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 37 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 (through June 25, 2021, the date G5 repaid its outstanding debentures in full. See Note 8 to our unaudited condensed consolidated financial statements for further information.) • 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 • A gain on the sale of the ECB Trust Business in 2020. See Note 5 to our unaudited condensed consolidated financial statements for further information. 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. 38 Table of Contents 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 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. 39 Table of Contents 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 Realignmen t Costs – Includes expenses in 2021 related to the write-down of certain assets associated with a legacy private equity investment relationship which, consistent with our current investment strategy, we decided to wind down during the third quarter. 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 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, Luminis and Seneca Evercore are included within Income from Equity Method Investments, as a component of Income Before Income Taxes, on the Unaudited Condensed Consolidated Statements of Operations. On July 7, 2021, we acquired a 20% interest in Seneca Evercore for $0.5 million and maintain proportional representation on the board of directors of Seneca Evercore (but not less than one director) following this transaction. We 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. 40 Table of Contents Results of Operations The following is a discussion of our results of operations for the three and nine months ended September 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 September 30, For the Nine Months Ended September 30, 2021 2020 Change 2021 2020 Change (dollars in thousands, except per share data) Revenues Investment Banking: Advisory Fees $ 708,333 $ 270,662 162 % $ 1,781,065 $ 965,662 84 % Underwriting Fees 54,381 66,499 (18 %) 181,686 181,182 — % Commissions and Related Revenue 46,763 44,003 6 % 151,014 153,903 (2 %) Asset Management and Administration Fees 16,960 14,025 21 % 48,092 39,725 21 % Other Revenue, Including Interest and Investments 1,511 12,329 (88 %) 25,142 12,497 101 % Total Revenues 827,948 407,518 103 % 2,186,999 1,352,969 62 % Interest Expense 4,393 5,003 (12 %) 13,269 16,372 (19 %) Net Revenues 823,555 402,515 105 % 2,173,730 1,336,597 63 % Expenses Operating Expenses 569,848 330,826 72 % 1,518,795 1,094,455 39 % Other Expenses 8,554 8,003 7 % 8,561 42,424 (80 %) Total Expenses 578,402 338,829 71 % 1,527,356 1,136,879 34 % Income Before Income from Equity Method Investments and Income Taxes 245,153 63,686 285 % 646,374 199,718 224 % Income from Equity Method Investments 3,681 3,111 18 % 10,099 8,552 18 % Income Before Income Taxes 248,834 66,797 273 % 656,473 208,270 215 % Provision for Income Taxes 59,712 15,677 281 % 137,871 51,042 170 % Net Income 189,122 51,120 270 % 518,602 157,228 230 % Net Income Attributable to Noncontrolling Interest 29,577 8,510 248 % 74,346 27,031 175 % Net Income Attributable to Evercore Inc. $ 159,545 $ 42,610 274 % $ 444,256 $ 130,197 241 % Diluted Net Income Per Share Attributable to Evercore Inc. Common Shareholders $ 3.74 $ 1.01 270 % $ 10.19 $ 3.09 230 % As of September 30, 2021 and 2020, we employed approximately 1,950 and 1,900 people, respectively, worldwide. Three Months Ended September 30, 2021 versus September 30, 2020 Net Income Attributable to Evercore Inc. was $159.5 million for the three months ended September 30, 2021, an increase of $116.9 million, or 274%, compared to $42.6 million for the three months ended September 30, 2020. The changes in our operating results during these periods are described below. Net Revenues were $823.6 million for the three months ended September 30, 2021, an increase of $421.0 million, or 105%, versus Net Revenues of $402.5 million for the three months ended September 30, 2020. Advisory Fees increased $437.7 million, or 162%, Underwriting Fees decreased $12.1 million, or 18%, and Commissions and Related Revenue increased $2.8 million, or 6%, compared to the three months ended September 30, 2020. Asset Management and Administration Fees increased $2.9 million, or 21%, compared to the three months ended September 30, 2020. Other Revenue, Including Interest and In vestments, decreased $10.8 million, or 88%, compared to the three months ended September 30, 2020, primarily driven by lower performance of our investment funds portfolio, which is used as an economic hedge against our deferred cash 41 Table of Contents compensation program. For further information see Notes 7 and 16 to our unaudited condensed consolidated financial statements. Total Operating Expenses were $569.8 million for the three months ended September 30, 