Evercore Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with Evercore Inc.'s unaudited condensed consolidated financial statements and the related notes included elsewhere in this Form 10-Q. Forward-Looking Statements This report contains, or incorporates by reference, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Exchange Act, which reflect our current views with respect to, among other things, our operations and financial performance. In some cases, you can identify these forward-looking statements by the use of words such as "outlook," "backlog," "believes," "expects," "potential," "probable," "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 report 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 our 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. All statements other than statements of historical fact are forward-looking statements and, based on various underlying assumptions and expectations, 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. We believe these factors include, but are not limited to, those described under "Risk Factors" discussed in the Annual Report on Form 10-K for the year ended December 31, 2020. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included or incorporated by reference in this report. In addition, new risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties, nor can we 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. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise except as required by law. We operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for our management to predict all risks and uncertainties, nor can management 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. Key Financial Measures Revenue Total revenues reflect revenues from our Investment Banking and Investment Management business segments that include fees for services, transaction-related client reimbursements and other revenue. Net revenues reflect total revenues less interest expense. Investment Banking. Our Investment Banking business earns fees from our clients for providing advice on mergers, acquisitions, divestitures, leveraged buyouts, restructurings, activism and defense and similar corporate finance matters, and from underwriting and private placement activities, as well as commissions, fees and principal revenues from research and our sales and trading activities. The amount and timing of the fees paid vary by the type of engagement or services provided. In general, advisory fees are paid at the time we sign an engagement letter, during the course of the engagement or when an engagement is completed. The majority of our investment banking revenue consists of advisory fees for which realizations are dependent on the successful completion of transactions. A transaction can fail to be completed for many reasons which are outside of our control, including failure of parties to agree upon final terms with the counterparty, to secure necessary board or shareholder approvals, to secure necessary financing or to achieve necessary regulatory approvals, or due to adverse market conditions. In the case of bankruptcy engagements, fees are subject to approval of the court. Underwriting fees are recognized when the offering has been deemed to be completed and placement fees are generally recognized at the time of the client's acceptance of capital or capital commitments. Commissions and Related Revenue includes commissions, which are recorded on a trade-date basis or, in the case of payments under commission sharing arrangements, on the date earned. Commissions and 36 Table of Contents Related Revenue also includes subscription fees for the sales of research, as well as revenues from principal transactions primarily executed on a riskless principal basis. Cash received before the subscription period ends is initially recorded as deferred revenue (a contract liability) and recognized as revenue over the remaining subscription period. Revenue trends in our advisory business generally are correlated to the volume of merger and acquisition ("M&A") activity, restructuring activity, which tends to be counter-cyclical to M&A, and capital advisory activity. Demand for these capabilities can vary in any given year or quarter for a number of reasons. For example, changes in our market share or the ability of our clients to close certain large transactions can cause our revenue results to diverge from the level of overall M&A, restructuring or capital advisory activity. Revenue trends in our equities business are correlated to market volumes, which generally decrease in periods of low market volatility or unfavorable market or economic conditions. Investment Management. Our Investment Management business includes operations related to the Wealth Management and Institutional Asset Management businesses and interests in private equity funds which we do not manage. Revenue sources primarily include management fees, fiduciary fees, performance fees and gains (or losses) on our investments. We completed the sale of the ECB Trust business on July 2, 2020 and the remaining ECB business on December 16, 2020. Following these transactions, there are no remaining consolidated businesses in the Institutional Asset Management business. Management fees for third party clients generally represent a percentage of assets under management ("AUM"). Fiduciary fees, which are generally a function of the size and complexity of each engagement, are individually negotiated. We record performance fees upon the earlier of the termination of the investment fund or when the likelihood of clawback is mathematically improbable. Gains and losses include both realized and unrealized gains and losses on principal investments, including those arising from our equity interest in investment partnerships. Transaction-Related Client Reimbursements . In our Investment Banking segment, we incur various transaction-related expenditures, such as travel and professional fees, in the course of performing our services. Pursuant to the engagement letters with our advisory clients, these expenditures may be reimbursable. We define these expenses, which are associated with revenue activities earned over time, as transaction-related expenses and record such expenditures as incurred and record revenue when it is determined that clients have an obligation to reimburse us for such transaction-related expenses. Client expense reimbursements are recorded as revenue on the Unaudited Condensed Consolidated Statements of Operations on the later of the date an engagement letter is executed or the date we pay or accrue the expense. Other Revenue and Interest Expense. Other Revenue includes the following: • Interest income and income (losses) earned on investment securities, including our investment funds and futures contracts which are used as an economic hedge against our deferred cash compensation program, certificates of deposit, cash and cash equivalents and on our debt security investment in G5 • Adjustments to amounts due pursuant to our tax receivable agreement, subsequent to its initial establishment, related to changes in enacted tax rates • Gains (losses) resulting from foreign currency fluctuations • Realized and unrealized gains and losses on interests in private equity funds which we do not manage Interest Expense includes interest expense associated with our Notes Payable and lines of credit. Prior to the sale of our ECB business in Mexico on December 16, 2020, Other Revenue and Interest Expense was also derived from investing customer funds in financing transactions. These transactions were principally repurchases and resales of Mexican government and government agency securities. Revenue and expenses associated with these transactions were recognized over the term of the repurchase or resale transaction. Operating Expenses Employee Compensation and Benefits Expense. We include all payments for services rendered by our employees, as well as profits interests in our businesses that have been accounted for as compensation, in employee compensation and benefits expense. We maintain compensation programs, including base salary, cash, deferred cash and equity bonus awards and benefits programs and manage compensation to estimates of competitive levels based on market conditions and performance. Our level 37 Table of Contents of compensation, including deferred compensation, reflects our plan to maintain competitive compensation levels to retain key personnel, and it reflects the impact of newly-hired senior professionals, including related grants of equity awards which are generally valued at their grant date. Increasing the number of high-caliber, experienced senior level employees is critical to our growth efforts. In our advisory businesses, these hires generally do not begin to generate significant revenue in the year they are hired. Our annual compensation program includes share-based compensation awards and deferred cash awards as a component of the annual bonus awards for certain employees. These awards are generally subject to annual vesting requirements over a four-year period beginning at the date of grant, which occurs in the first quarter of each year; accordingly, the expense is generally amortized over the stated vesting period, subject to retirement eligibility. With respect to annual awards, our retirement eligibility criteria generally stipulates that if an employee has at least five years of continuous service, is at least 55 years of age and has a combined age and years of service of at least 65 years, the employee is eligible for retirement. Beginning in 2019, we implemented additional retirement eligibility qualifying criteria, for awards issued in 2019 and after, that stipulates if an employee has at least 10 years of continuous service and is at least 60 years of age, the employee is also eligible for retirement. Retirement eligibility allows for continued vesting of awards after employees depart from the Company, provided they give the minimum advance notice, which is generally six months to one year. We estimate forfeitures in the aggregate compensation cost to be amortized over the requisite service period of the awards. We periodically monitor our estimated forfeiture rate and adjust our