Q1 2020 Earnings Call

Good morning, and welcome to the paper Sandler companies conference call to discuss the financial results for the first quarter of 2020.

During the question and answer session Securities industry professionals may ask questions.

The company has asked that I remind you that statements on this call that are not historical or current socks.

Including statements about beliefs and expectations are forward looking statements that involve inherent risks and uncertainties.

Doctors that could cause actual results to differ materially from those anticipated are identified in the company's earnings release and reports on file with the FCC, which are available on the company's website at www Dot paper Stadler Dot com and on the FCC website at Www Dot FCC Dot com.

This call will also include statements regarding certain non-GAAP financial measures, but non-GAAP measures should be considered in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP.

Please refer to the company's earnings release issued today for a reconciliation of these non-GAAP financial measures to the most comparable GAAP measure.

The earnings release is available on the Investor Relations page of the company's website or at the FCC website.

As a reminder, this call is being recorded I.

No I'd like to turn the call over to Mr. child Abraham.

Oh, good morning, everyone Dep showing them in our President Tim Carter, CFO and I would like to thank you for joining our first quarter 2020 call.

We hope you in your families are staying healthy insane.

We will go through our prepared remarks, and then open up the call for questions.

[music] first let me start by thanking all of my employee partners.

I continue to be impressed by your hard work perseverance and determination during these unprecedented times.

Your continued display of incredible partnership with one another and dedication to our clients is remarkable.

Yep, Tim and I were with you at the end of January discussing record 2019 result, and our optimism for 2020 and all of our businesses started the year strong.

But as we entered March it became increasingly apparent that the impact of cobot 19 would change our world.

On March 11, the World Health organization characterize the cobot 19 outbreak as a global pandemic.

Rising uncertainty wreaked havoc in the equity and fixed income markets.

Volatility and the speed of change was historic an unprecedented.

The human told US pandemic has inflicted in terms of lives and economic hardship staggering.

It is difficult to overstate how profound the world has changed in the last eight weeks.

We're doing our part in response to covert 19, while continuing to focus on the needs of our stakeholders.

Our first in top priority continues to be the health and wellbeing of our employees.

We shifted to a remote working environment with over 90% of our employees working from home.

And have expanded certain employee benefits for those impacted my Coburn 19.

For our clients, we are focused on delivering the best guidance in service.

We're in constant communication with our clients sharing best practices discussing the impact of this environment on their strategic initiatives.

Ali waiting current and future capital needs and finding liquidity in rapidly changing markets.

Our technology infrastructure has been resilient supporting our remote workforce and the surgeon activity.

For our shareholders, we are prudently managing capital and cost.

We entered this crisis with a strong balance sheet and ample liquidity and we are taking actions to reduce cost maintain liquidity and preserve capital to ensure we remain in this position.

As we believe this strength will be our advantage in this current environment and beyond.

For our communities, we established a special employee given campaign with a corporate match program.

Contributions will support local food banks in each of our major markets.

Let me provide some overall comments on our financial results before turning to our corporate investment banking businesses.

For the first quarter of 2020, we generated 245 million of adjusted net revenues.

This quarter marks the first quarter with Sandler on our platform and they performed very well.

Our financial services business has a broad range of product capabilities, which allows for more consistent performance across varying market cycles.

It is worth noting as we go through these difficult times, how the legacy Sandler team performed during the last crisis Sander was the most active financial advisor in recapitalizing banks and restructuring their balance sheets. In addition, we have already seen significant referrals and close to health care M&A deal in April that was referred buyer for.

Natural services team.

As I noted at the outset of the call. The your began with solid performances through February and as extreme volatility struck in March our investment banking businesses slowed appreciably, while our brokerage businesses delivered strong revenues.

The breadth of the Sandler financial services group and deep expertise with banks contributed to our strong fixed income revenues in the quarter.

On the equity side the expanded platform, we built last year in terms of account coverage and execution capabilities to our acquisition of we'd was a significant driver of the impressive Q1 performance this business delivered.

From where we sit today, the timing and path to recovery from Cobot 19, and its related effects remain unclear and we expect some of our businesses to be impacted meaningfully for the remainder of the year.

Turning now to advisory services.

We generated 111 million of revenues for the first quarter of 2020.

