Q1 2021 Evercore Inc Earnings Call

[music].

John Youre going to choose and answers good morning, ladies and gentlemen, thank you for standing by and welcome to the Evercore first quarter 2021 financial results Conference call.

During todays presentation, all parties will be in listen only mode.

And the presentation. The conference call will be opened for questions. If you have a question Christy Star followed by the one on your Touchtone telephone. Please press star zero for operator assistance at any time for.

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This conference call is being recorded today Wednesday April 28 2021.

Like to turn the conference call over to your house.

For head of Investor Relations.

Please go ahead ma'am.

Thank you Crystal good morning, everyone and thank you for joining us today for Evercore first quarter, 2020, One financial results conference call and Hallie Miller Evercore as head of Investor Relations. Joining me today on the call are John Weinberg, and Ralph Lifetime, Our co chairman and co CEO and Bob Walsh, our CFO after.

For our prepared remarks, we will open up the call for a question earlier.

Earlier today, we issued a press release announcing Evercore first quarter 2021 financial results. The company's discussion of our results today is complementary to the press release, which is available on our website at Evercore dotcom.

This conference call is being webcast live and the for investors section of our website and and archive will be available for 30 days beginning approximately one hour. After the conclusion of this call I wanted to point out that during the course of this conference call. We may make a number of forward looking statements any forward looking statements that we make are subject to various risks and uncertainties.

And there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors include but are not limited to those discussed and evercore filings with the SEC, including our annual report from 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 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 John.

Thank you Holly and good morning, everyone. What a difference a year makes this time last year, we were in the early stages of the global pandemic. There was uncertainty about the science and trajectory of the virus and there was no visibility on vaccines.

The economic environment was weak and the pace and shape of and economic recovery was unclear.

With so much uncertainty and the weak economic environment and outlook most of our clients turned inward to focus on operations liquidity and in many cases restructuring while restructuring activity was well and strategic activity.

This was passed from and operational perspective, I don't think any of us expected to spend the remainder of 2020 and a good and a good portion of 'twenty, one working predominantly remotely.

Fast forward, one year, and we've made tremendous progress monetary and fiscal stimulus help stabilize the economy and financial markets and our recovery is well underway vaccine distribution is gaining momentum and as a firm. We are actively planning for a gradual return to our offices over the next several months in fact Ralph.

Bob and I are and the office today for this call and.

And our business is robust as we continue to act as an adviser to clients and strategic financial investment and capital initiatives. The momentum we experienced through the first half of last year has continued into the first quarter, our results, which represent our best first quarter ever reflect our team's client for.

The breadth of capabilities that we can offer and the continued favorable environment for M&A and capital raising activity true.

<unk> announced and the second half of 2020.

And some even earlier move towards completion during the quarter and translate it to revenues. We've also realized revenues from transactions announced and closed within the first quarter and it benefited from increased demand for activist defense advice over the past several months capital advisory both public and private has continued.

It's strong contribution.

The breadth of our equity capital markets capabilities, including Ipos follow ons convertibles and specs has enabled us to participate in a meaningful way and the sustained strong levels of market issuance in the first quarter, we participated and nearly 40 public market transactions that raised more than 22 billion and total proceeds.

In private capital Advisory GP led transactions remained strong during the quarter and we have seen a strong recovery of volumes and new capital needs.

In the face of economic recovery and strength and M&A and capital raising classic restructuring activity has slowed and is concentrated among key sectors and issuers that have not rebounded as quickly as some others have from them.

Our equities business Evercore ISI has continued to stay connected and engaged with our clients and has provided valuable research insights and sales and trading execution and solid performance drove AUM growth and our wealth management business. We continue to focus on expanding coverage of key industries and building out our <unk>.

Capabilities, we welcomed Mark Mahaney and March to Evercore ISI as head of Internet Research and one Pedro and Perez codes are joined our advisory business and Madrid as our new head of Iberia earlier. This month and we are benefiting from Christy Grippy joining us earlier this year as our new.

<unk> head of ECM as well as other strategic adds we've made on our ECM team.

With the key ingredients for M&A activity and place a positive economic outlook strong equity markets and available credit high CEO confidence and continued private equity activity and momentum for strategic activity continues and the desire for capital raising persists several of our key.

Markets continue to be busy and our backlogs are strong.

The strategic merger market accelerated and the first quarter global and U S announced M&A dollar volume increased 95% and 164% respectively compared to the first quarter of 'twenty, and 'twenty and increased 3% and 13% respectively from our strong fourth quarter.

And ECM and the desire for capital raising remains strong.

Though we've seen a cooling off in the stack underwriting market over the past several weeks.

And our investments and spec capabilities have positioned.