assumptions to the actual occurrence of forfeited awards. A change in estimated forfeitures is recognized through a cumulative adjustment in the period of the change. In April 2021, our Board of Directors approved the issuance of Class L Interests to our named executive officers, pursuant to which the named executive officers may receive a discretionary distribution of profits from Evercore LP, to be paid in the first quarter of 2022. Distributions pursuant to these interests are anticipated to be made in lieu of any cash incentive compensation payments which may otherwise have been made to our named executive officers in respect of their service for 2021. Our Long-term Incentive Plan provides for incentive compensation awards to Advisory Senior Managing Directors, excluding executive officers, who exceed defined benchmark results over four-year performance periods beginning January 1, 2017 and January 1, 2021. The first cash distribution under the 2017 Long-term Incentive Plan occurred in March 2021. Remaining amounts are due to be paid, in cash or Class A Shares, at our discretion, in equal installments in the first quarter of 2022 and 2023 (for the 2017 Long-term Incentive Plan) and in the first quarter of 2025, 2026 and 2027 (for the 2021 Long-term Incentive Plan), subject to employment at the time of payment. Awards issued under the 2017 Long-term Incentive Plan are subject to retirement eligibility requirements after the performance criteria has been achieved. We periodically assess the probability of the benchmarks being achieved and expense the probable payout over the requisite service period of the award. The performance period for the 2017 Long-term Incentive Plan ended on December 31, 2020. From time to time, we also grant performance awards to certain individuals which include both performance and service-based vesting requirements. See Note 15 to our unaudited condensed consolidated financial statements for further information. We believe that the ratio of Employee Compensation and Benefits Expense to Net Revenues is an important measure to assess the annual cost of compensation and provides a meaningful basis for comparison of compensation and benefits expense between present, historical and future years. Non-Compensation Expenses. Our other operating expenses include costs for occupancy and equipment rental, professional fees, travel and related expenses, communications and information technology services, depreciation and amortization, execution, clearing and custody fees and other operating expenses. We refer to all of these expenses as non-compensation expenses. Other Expenses Other Expenses include the following: • Amortization of LP Units and Certain Other Awards – Includes amortization costs associated with the vesting of Class J LP Units issued in conjunction with the acquisition of ISI. • Special Charges, Including Business Realignment Costs – Includes expenses in 2020 related to separation and transition benefits and related costs as a result of our review of operations and the acceleration of depreciation expense 38 Table of Contents for leasehold improvements and certain other fixed assets in conjunction with the expansion of our headquarters in New York and our business realignment initiatives. • Acquisition and Transition Costs – Includes costs incurred in connection with acquisitions, divestitures and other ongoing business development initiatives, primarily comprised of professional fees for legal and other services. • Intangible Asset and Other Amortization – Includes amortization of intangible assets associated with certain acquisitions. Income from Equity Method Investments Our share of the income (loss) from our equity interests in ABS, Atalanta Sosnoff and Luminis are included within Income from Equity Method Investments, as a component of Income Before Income Taxes, on the Unaudited Condensed Consolidated Statements of Operations. In July 2021, we acquired a 20% interest in Seneca Evercore for $0.5 million and will maintain proportional representation on the board of directors of Seneca Evercore (but not less than one director) following this transaction. We will account for our interest under the equity method of accounting and present our share of the income (loss) from our interest within Income from Equity Method Investments, as a component of Income Before Income Taxes, on the Unaudited Condensed Consolidated Statements of Operations. Provision for Income Taxes We account for income taxes in accordance with ASC 740 , which requires the recognition of tax benefits or expenses on temporary differences between the financial reporting and tax basis of our assets and liabilities. Excess tax benefits and deficiencies associated with the appreciation or depreciation in our share price upon vesting of employee share-based awards above or below the original grant price are recognized in our Provision for Income Taxes. In addition, net deferred tax assets are impacted by changes to statutory tax rates in the period of enactment. Noncontrolling Interest We record noncontrolling interest relating to the ownership interests of certain of our current and former Senior Managing Directors and other officers and their estate planning vehicles in Evercore LP, as well as the portions of our operating subsidiaries not owned by Evercore. Evercore Inc. is the sole general partner of Evercore LP and has a majority economic interest in Evercore LP. As a result, Evercore Inc. consolidates Evercore LP and records a noncontrolling interest for the economic interest in Evercore LP held by the limited partners. We generally allocate net income or loss to participating noncontrolling interests held at Evercore LP and at the operating entity level, where required, by multiplying the relative ownership interest of the noncontrolling interest holders for the period by the net income or loss of the entity to which the noncontrolling interest relates. In circumstances where the governing documents of the entity to which the noncontrolling interest relates require special allocations of profits or losses to the controlling and noncontrolling interest holders, the net income or loss of these entities is allocated based on these special allocations. 39 Table of Contents Results of Operations The following is a discussion of our results of operations for the three and six months ended June 30, 2021 and 2020. For a more detailed discussion of the factors that affected the revenue and operating expenses of our Investment Banking and Investment Management business segments in these periods, see the discussion in "Business Segments" below. For the Three Months Ended June 30, For the Six Months Ended June 30, 2021 2020 Change 2021 2020 Change (dollars in thousands, except per share data) Revenues Investment Banking: Advisory Fees $ 560,814 $ 336,436 67 % $ 1,072,732 $ 695,000 54 % Underwriting Fees 48,048 93,565 (49 %) 127,305 114,683 11 % Commissions and Related Revenue 50,725 54,334 (7 %) 104,251 109,900 (5 %) Asset Management and Administration Fees 16,183 12,953 25 % 31,132 25,700 21 % Other Revenue, Including Interest and Investments 16,401 15,116 9 % 23,631 168 NM Total Revenues 692,171 512,404 35 % 1,359,051 945,451 44 % Interest Expense 4,306 5,329 (19 %) 8,876 11,369 (22 %) Net Revenues 687,865 507,075 36 % 1,350,175 934,082 45 % Expenses Operating Expenses 480,852 411,183 17 % 948,947 763,629 24 % Other Expenses — 9,163 NM 7 34,421 (100 %) Total Expenses 480,852 420,346 14 % 948,954 798,050 19 % Income Before Income from Equity Method Investments and Income Taxes 207,013 86,729 139 % 401,221 136,032 195 % Income from Equity Method Investments 3,394 2,313 47 % 6,418 5,441 18 % Income Before Income Taxes 210,407 89,042 136 % 407,639 141,473 188 % Provision for Income Taxes 46,478 21,814 113 % 78,159 35,365 121 % Net Income 163,929 67,228 144 % 329,480 106,108 211 % Net Income Attributable to Noncontrolling Interest 23,570 10,816 118 % 44,769 18,521 142 % Net Income Attributable to Evercore Inc. $ 140,359 $ 56,412 149 % $ 284,711 $ 87,587 225 % Diluted Net Income Per Share Attributable to Evercore Inc. Common Shareholders $ 3.21 $ 1.35 138 % $ 6.46 $ 2.08 211 % As of June 30, 2021 and 2020, we employed approximately 1,900 and 1,775 people, respectively, worldwide. Three Months Ended June 30, 2021 versus June 30, 2020 Net Income Attributable to Evercore Inc. was $140.4 million for the three months ended June 30, 2021, an increase of $83.9 million, or 149%, compared to $56.4 million for the three months ended June 30, 2020. The changes in our operating results during these periods are described below. Net Revenues were $687.9 million for the three months ended June 30, 2021, an increase of $180.8 million, or 36%, versus Net Revenues of $507.1 million for the three months ended June 30, 2020. Advisory Fees increased $224.4 million, or 67%, Underwriting Fees decreased $45.5 million, or 49%, and Commissions and Related Revenue decreased $3.6 million, or 7%, compared to the three months ended June 30, 2020. Asset Management and Administration Fees increased $3.2 million, or 25%, compared to the three months ended June 30, 2020. Other Revenue, Including Interest and In vestments, increased 9% compared to the three months ended June 30, 2020, primarily driven by the gain on the redemption of the G5 debt security in the second quarter of 2021, partially offset by lower performance of our investment funds portfolio, which is used as an 40 Table of Contents economic hedge against our deferred cash compensation program. For further information see Notes 7, 8 and 16 to our unaudited condensed consolidated financial statements. Total Operating Expenses were $480.9 million for the three months ended June 30, 2021, compared to $411.2 million for the three months ended June 30, 2020, an increase of $69.7 million, or 17%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $407.8 million for the three months ended June 30, 2021, an increase of $73.8 million, or 22%, versus expense of $334.0 million for the three months ended June 30, 2020. The increase in the amount of compensation recognized for the three months ended June 30, 2021 principally reflects higher levels of incentive compensation, higher amortization of prior period deferred