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, 2021. 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, capital raising, 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 court approval. 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 33 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 business and interests in private equity funds which we do not manage. Revenue sources primarily include management fees, fiduciary fees and gains (or losses) on our investments. 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. 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) on investment securities, including our investment funds which are used as an economic hedge against our deferred cash compensation program, certificates of deposit, cash and cash equivalents, long-term accounts receivable and on our debt security investment in G5 (through June 25, 2021, the date G5 repaid its outstanding debentures in full. See Note 7 to our unaudited condensed consolidated financial statements for further information.) • A gain on the sale of a portion of our interests in ABS in the first quarter of 2022. See Note 7 to our unaudited condensed consolidated financial statements for further information • Gains (losses) resulting from foreign currency fluctuations • Realized and unrealized gains and losses on interests in private equity funds which we do not manage • Adjustments to amounts due pursuant to our tax receivable agreement, subsequent to its initial establishment, related to changes in enacted tax rates Interest Expense includes interest expense associated with our Notes Payable and lines of credit. 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 34 Table of Contents generally valued at their grant date and recorded in employee compensation and benefits expense over the requisite service period. 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, the amount of which is a function of performance and market conditions, 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 in Evercore LP to certain of our named executive officers, pursuant to which the named executive officers received a discretionary distribution of profits from Evercore LP, which was paid in the first quarter of 2022. Distributions pursuant to these interests were 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. Following the distribution, these Class L Interests were cancelled pursuant to their terms. In January 2022, we issued Class L Interests to certain of 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 2023. We record expense related to these distributions in Employee Compensation and Benefits on the Unaudited Condensed Consolidated Statements of Operations and reflect accrued liabilities in Accrued Compensation and Benefits on the Unaudited Condensed Consolidated Statements of Financial Condition. 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. We made cash distributions under the 2017 Long-term Incentive Plan in March 2022 and 2021, respectively, as well as in December 2021, related to the acceleration of certain amounts due in the first quarter of 2022. Remaining amounts are due to be paid, in cash or Class A Shares, at our discretion, in the first quarter of 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 and, in certain awards, market based requirements. These include Class I-P and K-P Units issued by Evercore LP. In December 2021, we issued Class K-P Units to certain of our employees. In March 2022, the Class I-P Units converted to Class I LP Units. See Note 14 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. 35 Table of Contents Other Expenses Other Expenses includes Acquisition and Transition Costs incurred in connection with acquisitions, divestitures and other ongoing business development initiatives, primarily comprised of professional fees for legal and other services. Income from Equity Method Investments Our share of the income (loss) from our equity interests in ABS, Atalanta Sosnoff, Luminis and Seneca Evercore (from July 7, 2021 for 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. See Note 7 to our unaudited condensed consolidated financial statements for further information. Provision for Income Taxes We account for income taxes in accordance with ASC 740, "Income Taxes" , 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. See Note 12 to our unaudited condensed consolidated financial statements for further information. 36 Table of Contents Results of Operations The following is a discussion of our results of operations for the three months ended March 31, 2022 and 2021. 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 March 31, 2022 2021 Change (dollars in thousands, except per share data) Revenues Investment Banking: Advisory Fees $ 624,564 $ 511,918 22 % Underwriting Fees 36,306 79,257 (54 %) Commissions and Related Revenue 50,898 53,526 (5 %) Asset Management and Administration Fees 17,115 14,949 14 % Other Revenue, Including Interest and Investments (1,779) 7,230 NM Total Revenues 727,104 666,880 9 % Interest Expense 4,250 4,570 (7 %) Net Revenues 722,854 662,310 9 % Expenses Operating Expenses 513,490 468,095 10 % Other Expenses — 7 NM Total Expenses 513,490 468,102 10 % Income Before Income from Equity Method Investments and Income Taxes 209,364 194,208 8 % Income from Equity Method Investments 2,512 3,024 (17 %) Income Before Income Taxes 211,876 197,232 7 % Provision for Income Taxes 34,782 31,681 10 % Net Income 177,094 165,551 7 % Net