capital and operating requirements while providing us with the resources to implement our strategic plan. As we enter the second half of the year, our business remains healthy. We are confident in our plan and optimistic about the opportunities that lie ahead as we remain committed to investing in our business and creating value for our shareholders over time. With that, we'll now open the line for questions.

[Operator Instructions]. Our first question will come from Steven Chubak with Wolfe Research.

I was hoping to double-click into some of your comments around noncomps, just given the bulk of noncomps are newly or fixed. It's a big driver of operating leverage for you and peers historically. I recognize that some of the investments will be episodic but the headcount growth is up 10% year-on-year. Senior FD count is up mid- to upper teens and the noncomps are up 30% year-to-date on a year-on-year basis. So thinking about all the areas that you're looking to invest more heavily. Still trying to understand given some of the items you cited might appear to be table stakes, why you're not seeing more non-comp leverage relative to your peers? And is there anything we can infer about the second half ramp in activity given the near record backlog and the fact that you tethered it to deal pitches, which you referenced earlier.

Yes, sure. There's a lot packed into that, but happy to tackle it. First, let me take a moment to reiterate or a frame that people have heard often from us. including on this call, which is our business needs to be evaluated on a multi-quarter basis. And our comp ratio for the quarter is, of course, 17.5%. We're not happy with that. For the first half, it's 13.5%, okay? That would be the first point. This compares to a pre-COVID noncomp ratio of more than 17%. Also, in my prepared remarks, I mentioned that we would expect the growth rate in noncomps this year to be modestly higher than what we experienced the last few years and that we are striving to finish with a noncomp ratio that's approximately similar or in line with what we experienced last year. And then to remind folks last year, it was 14.2%. And so those are the first things, which is multi-quarter for the first half, and we're expecting something more in line with what we achieved last year. Now let me double back on the increases we did have. First -- and this is important. The majority of this is investments in our company for growth. Some of that growth is realized in the very near term. That's related to things like conferences, client events, deal pitches, deal execution, which result in travel and professional fees. So some of that is just related to what we expect to be near-term revenue and near-term increased activity. Second, investments that provide returns in the medium term. that's client hires. You mentioned senior MDs up. This year, we've added 11 through external hires. We promoted 8 internally. That's 19 more. We've got 50 who are ramping. That's a lot. And beyond that, we, of course, can hardly turn on the news or pick up a magazine without reading about AI and technology. And we have doubled down on our investment there. We added a terrific new Chief Information Officer in 2025. We built out a senior team around him. We have a number of projects underway. And we expect that those projects will pay dividends for us over the coming years. And so that's the next point. And then as you mentioned and I mentioned in my prepared remarks, there are episodic items. And so -- or items that are seasonal in nature, and those include things like the arrival of our interns. And certain conferences and/or off-sites that are -- happen to be held in that quarter. And so we're hopeful that those are not going to be things that we're going to either see or see in the same magnitude over the next several quarters. And so we should get some help there as well. And so there's nothing really overly complicated. It's really just that simple -- multi-quarter, 13.5% for the first half, something similar to last year, for the full year is what we're striving for. And what we -- the increases you are seeing are primarily due to investments and then to a lesser extent, to things that we hope will either be smaller or not present. -- in some of the upcoming quarters. That's that. And I think you asked about second half ramp on revenues as well. And John, I don't know if you want to maybe share some thoughts on that and then I can chime in, but...

Sure. On the second half, we are looking at really a very strong second half. We are seeing substantial client engagement. It remains very strong. Backlogs continue at near record levels. which were also echoed by engagement letters and conflict checks, and we're very encouraged by the business and the outlook for our business. And we expect continued strong performance through the year and into next year.

Yes. The only thing I might add to that is, as you're thinking about comparative results, just recall that 3Q and 4Q last year were both record quarters.

Our next question comes from James Yaro with Goldman Sachs.

So it feels like there's a 2-speed in investment banking or M&A market right now with large-cap strategics outperforming the mid-caps and sponsors. I was hoping you could perhaps provide a little bit of additional color around the mid-cap and sponsor component of the M&A market and what you think actually gets that to improve more fully and perhaps any sense of time line as well?

Absolutely. So we're seeing increased activity, both in the middle -- mid-cap area as well as sponsors. It is not clear that this is going to drive and open the dams-type rally in these sectors. But clearly, there's real activity, and there's a lot of movement in terms of especially in sponsors, there's a lot of dialogue and thought about when is the opportunity going to come and when are people going to really start moving. Our business is actually in a very good place. We've added substantial numbers of people in sponsors, in sponsor coverage. And our pitch rate is up substantially from where it was this time last year, and our win rate is also up. So we're seeing sponsor activity up in a material way. In addition, we've continued to invest in bringing together our private capital advisory businesses and our classic sponsor M&A business, and we're seeing some real fruit to that labor. So our sponsor business seems to be in a very good place, and we're actually very optimistic about where that is going. In terms of middle market, we've added several players in the middle markets. And what we're seeing is that the dialogues are quite healthy. They certainly aren't following the very strong large-cap strategics, but there's a lot of dialogue and activity that we feel is going to continue to build the strength of that sector. So all in all, those 2 sectors we see as a build.