compensation awards and higher base salaries. Non-Compensation expenses, as a component of Operating Expenses, were $73.1 million for the three months ended June 30, 2021, a decrease of $4.1 million, or 5%, versus $77.2 million for the three months ended June 30, 2020. Non-Compensation operating expenses decreased compared to the three months ended June 30, 2020, primarily driven by a decrease in bad debt expense, which was due in part to recoveries in 2021, partially offset by an increase in professional fees. Non-Compensation expenses per employee were approximately $39.4 thousand for the three months ended June 30, 2021, versus $42.6 thousand for the three months ended June 30, 2020. Total Other Expenses of $9.2 million for the three months ended June 30, 2020 included (a) Special Charges, Including Business Realignment Costs, of $8.6 million related to separation and transition benefits and related costs and the acceleration of depreciation expense for leasehold improvements and certain other fixed assets in conjunction with the expansion of our headquarters in New York and our business realignment initiatives, (b) intangible asset and other amortization of $0.5 million and (c) Acquisition and Transition Costs of $0.1 million. As a result of the factors noted above, Employee Compensation and Benefits Expense as a percentage of Net Revenues was 59.3% for the three months ended June 30, 2021, compared to 65.9% for the three months ended June 30, 2020. The compensation ratio for the three months ended June 30, 2020 was 67.5% when the $8.2 million of separation and transition benefits expense, which is presented within Special Charges, Including Business Realignment Costs, is also included. The decrease in the compensation ratio principally reflects leverage achieved on higher revenues, partially offset by higher levels of incentive compensation, higher amortization of prior period deferred compensation awards and higher base salaries. Income from Equity Method Investments was $3.4 million for the three months ended June 30, 2021, compared to $2.3 million for the three months ended June 30, 2020. The increase was driven by an increase in earnings from ABS, Luminis and Atalanta Sosnoff during the three months ended June 30, 2021. The provision for income taxes for the three months ended June 30, 2021 was $46.5 million, which reflected an effective tax rate of 22.1%. The provision for income taxes for the three months ended June 30, 2020 was $21.8 million, which reflected an effective tax rate of 24.5%. The provision for income taxes for the three months ended June 30, 2021 reflects an additional tax benefit of $0.3 million and for the three months ended June 30, 2020 an additional tax expense of $0.5 million due to the net impact associated with the appreciation or depreciation in our share price upon vesting of employee share-based awards above or below the original grant price, the effect of certain nondeductible expenses, including expenses related to Class I-P and K-P Units, as well as the noncontrolling interest associated with LP Units and other adjustments. Net Income Attributable to Noncontrolling Interest was $23.6 million for the three months ended June 30, 2021 compared to $10.8 million for the three months ended June 30, 2020. The increase in Net Income Attributable to Noncontrolling Interest primarily reflects higher earnings for Evercore LP during the three months ended June 30, 2021. Six Months Ended June 30, 2021 versus June 30, 2020 Net Income Attributable to Evercore Inc. was $284.7 million for the six months ended June 30, 2021, an increase of $197.1 million, or 225%, compared to $87.6 million for the six months ended June 30, 2020. The changes in our operating results during these periods are described below. Net Revenues were $1.35 billion for the six months ended June 30, 2021, an increase of $416.1 million, or 45%, versus Net Revenues of $934.1 million for the six months ended June 30, 2020. Advisory Fees increased $377.7 million, or 54%, Underwriting Fees increased $12.6 million, or 11%, and Commissions and Related Revenue decreased $5.6 million, or 5%, compared to the six months ended June 30, 2020. Asset Management and Administration Fees increased $5.4 million, or 21%, compared to the six months ended June 30, 2020. Other Revenue, Including Interest and Investments, increased compared to the six months ended June 30, 2020, which was primarily driven by a shift from net losses of $6.8 million for the six months ended June 30, 2020 to gains of $16.0 million for the six months ended June 30, 2021 on our investment funds portfolio, which 41 Table of Contents is used as an economic hedge against our deferred cash compensation program, as well as the gain on the redemption of the G5 debt security in the second quarter of 2021. For further information see Notes 7, 8 and 16 to our unaudited condensed consolidated financial statements. Total Operating Expenses were $948.9 million for the six months ended June 30, 2021, compared to $763.6 million for the six months ended June 30, 2020, an increase of $185.3 million, or 24%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $803.2 million for the six months ended June 30, 2021, an increase of $199.5 million, or 33%, versus expense of $603.7 million for the six months ended June 30, 2020. The increase in the amount of compensation recognized in the six months ended June 30, 2021 is driven by higher levels of incentive compensation, higher amortization of prior period deferred compensation awards and higher base salaries. Non-compensation expenses as a component of Operating Expenses were $145.7 million for the six months ended June 30, 2021, a decrease of $14.2 million, or 9%, versus $159.9 million for the six months ended June 30, 2020. Non-compensation operating expenses decreased compared to the six months ended June 30, 2020, primarily driven by decreased travel and related expenses, as a substantial number of employees continued to work remotely in 2021, as well as a decrease in bad debt expense, which was due in part to recoveries in 2021, partially offset by an increase in professional fees. Non-Compensation expenses per employee were approximately $79.3 thousand for the six months ended June 30, 2021, versus $86.7 thousand for the six months ended June 30, 2020. Total Other Expenses of $0.01 million for the six months ended June 30, 2021 reflected Acquisition and Transition Costs. Total Other Expenses of $34.4 million for the six months ended June 30, 2020 included (a) Special Charges, Including Business Realignment Costs, of $32.2 million related to separation and transition benefits and related costs and the acceleration of depreciation expense for leasehold improvements and certain other fixed assets in conjunction with the expansion of our headquarters in New York and our business realignment initiatives, (b) compensation costs of $1.1 million associated with the vesting of Class J LP Units, (c) intangible asset and other amortization of $1.0 million and (d) Acquisition and Transition Costs of $0.1 million. As a result of the factors noted above, Employee Compensation and Benefits Expense as a percentage of Net Revenues was 59.5% for the six months ended June 30, 2021, compared to 64.7% for the six months ended June 30, 2020. The compensation ratio for the six months ended June 30, 2020 was 68.0% when the $30.2 million of separation and transition benefits expense, which is presented within Special Charges, Including Business Realignment Costs, is also included. The decrease in the compensation ratio principally reflects leverage achieved on higher revenues, partially offset by higher levels of incentive compensation, higher amortization of prior period deferred compensation awards and higher base salaries. Income from Equity Method Investments was $6.4 million for the six months ended June 30, 2021, compared to $5.4 million for the six months ended June 30, 2020. The increase was a result of an increase in earnings from ABS, Atalanta Sosnoff and Luminis during the six months ended June 30, 2021. The provision for income taxes for the six months ended June 30, 2021 was $78.2 million, which reflected an effective tax rate of 19.2%. The provision for income taxes for the six months ended June 30, 2020 was $35.4 million, which reflected an effective tax rate of 25.0%. The provision for income taxes for the six months ended June 30, 2021 and 2020 reflects the net impact of the deduction associated with the appreciation of our share price upon vesting of employee share-based awards above the original grant price of $17.0 million and $0.1 million, respectively, the effect of certain nondeductible expenses, including expenses related to Class J LP Units and Class I-P and K-P Units, as well as the noncontrolling interest associated with LP Units and other adjustments. Net Income Attributable to Noncontrolling Interest was $44.8 million for the six months ended June 30, 2021 compared to $18.5 million for the six months ended June 30, 2020. The increase in Net Income Attributable to Noncontrolling Interest primarily reflects higher earnings for Evercore LP during the six months ended June 30, 2021. 