Positioned us well to serve many new clients.

Though we remain selective and our participation and underwriting opportunities, we continue to see activity and shareholder advisory and activist defense the number of new activist positions and the U S reached its highest level and more than two years at the end of 2020 and actavis are focusing on larger targets.

On the private capital advisory side of things, we are seeing accelerating activity and both capital raising for new funds as well a secondary and GP level activity.

In short, we feel continuing our momentum and our business and we are excited by the prospects we see in front of us our broad capabilities have positioned us well to offer more services to clients as they execute on their priorities. Let me now turn to our financial results.

Okay.

We achieved record first quarter adjusted operating income.

Adjusted operating margin adjusted net income and adjusted earnings per share driven by solid revenue growth and good operating leverage.

First quarter adjusted net revenues of $669 9 million grew 54% year over year first quarter advisory fees of $512 1 million grew 43% year over year.

Based on current consensus estimates and actual results, we expect to maintain our number for ranking on advisory fees. Among all publicly traded investment banking firms for the last 12 months and to grow our market share relative to the same firms.

We also continued to narrow the gap between us and the number three ranked firm on a latest 12 month advisory revenue and market share basis.

Our first quarter underwriting fees of $79 3 million more than tripled year over year as we said last quarter. This business experienced a step up in 2020 as the demand for capital raising increased substantially and the expansion of our capabilities and enhanced sector coverage and enabled us to work and diverse.

Assignments for clients.

We've continued to broaden our participation across sectors, which we believe is helping us grow our business, while health care still represents the largest portion of revenues TMT and industrials more than tripled their combined portion of revenues and the first quarter compared to full year 2020 for.

First quarter commissions and related revenue of $53 5 million decreased 4% year over year as volumes declined relative to the elevated levels in the first quarter of 2020.

First quarter asset management and administration fees of $17 8 million increased 16% year over year, and higher AUM, which was $10 6 billion at.

Quarter, and an increase of 11% year over year.

Turning to expenses, our adjusted compensation revenue for the first quarter is 59%.

First quarter non comp costs of $72 $7 million declined 12% year over year, our non compensation ratio for the first quarter is 10, 9%.

Bob will comment more on our non comp expenses and his comments.

First quarter adjusted operating income and adjusted net income of 200.

And $1 8 million and $162 5 million increased 145% and 181% respectively. We.

We delivered a first quarter adjusted operating margin of 31% and a first quarter adjusted EPS of $3 29.

Increased 172% year over year.

And finally, we continued to execute on our capital return strategy, we returned $275 3 million to shareholders during the quarter through dividends and the repurchase of $1 9 million shares and we achieved our commitment to offset the dilution associated.

With our annual bonus RSV grants through share repurchase in the first quarter.

Our board declared a dividend of <unk> 68, and increase of 11, 5%. We expect to continue our annual reassessment of the dividend. Each April our board also approved a refresh of our share repurchase authority to $750 million, we will resume our historical policy of returning cash not need.

Good for investment and our business to our shareholders through additional share repurchases.

Now, let me turn the call over to Ralph to discuss some of our business highlights in the first quarter and update on our 2021 priorities.

Thank you very much John.

Our first quarter results clearly demonstrate that we are operating at a higher level than the level at which we have operated historically as measured by any financial metrics revenues operating income net income earnings per share operating margins and senior managing director productivity.

<unk> and advisory.

While our operating margins clearly are benefiting modestly from the decline and travel and entertainment due to the pandemic the strength and the other financial metrics is indicative.

Excuse me of a real uptick and our business.

Our diverse capabilities and a more balanced mix of our business contributed to our record first quarter results, the third best quarter, and our firm's history as well as to the record fourth quarter and full year results last year.

On top of our strong financial performance, we sustained our number one league table ranking and the dollar volume of announced M&A transactions, both globally and in the U S. Among independent firms for the last 12 months ending March 31, and in the first quarter of 2021 and we advised.

On the two largest M&A transactions announced in the first quarter and.

Additionally, while not first quarter events, we are prominent roles on the two biggest tech announcements.

This year, both of which were announced in April.

We served as the lead advisor on grabs 40 billion dollar IPO via a spec merger the largest tech merger. This year, the largest spec merger and history and the largest pipe issued in conjunction with US back merger at a little over $4 billion and we also serve as the sole advisor to new.

<unk> on its pending $19 $7 billion sale to Microsoft.

Second largest tech merger this year.

These are franchise defining transactions for our clients and for Evercore and are reflective of the breadth of our capabilities and the strength of collaboration and teamwork across the firm.

Our underwriting business continues to perform well and produced its third best quarter ever.

