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, 2022. 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 & Equities 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 & Equities. Our Investment Banking & Equities segment earns fees from its clients for providing advice on mergers, acquisitions, divestitures, capital raising, leveraged buyouts, restructurings, private funds advisory and private capital markets services, 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 its 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 revenue consists of advisory fees for which realizations are dependent on the successful completion of client 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, to achieve necessary regulatory approvals, or due to adverse market conditions. In the case of bankruptcy engagements, fees may be 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 33 Table of Contents under commission sharing arrangements, on the date earned. Commissions and 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. See "Liquidity and Capital Resources" below for further information. Investment Management. Our Investment Management segment 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 & Equities 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, including accretion, 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 and long-term accounts receivable • 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 exchange rate fluctuations and foreign currency exchange forward contracts • 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 and other awards, 34 Table of Contents which are generally valued at their grant date and recorded in employee compensation and benefits expense over the requisite service period, subject to acceleration in certain cases. 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 an employee is eligible for retirement if the 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, or if an employee has at least 10 years of continuous service and is at least 60 years of age. 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 and January 2022, our Board of Directors approved the issuance of Class L Interests 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 and 2023, respectively. 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 and 2022, respectively. Following the distribution, these Class L Interests were cancelled pursuant to their terms. In January 2023, our Board of Directors approved the issuance of 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 2024. 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 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 (which ended on December 31, 2020) and January 1, 2021. The vesting period for the 2017 Long-term Incentive Plan ended on March 15, 2023 and in conjunction with this plan, we made cash distributions in 2023, 2022 and 2021. Amounts due pursuant to the 2021 Long-term Incentive Plan are due to be paid, in cash or Class A Shares, at our discretion, in the first quarter of 2025, 2026 and 2027, subject to employment at the time of payment. We periodically assess the probability of the benchmarks being achieved and expense the probable payout over the requisite service period of the award. From time to time, we also grant incentive 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 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 relative to performance 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 Special Charges, Including Business Realignment Costs, related to the write-off of non-recoverable assets in connection with the wind-down of our operations in Mexico. 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. 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. See Note 17 to our unaudited condensed consolidated financial statements for further information. 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, 2023 and 2022. For a more detailed discussion of the factors that affected the revenue and operating expenses of our Investment Banking & Equities and Investment Management business segments in these periods, see the discussion in "Business Segments" below. For the Three Months Ended March 31, 2023 2022 Change (dollars and share amounts in thousands, except per share data) Revenues Investment Banking & Equities: Advisory Fees $ 462,562 $ 624,564 (26 %) Underwriting Fees 22,883 36,306 (37 %) Commissions and Related Revenue 48,065 50,898 (6 %) Asset Management and Administration Fees 15,958 17,115 (7 %) Other Revenue, Including Interest and Investments 26,846 (1,779) NM Total Revenues 576,314 727,104 (21 %) Interest Expense 4,171 4,250 (2 %) Net Revenues 572,143 722,854 (21 %) Expenses Operating Expenses 462,318 513,490 (10 %) Other Expenses 2,921 — NM Total Expenses 465,239 513,490 (9 %) Income Before Income from Equity Method Investments and Income Taxes 106,904 209,364 (49 %) Income from Equity Method Investments 1,468 2,512 (42 %) Income Before Income Taxes 108,372 211,876 (49 %) Provision for Income Taxes 16,131 34,782 (54 %) Net Income 92,241 177,094 (48 %) Net Income Attributable to Noncontrolling Interest 8,863 19,078 (54 %) Net Income Attributable to Evercore Inc. $ 83,378 $ 158,016 (47 %) Diluted Weighted Average Shares of Class A Common Stock Outstanding 40,439 41,708 (3 %) Diluted Net Income Per Share