Q4 2020 Evercore Inc Earnings Call
[music].
Good morning, ladies and gentlemen, thank you for standing by and welcome to the Evercore fourth quarter and full year, 'twenty and 'twenty financial results Conference call.
Today's presentation, all parties will be in a listen only mode.
Following the presentation. The conference call will be opened for questions. If you have a question. Please press the star followed by the one on you touched on telephone. Please press star zero for operator assistance at any time.
All participants using speaker equipment and may be necessary to pick up your handset before making a selection. This conference call is being recorded today Wednesday February three 2021.
I'd now like to turn the conference call over to your host Evercore as head of Investor Relations Hallie Miller. Please go ahead ma'am.
Thank you Joelle and good morning, everyone and thank you for joining us today for Evercore fourth quarter and full year 2020 financial results conference call and Hallie Miller Evercore as head of Investor Relations and joining me today on the call are Ralph last night, and John Weinberg, Our co chairman and co Ceos and Bob Walsh our CFO.
After our prepared remarks, we will open up the call for questions earlier.
Earlier today, we issued a press release announcing evercore fourth quarter and full year, 'twenty and 'twenty financial results. The company's discussion of our results today and complementary to the press release, which is available on our website at Evercore Dot Com. This conference call is being webcast live and the for investors section of our website and an archive of it will be available for 30 days.
Beginning approximately one hour after the conclusion of this call.
I want to point out that during the course of this conference call. We may make a number of forward looking statements and.
These forward looking statements that we make including those about COVID-19, and its effect on our business are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially than those indicators and these statements.
Factors include but are not limited to those discussed and Evercore filings with the SEC, including our annual report on form 10-K quarterly reports on form 10-Q, and current reports on form 8-K.
Want to remind you that the company assumes no duty to update any forward looking statements.
And our presentation today, unless otherwise indicated we will be discussing adjusted financial measures, which are non-GAAP measures that we believe are meaningful when evaluating the company's performance for detailed disclosures on these measures and the GAAP reconciliations you should refer to the financial data contained within our press release, which is posted on our website we.
We continue to believe that it is important to evaluate evercore performance on an annual basis. As we have noted previously our results for any particular quarter are influenced by the timing of transaction closing I'll now turn the call over to Ralph.
Thank you very much Holly and good morning to everyone.
It's hard to believe that when we reported our 2019 and earnings at this time last year everything was quote unquote normal.
Our team was energized and ready for the <unk>.
And our expectations were for another strong year and many of the analysts and investors on this call we're probably looking forward earnings.
And Steve and attending Investor conferences and Miami.
The past 12 months, however have been anything but normal.
So please indulge me a brief review of the year.
When faced and mid March with two simultaneous crises, a global pandemic and the sharpest economic downturn and decades, our entire business and way of life.
Our clients needs changed rapidly and many of their strategic initiatives, particularly their M&A plans were placed on hold.
Corporate leaders and financial sponsors became focused almost exclusively on boss.
And controls, reducing capital spending increasing liquidity amending debt covenants and strengthening their balance sheets.
And while most previously committed M&A transactions were complete.
Strategic activity essentially stopped.
Later in the second quarter debt.
Fiscal and monetary stimulus and stabilize the debt and equity markets, we helped clients capitalize on the opportunity to build liquidity and.
And in certain cases to initiate large restructuring and recapitalization transactions.
<unk> balance sheet, and liquidity focused assignments, which drove demand for capital raising advice and execution and both the equity and debt markets dominated our advisory services and the second quarter and into the beginning of the third quarter.
And as the third quarter evolve strategic and M&A discussions began to resume.
Despite the sharp decline and M&A activity, which lasted several months starting the beginning of March our revenues were essentially flat year over year through the first nine months.
So how did this happen.
First over the last few years, we have made significant investments that have materially broaden the services that we can provide to our clients.
We acquired ISI, which materially enhanced our research underwriting and distribution capabilities and we.
We greatly strengthened our restructuring team by adding five new smbs globally.
Dramatically enhanced our equity underwriting team.
We enhanced our private capital raising capabilities for both sponsors and public and private companies.
We strengthened our debt advisory capabilities, we added the best activist defense and shareholder engagement team and our entire industry.
And we added best in class capabilities, and corporate restructuring split off spins.
Morris Trust reverse Morris Trust et cetera, and best in class capabilities, and spec capital raising and spec merger advice.
So first.
First nine months of 2020, we demonstrated that we have in place best in class capabilities to advise our clients and wisely buried and buyer.
And.
We demonstrated that our team has the talent and the entrepreneurial spirit to deploy these capabilities rapidly and support of our clients.
And the latter half of 2020, the M&A market began to recover meetings.
And U S M&A volume increased 92% and.
163%, respectively compared to the first half and the number of global and U S yields increased 18% and 16% respectively.
Still for the year M&A volume was down 4% growth.
And in the U S. The largest M&A market for all firms and for Evercore.
Particularly M&A volume was down 21%.
The recovery and M&A, coupled with continued momentum and the broader advisory capabilities that I just described.
Led to a spectacular fourth quarter by any measure and fueled the many records that we achieved as a firm in 2020.
The point of this review is simple.
And 2020, we prove that while M&A is still our largest source of revenue or capabilities to advise our clients and to be paid for that advice is much broader than many of our shareholders and many of our analysts and perhaps even we would have anticipated.
So while there clearly is some cyclicality and various parts of our business we.
We truly are very much at all whether firm that can advise clients on their most important strategic financial and capital needs and widely varied environments.
And a firm that can generate significant revenues by providing that advice to our clients and widely varied environments.
All the while sticking religiously to our fee only no capital risk business model.
As we begin 2021, M&A dialogues and strategic activity discussions are strong.
Growth companies continued to access the public markets for Capex.
Actual sponsors and other private businesses are seeking capital and acquisition and the private and public markets and institutional investors continue to value high quality research investment analysis and advice.
So as we enter 'twenty 'twenty, one and our momentum continues to be significant and <unk>.
All of our business.