Down from a very strong fourth quarter of 2019 and in line with a year ago corridor, which included a couple of large piece.

Our health care team was the largest contributor in the quarter, followed by the financial services group and a solid contribution from the consumer team.

We advised on 57 transactions with an aggregate value a $7.6 billion.

Activity in the market, both announced and completed deal values were down approximately 30% sequentially.

We expect M&A revenues to decline in the second quarter as companies evaluate the changing and uncertain environment and transactions take longer and become more difficult to close.

Turning now to corporate financing, which includes both equity and debt capital raising for a corporate clients.

Corporate financing activity generated revenues of 25 million for the first quarter of 2020 led by your health care team.

Revenues in the quarter declined compared to a strong fourth quarter and increased compared to the prior year quarter as the result of more book run deals.

The heightened volatility in March shutdown equity capital raising activity.

Our corporate financing activity has started out strong in the second quarter as we have already completed several equity financings in health care space.

Debt financing has also started to show signs of improvement and we're excited about or prospects, especially in the financial services sector to assist clients raising debt to manage through this challenging environment.

Let me finish with some updates on our strategic initiatives and head count for investment banking.

As we discussed before our partnership with Sandler is off to a great start with wide collaboration across business areas. We believe we are a destination of choice for talented professionals and high quality franchises looking to grow their businesses.

During the quarter, we hired three investment banking managing directors to our diversified industrials and services group.

We ended the quarter with 128 investment banking managing directors and our platform represents one of the broadest in the middle market.

This head count includes our largest class of MD promotes.

Developing our own talent is the most sustainable and profitable growth and we remain focused on building from within.

Lastly in February we announced or plan to acquire the valence group a premier International investment bank specializing in the chemicals materials and related sectors.

Surveillance group consists of 29 professionals with offices in New York in London.

The acquisition, which closed in April strengthens our presence in Europe, another strategic priority well, adding another industry, leading advisory practice to our platform.

We believe that the acquisitions of Sandler Weedon and valence have collectively strengthened our platform by adding scale and diversification.

Broadening our industry verticals and expanding our product capabilities.

Working through the current environment and its challenges has reinforced for us the importance of each of these attributes.

As we look ahead, we're mindful of the volatility and challenges in our markets and for our clients.

Despite a difficult operating environment in the near term our long term strategy a building enduring market, leading franchises has not changed.

Deep sector expertise built on multi decade relationships is more important than ever in this environment.

Within the middle market, we have one of the broadest and deepest footprint for example, refitted rankings of Midmarket M&A. It financial advisors show that for the first quarter of 2020, we were ranked number one based on the number of announced deals in the U.S.

Well near term, we expect our M&A revenues to decline, reflecting the overall market environment, we're starting to see some activity in restructuring and balance sheet advisory and we anticipate continued ramp in corporate equity and debt new issues.

However, we don't expect this ramping activity will fully offset the impact to our M&A business.

We believe the diversification and scale of our businesses will be resilient and position us for success over the longer term.

Now I will turn the call over to Deb to discuss our public finance and brokerage businesses.

Thanks, Chad, let me begin with an update on our equity brokerage business.

We generated revenues of 48 million for the first quarter of 2020 up 49% on a sequential basis.

Equity markets began the year with moderate volumes and rising valuations in the major indices with the S&P 500, peaking mid February.

At the severity of the krona virus spread the equity markets began a rapid fall.

The S&P 500 plummeted more than 30% from peak levels over the course of four weeks registering its worst first quarter on record.

Trading volatility spiked to record levels with the VIX, reaching 82 at its peak driving tremendous volume.

Client sought out trusted relationships to find liquidity in these volatile market conditions in our reputation for premier trade execution drove our results for the quarter.

We try to 3.7 billion shares in Q1, 63% from the volumes traded in the fourth quarter of 2019.

The breadth of our client base allows us to cross a significant portion of our castrates, resulting in no market impact, which is a significant differentiator for us, especially in a volatile market.

From a personnel technology and overall capability perspective, we're well positioned to continue benefiting from the increased trading volumes.

Utility in volumes remain elevated but down from the extreme levels experienced in the second half of Q1.

Similarly, we expect our equity brokerage revenues to remain strong, albeit down from the Q1 levels.

Let me turn to fixed income surfaces.