42 Table of Contents Business Segments The following data presents revenue, expenses and contributions from our equity method investments by business segment. Investment Banking The following table summarizes the operating results of the Investment Banking segment. For the Three Months Ended June 30, For the Six Months Ended June 30, 2021 2020 Change 2021 2020 Change (dollars in thousands) Revenues Investment Banking: Advisory Fees $ 560,814 $ 336,436 67 % $ 1,072,732 $ 695,000 54 % Underwriting Fees 48,048 93,565 (49 %) 127,305 114,683 11 % Commissions and Related Revenue (1) 50,725 54,334 (7 %) 104,251 109,900 (5 %) Other Revenue, net (2)(3) 11,233 11,039 2 % 13,817 (10,553) NM Net Revenues 670,820 495,374 35 % 1,318,105 909,030 45 % Expenses Operating Expenses 468,160 399,476 17 % 924,686 739,271 25 % Other Expenses — 9,163 NM 7 34,389 (100 %) Total Expenses 468,160 408,639 15 % 924,693 773,660 20 % Operating Income 202,660 86,735 134 % 393,412 135,370 191 % Income from Equity Method Investments (4) 549 65 745 % 718 601 19 % Pre-Tax Income $ 203,209 $ 86,800 134 % $ 394,130 $ 135,971 190 % (1) We renamed "Commissions and Related Fees" to "Commissions and Related Revenue" and reclassified $0.2 million and $0.4 million of principal trading gains and losses from our institutional equities business from "Other Revenue, net" to "Commissions and Related Revenue" for the three and six months ended June 30, 2020, respectively. See Note 2 to our unaudited condensed consolidated financial statements for further information. (2) Includes interest expense on Notes Payable of $4.3 million and $8.9 million for the three and six months ended June 30, 2021, respectively, and $4.5 million and $9.4 million for the three and six months ended June 30, 2020, respectively . (3) Includes a gain of $4.4 million for the three and six months ended June 30, 2021, resulting from the redemption of our G5 debt security. (4) Equity in Luminis is classified as Income from Equity Method Investments. For the three months ended June 30, 2021, the dollar value of North American announced and completed M&A activity increased 491% and decreased 14%, respectively, compared to the three months ended June 30, 2020, and the dollar value of Global announced and completed M&A activity increased 185% and 2%, respectively, compared to the three months ended June 30, 2020. For the three months ended June 30, 2021, the dollar value of North American and Global announced M&A activity between $1 - $5 billion increased 463% and 396%, respectively, compared to the three months ended June 30, 2020. For the six months ended June 30, 2021, the dollar value of North American announced and completed M&A activity increased 266% and 1%, respectively, compared to the six months ended June 30, 2020, and the dollar value of Global announced and completed M&A activity increased 132% and 17%, respectively, compared to the six months ended June 30, 2020. For the six months ended June 30, 2021, the dollar value of North American and Global announced M&A activity between $1 - $5 billion increased 302% and 260%, respectively, compared to the six months ended June 30, 2020. 43 Table of Contents For the Three Months Ended June 30, For the Six Months Ended June 30, 2021 2020 Change 2021 2020 Change Industry Statistics ($ in billions) * Value of North American M&A Deals Announced $ 750 $ 127 491 % $ 1,441 $ 394 266 % Value of North American M&A Deals Announced between $1 - $5 billion $ 214 $ 38 463 % $ 491 $ 122 302 % Value of North American M&A Deals Completed $ 426 $ 494 (14 %) $ 806 $ 801 1 % Value of Global M&A Deals Announced $ 1,481 $ 519 185 % $ 2,742 $ 1,180 132 % Value of Global M&A Deals Announced between $1 - $5 billion $ 417 $ 84 396 % $ 882 $ 245 260 % Value of Global M&A Deals Completed $ 886 $ 871 2 % $ 1,729 $ 1,472 17 % Evercore Statistics ** Total Number of Fees From Advisory Client Transactions 255 222 15 % 418 358 17 % Investment Banking Fees of at Least $1 million from Advisory Client Transactions 115 77 49 % 218 150 45 % Total Number of Underwriting Transactions 31 36 (14 %) 70 48 46 % Total Number of Underwriting Transactions as a Bookrunner 25 21 19 % 56 29 93 % * Source: Refinitiv June 30, 2021 ** Includes revenue generating clients Investment Banking Results of Operations Three Months Ended June 30, 2021 versus June 30, 2020 Investment Banking Net Revenues were $670.8 million for the three months ended June 30, 2021, compared to $495.4 million for the three months ended June 30, 2020, an increase of $175.4 million, or 35%. We earned 255 fees from Advisory clients for the three months ended June 30, 2021, compared to 222 for the three months ended June 30, 2020, representing a 15% increase. We earned 115 fees in excess of $1.0 million for the three months ended June 30, 2021, compared to 77 for the three months ended June 30, 2020, representing a 49% increase. The increase in revenues from the three months ended June 30, 2020 was primarily driven by an increase of $224.4 million, or 67%, in Advisory Fees, reflecting an increase in the number of Advisory fees earned and an increase in revenue earned from large transactions during the three months ended June 30, 2021. Underwriting Fees decreased $45.5 million, or 49%, compared to the three months ended June 30, 2020, reflecting a decrease in the number of transactions we participated in, as well as the relative fee size of those transactions. Commissions and Related Revenue decreased $3.6 million, or 7%, compared to the three months ended June 30, 2020. Other Revenue, net, for the three months ended June 30, 2021 increased 2% versus the three months ended June 30, 2020, primarily driven by the gain on the redemption of the G5 debt security in the second quarter of 2021, partially offset by lower performance of our investment funds portfolio, which is used as an economic hedge against our deferred cash compensation program. Operating Expenses were $468.2 million for the three months ended June 30, 2021, compared to $399.5 million for the three months ended June 30, 2020, an increase of $68.7 million, or 17%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $398.2 million for the three months ended June 30, 2021, compared to $325.7 million for the three months ended June 30, 2020, an increase of $72.5 million, or 22%. The increase in the amount of compensation recognized for the three months ended June 30, 2021 principally reflects higher levels of incentive compensation, higher amortization of prior period deferred compensation awards and higher base salaries. Non-Compensation expenses, as a component of Operating Expenses, were $70.0 million for the three months ended June 30, 2021, compared to $73.8 million for the three months ended June 30, 2020, a decrease of $3.8 million, or 5%. Non-Compensation operating expenses decreased from the three months ended June 30, 2020 primarily driven by a decrease in bad debt expense, partially offset by an increase in professional fees. 44 Table of Contents Other Expenses of $9.2 million for the three months ended June 30, 2020 included (a) Special Charges, Including Business Realignment Costs, of $8.6 million related to separation and transition benefits and related costs and the acceleration of depreciation expense for leasehold improvements and certain other fixed assets in conjunction with the expansion of our headquarters in New York and our business realignment initiatives, (b) intangible asset amortization of $0.5 million and (c) Acquisition and Transition Costs of $0.1 million. Six Months Ended June 30, 2021 versus June 30, 2020 Investment Banking Net Revenues were $1.32 billion for the six months ended June 30, 2021, compared to $909.0 million for the six months ended June 30, 2020, an increase of $409.1 million, or 45%. We earned 418 fees from Advisory clients for the six months ended June 30, 2021, compared to 358 for the six months ended June 30, 2020, representing a 17% increase. We earned 218 fees in excess of $1.0 million for the six months ended June 30, 2021, compared to 150 for the six months ended June 30, 2020, representing a 45% increase. The increase in revenues from the six months ended June 30, 2020 was primarily driven by an increase of $377.7 million, or 54%, in Advisory Fees, reflecting an increase in the number of Advisory fees earned and an increase in revenue earned from large transactions during the six months ended June 30, 2021. Underwriting Fees increased $12.6 million, or 11%, compared to the six months ended June 30, 2020, reflecting an increase in the number of transactions we participated in, as well as the relative size of our participation in those transactions . Commissions and Related Revenue decreased $5.6 million, or 5%, compared to the six months ended June 30, 2020. Other Revenue, net, for the six months ended June 30, 2021 increased versus the six months ended June 30, 2020, primarily driven by a shift from net losses of $6.8 million for the six months ended June 30, 2020 to gains of $16.0 million for the six months ended June 30, 2021 on our investment funds portfolio, which is used as an economic hedge against our deferred cash compensation program, as well as the gain on the redemption of the G5 debt security in the second quarter of 2021. Operating Expenses were $924.7 million for the six months ended June 30, 2021, compared to $739.3 million for the six months ended June 30, 2020, an increase of $185.4 million, or 25%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $784.8 million for the six months ended June 30, 2021, compared to $586.6 million for the six months ended June 30, 2020, an increase of $198.2 million, or 34%. The increase in the amount of compensation recognized in the six months ended June 30, 2021 is driven by higher levels of incentive compensation, higher amortization of prior period deferred compensation awards and higher base salaries . Non-compensation expenses, as a component of Operating Expenses, were $139.9 million for the six months ended June 30, 2021, compared to $152.7 million for the six months ended June 30, 2020 , a decrease of $12.8 million, or 8%. Non-compensation operating expenses decreased from the six months ended June 30, 2020 primarily driven by decreased travel and related expenses, as a substantial number of employees continued to work remotely in 2021, as well as a decrease in bad debt expense, partially offset by an increase in professional fees. Other Expenses of $0.01 million for the six months ended June 30, 2021 reflected Acquisition and Transition Costs. Other Expenses of $34.4 million for the six months ended June 30, 2020 included (a) Special Charges, Including Business Realignment Costs, of $32.2 million related to separation and transition benefits and related costs and the acceleration of depreciation expense for leasehold improvements and certain other fixed assets in conjunction with the expansion of our headquarters in New York and our business realignment initiatives, (b) compensation costs of $1.1 million associated with the vesting of Class J LP Units granted in conjunction with the acquisition of ISI, (c) intangible asset amortization of $1.0 million and (d) Acquisition and Transition Costs of $0.1 million. 