The level of activity of our teams is high and our backlogs remain.
Very strong.
While there is certainly still our challenges related to the pandemic and the economy and.
And all of us at Evercore, most certainly have enormous empathy for those in our society, who have not been as fortunate as we have been we begin 2021 and a very strong position.
As we look forward, we continue to focus on long term and trusted relationships with both current and prospective clients determined to advise them on their most important strategic financial and capital decisions.
We are planning for our reach the eventual return to our offices globally with the health and safety of our team Paramount as we develop these plans we.
We are focused on maintaining our strong culture that is grounded in our core values and and collaboration both of which hugely important contributors to our many accomplishments in 2020.
We of course are actively pursuing opportunities to add talent strategically throughout the firm and we are optimistic about our ability to recruit this pal.
We see significant opportunities to continue to grow our business, both by expanding our coverage of key sectors and geographies and deepening our product capabilities and.
And we are committed to continuing to operate with financial discipline, delivering strong returns to our shareholders, while maintaining a strong and liquid balance sheet and resuming our historical approach of returning any excess capital to our shareholders through dividends and share repurchases.
Now turn to our financial results.
We achieved record fourth quarter and full year adjusted revenues adjusted operating income adjusted net income and adjusted EPS.
Driven by extremely strong revenue growth and good operating leverage.
Fourth quarter adjusted net revenues of $969 9 million grew 45% year over year and full year adjusted net revenues of $2 $3 3 billion grew 14% compared to 2019.
<unk> annual revenue.
Revenues in our history.
And fourth quarter advisory fees of $790 million grew 40% year over year and full year advisory fees of $1 76 billion grew 6% compared to 92019, and also where the highest and our history.
Based on current consensus estimates and actual results, we expect our number four ranking on advisory fees. Among all publicly traded investment banking firms and we also expect to grow our market share. Among these firms and importantly, our growth and 2020 combined with declining advice.
<unk> revenues at the three top.
Bulge bracket firms resulted in a nearly 50% reduction and the gap between us and the number three range firm and we narrowed the gap between Evercore and the number one and number two firms as well.
Fourth quarter underwriting fees of $95 million and full year underwriting fees of $276 2 million each more than tripled year over year.
This business experienced a true step up in 2020 and.
And large part due to the expansion of our capabilities that allowed us to work on a variety of assignments for our clients, including Ipos follow ons and convertibles specs and caps.
As well as the more prominent role we played and virtually all transactions with which we were involved.
Fourth quarter commissions and related fees of $52 $4 million increased 1% year over year and full year commissions and related fees of 205 8 million increased 9% compared to 2019.
Fourth quarter asset.
And administration fees of $20 1 million increased 20% year over year, and full year asset management and administration fees of $67 $2 million increased 11% compared to 2019.
Turning to expenses, our adjusted compensation rates for the fourth quarter was 52, 3% and for the full year is 58, 9%.
Fourth quarter non compensation costs of $85 $8 million declined 12% year over year and.
And full year non compensation costs of $316 7 million declined 10% versus 2000.
Fourth quarter, adjusted operating income and adjusted net income of $376 4 million and 277 4 million increased 110% and 113%, respectively and adjusted earnings per share of $5 67.
Increased 108% versus the fourth quarter of 2019.
Full year operating income and adjusted net income of $639 3 million and $459 6 million increased 28, and 23%, respectively and adjusted earnings per share of $9 62 <unk>.
<unk> increased 25% versus 2019.
We produced a full year operating adjusted operating margin of 27, 5% roughly 300 basis points of margin expense compared to 2019.
Finally, we remain committed to returning excess capital to our shareholders. Our board declared a <unk> 20, a dividend of <unk> 61 and.
We will resume our normal annual reset reassessment of that dividend and April we remain committed to offsetting the dilution of our upcoming bonus.
Hugh Grant and RSV grants to new hires through share buybacks and.
And we will resume our historical policy of returning excess earnings not reinvested in the business to our shareholders through dividends and share repurchases.
Bob will comment later on our GAAP results and provide additional detail on our balance sheet. Let me now turn the call over to John to discuss some of our achievements in 2020 and our opportunities for growth in 2021 and beyond.
Thank you John.
Thank you Ralph.
Results demonstrate clearly that we are a leader and virtually every business and which we participate and our strength and the fourth quarter in particular contributed significantly to the many records we set for the full year as a firm.
We sustained our number one league table ranking for volume of announced M&A transactions, both globally and in the U S. Among independent firms and 2020 and our advising on four of the 10.
Largest U S M&A transactions in 2020.
And the fourth quarter, we realized revenues for many assignments that we started earlier and the year.
And we participated in a number of announced transactions that will close and the future.
And this includes advising astrazeneca on its acquisition of Alexia, and which was announced and the fourth quarter and it's the largest health care deal and the largest cross border deals since the onset of the pandemic.
Our restructuring team ranked number two and the league tables for number of announced U S transactions and 2020.
We believe that our restructuring franchise is even stronger than the league table indicates due to our diversified business base of working with both debtor and creditor clients.
And as well as working on both in court and out of court restructurings or.
Our restructuring business can deliver service and advice far beyond the traditional chapter 11 bankruptcy advice and many companies called on Us and 2020 for our liability management and financing capabilities.
We believe activity levels.
Elevated as certain sectors and companies continue to slow and taxi and recovery from the pandemic induced downturn.
Our equity capital markets business performed exceptionally well and 2020 and we expect to continue to benefit from us.
Stained strong market for equity issuance, we continue to see strong results from our ongoing investment in this business.
Which has diversified our capabilities and has led to both fee paying events and and larger transactions.
In 2020, we participated in more than 100 equity and equity linked transactions that raised nearly 70 billion and total proceeds. Additionally.
Additionally, both sponsor and corporate clients increasingly have looked to evercore to play a significant role and their capital raising.
And we increased both the number of active book run and book run assignments in 2020, with our growth and active Brooklyn assignments outpacing our growth and book run assignments.
Our investments and stack capabilities have positioned us well to serve many new clients as they navigate this active market.