Income Attributable to Noncontrolling Interest 19,078 21,199 (10 %) Net Income Attributable to Evercore Inc. $ 158,016 $ 144,352 9 % Diluted Net Income Per Share Attributable to Evercore Inc. Common Shareholders $ 3.79 $ 3.25 17 % As of March 31, 2022 and 2021, we employed approximately 2,000 and 1,800 people, respectively, worldwide. Three Months Ended March 31, 2022 versus March 31, 2021 Net Income Attributable to Evercore Inc. was $158.0 million for the three months ended March 31, 2022, an increase of $13.7 million, or 9%, compared to $144.4 million for the three months ended March 31, 2021. The changes in our operating results during these periods are described below. Net Revenues were $722.9 million for the three months ended March 31, 2022, an increase of $60.5 million, or 9%, versus Net Revenues of $662.3 million for the three months ended March 31, 2021. Advisory Fees increased $112.6 million, or 22%, Underwriting Fees decreased $43.0 million, or 54%, and Commissions and Related Revenue decreased $2.6 million, or 5%, compared to the three months ended March 31, 2021. Asset Management and Administration Fees increased $2.2 million, or 14%, compared to the three months ended March 31, 2021. See "Business Segments" below for further information. Other Revenue, Including Interest and In vestments, decreased $9.0 million compared to the three months ended March 31, 2021, primarily driven by lower performance of our investment funds portfolio due to the overall market decline. The portfolio is used as an economic hedge against our deferred cash compensation program. This was partially offset by a $1.3 million gain on the sale of a portion of our interests in ABS during the first quarter of 2022. See Note 7 to our unaudited condensed consolidated financial statements for further information. 37 Table of Contents Total Operating Expenses were $513.5 million for the three months ended March 31, 2022, compared to $468.1 million for the three months ended March 31, 2021, an increase of $45.4 million, or 10%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $429.7 million for the three months ended March 31, 2022, an increase of $34.3 million, or 9%, versus expense of $395.4 million for the three months ended March 31, 2021. The increase in the amount of compensation recognized for the three months ended March 31, 2022 is in line with the increase in Net Revenues. Non-compensation expenses as a component of Operating Expenses were $83.8 million for the three months ended March 31, 2022, an increase of $11.1 million, or 15%, versus $72.7 million for the three months ended March 31, 2021. The increase was primarily driven by an increase in travel and related expenses, as travel slowed during the peak of the COVID pandemic and began to resume during the fourth quarter of 2021, as well as higher professional fees and inflationary pressures, all of which are continuing. Non-Compensation expenses per employee were approximately $42.4 thousand for the three months ended March 31, 2022, versus $40.3 thousand for the three months ended March 31, 2021. As a result of the factors noted above, Employee Compensation and Benefits Expense as a percentage of Net Revenues was 59.4% for the three months ended March 31, 2022, compared to 59.7% for the three months ended March 31, 2021. Income from Equity Method Investments was $2.5 million for the three months ended March 31, 2022, compared to $3.0 million for the three months ended March 31, 2021. The decrease was driven by lower income earned by ABS, principally reflecting a decrease in our ownership following the sale of a portion of our interests during the first quarter of 2022. See Note 7 to our condensed consolidated financial statements for further information. This decrease was partially offset by an increase in earnings from our investments in Atalanta Sosnoff, Luminis and Seneca Evercore during the three months ended March 31, 2022. The provision for income taxes for the three months ended March 31, 2022 was $34.8 million, which reflected an effective tax rate of 16.4%. The provision for income taxes for the three months ended March 31, 2021 was $31.7 million, which reflected an effective tax rate of 16.1%. The provision for income taxes for the three months ended March 31, 2022 and 2021 reflects the net impact associated with the appreciation in our share price upon vesting of employee share-based awards above the original grant price of $19.0 million and $16.7 million, respectively. The provision for income taxes also reflects 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 $19.1 million for the three months ended March 31, 2022 compared to $21.2 million for the three months ended March 31, 2021. The decrease in Net Income Attributable to Noncontrolling Interest primarily reflects lower income allocated to Evercore LP during the three months ended March 31, 2022, driven by the decrease in noncontrolling ownership interest during the first quarter of 2022. See Note 12 to our unaudited condensed consolidated financial statements for further information. 