Attributable to Evercore Inc. Common Shareholders $ 2.06 $ 3.79 (46 %) As of March 31, 2023 and 2022, we employed approximately 2,135 and 2,000 people, respectively. Three Months Ended March 31, 2023 versus March 31, 2022 Net Income Attributable to Evercore Inc. was $83.4 million for the three months ended March 31, 2023, a decrease of $74.6 million, or 47%, compared to $158.0 million for the three months ended March 31, 2022. The changes in our operating results during these periods are described below. Net Revenues were $572.1 million for the three months ended March 31, 2023, a decrease of $150.7 million, or 21%, versus Net Revenues of $722.9 million for the three months ended March 31, 2022. Advisory Fees decreased $162.0 million, or 26%, Underwriting Fees decreased $13.4 million, or 37%, and Commissions and Related Revenue decreased $2.8 million, or 6%, compared to the three months ended March 31, 2022. Asset Management and Administration Fees decreased $1.2 million, or 7%, compared to the three months ended March 31, 2022. See "Business Segments" and "Liquidity and Capital Resources" below for further information. 37 Table of Contents Ot her Revenue, Including Interest and Investments, increased $28.6 million compared to the three months ended March 31, 2022, primarily reflecting a shift from losses of $5.2 million in the first quarter of 2022 to gains of $9.4 million in the first quarter of 2023 on our investment funds portfolio due to overall market appreciation, as well as higher returns on our fixed income investment portfolios, which primarily consist of U.S. treasury bills. The investment funds portfolio is used as an economic hedge against our deferred cash compensation program. The increase from 2022 was partially offset by a $1.3 million gain on the sale of a portion of our interests in ABS that occurred during the first quarter of 2022. See Note 7 to our unaudited condensed consolidated financial statements for further information. Total Operating Expenses were $462.3 million for the three months ended March 31, 2023, compared to $513.5 million for the three months ended March 31, 2022, a decrease of $51.2 million, or 10%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $366.9 million for the three months ended March 31, 2023, a decrease of $62.8 million, or 15%, versus expense of $429.7 million for the three months ended March 31, 2022. The decrease in the amount of compensation recognized for the three months ended March 31, 2023 principally reflects a lower accrual for incentive compensation, partially offset by higher base salaries and higher amortization of prior period deferred compensation awards. Non-compensation expenses, as a component of Operating Expenses, were $95.4 million for the three months ended March 31, 2023, an increase of $11.6 million, or 14%, versus $83.8 million for the three months ended March 31, 2022. The increase was primarily driven by an increase in travel and related expenses and an increase in bad debt expense. Non-Compensation expenses per employee were approximately $44.9 thousand for the three months ended March 31, 2023, versus $42.4 thousand for the three months ended March 31, 2022. Total Other Expenses of $2.9 million for the three months ended March 31, 2023 reflected Special Charges, Including Business Realignment Costs, related to the write-off of non-recoverable assets in connection with the wind-down of our operations in Mexico. As a result of the factors noted above, Employee Compensation and Benefits Expense as a percentage of Net Revenues was 64.1% for the three months ended March 31, 2023, compared to 59.4% for the three months ended March 31, 2022. Income from Equity Method Investments was $1.5 million for the three months ended March 31, 2023, compared to $2.5 million for the three months ended March 31, 2022, reflecting lower contributions from all of our equity method investments in the first quarter of 2023. See Note 7 to our unaudited condensed consolidated financial statements for further information. The provision for income taxes for the three months ended March 31, 2023 was $16.1 million, which reflected an effective tax rate of 14.9%. 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, 2023 and 2022 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 $13.7 million and $19.0 million, respectively. Net Income Attributable to Noncontrolling Interest was $8.9 million for the three months ended March 31, 2023, compared to $19.1 million for the three months ended March 31, 2022. The decrease in Net Income Attributable to Noncontrolling Interest primarily reflects lower income at Evercore LP during the three months ended March 31, 2023. 