2021, compared to $330.8 million for the three months ended September 30, 2020, an increase of $239.0 million, or 72%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $486.5 million for the three months ended September 30, 2021, an increase of $226.7 million, or 87%, versus expense of $259.8 million for the three months ended September 30, 2020. The increase in the amount of compensation recognized for the three months ended September 30, 2021 principally reflects a higher accrual for incentive compensation, higher base salaries and higher amortization of prior period deferred compensation awards, as well as increased headcount year over year. Non-Compensation expenses, as a component of Operating Expenses, were $83.3 million for the three months ended September 30, 2021, an increase of $12.3 million, or 17%, versus $71.0 million for the three months ended September 30, 2020. Non-Compensation operating expenses increased compared to the three months ended September 30, 2020, primarily driven by increases in professional fees and travel and related expenses. Non-Compensation expenses per employee were approximately $43.3 thousand for the three months ended September 30, 2021, versus $40.4 thousand for the three months ended September 30, 2020. Total Other Expenses of $8.6 million for the three months ended September 30, 2021 included Special Charges, Including Business Realignment Costs, related to the write-down of certain assets associated with a legacy private equity investment relationship which, consistent with our current investment strategy, we decided to wind down during the third quarter of 2021. Total Other Expenses of $8.0 million for the three months ended September 30, 2020 included (a) Special Charges, Including Business Realignment Costs, of $7.4 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) Acquisition and Transition Costs of $0.5 million and (c) intangible asset and other amortization of $0.2 million. As a result of the factors noted above, Employee Compensation and Benefits Expense as a percentage of Net Revenues was 59.1% for the three months ended September 30, 2021, compared to 64.5% for the three months ended September 30, 2020. The decrease in the compensation ratio principally reflects leverage achieved on higher revenues, partially offset by a higher accrual for incentive compensation, higher base salaries and higher amortization of prior period deferred compensation awards, as well as increased headcount year over year. Income from Equity Method Investments was $3.7 million for the three months ended September 30, 2021, compared to $3.1 million for the three months ended September 30, 2020. The increase was primarily driven by an increase in earnings from ABS and Atalanta Sosnoff. The provision for income taxes for the three months ended September 30, 2021 was $59.7 million, which reflected an effective tax rate of 24.0%. The provision for income taxes for the three months ended September 30, 2020 was $15.7 million, which reflected an effective tax rate of 23.5%. The provision for income taxes for the three months ended September 30, 2021 reflects an additional tax benefit of $0.4 million and for the three months ended September 30, 2020 an additional tax expense of $0.2 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 $29.6 million for the three months ended September 30, 2021 compared to $8.5 million for the three months ended September 30, 2020. The increase in Net Income Attributable to Noncontrolling Interest primarily reflects higher earnings for Evercore LP during the three months ended September 30, 2021. Nine Months Ended September 30, 2021 versus September 30, 2020 Net Income Attributable to Evercore Inc. was $444.3 million for the nine months ended September 30, 2021, an increase of $314.1 million, or 241%, compared to $130.2 million for the nine months ended September 30, 2020. The changes in our operating results during these periods are described below. Net Revenues were $2.17 billion for the nine months ended September 30, 2021, an increase of $837.1 million, or 63%, versus Net Revenues of $1.34 billion for the nine months ended September 30, 2020. Advisory Fees increased $815.4 million, or 84%, Underwriting Fees increased $0.5 million and Commissions and Related Revenue decreased $2.9 million, or 2%, compared to the nine months ended September 30, 2020. Asset Management and Administration Fees increased $8.4 million, or 42 Table of Contents 21%, compared to the nine months ended September 30, 2020. Other Revenue, Including Interest and Investments, increased $12.6 million, or 101%, compared to the nine months ended September 30, 2020, which was primarily driven by higher performance of our investment funds portfolio, as well as a 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 $1.52 billion for the nine months ended September 30, 2021, compared to $1.09 billion for the