We generated revenues of 41 million in the first quarter of 2020, the fixed income markets also experienced extreme volatility in march creating liquidity and pricing dislocations in a number of asset classes.

In particular municipal securities experienced severe dislocation with the 10 year Muni to treasury ratio skyrocketing to over 350% in March the highest spread recorded to date.

For us activity was robust across products as clients repositioned in a rapidly changing market.

Our financial services team contributed strong revenues as they leverage their deep expertise with banks to provide advice and assist clients in managing interest sensitive businesses, given the difficult interest rate environment as well as to find liquidity.

Our municipal product offerings saw tremendous client activity as muni funds experienced record outflows from investors in March.

We were able to identify crossover buyers who entered the market to take advantage of meaningfully higher yields.

The robust client activity was offset in part by trading losses in municipal securities due to the sharp sudden dislocation of the market.

Federal reserve injective massive liquidity into the market toward the end of March which helped stabilize the market somewhat however, volatility and the muni to treasury ratios remain elevated.

We expect our fixed income revenues to remain strong as clients continue to reposition in a changing market. However, similar to equities not likely at Q1 levels.

Turning to our public finance business.

For the quarter, we generated 23 million of municipal financing revenues down from a strong Q4 of 2019 and up 78% from a slow year ago period.

Our public finance business started the first two months as the year strong driven by new issuance and refinancing activity as rates remain low.

Activity in March fell off significantly driven by the extreme volatility in the fixed income markets.

We completed 146 negotiated transaction the second most nationally raising $3.6 billion for issuer clients in the quarter, we have a strong pipeline of governmental business and as volatility subsides and rates stabilize we are starting to see demand resume for high grade governmental paper.

Dramatic outflows from Muni high yield bond funds will curtail demand for higher yielding issuers, which we expect may impact our specialty sectors.

I will turn the call over to Tim to review, our financial results and provide an update on capital here.

Thanks, Doug.

Let me start by highlighting two changes to the presentation of our expanded net revenue schedules first within investment banking or financing revenues are presented as corporate financing, which includes equity and debt capital raising for our corporate clients and municipal financing, which is our public finance underwriting business.

Second we're no longer allocating net interest revenue to our products, which allows for a more straightforward reconciliation between this revenue schedule in the face more PML.

All historical periods have been adjusted to reflect the new presentation.

Next let me highlight the items impacting our GAAP results this quarter as a result of our recent acquisitions.

Consistent with prior periods. Our GAAP results include compensation from acquisition related agreements consisting of restricted consideration and retention awards the contains surface conditions.

In addition, we have acquisition related expenses the consist of intangible asset amortization expense and restructuring transaction and integration costs.

The increase is primarily the result of the Sandler acquisition.

This quarter also includes a fair value adjustment to the we earn out related to our expectations of achieving certain revenue targets as our equity brokerage business is outperforming projections.

Finally, we are adding an adjustment to our GAAP net revenues to exclude interest expense associated with our long term debt.

We believe this presentation of our adjusted net revenues AIDS in the comparability of our ratios and margins across periods.

Turning to our adjusted financial results, our quarterly net revenues were 245 million up compared to the year ago period due to the investments we've made in the business through the acquisitions of Sandler and we.

The first quarter 2020 started strong in investment banking with corporate and municipal financing revenues, improving compared to a slow first quarter of 2019 with performance later in the quarter driven by or institutional brokerage businesses in response to the market volatility.

These increases were offset in part by unrealized losses in our merchant banking portfolio of 4.4 million.

Lower equity valuations in a more challenging operating environment for some of the portfolio companies drove the fair value adjustments.

We also saw marks on investments held in our nonqualified deferred compensation plan. This is a legacy plan that is no longer active in the marks are offset against a deferred compensation liability with no bottom line impact.

Turning to operating expenses, our compensation ratio was 64.8% for the quarter higher compared to previous periods due to changes in our mix of business.

The mix was unfavorably impacted by the unrealized losses in the merchant banking fund portfolios and some fixed income trading losses, resulting from the extreme rate volatility in March.

Compensation expense will continue to remain largely variable however, our revenue levels and mix will impact the level and variability in the ratio over the next several quarters.

Anticipated revenue declines will put pressure on our historic comp ratio.

Sensation levels will be managed to balance profitability and to maintain adequate compensation levels for employee retention.