45 Table of Contents Investment Management The following table summarizes the operating results of the Investment Management segment. For the Three Months Ended June 30, For the Six Months Ended June 30, 2021 2020 Change 2021 2020 Change (dollars in thousands) Revenues Asset Management and Administration Fees: Wealth Management $ 16,183 $ 12,632 28 % $ 31,132 $ 24,960 25 % Institutional Asset Management (1) — 321 NM — 740 NM Asset Management and Administration Fees 16,183 12,953 25 % 31,132 25,700 21 % Other Revenue, net 862 (1,252) NM 938 (648) NM Net Revenues 17,045 11,701 46 % 32,070 25,052 28 % Expenses Operating Expenses 12,692 11,707 8 % 24,261 24,358 — % Other Expenses — — NM — 32 NM Total Expenses 12,692 11,707 8 % 24,261 24,390 (1 %) Operating Income (Loss) 4,353 (6) NM 7,809 662 NM Income from Equity Method Investments (2) 2,845 2,248 27 % 5,700 4,840 18 % Pre-Tax Income $ 7,198 $ 2,242 221 % $ 13,509 $ 5,502 146 % (1) Prior period includes the ECB business. On July 2, 2020, we sold the trust business of ECB and on December 16, 2020, we sold the remaining ECB business. (2) Equity in ABS and Atalanta Sosnoff is classified as Income from Equity Method Investments. Investment Management Results of Operations Our Investment Management segment includes the following activities: • Wealth Management – conducted through EWM and ETC. Fee-based revenues from EWM are primarily earned on a percentage of AUM, while ETC primarily earns fees from negotiated trust services. • Private Equity – conducted through our investment interests in private equity funds. We maintain a limited partner's interest in Glisco II, Glisco III and Glisco IV, as well as Glisco Manager Holdings LP and the general partners of the Glisco Funds. We receive our portion of the management fees earned by Glisco Partners Inc. ("Glisco") from Glisco Manager Holdings LP. We are passive investors and do not participate in the management of any Glisco sponsored funds. We are also passive investors in Trilantic IV, Trilantic V and Trilantic VI. In the event the private equity funds perform below certain thresholds, we may be obligated to repay certain carried interest previously distributed. As of June 30, 2021, $0.8 million of previously distributed carried interest received from the funds was subject to repayment. • We also hold interests in ABS and Atalanta Sosnoff that are accounted for under the equity method of accounting. The results of these investments are included within Income from Equity Method Investments. Our historical Investment Management results include the ECB businesses, which were previously included in Institutional Asset Management above. On July 2, 2020, we sold the trust business of ECB and on December 16, 2020, we sold the remaining ECB business. Assets Under Management AUM for our Wealth Management business of $11.1 billion at June 30, 2021 increased compared to $10.2 billion at December 31, 2020. The amounts of AUM presented in the table below reflect the fair value of assets which we manage on behalf of Wealth Management clients. As defined in ASC 820, valuations performed for Level 1 investments are based on quoted prices obtained from active markets generated by third parties and Level 2 investments are valued through the use of models based on either direct or indirect observable inputs in the use of models or other valuation methodologies performed by third parties to determine fair value. For both the Level 1 and Level 2 investments, we obtain both active quotes from nationally 46 Table of Contents recognized exchanges and third-party pricing services to determine market or fair value quotes, respectively. For Level 3 investments, pricing inputs are unobservable for the investment and includes situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant management judgment or estimation. Wealth Management maintained 75% and 72% of Level 1 investments, 21% and 24% of Level 2 investments and 4% of Level 3 investments as of June 30, 2021 and December 31, 2020, respectively. The fees that we receive for providing investment advisory and management services are primarily driven by the level and composition of AUM. Accordingly, client flows, market movements, and changes in our product mix will impact the level of management fees we receive from our Wealth Management business. Fees vary with the type of assets managed and the channel in which they are managed, with higher fees earned on equity assets and alternative investment funds, such as hedge funds and private equity funds, and lower fees earned on fixed income and cash management products. Clients will increase or reduce the aggregate amount of AUM that we manage for a number of reasons, including changes in the level of assets that they have available for investment purposes, their overall asset allocation strategy, our relative performance versus competitors offering similar investment products and the quality of our service. The fees we earn are also impacted by our investment performance, as the appreciation or depreciation in the value of the assets that we manage directly impacts our fees. The following table summarizes AUM activity for the six months ended June 30, 2021: Wealth Management (1) (dollars in millions) Balance at December 31, 2020 $ 10,163 Inflows 540 Outflows (377) Market Appreciation 808 Balance at June 30, 2021 $ 11,134 Unconsolidated Affiliates - Balance at June 30, 2021: Atalanta Sosnoff $ 8,277 ABS $ 7,206 (1) Assets Under Management includes Evercore assets which are managed by Evercore Wealth Management of $76.3 million and $76.4 million as of June 30, 2021 and December 31, 2020, respectively. The following table represents the composition of AUM for Wealth Management as of June 30, 2021: Wealth Management Equities 66 % Fixed Income 21 % Liquidity (1) 8 % Alternatives 5 % Total 100 % (1) Includes cash, cash equivalents and U.S. Treasury securities. Our Wealth Management business serves individuals, families and related institutions delivering customized investment management, financial planning, and trust and custody services. Investment portfolios are tailored to meet the investment objectives of individual clients and reflect a blend of equity, fixed income and other products. Fees charged to clients reflect the composition of the assets managed and the services provided. Investment performance in the Wealth Management businesses is measured against appropriate indices based on the AUM, most frequently the S&P 500 and a composite fixed income index principally reflecting BarCap and MSCI indices. For the six months ended June 30, 2021, AUM for Wealth Management increased 10%, reflecting an 8% increase due to market appreciation and a 2% increase due to flows. Wealth Management outperformed the S&P 500 on a 1 and 3-year basis by approximately 2% and 3%, respectively, during the period. Wealth Management outperformed the fixed income composite on a 47 Table of Contents 1-year basis by approximately 70 basis points and lagged the fixed income composite on a 3-year basis by approximately 40 basis points, respectively, during the period. For the six months ended June 30, 2021, the S&P 500 was up approximately 15% and the fixed income composite was down approximately 1%. AUM from our unconsolidated affiliates increased 8% compared to December 31, 2020, primarily related to positive performance in ABS and Atalanta Sosnoff. Three Months Ended June 30, 2021 versus June 30, 2020 Investment Management Net Revenues were $17.0 million for the three months ended June 30, 2021, compared to $11.7 million for the three months ended June 30, 2020, which represented an increase of 46%. Asset Management and Administration Fees earned from the management of client portfolios increased 25% for the three months ended June 30, 2021, primarily driven by an increase of $3.6 million in fees from Wealth Management clients, as associated AUM increased 23%. Fee-based revenues included $0.01 million of revenues from performance fees for the three months ended June 30, 2020. Income from Equity Method Investments increased from the three months ended June 30, 2020, as a result of an increase in earnings from our investments in ABS and Atalanta Sosnoff. Operating Expenses were $12.7 million for the three months ended June 30, 2021, compared to $11.7 million for the three months ended June 30, 2020, an increase of $1.0 million, or 8%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $9.6 million for the three months ended June 30, 2021, compared to $8.3 million for the three months ended June 30, 2020, an increase of $1.3 million, or 16%. Non-Compensation expenses, as a component of Operating Expenses, were $3.1 million for the three months ended June 30, 2021, compared to $3.4 million for the three months ended June 30, 2020, a decrease of $0.3 million, or 9%. Six Months Ended June 30, 2021 versus June 30, 2020 Investment Management Net Revenues were $32.1 million for the six months ended June 30, 2021, compared to $25.1 million for the six months ended June 30, 2020, which represented an increase of 28%. Asset Management and Administration Fees earned from the management of client portfolios increased 21% for the six months ended June 30, 2021, primarily driven by an increase of $6.2 million in fees from Wealth Management clients, as associated AUM increased 23%. Fee-based revenues included $0.07 million of revenues from performance fees for the six months ended June 30, 2020. Income from Equity Method Investments increased from the six months ended June 30, 2020, as a result of an increase in earnings from our investments in ABS and Atalanta Sosnoff. Operating Expenses were $24.3 million for the six months ended June 30, 2021, flat compared to the six months ended June 30, 2020. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $18.3 million for the six months ended June 30, 2021, compared to $17.1 million for the six months ended June 30, 2020, an increase of $1.2 million, or 7%. Non-Compensation expenses, as a component of Operating Expenses, were $6.0 million for the six months ended June 30, 2021, compared to $7.3 million for the six months ended June 30, 2020, a decrease of $1.3 million, or 18%. Other Expenses of $0.03 million for the six months ended June 30, 2020 included Special Charges, Including Business Realignment Costs, related to separation and transition benefits and related costs. Cash Flows Our operating cash flows are primarily influenced by the timing and receipt of investment banking and investment management fees and the payment of operating expenses, including incentive compensation to our employees and interest expense on our repurchase agreements (prior to the sale of our ECB business), Notes Payable and lines of credit, and the payment of income taxes. Investment Banking advisory fees are generally collected within 90 days of billing. However, placement fees may be collected within 180 days of billing, with fees related to private funds capital raising being collected in a period exceeding one year. Commissions earned from our agency trading activities are generally received from our clearing broker within 11 days. Fees from our Wealth Management business (and previously our Institutional Asset Management business, prior to the sale of our ECB business) are generally billed and collected within 90 days. We traditionally pay a substantial portion of incentive compensation to personnel in the Investment Banking business and to executive officers during the first three months of each calendar year with respect to the prior year's results and prior year's deferred compensation. Likewise, payments to fund investments related to hedging our deferred cash compensation plans are generally funded in the first three months of each calendar year. Our investing and financing cash flows are primarily influenced by activities to invest our cash in highly liquid securities or bank certificates of deposit, deploy capital to fund investments and acquisitions, raise 48 Table of Contents capital through the issuance of stock or debt, repurchase of outstanding Class A Shares, and/or noncontrolling interest in Evercore LP, as well as our other subsidiaries, payment of dividends and other periodic distributions to our stakeholders. We generally make dividend payments and other distributions on a quarterly basis. We periodically draw down on our lines of credit to balance the timing of our operating, investing and financing cash flow needs. A summary of our operating, investing and financing cash flows is as follows: For the Six Months Ended June 30, 2021 2020 (dollars in thousands) Cash Provided By (Used In) Operating activities: Net income $ 329,480 $ 106,108 Non-cash charges 221,687 233,773 Other operating activities (436,709) (221,111) Operating activities 114,458 118,770 Investing activities 11,968 483,616 Financing activities (517,217) (214,410) Effect of exchange rate changes 3,558 (6,842) Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash (387,233) 381,134 Cash, Cash Equivalents and Restricted Cash Beginning of Period 838,224 643,886 End of Period $ 450,991 $ 1,025,020 Six Months Ended June 30, 2021. Cash, Cash Equivalents and Restricted Cash were $451.0 million at June 30, 2021, a decrease of $387.2 million versus Cash, Cash Equivalents and Restricted Cash of $838.2 million at December 31, 2020. Operating activities resulted in a net inflow of $114.5 million, primarily related to earnings, partially offset by the payment of 2020 bonus awards and deferred cash compensation. Cash of $12.0 million was provided by investing activities primarily related to net proceeds from sales and maturities of investment securities and the proceeds from the redemption of the G5 debt security, partially offset by the purchase of certificates of deposit and purchases of equipment and leasehold improvements, primarily related to the expansion of our headquarters in New York. Financing activities during the period used cash of $517.2 million, primarily for purchases of treasury stock and noncontrolling interests, the payment of our Notes Payable and dividends and distributions to noncontrolling interest holders, partially offset by the issuance of the 2021 Private Placement Notes. For further information, see Note 11 to our unaudited condensed consolidated financial statements. Cash is also impacted due to the effect of foreign exchange rate fluctuation when translating non-U.S. currencies to U.S. Dollars. Six Months Ended June 30, 2020. Cash, Cash Equivalents and Restricted Cash were $1.0 billion at June 30, 2020, an increase of $381.1 million versus Cash, Cash Equivalents and Restricted Cash of $643.9 million at December 31, 2019. Operating activities resulted in a net inflow of $118.8 million, primarily related to earnings, partially offset by the payment of 2019 bonus awards and deferred cash compensation. Cash flows for the first six months of 2020 also reflect the impact of lower tax payments resulting from the deferral of required federal income tax payments pursuant to the Coronavirus Aid, Relief, and Economic Security Act ("CARES" Act). Cash of $483.6 million was provided by investing activities primarily related to net proceeds from sales and maturities of investment securities and the maturity of certificates of deposit, partially offset by purchases of equipment and leasehold improvements, primarily related to the expansion of our headquarters in New York. Financing activities during the period used cash of $214.4 million, primarily for purchases of treasury stock and the payment of dividends and distributions to noncontrolling interest holders. Cash is also impacted due to the effect of foreign exchange rate fluctuation when translating non-U.S. currencies to U.S. Dollars. Liquidity and Capital Resources General Our current assets principally include Cash and Cash Equivalents, Investment Securities and Certificates of Deposit, Accounts Receivable and contract assets, included in Other Current Assets, relating to Investment Banking and Investment 49 Table of Contents Management revenues. Our current liabilities principally include accrued expenses, accrued liabilities related to improvements in our leased facilities, accrued employee compensation and short-term borrowings. We traditionally have made payments for employee bonus awards and year-end distributions to partners in the first quarter of the year with respect to the prior year's results. In addition, payments in respect of deferred cash compensation arrangements and related investments are also made in the first quarter. From time to time, advances and/or commitments may also be granted to new employees at or near the date they begin employment, or to existing employees for the purpose of incentive or retention. Cash distributions related to partnership tax allocations are made to the partners of Evercore LP and certain other entities in accordance with our corporate estimated payment calendar; these payments are made prior to the end of each calendar quarter. In addition, dividends on Class A Shares, and related distributions to partners of Evercore LP, are paid when and if declared by the Board of Directors, which is generally quarterly. We regularly monitor our liquidity position, including cash, other significant working capital, current assets and liabilities, long-term liabilities, lease commitments and related fixed assets, principal investment commitments related to our Investment Management business, dividends on Class A Shares, partnership distributions and other capital transactions, as well as other matters relating to liquidity and compliance with regulatory requirements. Our liquidity is highly dependent on our revenue stream from our operations, principally from our Investment Banking business, which is a function of closing transactions and earning success fees, the timing and realization of which is irregular and dependent upon factors that are not subject to our control. Our revenue stream funds the payment of our expenses, including annual bonus payments, a portion of which are guaranteed, deferred compensation arrangements, interest expense on our repurchase agreements (prior to the sale of our ECB business), Notes Payable, lines of credit and other financing arrangements and income taxes. Payments made for income taxes may be reduced by deductions taken for the increase in tax basis of our investment in Evercore LP. Certain of these tax deductions, when realized, require payment under our long-term liability, Amounts Due Pursuant to Tax Receivable Agreements. We intend to fund these payments from cash and cash equivalents on hand, principally derived from cash flows from operations. These tax deductions, when realized, will result in cash otherwise required to satisfy tax obligations becoming available for other purposes. Our Management Committee meets regularly to monitor our liquidity and cash positions against our short and long-term obligations, as well as our capital requirements and commitments. The result of this review contributes to management's recommendation to the Board of Directors as to the level of quarterly dividend payments, if any. As a financial services firm, our businesses are materially affected by conditions in the global financial markets and economic conditions throughout the world. Revenue generated by our advisory activities is related to the number and value of the transactions in which we are involved. In addition, revenue related to our equities business is driven by market volumes and institutional investor trends, such as the trend to passive investment strategies. During periods of unfavorable market or economic conditions, the number and value of M&A transactions, as well as market volumes in equities, generally decrease, and they generally increase during periods of favorable market or economic conditions. Restructuring activity generally is counter-cyclical to M&A activity. In addition, during periods of unfavorable market conditions our Investment Management business may be impacted by reduced equity valuations and generate relatively lower revenue because fees we receive, either directly or through our affiliates, typically are in part based on the market value of underlying publicly-traded securities. Our profitability may also be adversely affected by our fixed costs and the possibility that we would be unable to scale back other costs within a time frame and in an amount sufficient to match any decreases in revenue relating to changes in market and economic conditions. Likewise, our liquidity may be adversely impacted by our contractual obligations, including lease obligations. Reduced equity valuations resulting from future adverse economic events and/or market conditions may impact our performance and may result in future net redemptions of AUM from our clients, which would generally result in lower revenues and cash flows. These adverse conditions could also have an impact on our goodwill impairment assessment, which is done annually, as of November 30th, or more frequently if circumstances indicate impairment may have occurred. We assess our equity method investments for impairment annually, or more frequently if circumstances indicate impairment may have occurred. These circumstances could include unfavorable market conditions or the loss of key personnel of the investee. Treasury and Noncontrolling Interest Repurchases We periodically repurchase Class A Shares and/or LP Units into Treasury in order to offset the dilutive effect of equity awards granted as compensation (see Note 15 to our unaudited condensed consolidated financial statements for further information.) The amount of cash required for these share repurchases is a function of the mix of equity and deferred cash compensation awarded for the annual bonus awards (see further discussion on deferred compensation under Other Commitments below). In addition, we may from time to time, purchase noncontrolling interests in subsidiaries. 