nine months ended September 30, 2020, an increase of $424.3 million, or 39%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $1.29 billion for the nine months ended September 30, 2021, an increase of $426.1 million, or 49%, versus expense of $863.5 million for the nine months ended September 30, 2020. The increase in the amount of compensation recognized in the nine months ended September 30, 2021 is driven by a higher accrual for incentive compensation, higher base salaries and higher amortization of prior period deferred compensation awards, as well as increased headcount year over year. Non-compensation expenses as a component of Operating Expenses were $229.1 million for the nine months ended September 30, 2021, a decrease of $1.8 million, or 1%, versus $230.9 million for the nine months ended September 30, 2020. Non-compensation operating expenses decreased compared to the nine months ended September 30, 2020, primarily driven by a decrease in travel and related expenses, as well as a decrease in bad debt expense, partially offset by an increase in professional fees. Non-Compensation expenses per employee were approximately $122.8 thousand for the nine months ended September 30, 2021, versus $123.3 thousand for the nine months ended September 30, 2020. Total Other Expenses of $8.6 million for the nine months ended September 30, 2021 included (a) Special Charges, Including Business Realignment Costs, of $8.6 million related to the write-down of certain assets associated with a legacy private equity investment relationship which, consistent with our current investment strategy, we decided to wind down during the third quarter of 2021 and (b) Acquisition and Transition Costs of $0.01 million. Total Other Expenses of $42.4 million for the nine months ended September 30, 2020 included (a) Special Charges, Including Business Realignment Costs, of $39.6 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 $1.2 million, (c) compensation costs of $1.1 million associated with the vesting of Class J LP Units granted in conjunction with the acquisition of ISI and (d) Acquisition and Transition Costs of $0.6 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 nine months ended September 30, 2021, compared to 64.7% for the nine months ended September 30, 2020. The decrease in the compensation ratio principally reflects leverage achieved on higher revenues, partially offset by a higher accrual for incentive compensation, higher base salaries and higher amortization of prior period deferred compensation awards, as well as increased headcount year over year. Income from Equity Method Investments was $10.1 million for the nine months ended September 30, 2021, compared to $8.6 million for the nine months ended September 30, 2020. The increase was a result of an increase in earnings from ABS, Atalanta Sosnoff and Luminis during the nine months ended September 30, 2021. The provision for income taxes for the nine months ended September 30, 2021 was $137.9 million, which reflected an effective tax rate of 21.0%. The provision for income taxes for the nine months ended September 30, 2020 was $51.0 million, which reflected an effective tax rate of 24.5%. The provision for income taxes for the nine months ended September 30, 2021 reflects an additional tax benefit of $17.4 million and for the nine months ended September 30, 2020 an additional tax expense of $0.1 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 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 $74.3 million for the nine months ended September 30, 2021 compared to $27.0 million for the nine months ended September 30, 2020. The increase in Net Income Attributable to Noncontrolling Interest primarily reflects higher earnings for Evercore LP during the nine months ended September 30, 2021. 43 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 September 30, For the Nine Months Ended September 30, 2021 2020 Change 2021 2020 Change (dollars in thousands) Revenues Investment Banking: Advisory Fees $ 708,333 $ 270,662 162 % $ 1,781,065 $ 965,662 84 % Underwriting Fees 54,381 66,499 (18 %) 181,686 181,182 — % Commissions and Related Revenue (1) 46,763 44,003 6 % 151,014 153,903 (2 %) Other Revenue, net (1)(2)(3) (2,559) 4,299 NM 11,258 (6,254) NM Net Revenues 806,918 385,463 109 % 2,125,023 1,294,493 64 % Expenses Operating Expenses 556,277 318,655 75 % 1,480,963 1,057,926 40 % Other Expenses — 7,703 NM 7 42,092 (100 %) Total Expenses 556,277 326,358 70 % 1,480,970 1,100,018 35 % Operating Income 250,641 59,105 324 % 644,053 194,475 231 % Income from Equity Method Investments (4) 564 570 (1 %) 1,282 1,171 9 % Pre-Tax Income $ 251,205 $ 59,675 321 % $ 645,335 $ 195,646 230 % (1) We renamed "Commissions and Related Fees" to "Commissions and Related Revenue" and reclassified $0.2 million and $0.6 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 nine months ended September 30, 