38 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 March 31, 2022 2021 Change (dollars in thousands) Revenues Investment Banking: Advisory Fees $ 624,564 $ 511,918 22 % Underwriting Fees 36,306 79,257 (54 %) Commissions and Related Revenue 50,898 53,526 (5 %) Other Revenue, net (1) (7,467) 2,584 NM Net Revenues 704,301 647,285 9 % Expenses Operating Expenses 500,572 456,526 10 % Other Expenses — 7 NM Total Expenses 500,572 456,533 10 % Operating Income 203,729 190,752 7 % Income from Equity Method Investments (2) 374 169 121 % Pre-Tax Income $ 204,103 $ 190,921 7 % (1) Includes interest expense on Notes Payable and lines of credit of $4.3 million and $4.6 million for the three months ended March 31, 2022 and 2021, respectively. (2) Equity in Luminis and Seneca Evercore is classified as Income from Equity Method Investments. For the three months ended March 31, 2022 , the dollar value of North American announced and completed M&A activity decreased 23% and increased 10%, respectively, compared to the three months ended March 31, 2021 , and the dollar value of Global announced and completed M&A activity decreased 21% and increased 23%, respectively, compared to the three months ended March 31, 2021 . 39 Table of Contents For the Three Months Ended March 31, 2022 2021 Change Industry Statistics ($ in billions) * Value of North American M&A Deals Announced $ 541 $ 704 (23 %) Value of North American M&A Deals Completed $ 425 $ 386 10 % Value of Global M&A Deals Announced $ 1,012 $ 1,288 (21 %) Value of Global M&A Deals Completed $ 1,060 $ 864 23 % Evercore Statistics ** Total Number of Fees From Advisory Client Transactions 223 248 (10 %) Total Number of Fees of at Least $1 million from Advisory Client Transactions 86 103 (17 %) Total Number of Underwriting Transactions 14 39 (64 %) Total Number of Underwriting Transactions as a Bookrunner 13 31 (58 %) * Source: Refinitiv April 1, 2022 ** Includes revenue generating clients Investment Banking Results of Operations Three Months Ended March 31, 2022 versus March 31, 2021 Investment Banking Net Revenues were $704.3 million for the three months ended March 31, 2022, compared to $647.3 million for the three months ended March 31, 2021, an increase of $57.0 million, or 9%. The increase in revenues for the three months ended March 31, 2022 was primarily driven by an increase of $112.6 million, or 22%, in Advisory Fees. Although the number of fees recognized in the three months ended March 31, 2022 declined compared to three months ended March 31, 2021, the growth in average fee size, which was driven by a number of large M&A fees during the first quarter of 2022, contributed to the increase in revenue . Underwriting Fees decreased $43.0 million, or 54%, compared to the three months ended March 31, 2021, reflecting a decrease in the number of transactions we participated in due to the decline in overall market issuances. Commissions and Related Revenue decreased $2.6 million, or 5%, compared to the three months ended March 31, 2021, primarily reflecting lower trading volumes, partially offset by increased revenues from research subscriptions and convertible securities. Other Revenue, net, decreased $10.1 million compared to the three months ended March 31, 2021, primarily driven by lower performance of our investment funds portfolio due to the overall market decline. The portfolio is used as an economic hedge against our deferred cash compensation program. Operating Expenses were $500.6 million for the three months ended March 31, 2022, compared to $456.5 million for the three months ended March 31, 2021, an increase of $44.0 million, or 10% . Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $419.9 million for the three months ended March 31, 2022, compared to $386.7 million for the three months ended March 31, 2021, an increase of $33.2 million , or 9%. The increase in the amount of compensation recognized for the three months ended March 31, 2022 is in line with the increase in Net Revenues. Non-compensation expenses, as a component of Operating Expenses, were $80.7 million for the three months ended March 31, 2022 , compared to $69.8 million for the three months ended March 31, 2021 , an increase of $10.9 million , or 16%. Non-compensation operating expenses increased from the prior year, primarily driven by an increase in travel and related expenses, as travel slowed during the peak of the COVID pandemic and began to resume during the fourth quarter of 2021, as well as higher professional fees and inflationary pressures, all of which are continuing. Investment Management The following table summarizes the operating results of the Investment Management segment. 40 Table of Contents For the Three Months Ended March 31, 2022 2021 Change (dollars in thousands) Revenues Asset Management and Administration Fees: Wealth Management $ 17,115 $ 14,949 14 % Other Revenue, net (1) 1,438 76 NM Net Revenues 18,553 15,025 23 % Expenses Operating Expenses 12,918 11,569 12 % Total Expenses 12,918 11,569 12 % Operating Income 5,635 3,456 63 % Income from Equity Method Investments (2) 2,138 2,855 (25 %) Pre-Tax Income $ 7,773 $ 6,311 23 % (1) Includes a gain of $1.3 million for the three months ended March 31, 2022, resulting from the sale of a portion of our interests in ABS. See Note 7 to our unaudited condensed consolidated financial statements for further information. (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: • 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 (through January 1, 2022). In the event the private equity funds perform below certain thresholds, we may be obligated to repay certain carried interest previously distributed. As of March 31, 2022, $0.7 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. During the first quarter of 2022, we sold a portion of our interests in ABS. See Note 7 to our unaudited condensed consolidated financial statements for further information. Assets Under Management AUM for our Wealth Management business of $11.6 billion at March 31, 2022 decreased $0.6 billion, or 5%, compared to $12.2 billion at December 31, 2021. 