Quarterly Noncompensation expenses, excluding deal related expenses were 52 million.

We expect this level of non compensation costs will decline modestly for the second quarter as travel and other variable expenses are expected to be down with lower revenue.

We produced an operating margin of 11.8% for the quarter down 300 basis points on a year over year basis due to the higher compensation ratio.

Our adjusted tax rate for the first quarter of 2020 was 5.1%.

We recorded 5.7 million of tax benefits were 33 cents per share principally related to the cares Act, which was in enacted by the US Federal government in March in response to the 2020 Corona virus pandemic.

The cares act contains tax provisions, allowing for a five year carry back of 2018, 2019, and 2020 federal tax years to periods when the federal tax rate was still 35%.

Excluding these tax benefits would result in a 26.4% adjusted tax rate for the quarter, which is within our guided range of 26% to 28%.

For the quarter, our diluted EPS was one dollar and 48 cents per share in line with a year ago period.

The increase in share count related to the Sandler acquisition was offset by the tax benefit.

Expect our share count to be approximately 17.9 million for Q2, taking into account the restricted stock consideration associated with the acquisition of the Valence group.

Turning to capital in risk management or capital and liquidity positions remain strong our leverage is low and we're confident that we will be able to effectively navigate this environment and the current market conditions.

As Chad noted we closed on the acquisition of the balance group and as planned we draw on our revolver to finance the upfront cash consideration.

Consistent with our strategy, we remain focused on making our business capital light and carrying inventory based on client needs in our areas of expertise.

At the end of the first quarter, we held approximately 578 million of trading inventory.

Further reduced inventory in April to approximately 500 million.

Turning to dividends the board approved the quarterly dividend of 20 cents per share lower than our previous quarterly dividend as we see the benefits to our business for the long term and preserving and maintaining optionality with our capital.

This quarterly dividend will be paid on June 12, 2020 shareholders of record as of the close of business on May 29 2020.

In summary, as we continue to adapt and respond to the changing market conditions, we are well capitalized highly liquid and our risk posture remains conservative.

We remain prudent in allocating capital and maintaining inventory levels to reflect our focus providing advice to clients rather than use of the balance sheet.

Before going into Q, and a I'd like turn the call back to Chad for a few additional comments.

Thanks, Tim we are encouraged to have a broad diversified business that allows us to serve clients outside of just traditional M&A advice.

Our investment bankers are shifting their focus to include restructuring and capital raising both with equity and debt.

We're pleased that our platform is active in the equity and fixed income markets through our sales and trading capabilities and by providing balance sheet advice.

The addition of Sandler and we have further diversified our business and we are seeing the benefits of these combinations and their contributions even more so in the current environment.

As we look ahead to the remainder of 2020 and beyond we know the near term environment will be challenging.

Our intense focus on serving our clients supporting our employees and our broader communities Justice. We have done over the course of our 125 year history will help us navigate through this uncertainty.

Let me close by thanking the leadership team and again all of my employee partners. It is in times like this that your collaboration expertise and dedication is most apparent.

Thanks, and we can now open up the call for questions.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key.

Please standby will be compiled acuity roster.

Okay.

Your first question comes from Devin Ryan with JMP Securities. Your line is open.

Great. Good morning, everyone hope you're all well.

Hi, David.

Maybe just to.

Start here on the investment banking outlook and appreciate chats and the commentary.

On the sectors.

But I'm just maybe if we can curious to kind of go a little bit deeper into some of the puts and takes you know the energy space kind of asked some of its own issues.

So I'm kind of curious between the push pull in.

By Israel M&A, maybe there's some restructuring activity you guys are getting involved in but curious kind of how to think about the outlook. There you heard some of the commentary on financials.

But if we can go maybe a little deeper than health care would seem that its recovering faster or there's been some recent equity issuances are you guys had been involved in that so as you kind of think about all the various sector exposure as you know there they're kind of being affected by maybe some different themes beyond just cobot show.

Yeah, just maybe love to get a little bit more flavor. There in terms of where things maybe going to be more active and then maybe where things are going to be slower.

Sure David and obviously, there's a few questions in there so yeah I would just start with sort of the.

Outlook for advisory we started.

As you can see just from the tables, we announced a lot of transactions.

Early in Q1, and certainly throughout the quarter, we're still closing those.