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 & Equities The following table summarizes the operating results of the Investment Banking & Equities segment. For the Three Months Ended March 31, 2023 2022 Change (dollars in thousands) Revenues Investment Banking & Equities: Advisory Fees $ 462,562 $ 624,564 (26 %) Underwriting Fees 22,883 36,306 (37 %) Commissions and Related Revenue 48,065 50,898 (6 %) Other Revenue, net (1) 21,301 (7,467) NM Net Revenues 554,811 704,301 (21 %) Expenses Operating Expenses 449,080 500,572 (10 %) Other Expenses 2,921 — NM Total Expenses 452,001 500,572 (10 %) Operating Income 102,810 203,729 (50 %) Income from Equity Method Investments (2) 71 374 (81 %) Pre-Tax Income $ 102,881 $ 204,103 (50 %) (1) Includes interest expense on Notes Payable and lines of credit of $4.2 million and $4.3 million for the three months ended March 31, 2023 and 2022, respectively. (2) Equity in Luminis and Seneca Evercore is classified within Income from Equity Method Investments. For the three months ended March 31, 2023, the dollar value of North American announced and completed M&A activity decreased 45% and 39%, respectively, compared to the three months ended March 31, 2022, and the dollar value of Global announced and completed M&A activity decreased 43% and 49%, respectively, compared to the three months ended March 31, 2022. For the three months ended March 31, 2023, the dollar value of North American and Global completed M&A activity over $100 million decreased 40% and 50%, respectively, compared to the three months ended March 31, 2022. 39 Table of Contents For the Three Months Ended March 31, 2023 2022 Change Industry Statistics ($ in billions) (1) Value of North American M&A Deals Announced $ 293 $ 532 (45 %) Value of North American M&A Deals Completed $ 291 $ 480 (39 %) Value of North American M&A Deals Completed Over $100 million $ 273 $ 455 (40 %) Value of Global M&A Deals Announced $ 583 $ 1,023 (43 %) Value of Global M&A Deals Completed $ 601 $ 1,179 (49 %) Value of Global M&A Deals Completed Over $100 million $ 548 $ 1,098 (50 %) Evercore Statistics Total Number of Fees From Advisory and Underwriting Client Transactions 217 223 (3 %) Total Number of Fees of at Least $1 million from Advisory and Underwriting Client Transactions 78 86 (9 %) Total Number of Underwriting Transactions (2) 14 14 — % Total Number of Underwriting Transactions as a Bookrunner (2) 12 13 (8 %) (1) Source: Refinitiv April 10, 2023 (2) Includes Equity and Debt Underwriting Transactions. Investment Banking & Equities Results of Operations Three Months Ended March 31, 2023 versus March 31, 2022 Net Revenues were $554.8 million for the three months ended March 31, 2023 , compared to $704.3 million for the three months ended March 31, 2022 , a decrease of $149.5 million, or 21%. The decrease in revenues for the three months ended March 31, 2023 was primarily driven by a decrease of $162.0 million, or 26%, in Advisory Fees, reflecting a decline in revenue earned from large transactions during the first quarter of 2023, as well as a decrease in the number of Advisory fees earned. Underwriting Fees decreased $13.4 million, or 37%, compared to the three months ended March 31, 2022, reflecting a decrease in average fee size of the transactions we participated in due to the decline in overall market issuances. Commissions and Related Revenue decreased $2.8 million, or 6%, compared to the three months ended March 31, 2022 , primarily reflecting lower trading revenues. Other Revenue, net, increased $28.8 million compared to the three months ended March 31, 2022 , primarily reflecting a shift from losses of $5.2 million in the first quarter of 2022 to gains of $9.4 million in the first quarter of 2023 on our investment funds portfolio due to overall market appreciation, as well as higher returns on our fixed income investment portfolios, which primarily consist of U.S. treasury bills. The investment funds portfolio is used as an economic hedge against our deferred cash compensation program . Operating Expenses were $449.1 million for the three months ended March 31, 2023 , compared to $500.6 million for the three months ended March 31, 2022 , a decrease of $51.5 million, or 10%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $357.1 million for the three months ended March 31, 2023 , compared to $419.9 million for the three months ended March 31, 2022 , a decrease of $62.8 million , or 15% . The decrease in the amount of compensation recognized for the three months ended March 31, 2023 principally reflects a lower accrual for incentive compensation, partially offset by higher base salaries and higher amortization of prior period deferred compensation awards. Non-compensation expenses, as a component of Operating Expenses, were $92.0 million for the three months ended March 31, 2023, compared to $80.7 million for the three months ended March 31, 2022, an increase of $11.3 million , or 14% . Non-compensation operating expenses increased from the prior year period, primarily driven by an increase in travel and related expenses and an increase in bad debt expense. Other Expenses of $2.9 million for the three months ended March 31, 2023 reflected Special Charges, Including Business Realignment Costs, related to the write-off of non-recoverable assets in connection with the wind-down of our operations in Mexico . 40 Table of Contents Investment Management The following table summarizes the operating results of the Investment Management segment. For the Three Months Ended March 31, 2023 2022 Change (dollars in thousands) Revenues Asset Management and Administration Fees: Wealth Management $ 15,958 $ 17,115 (7 %) Other Revenue, net (1) 1,374 1,438 (4 %) Net Revenues 17,332 18,553 (7 %) Expenses Operating Expenses 13,238 12,918 2 % Total Expenses 13,238 12,918 2 % Operating Income 4,094 5,635 (27 %) Income from Equity Method Investments (2) 1,397 2,138 (35 %) Pre-Tax Income $ 5,491 $ 7,773 (29 %) (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. (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 (together the "Glisco Funds"), 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, 2023, $0.4 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 in our Wealth Management business of $11.0 billion at March 31, 2023 increased $0.5 billion, or 5% , compared to $10.5 billion at December 31, 2022. 