Our next question will come from Brennan Hawken with BMO Capital Markets.

Tim, and John, you spoke to the strength in the business. Tim, you spoke to tough comps in the back half of 25%. But typically, we see the second half revenue exceed the first half revenue for you just given the seasonality of the business. The first half was -- had the first quarter, which was remarkably strong, especially for the first quarter. Is it still reasonable to think that the back half revenues can exceed the first half? Or is that going to just be tougher comp in addition to the back half of '25 being tough?

Yes. are, thanks for the question. I think the way I think about it is -- it is the case if you look back at our historical quarterly revenues for the last, let's call it, decade. To the best of my recollection, I think the fourth quarter is just about always been the best of those 4 quarters. As you mentioned, first quarter also was an extraordinary quarter at $1.4 billion, which is the biggest quarter in the history of the firm and $100 million higher than our fourth quarter last year. And look, we stopped short of giving revenue guidance. And so I don't want to go too much further than that other than to say, as John said in his remarks, we have new record levels of backlogs. Activity levels are good. We feel good about our business and a continued gradual build, particularly into the latter part of this year and next year. But particularly given uncertainties that always exist in the environment going to stop short of being any more specific than that.

But what I would say, Brendan, is that the dialogue levels, the deals that are in-house and the likelihood of these deals coming to fruition is all quite strong. And so we feel good about the tone of the business. As Tim said, we can't predict, and we're certainly not going to give guidance. But I think the business is healthy.

Our next question will come from Devin Ryan with Citizens Bank.

This is Neo Eloff on for Devin. The question we got is just kind of on how AI is impacting both buyer and seller expectations and kind of how that's maybe evolved over the past few months. Obviously, software in an area that's been heavily affected -- and so maybe you can discuss that as well as kind of some of the other verticals? And then maybe if you can give some insight into how spreads are tightening or whether you're seeing that or not?

What was the last part of that question?

Whether spreads are tightening?

Okay. So let me start with software. Obviously, there was a pause in the market for software several months ago. And what we're seeing is that the software sector, especially in the M&A side and the dialogues connected with those have started to warm up again. And so whereas it is somewhat bifurcated in that the very high-quality software companies are actually in dialogue both to do M&A on the acquisition side as well sponsors who own software companies thinking about whether they sell them or not, that activity has picked up. And what we're seeing in our really software coverage business is that the activity level looks to be quite healthy, and we anticipate that, that will continue to warm and there'll be more activity. In terms of the activity level generally for AI. AI is a source of really a great deal of M&A discussion. Obviously, AI is driving strategic thought for lots of the big strategics, and that's why you're seeing some of the big strategics look to really do some much -- much stronger and bigger acquisitions. You're also seeing a lot of the big strategics look at capabilities they think they need and the view that they need to scale to be able to compete in AI with a lot of their competitors. So on really all fronts, that's been a catalyst for continuing stronger dialogues. In addition, the AI software relationship has really driven more dialogue in the restructuring side of our business where there are some good software companies that need some support on the liability management side. And so we're also seeing activity and expect some activity coming out of software and AI and the impact that AI will have on some of the software companies. So -- there are any number of places where those relationships, which you pointed out, will actually drive some investment banking activity.

Yes. The only thing I'd add to that is we are seeing green shoots of improvements in that space on the M&A side.

Our next question comes from Mike Brown with UBS.

Maybe just a quick clarification on that last point, and then I can ask my question, but is that comment and you said at the end, is that kind of sponsors and strategics when you talked about the green shoots in the software space?

Yes. We think that there is continuing activity. Our dialogues really are across the board. So with respect to sponsors, the sponsors, especially the ones that have have really been focused on software are seeing real opportunities, and we're in a number of dialogues for that. And then on strategic, there has -- there is a very strong point of view that software is actually continuing to be powerful that the blip that happened several months ago was an overreaction. And there is real opportunity both in buying and selling software companies going forward.

Okay. Great. I did really want to ask you about Europe. So with the Robey Warshaw acquisition, that seems like it's really been a good strategic home run for you guys partnered together now. Maybe just discuss a little bit about what you're seeing in Europe, specifically on the M&A front. How is the the confidence levels for continued activity there and expectations for that market? Do you think that there's still a good pace of acceleration that can come through there? And then do you see that as an opportunity to continue to take share in the region? Just a quick update on what you're seeing on the hiring front as well.