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 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% of Level 1 investments, 21% of Level 2 investments and 4% of Level 3 investments as of March 31, 2022 and December 31, 2021. 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 41 Table of Contents 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 three months ended March 31, 2022: Wealth Management (1) (dollars in millions) Balance at December 31, 2021 $ 12,184 Inflows 363 Outflows (333) Market Appreciation (Depreciation) (661) Balance at March 31, 2022 $ 11,553 Unconsolidated Affiliates - Balance at March 31, 2022: Atalanta Sosnoff $ 8,119 ABS $ 7,135 (1) Assets Under Management includes Evercore assets which are managed by Evercore Wealth Management of $0.3 million and $76.3 million as of March 31, 2022 and December 31, 2021, respectively. The following table represents the composition of AUM for Wealth Management as of March 31, 2022: Wealth Management Equities 66 % Fixed Income 20 % Liquidity (1) 9 % 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 business is measured against appropriate indices based on the composition of AUM, most frequently the S&P 500 and a composite fixed income index principally reflecting BarCap and MSCI indices. For the three months ended March 31, 2022, AUM for Wealth Management decreased 5%, primarily reflecting a decrease due to market depreciation. Performance for the three months ended March 31, 2022 reflected: • Wealth Management lagged the S&P 500 on a 1-year basis by approximately 5% and outperformed the S&P 500 on a 3-year basis by approximately 2% • Wealth Management outperformed the fixed income composite on a 1-year basis by approximately 80 basis points and was flat against the fixed income composite on a 3-year basis • The S&P 500 and fixed income composite were each down approximately 5% AUM from our unconsolidated affiliates decreased 4% compared to December 31, 2021, reflecting declines in both Atalanta Sosnoff and ABS. 42 Table of Contents Three Months Ended March 31, 2022 versus March 31, 2021 Investment Management Net Revenues were $18.6 million for the three months ended March 31, 2022, compared to $15.0 million for the three months ended March 31, 2021, an increase of $3.5 million, or 23%. Asset Management and Administration Fees earned from the management of Wealth Management client portfolios increased $2.2 million, or 14%, for the three months ended March 31, 2022 as associated AUM increased 9%, primarily from market appreciation. Other Revenue, net, increased $1.4 million from the three months ended March 31, 2021, primarily driven by a $1.3 million gain on the sale of a portion of our interests in ABS during the first quarter of 2022. Income from Equity Method Investments decreased 25% from the three months ended March 31, 2021, driven by lower income earned by ABS, principally reflecting a decrease in our ownership following the sale of a portion of our interests during the first quarter of 2022. See Note 7 to our condensed consolidated financial statements for further information. This decrease was partially offset by an increase in earnings from our investment in Atalanta Sosnoff. Operating Expenses were $12.9 million for the three months ended March 31, 2022, compared to $11.6 million for the three months ended March 31, 2021, an increase of $1.3 million, or 12%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $9.8 million for the three months ended March 31, 2022, compared to $8.7 million for the three months ended March 31, 2021, an increase of $1.1 million, or 13%. Non-Compensation expenses, as a component of Operating Expenses, were $3.1 million for the three months ended March 31, 2022, compared to $2.9 million for the three months ended March 31, 2021, an increase of $0.2 million, or 7%. 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, interest expense on our 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 and certain fees related to the private capital businesses 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 are generally billed and collected within 90 days. We traditionally pay a substantial portion of incentive compensation during the first three months of each calendar year with respect to the prior year's results and prior years' 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: 43 Table of Contents For the Three Months Ended March 31, 2022 2021 (dollars in thousands) Cash Provided By (Used In) Operating activities: Net income $ 177,094 $ 165,551 Non-cash charges 136,046 106,528 Other operating activities (799,360) (602,190) Operating activities (486,220) (330,111) Investing activities 693,537 190,165 Financing activities (329,185) (280,497) Effect of exchange rate changes (1,531) 1,816 Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash (123,399) (418,627) Cash, Cash Equivalents and Restricted Cash Beginning of Period 587,293 838,224 End of Period $ 463,894 $ 419,597 Three Months Ended March 31, 2022. Cash, Cash Equivalents and Restricted Cash were $463.9 million at March 31, 2022, a decrease of $123.4 million versus Cash, Cash Equivalents and Restricted Cash of $587.3 million at December 31, 2021. Operating activities resulted in a net outflow of $486.2 million, primarily