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 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% and 74% of Level 1 investments, 20% and 21% of Level 2 investments and 5% and 5% of Level 3 investments as of March 31, 2023 and December 31, 2022, respectively. 41 Table of Contents 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 Wealth Management for the three months ended March 31, 2023: (dollars in millions) Balance at December 31, 2022 $ 10,537 Inflows 213 Outflows (258) Market Appreciation 525 Balance at March 31, 2023 $ 11,017 Unconsolidated Affiliates - Balance at March 31, 2023: Atalanta Sosnoff $ 6,815 ABS $ 6,752 The following table represents the composition of AUM for Wealth Management as of March 31, 2023: Equities 62 % Fixed Income 20 % Liquidity (1) 13 % 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, 2023, AUM for Wealth Management increased 5% , primarily reflecting an increase due to market appreciation. Performance for the three months ended March 31, 2023 reflected: • Wealth Management outperformed the S&P 500 on a 1 and 3-year basis by approximately 10 basis points and 40 basis points, respectively • Wealth Management lagged the fixed income composite on a 1 and 3-year basis by approximately 1% and 10 basis points, respectively • The S&P 500 and fixed income composite were each up approximately 8% and 2%, respectively AUM from our unconsolidated affiliates increased 2% compared to December 31, 2022, reflecting increases in both Atalanta Sosnoff and ABS. 42 Table of Contents Three Months Ended March 31, 2023 versus March 31, 2022 Net Revenues were $17.3 million for the three months ended March 31, 2023, compared to $18.6 million for the three months ended March 31, 2022, a decrease of $1.2 million, or 7%. Asset Management and Administration Fees earned from the management of Wealth Management client portfolios decreased $1.2 million, or 7%, for the three months ended March 31, 2023 as associated AUM decreased 5%, primarily from market depreciation. Operating Expenses were $13.2 million for the three months ended March 31, 2023, compared to $12.9 million for the three months ended March 31, 2022, an increase of $0.3 million, or 2%. Employee Compensation and Benefits Expense, as a component of Operating Expenses, was $9.8 million for the three months ended March 31, 2023, flat compared to the three months ended March 31, 2022. Non-Compensation expenses, as a component of Operating Expenses, were $3.4 million for the three months ended March 31, 2023, compared to $3.1 million for the three months ended March 31, 2022, an increase of $0.3 million, or 10%. Income from Equity Method Investments decreased 35% from the three months ended March 31, 2022, primarily driven by lower income earned by Atalanta Sosnoff in the first quarter of 2023. See Note 7 to our unaudited condensed consolidated financial statements for further information. Cash Flows Our operating cash flows are primarily influenced by the timing and receipt of fees and the payment of operating expenses, including incentive compensation to our employees and interest expense on our Notes Payable and lines of credit, and the payment of income taxes. Advisory and Underwriting 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 (including for net settlement of RSUs), 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. If required, we may 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 Three Months Ended March 31, 2023 2022 (dollars in thousands) Cash Provided By (Used In) Operating activities: Net income $ 92,241 $ 177,094 Non-cash charges 137,395 136,046 Other operating activities (614,373) (799,360) Operating activities (384,737) (486,220) Investing activities 631,254 693,537 Financing activities (336,987) (329,185) Effect of exchange rate changes 6,472 (1,531) Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash (83,998) (123,399) Cash, Cash Equivalents and Restricted Cash Beginning of Period 672,123 587,293 End of Period $ 588,125 $ 463,894 43 Table of Contents Three Months Ended March 31, 2023. Cash, Cash Equivalents and Restricted Cash were $588.1 million at March 31, 2023, a decrease of $84.0 million versus Cash, Cash Equivalents and Restricted Cash of $672.1 million at December 31, 2022. Operating activities resulted in a net outflow of $384.7 million, primarily related to the payment of 2022 bonus awards and deferred cash compensation, which contributed to a decrease to Accrued Compensation and Benefits on our Unaudited Condensed Consolidated Statement of Financial Condition as of March 31, 2023, partially offset by earnings. Cash of $631.3 million was provided by investing activities, primarily related to net proceeds from sales and maturities of investment securities and certificates of deposit. Financing activities during the period used cash of $337.0 million, primarily for purchases of treasury stock (including for net settlement of RSUs) 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, 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. 