2020, respectively. See Note 2 to our unaudited condensed consolidated financial statements for further information. (2) Includes interest expense on Notes Payable and lines of credit of $4.4 million and $13.3 million for the three and nine months ended September 30, 2021, respectively, and $4.2 million and $13.6 million for the three and nine months ended September 30, 2020, respectively . (3) Includes a gain of $4.4 million for the nine months ended September 30, 2021, resulting from the redemption of our G5 debt security during the second quarter of 2021. (4) Equity in Luminis is classified as Income from Equity Method Investments. For the three months ended September 30, 2021, the dollar value of North American announced and completed M&A activity increased 39% and 231%, respectively, compared to the three months ended September 30, 2020, and the dollar value of Global announced and completed M&A activity increased 44% and 94%, respectively, compared to the three months ended September 30, 2020. For the nine months ended September 30, 2021, the dollar value of North American announced and completed M&A activity increased 145% and 49%, respectively, compared to the nine months ended September 30, 2020, and the dollar value of Global announced and completed M&A activity increased 90% and 43%, respectively, compared to the nine months ended September 30, 2020. 44 Table of Contents For the Three Months Ended September 30, For the Nine Months Ended September 30, 2021 2020 Change 2021 2020 Change Industry Statistics ($ in billions) * Value of North American M&A Deals Announced $ 629 $ 452 39 % $ 2,065 $ 844 145 % Value of North American M&A Deals Completed $ 642 $ 194 231 % $ 1,478 $ 995 49 % Value of Global M&A Deals Announced $ 1,570 $ 1,090 44 % $ 4,327 $ 2,274 90 % Value of Global M&A Deals Completed $ 1,160 $ 599 94 % $ 2,964 $ 2,071 43 % Evercore Statistics ** Total Number of Fees From Advisory Client Transactions 257 206 25 % 586 475 23 % Total Number of Fees of at Least $1 million from Advisory Client Transactions 130 74 76 % 349 224 56 % Total Number of Underwriting Transactions 28 30 (7 %) 98 78 26 % Total Number of Underwriting Transactions as a Bookrunner 26 23 13 % 82 52 58 % * Source: Refinitiv September 30, 2021 ** Includes revenue generating clients Investment Banking Results of Operations Three Months Ended September 30, 2021 versus September 30, 2020 Investment Banking Net Revenues were $806.9 million for the three months ended September 30, 2021, compared to $385.5 million for the three months ended September 30, 2020, an increase of $421.5 million, or 109%. We earned 257 fees from Advisory clients for the three months ended September 30, 2021, compared to 206 for the three months ended September 30, 2020, representing a 25% increase. We earned 130 fees in excess of $1.0 million for the three months ended September 30, 2021, compared to 74 for the three months ended September 30, 2020, representing a 76% increase. The increase in revenues from the three months ended September 30, 2020 was primarily driven by an increase of $437.7 million, or 162%, 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 September 30, 2021. Underwriting Fees decreased $12.1 million, or 18%, compared to the three months ended September 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 increased $2.8 million, or 6%, compared to the three months ended September 30, 2020, reflecting increased trading volume compared to the prior year period. Other Revenue, net, for the three months ended September 30, 2021 decreased versus the three months ended September 30, 2020, primarily driven by lower performance of our investment funds portfolio, which is used as an economic hedge against our deferred cash compensation program. Operating Expenses were $556.3 million for the three months ended September 30, 2021, compared to $318.7 million for the three months ended September 30, 2020, an increase of $237.6 million, or 75%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $476.2 million for the three months ended September 30, 2021, compared to $250.9 million for the three months ended September 30, 2020, an increase of $225.3 million, or 90%. The increase in the amount of compensation recognized for the three months ended September 30, 2021 principally reflects a higher accrual for incentive compensation, higher base salaries and higher amortization of prior period deferred compensation awards, as well as increased headcount year over year. Non-Compensation expenses, as a component of Operating Expenses, were $80.1 million for the three months ended September 30, 2021, compared to $67.8 million for the three months ended September 30, 2020, an increase of $12.3 million, or 18%. Non-Compensation operating expenses increased from the three months ended September 30, 2020 primarily driven by increases in professional fees and travel and related