Frankly, as we look at just what we did in April if you just use the month of April and sort of advisory closings that would sort of point debt down probably in Q2 about 30% but.

But it's impossible to.

To predict what exactly closes in this environment, but we still have a backlog of deals we expect to close where you're really seeing that slowdown is just announcements of new transactions and in particular, you know our industry is that rely on sell side activity for private equity.

Industrials parts of the consumer space.

And so in those sectors, it's it's slower our you're right in certain parts of health care. We are still doing transactions. We in fact, we announced a nice transaction this week in specialty pharma.

In financial services I, we're still doing some transactions and as you know that industry has even a longer time from announcement to closing so that that backlog continues certain sectors, you're right like energy are very difficult from a pure M&A op.

Perspective, but we are we are active in restructuring and as you know we don't have a huge restructuring team. They you know spends a lot of time on the bankruptcy part, but restructurings common many different flavors rescue financing debt financings equity financings as we're seeing with our financial serve.

This is teams balance sheet.

Advisory.

And frankly to your next question.

We've seen the financing markets be quite strong in April and in fact April was.

Our strongest month for SCM of the year.

Primarily on the back of some significant health care transaction. So we really do feel blessed to have a broad diversified business that has lots of industries that will perform differently in different markets and that certainly a lot of product.

That that help that diversification.

Terrific color, Thanks, Chad and maybe one just on kind of financial sponsors psyche right. Now you guys have great connectivity, there and you're clearly portfolios had been marked down pretty substantially.

In recent months and so that may affect your monetization timelines.

Im curious on the other side, how they're thinking about positioning to buy assets.

If there is maybe an opportunity with lower asset prices to too.

Help capitalize certain industries or take advantage of.

Opportunities where firms may have to sell assets in distress or just our repositioning their overall kind of asset composition. So just trying to think about kind of push pull between lower asset prices. How that's affecting sponsors are kind of existing portfolios, but also.

Thoughts around being buyer assist with an elevated level a dry powder.

Yeah, I think that I think that is a great question and it really depends on sort of the state of where you know each of these private equity firms is within their particular fund.

Obviously, the funds that were close to fully invested hadn't invested a new fund.

As we saw certainly the last couple of weeks of March in the first week of April you know people were very focused on what are we going to do with our existing portfolio companies, where we out what's the debt load how's it going to work.

And certainly we're not talking about new transactions you know the flip side of that is there are a lot of private equity firms that have a lot of dry powder and we've certainly seen them.

Start to look at things and think about being opportunistic and that may not be in their traditional sort I got to own control it might be in a rescue financing it might be in a different structure and then I would say you know probably the biggest opportunity at least for in the short term for us with private equity sponsors is we have a lot yet as you know.

Have a big sort a debt advisory business.

For sponsors and we have lots of conversations and new engagements relative to helping them with their current debt loads in particular.

Portfolio companies.

Okay great.

And maybe to pivot a little bit to the brokerage business clearly.

Strong quarter, there and I think shows kind of the benefits of diversification of the model and.

There's also benefits from having sandler and the business as well so that theres a lot to kind of consider and the result this quarter.

Even as well.

I don't know Theres, a way to kind of parse through.

The the.

The portion that maybe was tied to kind of higher than a normalized level of volume right anyway, just to kind of think about that business to the extent. The view is the markets start to settle down volatility reduces volumes probably come back revert to something maybe closer to where they were previously and so just trying to think about.

That business in more of a normalized.

Backdrop also I guess contemplating the fact that maybe there's some inventory.

Marks either way this quarter as well so just trying to kind of conceptualize what that potentially could look like if we think the world's normalizing a bit.

Yes, let me take it I think your questions really relates both to equity and fixed income as I listen to that so let me just take each of those one at a time here on the equity side absolutely correct. There was definitely an increase in revenues driven by the volumes and volatility that we saw and that has.

Come back and stabilize somewhat so as we noted that do expect.

Revenues to come down as we move into Q2.

I guess I would say with the combination of we then and now Sandler coming and.

While they're not at Q1 levels. There there has been a build from what we have seen called the second to second half of 19 as we had integrated we didn't end so nothing can be some color but.

How I think about the equity side.

On the fixed income side, obviously, a much more significant any impact from the integration with and that combination with sandler very strong fixed income business and that probably makes a little more difficult on that side.