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 revenues from our Investment Banking & Equities and Investment Management segments. 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 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 capital requirements and restrictions of our regulated legal entities. Our liquidity is highly dependent on our revenue stream from our operations, principally from our Investment Banking & Equities segment, which is primarily 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. 44 Table of Contents 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 inflation, changes in the level of interest rates, changes in the availability of financing, supply chain disruptions, an evolving regulatory environment, 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 are currently in a period of macroeconomic uncertainty and market volatility, including historically high inflation, supply chain constraints, rising interest rates, changes in the availability of financing, geopolitical tensions, evolving regulatory and banking environments and the risk of a recession. These factors have led to a slowing of the pace of M&A and other advisory transaction announcements and the elongation of the timing of transaction closings, as well as suppressing the level of underwriting activity. We will continue to assess the potential ongoing impacts of the current environment, including the regular monitoring of our cash levels, liquidity, regulatory capital requirements, debt covenants and our other contractual obligations. See "Results of Operations" above for further information. 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, 2022. 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 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, 2023, we repurchased 1,237,384 Class A Shares, at an average cost per share of $132.50, for $164.0 million, pursuant to our repurchase program. 45 Table of Contents 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, 2023, we repurchased 915,197 Class A Shares, at an average cost per share of $131.79, for $120.6 million, primarily related to minimum tax withholding requirements of share deliveries. The aggregate 2,152,581 Class A Shares repurchased during the three months ended March 31, 2023 were acquired for aggregate purchase consideration of $284.6 million, at an average cost per share of $132.20. 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 is due to be settled in early 2024. We paid $0.7 million of this contingent cash consideration during the three months ended March 31, 2023. The fair value of the remaining contingent consideration is $5.1 million as of March 31, 2023, which is included within Payable to Employees and Related Parties on our Unaudited Condensed Consolidated Statements of Financial Condition, and $6.1 million as of December 31, 2022, $1.1 million of which was included within Other Current Liabilities and the remainder of which was included within Other Long-term Liabilities on our Unaudited Condensed Consolidated Statements of Financial Condition. The amount of contingent consideration to be paid is dependent on the RECA business achieving certain revenue performance targets. Changes in the fair value of contingent consideration are included within Other Operating Expenses on the Unaudited Condensed Consolidated Statements of Operations. 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 also issued a payment in the first quarter of 2023 and will issue another payment in early 2024, contingent on continued employment. Accordingly, these payments are 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. 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, 2023, we were in compliance with all of these covenants. On June 28, 2022, we prepaid the $67.0 million aggregate principal amount of our Series B Notes plus the applicable make-whole amount. 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, 2023, we were in compliance with all of these covenants. 2021 Private Placement Notes On March 29, 2021, we issued $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, 2023, we were in compliance with all of these covenants. 2022 Private Placement Notes On June 28, 2022, we issued $67.0 million aggregate principal amount of our 4.61% Series J Notes, pursuant to the 2022 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 2022 Private Placement Notes is payable semi-annually and the 2022 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 2022 Private Placement Notes, in an amount not less than 5% of the aggregate principal amount of the 2022 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 2022 Private Placement Notes will have the right to require us to prepay the entire unpaid principal amounts held by each holder of the 2022 Private Placement Notes plus accrued and unpaid interest to the prepayment date. The 2022 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, 2023, we were in compliance with all of these covenants. Lines of Credit East entered into a loan agreement with PNC for a revolving credit facility in an aggregate principal amount, as amended on October 29, 2021, 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 47 Table of Contents 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, 