We are also encouraged by early results from our investment and convertible debt underwriting and sales and trading including our first ever sole book run convertible transaction that took place just last week.
Our capital Advisory group had a phenomenal year.
Our team advised and more than $30 billion of deals and GP and LP led transactions increased.
Increased significantly and the second half of the year and we continued to raise primary capital successfully towards these clients.
In fact, the team has an impressive virtual fundraising track record closing more funds virtually than anyone else and the industry. We continue to see broad growth opportunities and these areas.
And defense and shareholder advisory where campaigns were down in 2020, we continued to experience very strong demand for our market leading activist advisory practice, we advised on the defense of the largest U S. Hostile takeover attempt and successfully buys and the defense of two of the largest proxy sites.
Okay.
Activist activity continues to build as actavis increase their positions and companies.
And equities our team of top institutional investor ranked macro economic and fundamental analysts provided valuable insights to our clients throughout this falls of the year.
We also continued to make investments and our platform to support our ECM franchise, which enables us to execute at a very high level on a significant number of transactions with increasingly important roles.
Finally, our wealth management business grew AUM pass the 10 billion Mark for the first time in 2020 and provided important investment advice to clients and a challenging environment.
We are pleased with these many accomplishments yet we remain focused on continuing this momentum in 2021 and beyond let me now turn to discuss our opportunities for future growth.
Our expanded advisory and underwriting capabilities provide the foundation for our growth in the future and plenty of opportunity to grow remains.
We believe that there are two main elements to our future growth first further expanding our coverage model and second deepening and broadening our capabilities.
Our continued efforts with the Evercore 100, our program to expand service to targeted large cap nationals from multinationals.
Our dedicated coverage of financial sponsors and investing in talent to grow and areas of white space with the addition of a plus talent will all facilitate our expanded coverage model.
And there are many areas of untapped geographic and sector potential and we are actively seeking to add talent and those areas, where we believe we can deepen our coverage, including TMT Fintech pharma consumer.
Financial sponsors large cap multinationals and Europe.
We continue to have many conversations with talented professionals to strengthen these important areas of coverage.
While we were below our historical average of four to eight recruits annually in 2020.
As we pulled back from our group usual recruiting process due to the pandemic, we welcome to advisory Smt's to the Evercore to Evercore during the year. These additions enhanced our advisory capabilities and complex large cap corporate realignment.
And our capital markets business.
We look forward to additional talent announcements in 2021, as we resume a more normalized recruiting process.
Equally important to recruiting externally is our focus on long term commitment to attracting and recruiting and mentoring talented junior individuals' and promoting from within.
These individuals' contribute to <unk>, but to our ability.
To be self sustaining firm.
We are pleased to announce that we promoted three <unk>.
Managing directors to senior managing director and January strengthening our advisory coverage of health care and restructuring and our equities coverage of health care services and technology.
Deepening and broadening our capabilities the second element of our growth plan further enables our bankers to collaborate with others across the firm to meet the strategic financial and capital needs of our clients.
And excellent example of this was and merger deal announced this morning, where jazz pharma bought GW pharma.
And a $7 2 billion dollar deal.
Evercore acted as lead financial advisor.
And the sole debt adviser to this transaction in addition people from.
And M&A and advisory as well as equity capital markets and hedging all contributed to the advice.
We continue to focus on broadening and diversifying our capabilities. So that we can deepen client relationships participates in a broader range of activities and earn a greater share of fees that clients pay to their adviser on any given transaction we.
We are pleased to welcome.
First advisory SMT higher of 2021, our new head of equity capital markets Christy Griffith.
We've built a truly world class ECM underwriting and advisory business and we are excited to have Christie join us to lead this business to its next stage of growth.
Our 2020 results demonstrate that the breadth and diversity of our capabilities drive deeper relationships with clients and helps with building new client relationships.
Our investments and both the stack and convertible markets are just two recent examples of investments that have enabled new opportunities to advise clients.
We believe that significant opportunities remain to provide additional services to our current client base and to attract new clients.
Our broader capabilities have supported our industry, leading advisory at some day productivity, we anticipate that as these capabilities become more broadly use utilized by our clients and our P share increases our market, leading productivity will be sustained or even enhance.
Before I turn the call over to Bob to go over our GAAP financials, and discuss our balance sheet I want to acknowledge our exceptional team across the board and.
Advisory equities wealth management and the corporate group.
The results and achievements that Ralph and I have summarized could not have happened without the dedication and teamwork collaboration and commitment that our people demonstrated throughout one of the most uniquely challenging years many of us have ever experienced.
We are deeply grateful for their extraordinary effort.
Now let me pass.
Call over to Bob.
Thank you John and good morning to all.
Let's kick off with our GAAP results for the fourth quarter of 2020, and net revenues net income and earnings per share on a GAAP basis were $927 million 220 million and $5 and two respectively for.
For the full year net revenues net income and earnings per share on a GAAP basis were $2 3 billion a three.
$351 million and $8 22, respectively.
And that's been the case historically, our adjusted results exclude certain items related to the realignment strategy that began in the fourth quarter of 2019 and which.
And was completed and the fourth quarter and <unk> 20 in total we incurred separation and transition benefits and related costs of approximately $45 million, which reflect a modest increase and the costs from our prior estimate of $43 million.
During the fourth quarter of 2020, we recorded approximately $4 million and special charges, which are excluded from our adjusted results.
And the fourth quarter, we completed the sale of our broker dealer business in Mexico to its management team and we completed the transition of our advisory business in Mexico to a strategic alliance with Tech team.
<unk> performed strategic advisory firm founded by the former leaders of our advisory business. There. There was a loss of approximately $31 million for the year included and other revenue that is related to our transition and Mexico.
Our adjusted results for the fourth quarter and full year 2020 also exclude special charges of $1 $3 million and $3 3 million, respectively related to accelerated depreciation expense and $1 7 million related to the impairment of assets, resulting from the wind down of our Mexico business.