expenses. Other Expenses of $7.7 million for the three months ended September 30, 2020 included (a) Special Charges, Including Business Realignment Costs, of $7.4 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 45 Table of Contents headquarters in New York and our business realignment initiatives, (b) intangible asset and other amortization of $0.2 million and (c) Acquisition and Transition Costs of $0.2 million. Nine Months Ended September 30, 2021 versus September 30, 2020 Investment Banking Net Revenues were $2.13 billion for the nine months ended September 30, 2021, compared to $1.29 billion for the nine months ended September 30, 2020, an increase of $830.5 million, or 64%. We earned 586 fees from Advisory clients for the nine months ended September 30, 2021, compared to 475 for the nine months ended September 30, 2020, representing a 23% increase. We earned 349 fees in excess of $1.0 million for the nine months ended September 30, 2021, compared to 224 for the nine months ended September 30, 2020, representing a 56% increase. The increase in revenues from the nine months ended September 30, 2020 was primarily driven by an increase of $815.4 million, or 84%, in Advisory Fees, reflecting an increase in the number of Advisory fees earned and an increase in revenue earned from large transactions during the nine months ended September 30, 2021. Underwriting Fees increased $0.5 million compared to the nine months ended September 30, 2020, reflecting an increase in the number of transactions we participated in, partially offset by a decrease in the relative fee size of our participation in those transactions, as we participated in several of the largest deals in our history last year . Commissions and Related Revenue decreased $2.9 million, or 2%, compared to the nine months ended September 30, 2020, reflecting lower volatility compared to the prior year period. Other Revenue, net, for the nine months ended September 30, 2021 increased versus the nine months ended September 30, 2020, primarily driven by higher performance of our investment funds portfolio, as well as a gain on the redemption of the G5 debt security in the second quarter of 2021. Operating Expenses were $1.48 billion for the nine months ended September 30, 2021, compared to $1.06 billion for the nine months ended September 30, 2020, an increase of $423.0 million, or 40%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $1.26 billion for the nine months ended September 30, 2021, compared to $837.5 million for the nine months ended September 30, 2020, an increase of $423.6 million, or 51%. The increase in the amount of compensation recognized in the nine months ended September 30, 2021 is driven by a higher accrual for incentive compensation, higher base salaries and higher amortization of prior period deferred compensation awards, as well as increased headcount year over year. Non-compensation expenses, as a component of Operating Expenses, were $219.9 million for the nine months ended September 30, 2021, compared to $220.4 million for the nine months ended September 30, 2020 , a decrease of $0.5 million. Non-compensation operating expenses decreased from the nine months ended September 30, 2020 primarily driven by decreased travel and related expenses, 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 nine months ended September 30, 2021 reflected Acquisition and Transition Costs. Other Expenses of $42.1 million for the nine months ended September 30, 2020 included (a) Special Charges, Including Business Realignment Costs, of $39.6 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 $1.2 million, (c) compensation costs of $1.1 million associated with the vesting of Class J LP Units granted in conjunction with the acquisition of ISI and (d) Acquisition and Transition Costs of $0.3 million. 46 Table of Contents Investment Management The following table summarizes the operating results of the Investment Management segment. For the Three Months Ended September 30, For the Nine Months Ended September 30, 2021 2020 Change 2021 2020 Change (dollars in thousands) Revenues Asset Management and Administration Fees: Wealth Management $ 16,960 $ 13,664 24 % $ 48,092 $ 38,624 25 % Institutional Asset Management (1) — 361 NM — 1,101 NM Asset Management and Administration Fees 16,960 14,025 21 % 48,092 39,725 21 % Other Revenue, net (323) 3,027 NM 615 2,379 (74 %) Net Revenues 16,637 17,052 (2 %) 48,707 42,104 16 % Expenses Operating Expenses 13,571 12,171 12 % 37,832 36,529 4 % Other Expenses 8,554 300 NM 8,554 332 NM Total Expenses 22,125 12,471 77 % 46,386 36,861 26 % Operating Income (Loss) (5,488) 4,581 NM 2,321 5,243 (56 %) Income from Equity Method Investments (2) 3,117 2,541 23 % 8,817 7,381 19 % Pre-Tax Income (Loss) $ (2,371) $ 7,122 NM $ 11,138 $ 12,624 (12 %) (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 September 30, 2021, $0.8 million of previously