2023. The interest rate provisions are LIBOR (or an applicable benchmark replacement) plus 150 basis points and the maturity date is October 28, 2023. There were no drawings under this facility at March 31, 2023. East entered into an additional loan agreement with PNC for a revolving credit facility in an aggregate principal amount, as amended on October 29, 2021, of up to $55.0 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, 2023. Drawings under this facility bear interest at LIBOR (or an applicable benchmark replacement) plus 180 basis points and the maturity date is 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, 2023. EGL entered into a subordinated revolving credit facility with PNC in an aggregate principal amount, as amended on October 31, 2022, 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. The interest rate provisions are Daily SOFR plus 191 basis points and the maturity date is October 27, 2024. There were no drawings under this facility at March 31, 2023. 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 " Noncontrolling Interest Purchases" 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 $2.6 million and $2.4 million as of March 31, 2023 and December 31, 2022, 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. As of March 31, 2023, our current and former Senior Managing Directors owned an aggregate of approximately 1.7 million vested Class A LP Units, 0.4 million vested Class E LP Units, 0.4 million vested Class I LP Units and 0.3 million vested Class K LP Units. In addition, 0.7 million unvested Class K-P Units, which convert into a number of Class K LP Units based on the achievement of certain market and service conditions and defined benchmark results, were outstanding as of 48 Table of Contents March 31, 2023. We have an obligation to exchange vested Class A, E, I and K LP Units to Class A Common Stock upon the request of the holder. Our Unaudited Condensed Consolidated Statement of Financial Condition as of March 31, 2023 included $579.2 million of Cash and Cash Equivalents and $803.1 million 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, 2023, the fair value of our investments with these products, based on closing prices, was $143.1 million. We had net realized and unrealized gains of $9.4 million for the three months ended March 31, 2023, from our exchange-traded funds portfolio. See Note 6 to our unaudited condensed consolidated financial statements for further information. We estimate that a hypothetical 10%, 20% and 30% adverse change in the market value of the investments would have resulted in a decrease in pre-tax income of approximately $14.3 million, $28.6 million and $42.9 million, respectively, for the three months ended March 31, 2023. 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. See Note 7 to our unaudited condensed consolidated financial statements for further information. 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 $0.5 million for the three months ended March 31, 2023. 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 non-U.S. 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, 2023, 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 a gain of $5.7 million, net of tax. 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. Periodically, we enter into foreign currency exchange forward contracts as an economic hedge against exchange rate risk for foreign currency denominated accounts receivable or other commitments. We entered into a foreign currency exchange forward contract during the first quarter of 2023 to buy 30.0 million British Pounds sterling for $36.9 million, which will settle during the third quarter of 2023. The contract is recorded at its fair value of $0.2 million as of March 31, 2023, and is included within Other Current Assets on our Unaudited Condensed Consolidated Statement of Financial Condition. Credit Risks 49 Table of Contents 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 and certain fees related to the private capital businesses. 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. Our 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 recorded bad debt expense of approximately $3.7 million for the three months ended March 31, 2023 and reversed bad debt expense of approximately $0.5 million for the three months ended March 31, 2022. As of March 31, 2023 and December 31, 2022, total receivables recorded in Accounts Receivable amounted to $299.2 million and $385.1 million, respectively, net of an allowance for credit losses, and total receivables recorded in Other Assets amounted to $70.2 million and $64.1 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, 2023, total contract assets recorded in Other Current Assets and Other Assets amounted to $14.0 million and $11.9 million, respectively. As of December 31, 2022, total contract assets recorded in Other Current Assets and Other Assets amounted to $110.5 million and $8.0 million, respectively. With respect to our Investment Securities portfolio, which is comprised primarily of treasury bills and notes, 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, 2023, we had Investment Securities of $756.2 million, of which 81% were treasury bills and notes. 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, 2022 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.