Turning to taxes, our GAAP tax rate for the fourth quarter was 43, 2% compared to 21, 7% and the prior year period, our GAAP tax rate for the full year was 23, 7% compared to 21, 2% and the prior year period.
And on a GAAP basis.
And what was $43 9 million.
And before the fourth quarter and $42 6 million for the full year.
Our share count for adjusted earnings per share was $48 9 million for the fourth quarter.
And $47 8 million for the full year.
Firm wide non compensation costs per employee were approximately $47000 for the fourth quarter and.
And there was a 72000 and for the full year.
Each down nine and 11% on a year over year basis, respectively.
The decrease and non compensation costs per employee versus last year, primarily reflects lower travel and related expenses as we continue to evolve towards more normal operations and costs associated with travel recruiting and other expenses will begin to increase.
And finally, focusing on our balance sheet.
Our strong balance sheet are strong year and balance sheet reflects the strength and momentum of the recovery and the latter part of the year.
As of December 31, we held approximately $830 million in cash and cash equivalents and $1 1 billion and investment securities and there's always the case at this time of year, a meaningful portion of our liquidity will be used to fund upcoming cash bonus payments payments related to prior year deferred compensation Award.
But I was asked and currently taxed.
Tax obligations related to compensation awards, including related to the net settlement of restricted stock units are the best and the first quarter.
Longer term, we are holding investment securities to fund payment obligations relating to deferred compensation awards that will vest and the future and to meet and liquidity and regulatory capital requirements.
As of December 31st we have made commitments to pay more than $450 million related to future cash payment obligations under our long term deferred compensation programs and.
These payment obligations exist at various states through 'twenty and 'twenty four.
These statements are of course subject to satisfaction of established divesting requirements.
This number will change and the first quarter as part of awards will vest and be paid out.
It would be paid out of new awards relating to 2020 compensation will be glad to.
The actions taken in 'twenty, and 'twenty and strengthen our balance sheet significantly and as Ralph and John have noted has put us in a position to withdraw and free cash earnings generated from operations.
So investors consistent with past practice.
I would now like to open the line for questions operator.
Thank you say and we will now begin the question and answer session. As a reminder, if you have a question. Please press the star followed by the one can you touch on zone. If he would like to withdraw your question press the pound key.
And you're using speaker equipment, you may need to lift the handset before making your selection.
Our first question comes from the line and maintenance <unk> with Morgan Stanley. Your line is now open.
Yeah.
Hi, good morning.
And clearly a very strong quarter here.
If I can dig into the M&A environment, a little bit.
Appreciate all the color on the near term strength, but.
But can you give us what percentage of deals completed this quarter what dose.
And that will put on hold and pre COVID-19 and.
And what percentage of sales went through and accelerated fashion and this quarter that maybe would have taken two to three quarters to complete.
Yeah.
Sure let me start.
We think that a significant portion and we havent really studied and exactly how many but a significant portion.
Began but what I would say and I think that's important is that we felt the activity level continue to warm up and as you saw things started to percolate and the third quarter and things continued with a very positive and environment and the fourth quarter.
We have found that our activity level is quite strong now.
Reflecting on the continuing improvement from the fourth quarter and so what I would say is there was a there's a there's a.
Significant percentage that started earlier and the year.
But to give you a sense, we feel that the activity level right now is quite strong and we feel very good about the types of dialogues, we're having and really the interest and our of our clients about thinking strategically.
Got it.
And maybe on the pretax margin front.
This quarter and this year and show that you can go well above the 25% pre tax margin and a and a strong revenue environment.
And I was wondering if the environment holds here and we are their startup and your M&A cycle is.
Any reason why you might not necessarily get back up to the 28% plus pre tax margins that you saw back in 2018.
Sure.
And any investments that youre looking to make that are.
Higher than the current run rate or any headwinds that we should be considering.
Well.
I think we've always said that we expect to be able to run our business at 25% plus margins and normal environments.
This year was a little abnormal.
Obviously benefited.
Somewhat from.
Lower travel and entertainment activity.
But we.
We genuinely feel that.
We can run our business and with our.
Hi, <unk> comp ratios 50, 859%.
And non comp ratios and the.
15% to 17%.
Range and as I said, it's a little lower and this year because of that.
Lack of travel and entertainment and lower travel and entertainment.
Expense.
Don't think we will ever set a specific target.
The one year.
And question because there's so many variables and any given year.
And of course, we always reserve.
Right.
And because it's good for our long.
Long term value creation.
To make.
Significant.
Investments in people, if we get the opportunity to do that and that of course could cause.
A temporary.
Uh huh.
Bump or a blip in the compensation ratio above that.
Target that I articulated earlier in my comments.
Great. Thank you.
Thank you and next question comes from Devin Ryan with JMP Securities. Your line is now open.
Okay, great good morning, everyone.
And again.
Maybe just to follow up a bit on.
The first question, there and talk a little bit more about the outlook. So I heard the word very and front of strong and the backlog comment.
Which I know you guys are very thoughtful about how you frame things and so I want to talk little bit more about the handoff between M&A and some of the other.
Advisory businesses and really just you know is M&A is accelerating after what seemed like a fantastic year for restructuring and then some of the other ancillary advisory businesses kind of re accelerating.
And you're just trying to think about putting that all together and and also what that implies.
For productivity because the M&A piece is kind of historically the biggest individual piece and seems like that's improving the most but you still feel like you have momentum and some of these other areas. So just trying to think about some of the puts and takes there.
Sure.
Let me just start by saying that what we've seen in the latter half of 2020 is that theres been a pickup and a constant pickup and the merger business and so as we as we have articulated we feel good about the fact that that activity level is is actually in a in a good.
And we're seeing a lot of a lot of clients really reaching out and wanting to talk about strategic situations. You also saw and and we've articulated that many of our businesses.
Whether that's equity capital markets or whether its debt advisory.
Or whether it's been private capital advisory have all actually seen.
Wrong activity levels into the fourth quarter and so as a result, we really believe that we've got.