distributed carried interest received from the funds was subject to repayment. During the third quarter of 2021, consistent with our current investment strategy, we decided to wind down our investment relationship with Trilantic. See Note 8 to our unaudited condensed consolidated financial statements for further information. • 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 $11.3 billion at September 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 47 Table of Contents 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 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 74% and 72% of Level 1 investments, 22% and 24% of Level 2 investments and 4% of Level 3 investments as of September 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 nine months ended September 30, 2021: Wealth Management (1) (dollars in millions) Balance at December 31, 2020 $ 10,163 Inflows 887 Outflows (568) Market Appreciation 834 Balance at September 30, 2021 $ 11,316 Unconsolidated Affiliates - Balance at September 30, 2021: Atalanta Sosnoff $ 8,224 ABS $ 7,186 (1) Assets Under Management includes Evercore assets which are managed by Evercore Wealth Management of $76.3 million and $76.4 million as of September 30, 2021 and December 31, 2020, respectively. The following table represents the composition of AUM for Wealth Management as of September 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. 48 Table of Contents For the nine months ended September 30, 2021, AUM for Wealth Management increased 11%, reflecting an 8% increase due to market appreciation and a 3% increase due to flows. Wealth Management lagged the S&P 500 on a 1-year basis by approximately 1% and outperformed the S&P 500 on a 3-year basis by approximately 4% during the period. Wealth Management outperformed the fixed income composite on a 1-year basis by approximately 70 basis points and lagged the fixed income composite on a 3-year basis by approximately 40 basis points during the period. For the nine months ended September 30, 2021, the S&P 500 was up approximately 16% 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 September 30, 2021 versus September 30, 2020 Investment Management Net Revenues were $16.6 million for the three months ended September 30, 2021, compared to $17.1 million for the three months ended September 30, 2020, which represented a decrease of $0.4 million, or 2%. Asset Management and Administration Fees earned from the management of client portfolios increased 21% for the three months ended September 30, 2021, primarily driven by an increase of $3.3 million in fees from Wealth Management clients, as associated AUM increased 19%. Fee-based revenues included $0.01 million of revenues from performance fees for the three months ended September 30, 2020. Other Revenue, net, decreased from the three months ended September 30, 2020, primarily as a result of the gain on the sale of the ECB Trust Business in the third quarter of 2020, as well as lower performance from our legacy private equity investments. Income from Equity Method Investments increased from the three months ended September 30, 2020, as a result of an increase in earnings from our investments in ABS and Atalanta Sosnoff. Operating Expenses were $13.6 million for the three months ended September 30, 2021, compared to $12.2 million for the three months ended September 30, 2020, an increase of $1.4 million, or 12%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $10.3 million for the three months ended September 30, 2021, compared to $9.0 million for the three months ended September 30, 2020, an increase of $1.3 million, or 14%. Non-Compensation expenses, as a component of Operating Expenses, were $3.3 million for the three months ended September 30, 2021, compared to $3.2 million for the three months ended September 30, 2020, an increase of $0.1 million, or 3%. Other Expenses of $8.6 million for the three months ended September 30, 2021 included Special Charges, Including Business Realignment Costs, related to the write-down of certain assets associated with a legacy private equity investment relationship which, consistent with our current investment strategy, we decided to wind down during the third quarter of 2021. Other Expenses of $0.3 million for the three months ended September 30, 2020 included Acquisition and Transition Costs. Nine Months Ended September 30, 2021 versus September 30, 2020 Investment Management Net Revenues were $48.7 million for the nine months ended September 30, 2021, compared to $42.1 million for the nine months ended September 30, 2020, which represented an increase of $6.6 million, or 16%. Asset Management and Administration Fees earned from the management of client portfolios increased 21% for the nine months ended September 30, 2021, primarily driven by an increase of $9.5 million in fees from Wealth Management clients, as associated AUM increased 