One way to think about that business and as you noted some marks on portfolio on from trading losses that we did take there given the massive dislocation the speed of that dislocation in the municipal market.

We just think about it is that the losses that we did take offset a meaningful portion of that upside that we saw coming in from increased.

Activity with clients can driven by volatility and.

All of the dislocation that happened.

So going forward, we do see.

As market settling a little bit we still see really solid.

Client activity I would say, especially on the municipal side, but that has come in somewhat at the same time, we don't expect going forward that we would see that level of trading losses as we move into Q2. So there's a there's a bit of a balance there, yes, David I would yeah I would just that.

Obviously on sand there is part of the business Theres, no sort of inventory and capital use so very strong.

Q1, and frankly both.

Both parts of the fixed income business, the muni business and the Sandler.

You know working with the banks and financial institutions is off to a good start in April so while I think equities will moderate moderate with less volatility and volumes a little more in a we actually expect continued strength.

In fixed income into Q2 and probably longer here.

And that and maybe got terrific I would just add on there too as Ken noted and actually 10 noted and comments earlier around the reduction of inventory and and I'm sure you recall at the strategy. We really started last year to reduce risk on that side of the business reduce capital use really in line with our vision.

Being more advisory and shifting to really advice and strategic.

Advisory business around client verticals and I would say this quarter, both with the bringing the Sandler came onboard and their historical way of doing fixed income business without capital. We're learning a lot from that and thank the volatility in the market has that increased our desire to really focus.

Any inventory had on what's really needed for client business.

Great.

Helpful color, maybe to pivot again here today debt underwriting.

Finance.

Municipal financing.

Part of the business rates of obviously pulled back pretty substantially in abruptly and if you're trying to think about the outlook there the tax reform.

You change the ability to kind of advance or refinance.

And so trying to think about some of the push goals in terms of funding needs and whether this is actually going to be better environment once market settled down a little bit.

For activity, there just with where rates are.

Color would be helpful.

Yes, 70, we'd have seen issue and start to pick up in April from March, but clearly not where we were before and there is definitely appears policies speak to it and I would say, even a different sectors and being able to take advantage of what's available in the marketplace today.

We're seeing the higher quality government paper pricing and then we would have been good pipeline there you're seeing.

I think overall.

Recent demand for that in the marketplace.

Relative to rate.

Especially some of the business, we do is on the taxable side as well.

Okay.

These entities and Theres.

A little bit of pressure there in terms of the ability to get refinancing done at the levels we're seeing.

No that Matt as I think about this business going forward, you're going to have some credit concerns, especially in some of the larger.

States or specialty areas and in areas like our middle market business smaller cities school districts that rely more on property taxes as the tax base is a little more stability there.

So net net were cautiously optimistic on the market overall, but if I think about where the business was last year versus this year that there's probably.

Some drop in overall market issuance more so than anything we're really trying to understand the depth of the buyer base out there.

Right Okay.

And maybe last one for Tim just on expenses, So I heard the commentary on the comp ratio and appreciate that.

Revenue outlooks, maybe a bit more clouded in more challenge today.

Heading into the year.

So I guess I'm just trying to think about the first quarter accrual is that you are the best expectation for the year. So we should assume that.

You something in this type of range is reasonable as a run rate.

Sure.

These are conservatism there just given the uncertainty if you're trying to think about how you guys contemplated.

Where the comp ratio was set for the quarter implications of that and then on I guess Noncompensation you any.

Thoughts around.

Levers within that that you would maybe pull a year or just assuming that there would be lower in the near term just given lower teeny. So just any other things should think about both on competition among compensation, Yes, Devon, let me take that so from a comp perspective.

I actually think over the next couple of quarters as I noted, we'll likely see some some elevated rate versus our our stated range.

But I, probably think about it a little bit in terms of what our range has been sort of 62 to 63 and where we were for Q1 that we may end up somewhere.

Somewhere in between there.

Maybe a little bit higher there in the next quarter or two and then it moderates back down towards our more normal range of later in the year as we would expect maybe to see a little bit more.

Bounce back from a revenue perspective.

Certainly in the first quarter was impacted as well by by the merchant banking marks and some of the fixed income losses. The depth talked about we would have been sort of in our guided range.