And we've got some momentum to our business and that I think is what youre trying to get your hands around which is how does that how does that play and clearly we're not going to project or give you any forward comments about really where we're going to end up but I would just say that we feel good about that activity level one of our very very.
Very strong engines, and we've talked about this and our comments as our restructuring business and we would we were very very proud of their performance. This year, having said that given the environment that we're looking at right now where credit is available.
<unk>.
And you know theres lots of cash in the market.
We would say that it would be very difficult for that business to equal its activity level. This year versus last year. So there will be tradeoffs and our business, but what we have articulated and I think Ralph said, it well and our comments is we have we have a we have really been able to diversify our capabilities and really.
And the services that we provide clients and we hope that that breadth of offerings for our clients will allow us to continue to grow into the future and that's really the concept that we're that we're pursuing right now which is more capabilities more applicability to client issues and objectives and.
And then also continuing to add people and hopefully those together will will keep us moving forward.
Yeah, I would just add on sales.
Kevin I would just add debt.
And the.
First.
And three calls.
2021st three earnings calls.
Ted.
<unk>.
With the pause and M&A, which is our largest business.
We expected.
Strength in underwriting and commissions and checks and and restructuring.
But we werent sure that they were.
Sufficient to offset the pause and and M&A and it turned out as I said in my opening remarks.
For the first nine months of the year, we were exactly flat and revenues versus 2019.
So those other activities.
The completion of some transactions that had been announced before the pandemic.
Allowed us to remain flat and the fourth quarter.
M&A had already had started to pick up.
And the others. The other businesses were still strong so we have the perfect.
Positive storm in the fourth quarter, where all of our businesses performed.
Extremely well.
Would urge you not to annualize our fourth quarter revenues and.
And putting together your models work.
2021.
But I would say as John indicated.
Net.
Having.
And quite positive momentum in our <unk>.
Larger revenue advisory business.
It is certainly helpful.
Continuing the momentum of our business.
Okay terrific.
Thank you and then maybe just a follow up here on.
Can you just just trying for the model to think about.
The trajectory of.
Non compensation costs and kind of return to work and travel.
You bet.
If it's over the course of 2020.
And do you guys have a good sense around kind of the the.
And the acceleration you know it seems like maybe the first quarter will remain light, but as we get further into maybe the middle of this year.
And I could step up materially I'm, just trying to think about some of the puts and takes as you had some.
Tailwind to expenses that were unusual this year that may reverse but then.
Obviously, continuing to invest and the platform as well so just any help there would be appreciated.
And we like Bob start with that and then John.
And are I'll add something.
As I and I think all of us and in our remarks.
And we're anxious to get back to the office.
And and sort of concurrent with that we do anticipate a pickup and travel.
And it kit will be measured.
During the course of the year in our view it wont be but about lights at everybody back to 2019 levels.
So, we'll say getting back to the important getting back to the office Devin.
It's important for us in terms of our culture and.
And bringing people together so.
The cost per head, which is the case statistic for us.
We anticipate it will go up perhaps in a more measured way and.
And you did pick on on one cost driver, which net net is a positive.
Which is.
We anticipate sort of back to normal recruiting, which you'll have somewhat some upward pressure to professional fees.
I would just add.
None of us.
Know with any certainty.
Net.
What.
Normalized travel.
Travel will be post pandemic and when we have.
Everybody vaccinated.
And.
And people feel safe again.
And my own view is it's not going to go back to what it was.
Because I think we've all learned.
And that certain things that.
We're done face to face.
Including.
Negotiation of transactions et cetera et cetera.
And can be done quite effectively.
Over video call.
On the other hand.
Making a new business called and developing a relationship with a client.
And definitely more challenging to do electronically and it is in person and I suspect once.
<unk>.
It is safe.
And to travel again.
Our our bankers and bank and every other firm and on Wall Street.
Will.
Resume those types of activities and.
Fairly short order.
Whether that turns out to be.
75% of our pre Covid.
Numbers are 80% or so.
70% or 85% I don't think anybody really knows.
But it'll be less.
Great.
Okay terrific.
I'll leave it there, but I appreciate the time guys and congrats on the great year.
Thank you.
Thank you. Our next question comes from Michael Brown with <unk>. Your line is now open.
Great Hi, good morning.
Good morning so.
I just wanted to start maybe with the restructuring would it be possible for you to try and provide the contribution from restructuring related activities and in the fourth quarter and as we think about kind of a full year 2020, even just kind of approximate estimate and so we can.
Think about that piece.
Piece of the revenue pie and and how that and then any thoughts on how that could.
Trend out and into 2021 and you really are.
Lot left and the Covid related pipeline or is that is that mostly complete at this point.
As you know we never break out the.
The individual.
Label of our advisory activities and it and it's by the way, it's not because we don't want to be transparent it's really because.
It's not easy.
Z to categorize.
Yeah.
Restructuring versus.
Debt advisory versus.
Balance sheet.
And repair.
And so.
And we won't answer that question not because we are.
Truck truculent or.
Difficult.
Because we really don't know habit.
And I break this down and a way that would be.
Accurate.
And we're public.
Porting.
What we will say is that the.
The.
Amount of revenue that are struck and restructuring.
Partners touch this year.
<unk> was higher than historical.
<unk> levels.
And we would expect that in 2021.
It'll still be.
Very good.
As long as the markets are as strong as they are right now.
And would expect that it would not be.
Hi.
As it.
Was in 'twenty and 'twenty.
Having said that as John said earlier.
Our.
Large business by far.
Comes from strategic and M&A advice.
And that has.
You know very strong momentum.
Now and.
And I think we'd all be surprised if our revenues from that area.
Our advisory business, which is the largest.
You know.
Be stronger in 2021, and then it was from 2020.
I'd just like to add one thing, which is and this will not directly answering your question, but maybe it'll give you a little bit of a sense for how we think about our businesses culturally and that is that our restructuring business has some truly outstanding financier Senate and what we always do when we're serving clients.
And and and and acting to give advice on their objective is we bring parts of the firm that can add value and so our activity level with respect to our restructuring business is not just dependent on bankruptcies per se, but there's a tremendous amount of of advice and value add that they bring to.