related to the payment of 2021 bonus awards and deferred cash compensation, partially offset by earnings. Cash of $693.5 million was provided by investing activities, primarily related to net proceeds from sales and maturities of investment securities and proceeds received for the sale of a portion of our interests in ABS, partially offset by net purchases of certificates of deposit and purchases of equipment and leasehold improvements, principally related to the expansion of our headquarters in New York. Financing activities during the period used cash of $329.2 million, primarily for purchases of treasury stock and noncontrolling interests and 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. Three Months Ended March 31, 2021. Cash, Cash Equivalents and Restricted Cash were $419.6 million at March 31, 2021, a decrease of $418.6 million versus Cash, Cash Equivalents and Restricted Cash of $838.2 million at December 31, 2020. Operating activities resulted in a net outflow of $330.1 million, primarily related to the payment of 2020 bonus awards and deferred cash compensation, partially offset by earnings. Cash of $190.2 million was provided by investing activities primarily related to net proceeds from sales and maturities of investment securities, 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 $280.5 million, primarily for purchases of treasury stock, 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 10 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. 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 44 Table of Contents estimated payment calendar; these payments are generally made quarterly. 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 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, which may result from the current or anticipated impact of climate change, extreme weather events or natural disasters, the emergence or continuation of widespread health emergencies or pandemics, cyberattacks or campaigns, military conflict, including escalating military tension between Russia and Ukraine, terrorism or other geopolitical events, 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. For a further discussion of risks related to our business, refer to Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021. Treasury Purchases We periodically repurchase Class A Shares and/or LP Units into Treasury (including through the net settlement of equity awards) in order to offset the dilutive effect of equity awards granted as compensation (see Note 14 to our unaudited condensed consolidated financial statements for further information), or amounts in excess of that if management's review, discussed above, determines 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 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 were able to repurchase an aggregate of the lesser of $750.0 45 Table of Contents million worth of Class A Shares and/or LP Units and 8.5 million Class A Shares and/or LP Units. In addition, on February 22, 2022, 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 $1.4 billion worth of Class A Shares and/or LP Units and 10.0 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 three months ended March 31, 2022, we repurchased 1,075,902 Class A Shares, at an average cost per share of $127.37, for $137.0 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 three months ended March 31, 2022, we repurchased 915,214 Class A Shares, at an average cost per share of $129.04, for $118.1 million, primarily related to minimum tax withholding requirements of share deliveries. The aggregate 1,991,116 Class A Shares repurchased during the three months ended March 31, 2022 were acquired for aggregate purchase consideration of $255.1 million, at an average cost per share of $128.14. Noncontrolling Interest Purchases During the first quarter of 2022, we purchased, at fair value, an additional 0.4% of the EWM Class A Units for $1.4 million, which was included within Other Current Liabilities on the Unaudited Condensed Consolidated Statement of Financial Condition as of March 31, 2022. This purchase resulted in a decrease to Noncontrolling Interest of $0.1 million and a decrease to Additional-Paid-In-Capital of $1.4 million on our Unaudited Condensed Consolidated Statement of Financial Condition as of March 31, 2022. On December 31, 2021, we purchased, at fair value, all of the outstanding Class R Interests of Private Capital Advisory L.P. from employees of the RECA business for $54.3 million. Our consideration for this transaction included the payment of $6.0 million of cash in 2021, $27.7 million of cash during the three months ended March 31, 2022, and contingent cash consideration which will be settled in early 2024. As of March 31, 2022 and December 31, 2021, the fair value of the contingent consideration is $20.0 million and $20.6 million, respectively, and is included within Other Long-term Liabilities on our Unaudited Condensed Consolidated Statement of Financial Condition. The amount of contingent consideration to be paid is dependent on the RECA business achieving certain revenue performance targets. The fair value of the contingent consideration reflects the present value of the expected payment due based on the current expectation for the business meeting the revenue performance targets. In conjunction with this transaction, we will also issue two separate payments in early 2023 and 2024, contingent on continued employment, and accordingly, will be treated as compensation expense for accounting purposes in the periods earned. These payments will also be dependent on the RECA business achieving certain revenue performance targets. 