50 Table of Contents On October 23, 2017, our Board of Directors authorized (in addition to the net settlement of equity awards) the repurchase of Class A Shares and/or LP Units so that from that date forward, we were able to repurchase an aggregate of the lesser of $750.0 million worth of Class A Shares and/or LP Units and 8.5 million Class A Shares and/or LP Units. Further, on April 27, 2021, our Board of Directors authorized (in addition to the net settlement of equity awards) the repurchase of Class A Shares and/or LP Units so that from that date forward, we are able to repurchase an aggregate of the lesser of $750.0 million worth of Class A Shares and/or LP Units and 8.5 million Class A Shares and/or LP Units. Under this share repurchase program, shares may be repurchased from time to time in open market transactions, in privately-negotiated transactions or otherwise. The timing and the actual amount of shares repurchased will depend on a variety of factors, including our liquidity position, legal requirements, price, economic and market conditions and the objective to reduce the dilutive effect of equity awards granted as compensation to employees. This program may be suspended or discontinued at any time and does not have a specified expiration date. During the six months ended June 30, 2021, we repurchased 2,374,027 Class A Shares, at an average cost per share of $132.88, for $315.5 million pursuant to our repurchase program. In addition, we periodically buy shares into treasury from our employees in order to allow them to satisfy their minimum tax requirements for share deliveries under our share equity plan. During the six months ended June 30, 2021, we repurchased 934,387 Class A Shares, at an average cost per share of $117.02, for $109.3 million primarily related to minimum tax withholding requirements of share deliveries. The aggregate 3,308,414 Class A Shares repurchased during the six months ended June 30, 2021 were acquired for aggregate purchase consideration of $424.8 million, at an average cost per share of $128.40. Private Placements On March 30, 2016, we issued an aggregate $170.0 million of senior notes, including: $38.0 million aggregate principal amount of our 4.88% Series A Notes, $67.0 million aggregate principal amount of our 5.23% Series B Notes, $48.0 million aggregate principal amount of our 5.48% Series C Notes and $17.0 million aggregate principal amount of our 5.58% Series D Notes, pursuant to the 2016 Note Purchase Agreement, among the Company and the purchasers party thereto in a private placement exempt from registration under the Securities Act of 1933. In March 2021, we repaid the $38.0 million aggregate principal amount of our Series A Notes. Interest on the 2016 Private Placement Notes is payable semi-annually and the 2016 Private Placement Notes are guaranteed by certain of our domestic subsidiaries. We may, at our option, prepay all, or from time to time any part of, the 2016 Private Placement Notes (without regard to Series), in an amount not less than 5% of the aggregate principal amount of the 2016 Private Placement Notes then outstanding at 100% of the principal amount thereof plus an applicable "make-whole amount." Upon the occurrence of a change of control, the holders of the 2016 Private Placement Notes will have the right to require us to prepay the entire unpaid principal amounts held by each holder of the 2016 Private Placement Notes plus accrued and unpaid interest to the prepayment date. The 2016 Note Purchase Agreement contains customary covenants, including financial covenants requiring compliance with a maximum leverage ratio, a minimum tangible net worth and a minimum interest coverage ratio, and customary events of default. As of June 30, 2021, we were in compliance with all of these covenants. On August 1, 2019, we issued $175.0 million and £25.0 million of senior unsecured notes through private placement. These notes reflect a weighted average life of 12 years and a weighted average stated interest rate of 4.26%. These notes include: $75.0 million aggregate principal amount of our 4.34% Series E Notes, $60.0 million aggregate principal amount of our 4.44% Series F Notes, $40.0 million aggregate principal amount of our 4.54% Series G Notes and £25.0 million aggregate principal amount of our 3.33% Series H Notes, each of which were issued pursuant to the 2019 Note Purchase Agreement, among the Company and the purchasers party thereto in a private placement exempt from registration under the Securities Act of 1933. Interest on the 2019 Private Placement Notes is payable semi-annually and the 2019 Private Placement Notes are guaranteed by certain of our domestic subsidiaries. We may, at our option, prepay all, or from time to time any part of, the 2019 Private Placement Notes (without regard to Series), in an amount not less than 5% of the aggregate principal amount of the 2019 Private Placement Notes then outstanding at 100% of the principal amount thereof plus an applicable "make-whole amount." Upon the occurrence of a change of control, the holders of the 2019 Private Placement Notes will have the right to require us to prepay the entire unpaid principal amounts held by each holder of the 2019 Private Placement Notes plus accrued and unpaid interest to the prepayment date. The 2019 Note Purchase Agreement contains customary covenants, including 51 Table of Contents financial covenants requiring compliance with a maximum leverage ratio and a minimum tangible net worth, and customary events of default. As of June 30, 2021, we were in compliance with all of these covenants. On March 29, 2021, we issued an aggregate of $38.0 million of senior notes, comprised of $38.0 million aggregate principal amount of our 1.97% Series I Notes, pursuant to the 2021 Note Purchase Agreement, among the Company and the purchasers party thereto in a private placement exempt from registration under the Securities Act of 1933. Interest on the 2021 Private Placement Notes is payable semi-annually and the 2021 Private Placement Notes are guaranteed by certain of our domestic subsidiaries. We may, at our option, prepay all, or from time to time any part of, the 2021 Private Placement Notes, in an amount not less than 5% of the aggregate principal amount of the 2021 Private Placement Notes then outstanding at 100% of the principal amount thereof plus an applicable "make-whole amount." Upon the occurrence of a change of control, the holders of the 2021 Private Placement Notes will have the right to require us to prepay the entire unpaid principal amounts held by each holder of the 2021 Private Placement Notes plus accrued and unpaid interest to the prepayment date. The 2021 Note Purchase Agreement contains customary covenants, including financial covenants requiring compliance with a maximum leverage ratio and a minimum tangible net worth, and customary events of default. As of June 30, 2021, we were in compliance with all of these covenants. Lines of Credit On June 24, 2016, East entered into a loan agreement with PNC for a revolving credit facility in an aggregate principal amount of up to $30.0 million, to be used for working capital and other corporate activities. This facility is secured by East's accounts receivable and the proceeds therefrom, as well as certain assets of EGL, including certain of EGL's accounts receivable. In addition, the agreement contains certain reporting covenants, as well as certain debt covenants that prohibit East and us from incurring other indebtedness, subject to specified exceptions. We and our consolidated subsidiaries were in compliance with these covenants as of June 30, 2021. East amended this facility on October 30, 2020 such that, among other things, the interest rate provisions were modified to LIBOR plus 150 basis points and the maturity date was extended to October 31, 2022. On July 26, 2019, East entered into an additional loan agreement with PNC for a revolving credit facility in an aggregate principal amount of up to $20.0 million, to be used for working capital and other corporate activities. This facility is unsecured. In addition, the agreement contains certain reporting requirements and debt covenants consistent with the Existing PNC Facility. We and our consolidated subsidiaries were in compliance with these covenants as of June 30, 2021. On October 30, 2020, East amended this facility such that, among other things, the revolving credit facility has increased to an aggregate principal amount of $30.0 million. Drawings under this facility will bear interest at LIBOR plus 180 basis points and the maturity date was extended to October 31, 2022. East is only permitted to borrow under this facility if there is no undrawn availability under the Existing PNC Facility and must repay indebtedness under this facility prior to repaying indebtedness under the Existing PNC Facility. There have been no drawings under this facility