Really some of the general business that we do giving clients advice, whether it's in terms of thinking about their balance sheets or whether it's thinking about how to finance merger and they get very involved with us and so one of the things that debt. We have is real flex because our professionals really work hard to partner together and two.
Really gang tackle the problems of our clients and so hopefully.
What you will see at the firm over time is this the partnership allowing us to get real leverage in our system.
Okay, Great that's helpful color.
I wanted to change gears, given your equities franchise and ask.
How about a topic that is kind of and all over the news and the past week and a half or so which is these impact and some of these read it or me and stocks. If you will can you speak to the puts and takes of that volatility.
Across your equities franchise and at this point it seems like the worst and the volatility and the Delevering appears to be behind us, but do you I guess, one thing that would be interesting to hear about is do you think some of that.
And market related volatility and could impact some of the ECM issuance volumes or do you think it'll just continue ex kind of business as usual.
Well first of all I think.
Uh huh.
We're really not.
Touched.
And any meaningful way by this volatility because it's.
It's driven.
Uh huh.
Almost exclusively if not exclusively by individual investors and our equity business is connectivity is all with.
Uh huh.
Institutional clients so.
In terms of its effect on our revenues.
Really.
And consequential.
I do think debt.
You know as a general matter.
The kinds of and.
And the dual stock moves.
And that we have.
Pad and reach.
<unk> days.
Are.
They're not the best day or markets in general.
Because they.
Our.
Indicative of.
The supply and demand and certain spot and certain stocks.
Allowing the trading.
Trading value of our.
Overstock to depart fairly consequentially.
From the.
Fundamental earnings power and.
Prospects and the stock and I think we've seen.
Some of that and the last.
Handful of weeks.
I think those sorts of things are.
I think never really good to see and the stock market because they.
Generally and badly and very often badly for.
Individual investors not.
And the large institutions, who.
You now have.
The wherewithal to withstand.
And that kind of volatility.
Volatility, so I'm not happy to see it.
But I don't have an easy prescription for.
Addressing.
Okay.
Okay, great. Thanks, I appreciate the commentary on this topic.
Thank you. Our next question comes from Richard Ramsden with Goldman Sachs. Your line is now open.
Good morning, guys. So a couple of questions from me could we talk a little bit about the underwriting business I mean, that's obviously become a significant business for you.
When you think longer term.
What do you think is a realistic market share.
Within ECM and maybe you could also talk on the about the debt advisory business as well and took a little bit again about what you think is a realistic market share that you could get maybe over a three to five year period.
Global revenue pool and those businesses.
Okay, Let me talk about the underwriting business first and I look at our underwriting business.
And at the beginning of 'twenty 'twenty one.
Uh huh.
And sort of the same way that I would have looked at our advisory business in 2015 or 2016.
And what I mean by that is.
I think we have.
Pretty consequential.
Market share gains ahead of us.
I think last year was clearly a breakout year.
Where we are.
Both.
Expanded.
The.
Number of the types of things that we do with clients.
And it and adding convertible capability and spec capability and cap capability.
In addition to Ipos and follow ons.
We benefited from that we benefited from the fact that a much broader group of our.
Highly entrepreneurial bankers.
Participated.
Much broader industries were involved and thirdly, we benefited from the fact that.
Our average.
Sure.
And <unk>.
And any image and the transactions collectively with which we were involved went up.
And I think as a general matter.
We will continue to benefit from those three things and they will.
Cause us to continue to gain market share now that revenues in any business, whether it was advisory and 15 16 17 18.
And or equities go into equity underwriting going forward.
Function of two things the aggregate level of activity and our market share.
I think John and I feel.
Very confident that our market share.
And we'll continue to grow and that we are.
We're not and the seventh eighth or ninth inning.
Our success and that business, what we don't know is what.
What will be the aggregate level activity, although we certainly know that.
The beginning of the year started out.
Very strongly with respect to debt advisory.
And I wouldn't even know how to answer that question because.
No publicly available data.
On that and I will say, it's a it's a business that you know.
Only the independent firms can be and because your.
Youre basically helping clients interface with.
And capital providers, many of whom and why and the larger firms.
And it's a.
Business that I think all of the independent firms would say that theyre in.
And there's no data at all and market share. So I really couldn't even begin to answer that question.
And Richard.
And I have.
I was just kind of add something Richard and that is debt.
And as we have continued to add eight plus type talent.
What we are finding is that clients increasingly want the services with respect to our financing judgment and how we how we can help them think through things on the equity side, obviously, it ends up and we take larger and larger roles as Ralph said and financing, but also in terms of helping them think strategically about.
How to think about those strategic financing and on the debt side. It's the same thing which is debt.
We because we have a very respected group of people doing this and are able to have really high quality advice and.
Creasing Lee, we're able to get into positions, where we are adding real value added advice and that ends up translating into higher fees and so we think there's a lot of white space in front of us because we don't see and end to the opportunities in terms of giving really high quality sites.
And a lot of the transaction and two a lot of the companies that we've been associated with.
Okay. That's helpful. So the second thing I wanted to ask about is post the election corporate tax reform looks like it could be a possibility again, if we do get some sort of corporate tax reform either later on this year or maybe in 2022 do you think that would have a material impact from the business.
Either positively or negatively I guess, obviously the advisory business in particular.
Not really.
And the.
And his campaign.
President and <unk>.
And then candidate and buy.
Uh huh.
Argued or pad as part of his plan a and.
A return and increase and the corporate tax rate from 21% from 28%.
And it's not clear by the way.
A split Congress as we have that any of his tax plan tool will make it through.
But even if he did achieve.
All of that which.
Quite skeptical about.
The way I O and I think about that as debt.
And that 21% tax rate.
79% of every dollar of earnings.
It goes to shareholders and a 28% tax rate.
It's 72%.
So that's a you know and Dick.
Klein.
And earnings of.
Less than 10% if it goes to 25%, which I personally think it would be more likely if we get any increase at all and it's a.
The decline in <unk>.