19%. Fee-based revenues included $0.08 million of revenues from performance fees for the nine months ended September 30, 2020. Other Revenue, net, decreased 74% from the nine months ended September 30, 2020, primarily as a result of the gain on the sale of the ECB Trust Business in the third quarter of 2020, partially offset by higher performance from our legacy private equity investments. Income from Equity Method Investments increased from the nine months ended September 30, 2020, as a result of an increase in earnings from our investments in ABS and Atalanta Sosnoff. Operating Expenses were $37.8 million for the nine months ended September 30, 2021, compared to $36.5 million for the nine months ended September 30, 2020, an increase of $1.3 million, or 4%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $28.6 million for the nine months ended September 30, 2021, compared to $26.0 million for the nine months ended September 30, 2020, an increase of $2.6 million, or 10%. Non-Compensation expenses, as a component of Operating Expenses, were $9.2 million for the nine months ended September 30, 2021, compared to $10.5 million for the nine months ended September 30, 2020, a decrease of $1.3 million, or 12%. Other Expenses of $8.6 million for the nine months ended September 30, 2021 included Special Charges, Including Business Realignment Costs, related to the write-down of certain assets associated with a legacy private equity investment relationship which, consistent with our current investment strategy, we decided to wind down during the third quarter of 2021. Other Expenses of $0.3 million for the nine months ended September 30, 2020 included Acquisition and Transition Costs of 49 Table of Contents $0.3 million and Special Charges, Including Business Realignment Costs, of $0.03 million, 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 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 Nine Months Ended September 30, 2021 2020 (dollars in thousands) Cash Provided By (Used In) Operating activities: Net income $ 518,602 $ 157,228 Non-cash charges 361,536 332,234 Other operating activities (350,234) (206,267) Operating activities 529,904 283,195 Investing activities (208,228) 481,244 Financing activities (669,719) (248,357) Effect of exchange rate changes (2,306) (1,302) Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash (350,349) 514,780 Cash, Cash Equivalents and Restricted Cash Beginning of Period 838,224 643,886 End of Period $ 487,875 $ 1,158,666 Nine Months Ended September 30, 2021. Cash, Cash Equivalents and Restricted Cash were $487.9 million at September 30, 2021, a decrease of $350.3 million versus Cash, Cash Equivalents and Restricted Cash of $838.2 million at December 31, 2020. Operating activities resulted in a net inflow of $529.9 million, primarily related to earnings, partially offset by the payment of 2020 bonus awards and deferred cash compensation. Investing activities during the period used cash of $208.2 million, primarily related to net purchases of investment securities and certificates of deposit and purchases of equipment and leasehold improvements, primarily related to the expansion of our headquarters in New York, partially offset by the proceeds from the redemption of the G5 debt security. Financing activities during the period used cash of $669.7 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. 50 Table of Contents Nine Months Ended September 30, 2020. Cash, Cash Equivalents and Restricted Cash were $1.16 billion at September 30, 2020, an increase of $514.8 million versus Cash, Cash Equivalents and Restricted Cash of $643.9 million at December 31, 2019. Operating activities resulted in a net inflow of $283.2 million, primarily related to earnings, partially offset by the payment of 2019 bonus awards and deferred cash compensation. Cash of $481.2 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 $248.4 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 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, as well as payments for 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, including deferred compensation arrangements. 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 51 Table of Contents 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), or amounts in excess of that if management's review, discussed above, determined adequate cash is available. 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. 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 nine months ended September 30, 2021, we repurchased 3,146,126 Class A Shares, at an average cost per share of $132.79, for $417.8 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 nine months ended September 30, 2021, we repurchased 954,994 Class A Shares, at an average cost per share of $117.46, for $112.2 million, primarily related to minimum tax withholding requirements of share deliveries. The aggregate 4,101,120 Class A Shares repurchased during the nine months ended September 30, 2021 were acquired for aggregate purchase consideration of $530.0 million, at an average cost per share of $129.22. 