as of June 30, 2021. In addition, EGL's clearing broker provides temporary funding for the settlement of securities transactions. Other Commitments We have a long-term liability, Amounts Due Pursuant to Tax Receivable Agreements, which requires payments to certain Senior Managing Directors. This liability was re-measured following the decrease in income tax rates in the U.S. in 2018 and future years in conjunction with the enactment of the Tax Cuts and Jobs Act on December 22, 2017. We have made certain capital commitments with respect to our investment activities, which are included in the Contractual Obligations section below. Pursuant to deferred compensation and deferred consideration arrangements, we are obligated to make cash payments in future periods. Further, we make investments to hedge the economic risk of the return on deferred compensation. For further information see Notes 7 and 15 to our unaudited condensed consolidated financial statements. Certain of our subsidiaries are regulated entities and are subject to capital requirements. For further information see Note 17 to our unaudited condensed consolidated financial statements. On July 1, 2018, we entered into a new lease agreement for office space at our headquarters at 55 East 52nd St., New York, New York, and subsequently entered into an amendment to this lease agreement for additional office space, as well as to extend our original commitment, on December 6, 2019. We expect to spend approximately $0.8 million, net of a tenant 52 Table of Contents improvement allowance, to improve the premises under this lease over the next twelve months. Our work at these premises, which was temporarily suspended at the end of the first quarter of 2020 as a result of the COVID-19 pandemic, resumed in June 2020. For further information see Note 9 to our unaudited condensed consolidated financial statements. Contractual Obligations For a further discussion of our contractual obligations, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2020. We had total commitments (not reflected on our Unaudited Condensed Consolidated Statements of Financial Condition) relating to future capital contributions to private equity funds of $10.1 million and $12.0 million as of June 30, 2021 and December 31, 2020, respectively. We expect to fund these commitments with cash flows from operations. We may be required to fund these commitments at any time through June 2028, depending on the timing and level of investments by our private equity funds. Off-Balance Sheet Arrangements We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit risk support, or engage in any leasing activities that expose us to any liability that is not reflected in our unaudited condensed consolidated financial statements. Market Risk and Credit Risk We, in general, are not a capital-intensive organization and as such, are not subject to significant market or credit risks. Nevertheless, we have established procedures to assess both the market and credit risk, as well as specific investment risk, exchange rate risk and credit risk related to receivables. Market and Investment Risk We hold equity securities and invest in exchange-traded funds principally as an economic hedge against our deferred compensation program. As of June 30, 2021, the fair value of our investments with these products, based on closing prices, was $141.5 million. We estimate that a hypothetical 10%, 20% and 30% adverse change in the market value of the investments would have resulted in a decrease in pre-tax income of approximately $14.2 million, $28.3 million and $42.5 million, respectively, for the three months ended June 30, 2021. In February 2020, we entered into four-month futures contracts on a stock index fund with a notional amount of $38.9 million as an economic hedge against our deferred cash compensation program. These contracts settled in June 2020. In accordance with ASC 815, these contracts were carried at fair value, with changes in fair value recorded in Other Revenue, Including Interest and Investments, on the Unaudited Condensed Consolidated Statements of Operations. We had net realized gains (losses) of $5.2 million and ($4.0) million for the three and six months ended June 30, 2020, respectively. Private Equity Funds Through our principal investments in private equity funds and our ability to earn carried interest from these funds, we face exposure to changes in the estimated fair value of the companies in which these funds invest. Valuations and analysis regarding our investments in Trilantic and Glisco are performed by their respective professionals, and thus we are not involved in determining the fair value for the portfolio companies of such funds. We estimate that a hypothetical 10% adverse change in the value of the private equity funds would have resulted in a decrease in pre-tax income of approximately $1.8 million for the three months ended June 30, 2021. Exchange Rate Risk We have foreign operations, through our subsidiaries and affiliates, primarily in Europe, Asia and Mexico (currently in wind-down), as well as provide services to clients in other jurisdictions, which creates foreign exchange rate risk. We have not entered into any transactions to hedge our exposure to foreign exchange fluctuations in these subsidiaries through the use of derivative instruments or otherwise. An appreciation or depreciation of any of these currencies relative to the U.S. dollar would result in an adverse or beneficial impact to our financial results. A significant portion of our European, Asian and Latin 53 Table of Contents American revenues and expenses have been, and will continue to be, derived from contracts denominated in foreign currencies (i.e. British Pounds sterling, Euros, Mexican pesos, Brazilian real, among others). Historically, the value of these foreign currencies has fluctuated relative to the U.S. dollar. For the six months ended June 30, 2021, the net impact of the fluctuation of foreign currencies recorded in Other Comprehensive Income (Loss) within the Unaudited Condensed Consolidated Statement of Comprehensive Income was $2.4 million. It is generally not our intention to hedge our foreign currency exposure in these subsidiaries, and we will reevaluate this policy from time to time. Credit Risks We maintain cash and cash equivalents, as well as certificates of deposit, with financial institutions with high credit ratings. At times, we may maintain deposits in federally insured financial institutions in excess of federally insured ("FDIC") limits or enter into sweep arrangements where banks will periodically transfer a portion of our excess cash position to a money market fund. However, we believe that we are not exposed to significant credit risk due to the financial position of the depository institutions or investment vehicles in which those deposits are held. Accounts Receivable consists primarily of advisory fees and expense reimbursements billed to our clients. Other Assets includes long-term receivables from fees related to private funds capital raising. Receivables are reported net of any allowance for doubtful accounts. We maintain an allowance for doubtful accounts to provide coverage for probable losses from our customer receivables and determine the adequacy of the allowance by estimating the probability of loss based on our analysis of historical credit loss experience of our client receivables, and taking into consideration current market conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. The Investment Banking and Investment Management receivables collection periods generally are within 90 days of invoice, with the exception of placement fees, which are generally collected within 180 days of invoice, and fees related to private funds capital raising, which are collected in a period exceeding one year. The collection period for restructuring transaction receivables may exceed 90 days. We reversed bad debt expense of approximately $1.8 million for the six months ended June 30, 2021 and recorded bad debt expense of approximately $5.3 million for the six months ended June 30, 2020. As of June 30, 2021 and December 31, 2020, total receivables recorded in Accounts Receivable amounted to $328.5 million and $368.3 million, respectively, net of an allowance for doubtful accounts, and total receivables recorded in Other Assets amounted to $76.0 million and $71.0 million, respectively. Other Current Assets and Other Assets include arrangements in which an estimate of variable consideration has been included in the transaction price and thereby recognized as revenue that precedes the contractual due date (contract assets). As of June 30, 2021, total contract assets recorded in Other Current Assets and Other Assets amounted to $54.8 million and $6.7 million, respectively. As of December 31, 2020, total contract assets recorded in Other Current Assets and Other Assets amounted to $29.3 million and $5.3 million, respectively. With respect to our Investment Securities portfolio, which is comprised primarily of highly-rated corporate and municipal bonds, treasury bills, exchange-traded funds, mutual funds and securities investments, we manage our credit risk exposure by limiting concentration risk and maintaining investment grade credit quality. As of June 30, 2021, we had Investment Securities of $940.4 million, of which 85% were treasury bills. Critical Accounting Policies and Estimates The unaudited condensed consolidated financial statements included in this report are prepared in conformity with U.S. GAAP, which requires management to make estimates and assumptions regarding future events that affect the amounts reported in our consolidated financial statements and their notes, including reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We base these estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates. For a discussion of our critical accounting policies and estimates, refer to our Annual Report on Form 10-K for the year ended December 31, 2020. Recently Issued Accounting Standards For a discussion of recently issued accounting standards and their impact or potential impact on our consolidated financial statements, see Note 3 to our unaudited condensed consolidated financial statements.