Earnings of five percentage points so.
Yeah, it's not nothing but it's not that big a deal.
Okay.
And my view.
Because that's great and then my last question is you talked about a strong pipeline full recruiting advisors, how would you characterize the recruiting environment today and it's obviously this is a great environment for you. It's obviously a great environment.
And for your peers as well would you say that the recruiting environment as rational today in terms of what people are willing to pay for talent.
Uh huh.
I can't really I can't really make a judgment on what people are willing to pay for talent, but what I can give adjustment on is how our discussions and negotiations are going and in general I think that we've found success and finding people, who really like our model and like.
And are drawn to our firm and our culture and we think that that has really afforded us the opportunity to talk to some real a plus talent and.
As we've said to you and we continue to feel like there is real opportunity to pick up more talent, who want to join.
In terms of the.
And the rational cost of it I don't think we have found that it is out of out.
Out of bounds of what we've seen in the past I think what really happens as people look at the opportunity they have at a firm and they make a judgment as to whether this is a firm they want to be with whether they like one has joined the team and then whether they can they can realize their their financial growth by being there and and.
And our experience is that debt in fact, we've had no problem in getting people to come over with reasonable terms and in fact, I think a lot of people are looking at our platform and believe the momentum off the platform and we're making that judgment that they love being a part of an organization that has momentum but also they realize that they have.
And do quite well because the firm continues to have the momentum and has access to client and transaction situations that are quite attractive.
And Richard I would just add one thing and that is.
And it reinforced by.
Our performance this year.
John and I are.
And can consistently did.
And in front of us.
Anyone with whom we're having discussions whether they're coming from a large firm.
Full service firm or from another independent firm.
And without any.
Uh huh.
Pushback from the people we're recruiting we can in arguably say to them that if they come to an independent firm.
They can do more business with their clients.
At Evercore and they can at any other firm.
And industry, where.
And we're the only independent and we're the only independent firm that has equity underwriting capability and we're the only independent firm that has a world class.
Activist defense and shareholder engagement.
Practice.
The only independent firm, who is the leading expert and corporate.
And structure.
Splits spins Morris Trust reverse Morris Trust.
Et cetera, and we're strong and everything else that you would find and an independent firm. So the reality is and one of the big draws from our firm as debt.
And that <unk>.
Bankers can can do.
And be involved in anything that they would have been involved and at their old firm.
Sometimes it goes and advisor like debt advisory is do it.
And extender of debt, but in many cases exactly as they would've done.
At a large firm and that's certainly true for example, and of the equity underwriting business.
Okay. Thank you very much that's very helpful.
Thank you and next question comes from Brennan Hawken with UBS. Your line is now open.
Good morning, Thanks for taking my questions actually first question is going to be a follow up.
And on that last line of questioning on recruiting.
This year or in 'twenty, sorry, I should say in 2020.
And the decision by a lot of it both bracket competitors two showed some comp leverage.
For the benefit of shareholders not not maintain the traditional relationship and between revenues and comp.
Do you have you seen.
Or do you expect that to have any kind of impact on the opportunity set.
For you on the recruiting front. This year has that made you a little bit more bullish.
And.
Is it actually translated into any discussions yet or would that just be expectation.
Yeah.
Brian and I think the.
The what's happened and.
And the large firms.
Not exactly what you just outlined.
I think what happened and the large firms is.
The return that they've gotten on their capital.
Has been extraordinary last year.
And that allows them to.
Hey, there people well.
And to pay their shareholders well and.
As.
Compensation ratios that have.
And so the appearance of the.
And more.
A more disciplined.
And that those that those results are and my view.
Almost 100%.
We're 100% a result of the extraordinary.
Revenue and return from the capital that they deployed.
And therefore, we really have not seen.
Any effect on.
The compensation.
Individual bankers with maybe the exception of one or two.
Firms for the most part.
Bankers that we.
We pursue.
And I often characterized as the high ROE bankers, who can generate revenue without necessarily being dependent on the balance sheet.
You know those people were compensated.
Well last year as they have been historically.
Okay. Thanks for thanks for that and.
And then.
The momentum and in.
ISI as it's really impressive so.
And I'm in search of a new pet project here with you guys at Evercore. So.
And you guys thought about strategic alternatives for the wealth and asset management business.
And.
It seems as though that's just sort of small.
And at this point, it's like low.
Single digit type percentage of operating income for you all.
Why not.
Consider strategic alternatives given the popularity of of M&A in that space and use the capital to either.
Turned to shareholders via buybacks or find more hiring.
Well.
First of all Brent and I really appreciate you taking on a new pad project.
[laughter].
Yeah look we.
I think of the.
Businesses that we own and wealth managers are in asset management.
At this 0.1 of them is consolidated that's our wealth management business.
And I think we do see.
Some.
And I hate this word synergy between.
People moving out.
And when we sell a business well it comes in and.
And sometimes we're able to turn those people into wealth management clients and sometimes.
And if management clients out of and advisory.
Opportunities as well.
And the deconsolidation businesses.
You know that are accounted for and the equity method are essentially.
Investments.
At this point and.
And we always look at those from.
From the point of view.
Are they.
More valuable to someone else than they are to us.
The only thing what I would like to add is that right.
The Evercore wealth management group is performing extremely well and we're really pleased with how they're executing their business and serving their clients and feel very very good about their performance there there opportunities ahead.
And remain very committed to them.
Okay. Thanks for the color.
Thank you. Our next question comes from Jeff Harte with Piper Sandler Your line is now open.
Hey, good morning, guys.
A couple of I guess kind of cleanup questions.
Can you give us the SMT and employee count at year end.
Yes.
Kathy.
Senior managing directors.
Collecting.
A bunch of changes that we've disclosed.
So really as of today as opposed to rise of Euro and is 107.
And the total head count for the firm is about 18.
Okay and were there any pull forward of revenues and meaningful pull forward of revenues from deals that closed and <unk> back into <unk>.
I'll, let you decide on meaningful.
<unk> of this year was.
More than $32 million.