2016 Private Placement Notes 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 March 31, 2022, we were in compliance with all of these covenants. 46 Table of Contents 2019 Private Placement Notes 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 March 31, 2022, we were in compliance with all of these covenants. 2021 Private Placement Notes 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 da te. 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 March 31, 2022, 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 March 31, 2022. 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. There were no drawings under this facility at March 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, 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 March 31, 2022. 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 were no drawings under this facility at March 31, 2022. 47 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. There were no drawings under this facility at March 31, 2022. In addition, EGL's clearing broker provides temporary funding for the settlement of securities transactions. Other Commitments We have long-term obligations for operating lease commitments, principally related to office space, which expire on various dates through 2035. See Note 8 to our unaudited condensed consolidated financial statements for anticipated current and future payments under these arrangements. We have a long-term liability, Amounts Due Pursuant to Tax Receivable Agreements, which requires payments to certain current and former Senior Managing Directors. Pursuant to deferred compensation and deferred consideration arrangements, we expect to make cash payments in future periods, including related to our Long-term Incentive Plans, Deferred Cash Compensation Program and other deferred compensation arrangements. Further, we make investments to hedge the economic risk of the return on deferred compensation. For further information, including timing of payments, see Notes 6 and 14 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 16 to our unaudited condensed consolidated financial statements. We have a commitment for contingent consideration related to the purchase of the outstanding Class R Interests of Private Capital Advisory L.P. from employees of the RECA business in 2021. For further information see above and Notes 12 and 15 to our unaudited condensed consolidated financial statements. 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 $2.7 million and $6.1 million as of March 31, 2022 and December 31, 2021 , 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. See Note 15 to our unaudited condensed consolidated financial statements for further information. 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. Our Unaudited Condensed Consolidated Statement of Financial Condition as of March 31, 2022 included $454.8 million of Cash and Cash Equivalents and $1.1 billion of Investment Securities and Certificates of Deposit, which are generally comprised of highly-liquid investments. For further information regarding other cash commitments and the timing of payments, refer to "General" above. 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 March 31, 2022, the fair value of our investments with these products, based on closing prices, was $163.3 million. 48 Table of Contents 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 $16.3 million, $32.7 million and $49.0 million, respectively, for the three months ended March 31, 2022. 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 $1.3 million for the three months ended March 31, 2022. Exchange Rate Risk We have foreign operations, through our subsidiaries and affiliates, primarily in Europe and Asia, 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, Singapore dollars, among others). Historically, the value of these foreign currencies has fluctuated relative to the U.S. dollar. For the three months ended March 31, 2022, 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 ($3.0) 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 credit losses. We maintain an allowance for credit losses 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 and certain fees related to the private capital businesses, 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 $0.5 million and $1.7 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022 and December 31, 2021, total receivables recorded in Accounts Receivable amounted to $313.7 million and $351.7 million, respectively, net of an allowance for credit losses, and total receivables recorded in Other Assets amounted to $75.2 million and $87.8 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 March 31, 2022, total contract assets recorded in Other Current Assets and Other Assets amounted to $44.6 million and $8.5 million, respectively. As of December 31, 2021, total contract assets recorded in Other Current Assets and Other Assets amounted to $14.1 million and $12.9 million, respectively. 49 Table of Contents 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 March 31, 2022, we had Investment Securities of $939.5 million, of which 83% 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, 2021. Recently Issued Accounting Standards For a discussion of other 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.