In Q1 with without those but the next couple of quarters, it's it's going to be a little bit higher but I wouldn't expect it.

Any more than where we work coupon.

And then I think.

From a non comp perspective, yes, I do think I mean, there's a couple of pieces to that one is certainly the.

Just overall slowdown in business activity.

And some of those variable type expenses related to travel and those types of things that will will likely bring non comps down over the next couple of quarters. I mean, there's some other things that you know that we have looked at.

In terms of trying to.

Yes.

You know that wouldn't have as much impact from a business perspective, and we will consider some of those things, but I think over the next quarter or too.

Versus where we were in Q1, you can see sort of non comps down another 10% or so based on based on those factors.

Yes.

Great. Appreciate you guys take all the questions and we'll talk soon.

Thank you.

Your next question comes from Mike Grondahl with Northland Securities. Your line is open.

Yes, good morning glad to hear all you guys are well.

So maybe just one follow up in terms of the M&A environment.

Yes, what do you kind of looking for to get a sense for if its thawing or if we're going to get a turn here what are some things we could watch your hope for.

Yeah, Yeah, and I think.

That's probably the the hardest question of all in and I always just got to remind people when we say advisory services.

M&A as a piece of that but so is the restructuring so as balance sheet advisory. So as you know DCM advisory. So is private placements for equity. So is rescue financing. So M&A is a piece of that total advisory. It's a it's a it's a large piece, but some of those other factors will offset the drop off.

In pure M&A like I said worst where we've actually continued to see an April decent run rate of closings and Weve got visibility into May and June.

What is harder to predict is just the traditional sell side M&A process, where we're working with the company and we're going to launch those sales to private equity.

For us to do that and advised decline, we're going to want to make sure. We can get good client outcomes and hit the expectations and I think for that that's just going to come from conversations with private equity clients. We will we will host.

Fireside chats will sort of know where we're going to be with those.

Processes and we certainly haven't started to launch many of those obviously, if we continue to see the improvements we've seen in the capital markets. We would hope by you know later this summer that we would.

Some of those and see an impact towards the end of Q3 in Q4 in our results, but that have all the questions. That's the toughest to predict.

Got it.

Well good luck I think a lot of my other questions were asked and answered. So thank you guys.

Thank you.

Your next question comes from Michael Brown with KBW. Your line is open.

Thank you operator.

Hi, Good morning, Chad Deb.

Thank you.

Good good.

Yes, or most of my questions have been been covered but I'd like to ask about the dividends.

So I was hoping to get a little bit more color. There I guess why make the decision to reduce the dividend now just given the fact that you did have good results. This quarter. So it's kind of interested to hear more about timing and then.

If the environments or your results actually turn out to be.

A little bit better.

Kind of currently expecting.

Do you anticipate bringing the dividend back up to say prior quarter levels.

Essentially implying that it's kind of a temporary change or is this kind of lower level. The right run rate for you guys going forward. Thanks.

Yeah, you, obviously there is no perfect.

Science to this question I think what we were trying to do is just being a balanced and prudent and conservative you know relative to a capital positions and maybe just as a reminder, we really view excess capital in a few ways, we really would we like to investing growth and new franchise.

It's an opportunity and I would just to remind people. We we had for years significant excess capital. Obviously, we used some of that excess capital with Sandler we used some of that excess capital with lead and with valence. So we continue to use cash in.

In that way, obviously, we can't find enough ways to put that capital to work. So we instituted the dividend and I would say, we're still very committed to that dividend policy.

And that dividend policy gives us some flexibility to make it up at the end again, our dividend policy is 30% to 50% of earning and we would expect to be in that range.

Maybe relative to that range, just given all of our acquisition activity.

We'd be towards the bottom end of that but we do expect to continue to pay the dividend and use that policy and then you know we've also sort of had the third level, which is being opportunistic on buybacks and we'll continue to to balance that so.

For US again, there wasn't perfect science around it we were trying to be conservative and we'll we'll evaluate that each quarter.

Okay. Thank you for the clarification on that Chuck.

That's it for me thanks for taking my question.

Q.

There are no further questions at this time I will now turn the call back over to the presenters for closing remarks.

Okay. Thanks to everyone. We look forward to updating you again next quarter stay safe and be well. Thanks again.

This concludes today's conference call. Thank you for your participation you may now disconnect.

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