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 52 Table of Contents interest coverage ratio, and customary events of default. As of September 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 financial covenants requiring compliance with a maximum leverage ratio and a minimum tangible net worth, and customary events of default. As of September 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 September 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 September 30, 2021. East amended this facility on October 29, 2021 such that, among other things, the interest rate provisions were LIBOR (or an applicable benchmark replacement) plus 150 basis points and the maturity date was extended to October 28, 2023. On July 26, 2019, East entered into an additional loan agreement with PNC for a revolving credit facility in an aggregate principal amount, as amended on October 30, 2020, of up to $30.0 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 September 30, 2021. East amended this facility on October 29, 2021 such that, among other things, the revolving credit facility has increased to an aggregate principal amount of $55.0 million. Drawings under this facility will bear interest at LIBOR (or an applicable benchmark replacement) plus 180 basis points and the maturity date was extended to October 28, 2023. 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 September 30, 2021. 53 Table of Contents On October 29, 2021, EGL entered into a subordinated revolving credit facility with PNC in an aggregate principal amount of up to $75.0 million, to be used as needed in support of capital requirements from time to time of EGL. This facility is unsecured and is guaranteed by Evercore LP and other affiliates, pursuant to a guaranty agreement, which provides for certain reporting requirements and debt covenants consistent with the Existing PNC Facility. Drawings under this facility will bear interest at LIBOR (or an applicable benchmark replacement) plus 180 basis points and the maturity date will be October 28, 2023, unless prepayment is otherwise approved earlier by FINRA. 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. 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. 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 $8.5 million and $12.0 million as of September 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. During the third quarter of 2021, consistent with our current investment strategy, we decided to wind down our investment relationship with Trilantic. See Note 8 to our unaudited condensed consolidated financial statements for further information. 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 September 30, 2021, the fair value of our investments with these products, based on closing prices, was $137.6 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 $13.8 million, $27.5 million and $41.3 million, respectively, for the three months ended September 30, 2021. 54 Table of Contents 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 losses of ($4.0) million for the nine months ended September 30, 2020. 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 $2.0 million for the three months ended September 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 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 nine months ended September 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 ($4.3) 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 recorded bad debt expense of approximately $0.02 million and $5.9 million for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021 and December 31, 2020, total receivables recorded in Accounts Receivable amounted to $398.0 million and $368.3 million, respectively, net of an allowance for doubtful accounts, and total receivables recorded in Other Assets amounted to $77.9 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 September 30, 2021, total contract assets recorded in Other Current Assets and Other Assets amounted to $82.8 million and 55 Table of Contents $10.5 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 treasury bills, exchange-traded funds and securities investments, we manage our credit risk exposure by limiting concentration risk and maintaining investment grade credit quality. As of September 30, 2021, we had Investment Securities of $1.2 billion, of which 88% 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk See "Management's Discussion and Analysis of Financial Condition and Results of Operations – Market Risk and Credit Risk." We do not believe we face any material interest rate risk, foreign currency exchange risk, equity price risk or other market risk except as disclosed in Item 2 " – Market Risk and Credit Risk" above.