That compares with <unk> last year or a bit more than 33 billion.
Okay, Thanks and.
Thinking about productivity I'm getting like a per revenue per SMT from close to $16 million and what was admittedly and unusual 2020 is that a reasonable base case going forward and can you parse out at all the productivity levels kind of across some of the different assignment types.
M&A versus some of the areas that were stronger in 2021 like restructure and are from inflation.
We would.
Yes.
The productivity is we have a slightly different way of measuring it.
And the sense that we count only.
You know.
Smbs that are in their first full year, so our measure.
Would be a little bit higher than yours.
And I think it's.
We have already industry, leading productivity.
Compared to the.
Other independent firms.
You know.
Probably close to twice.
Theirs and in some cases closer to three times, there is and so our productivity is already quite good.
It's aided I think by the fact that we do have.
Broader.
Array of.
Capabilities for our senior managing directors.
And to deploy and.
And.
I wouldn't really want to.
And predict.
Yeah.
Where it can go.
And good markets I think it could be higher than what it is right now.
And I think it should be.
And we would have predicted and it might've wound up lower than it turned out to it.
To be and.
And.
Yeah, So I think we're.
We have.
Terrific people and we have.
The broadest array of capabilities of any independent firm so our productivity.
GAAP between us and our competitors.
Should be maintained and perhaps even widen.
And it across kind of different businesses and maybe when should we think of the different businesses being more productive and others and all kind of net out and the yen.
I think that.
It's awful hard to do because it included at 107 debt.
Bob just gave you are people who are.
You know capabilities are product people.
Who arent necessarily responsible for covering.
And so the mix that we have done.
Really.
Uh huh.
Is and amenable to the kind of categorization that youre asking about.
Okay, and then finally, you mentioned the strong pipeline of senior talent additions as we enter 2021.
How should we think about operating leverage and kind of margins as recruitment ramps back up and I'm kind of thinking that specifically relative to the last couple of years, where the comp ratio kind of stepped up and you guys had referenced kind of senior hires as being a driver of that stepped up rate.
I think that at this point.
No.
It's not clear.
A lot of dialogues underway right now.
And if all of those turned into.
The new hires.
It's possible there would be a little bit of.
Pressure on the comp ratio.
So I think what we've always said is if we get that opportunity, we'll take advantage of it and we will shortly share with you.
You know.
That and a very transparent way and I think we're a ways away from having that kind of.
A discussion at this point.
And just to state the obvious.
We get we get leverage as our revenues grow that is clearly a really important part of how the comp ratio plays out and so.
A lot of it depends on what the market gives us and what we're able to apply we've told you that debt that.
And that we really believe that by expanding or.
Both are people, who can address from south to clients as well as our capabilities.
Think we're going to share in more of an uplift and the market, but but clearly that is a very important part of how the comp ratio place.
Okay. Thank you.
Thank you. Our next question comes from Jim Mitchell with Seaport Global Securities. Your line is now open.
Okay, great good morning, and maybe just.
On Europe and it's been.
It's been an underperformer for 10 years.
Might finally have a little clarity on Brexit you highlighted it as an area of geographic expansion. So.
How are you feeling about Europe at this point do you see the potential for a sustained improvement over and over there. It seems like we've seen some green shoots just want to hear your thoughts going forward.
Okay.
I think we do think that there is.
Some pickup in activity in Europe.
Europe is still.
As you indicated and your question.
Well below.
It's free.
Pre financial crisis.
<unk> role in aggregate M&A.
Activity I don't think we anticipate getting back to that quite honestly.
But there should be.
Some pick up.
We have.
Among the independent firms.
The largest franchise there.
By far.
Those firms that were born and Europe.
Born in the United States, sorry, So we're not as big as <unk>.
So, it's already and Rothschild and Europe, and if Europe does pick up disproportionately I think we would expect them to benefit.
You know more from that.
And then we would.
We would benefit from that more than any of the other and.
Independent firms.
Yes, and what I would what I would offer is that we clearly do look at Europe and the opportunity for us.
We have found that our bankers and our brand are playing well there and so we are looking quite good.
Quite intensively for talent, who want to join our team and we really believe that there's real opportunity for us. So you can you can expect that we will.
Looking at and mining for real talent, and we will be focusing on finding some growth in Europe, especially as the market improves.
Okay. That's helpful and maybe just a follow up on the ECM conversation and I know this is really really long term, but how do you think about your long term target is it getting to bolt bracket levels or is there something.
About being an independent boutique that doesn't have a balance sheet that would keep you from getting to that kind of market share long term.
Well the first of all there is.
Something that the bulge bracket firms do and that's.
And not small part of overall equity underwriting activity, which are blocked trades.
We're not gonna.
So I think.
Just as.
We're never going to get the.
League table credit that the large firms get.
And which they uniformly GAAP when they extend credit.
We only get league table credit when we actually are and adviser.
There's a certain part of the market and our market share is going to be zero. So by definition.
We will never get to.
The bulge brackets on the other hand.
And I know John agrees with this.
We can be very competitive and.
The parts of the underwrite.
Don and book.
Massive risk.
Without without making a prediction and the one thing I would say is that we are increasingly seeing that we're getting opportunities to move to lead.
Active lead lead left.
And we've continued to get those opportunities and they built and so we think theres real space in front of us.
Two.
To assume that we're going to get to their market share or their profitability level I think that's it.
That may be a leap certainly for now all were really doing right. Now is looking at what we think is really significant growth in front of us and we think that it's there for us to take and keep moving so we feel good about the prospect.
But I think getting to the level that you're suggesting I think that remains to be seen we will see.
Okay I appreciate the thoughts.
Sure.
Thank you there appear to be no questions. At this time I would now like to turn the floor to rational Stein and John Weinberg for any closing comments.
Thank you all for your time today, we really appreciate it.
This concludes today and Evercore fourth.
This.
Todays evercore fourth quarter, and full year, 'twenty and 'twenty financial results Conference call you may now disconnect.
Great. Thank you.
Yeah.
Yeah.
Yeah.
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