When we first acquired ISI almost seven years ago, we identified one of the most important opportunities created by that transaction to be our ability to increase our underwriting revenues to perhaps $75 million to $100 million of revenue per year over the ensuing few years.

And unquestionably took a little bit longer than we initially expected for that to get to that level of revenue annually, but.

But we have definitely seen a real step function step function increase and this business in fact three of the past four quarters, including the first quarter of 2021, where and just one quarter within that $75 million to $100 million target that we had set for the full year.

Activity and backlogs and underwriting continue to be strong and we remain focused on building out this business strategically so that we can continue to serve the needs of our clients.

Without any use of our balance sheet.

And needless to say our revenue aspirations for this business have grown materially.

The first quarter also saw a number of significant transactions and the convertible debt space, which we launched and the third quarter of 2020, including our first sole book run convertible offering and an active book runner position on a biotech convert.

These transactions are indicative of the breadth and diversity of our platform and our capacity to meet increasingly diverse client needs.

Our investments and ECM have earned us a place and the top 20 for underwriting revenue as estimated by Dealogic when bought deals are excluded.

We continue to believe.

That we have runway here and we are focused on systematically gaining share as we have done and his advisory historically, though breaking into the top 10 currently seems challenging given our aversion to block trades and our independent balance sheet light approach.

Activity and our private capital advisory business, and our secondary advisory business, which we call PCA or primary fund raising business, which we call PFG and our real estate fund raising and secondaries business, which we call rack up continues to be strong as volumes increased meaningfully during the quarter.

Our success in this area is driven by the strength of our client relationships and our superb execution track record, including our unique success executing transactions done solely through remote communication and.

And restructuring the team's activity level and footprint are resetting back towards historical levels as the economy and debt market liquidity have meaningfully improved the team continues to work through assignment started in 2020 and is also focused on new liability management private financing and conventional res.

Structuring assignments and sectors that are still stressed.

By the pandemic.

And equities client connectivity and engagement continued to be strong as our macroeconomic and fundamental analysts continue to provide valuable insights to institutional clients and our team also has continued to meet high client demand for our robust virtual conferences and webinars and corporate access events.

The investments that we've made and our platform to support our ECM franchise, including convertibles for firm performed well during the quarter and are a natural capability extension for us.

And we continue to expand our sector coverage with Mark Mahaney launch on Internet stocks earlier this month and.

And as we've always said, we will continue to look for senior impactful analysis analysts who will serve our clients.

And contribute to the growth of this business finally, our wealth management business continued to grow AUM as long term performance has remained very solid and as we have continued to provide important advice to our clients.

Now turn to discuss some of our priorities for the remainder of the year.

As we think about the rest of the year. We are focused on several important items first we are intensely focused on continuing to position our business for sustaining long term growth by number one providing outstanding advice and execution of our clients as we continue to advise them on their most important.

Strategic financial and capital decisions number two by continuing to enhance our coverage of the most significant client groups, including our initiatives around the Evercore 100, and financial sponsors number three investing to further deepen and broaden our capabilities by continuing to.

And build out certain industry groups geographies and product capabilities.

Second we are focused on planning for our return to our offices globally with the health and safety of our employees and their families Paramount as we develop and execute our plans.

Third we are highly focused on integrating diversity equity and inclusion and sustainability more completely into how we conduct our business and how we hire train and mentor our talent.

And finally, we are focused on operating with financial discipline and delivering strong returns to our shareholders returning excess cash not needed for growth investments to our shareholders through dividends and share repurchases, while maintaining a strong and liquid balance sheet.

We are actively recruiting a plus and a talent and advisory to our team and we continue to have many conversations with talented individuals and key sectors and geographies, including TMT Fintech Biopharma healthcare consumer financial sponsors and Europe.

Equally important is our long term commitment to attracting recruiting mentoring and promoting talented professionals and promoting them to senior managing director from within.

We strongly believe.

That in person collaboration training and Mentorship are crucial to our culture and our press apprentice ship model. These experiences are most effective when we are together and contribute to the development of our future leaders, which is why we are so focused on our return to office over the next several months we are.

Pleased to be sustaining advisory senior managing director productivity that is at a materially higher level and our long term average.

However, we are finding.

Probably due to the pandemic that is taking new hires and new internally promoted senior managing directors, a little longer perhaps a year or so longer to reach full productivity. Fortunately this longer ramp time means that we have more partners, who will contribute to our future growth.

Before I turn the call over to Bob I want to thank each and every member of our exceptional team.

The first quarter results and achievements that John and I have summarized and really our results over the past year could not have happened without the dedication and teamwork collaboration and commitment of our entire team every single one of our employees has stepped up to the challenges of the past year plus.

And there have been many such challenges we very much look forward to bring our teams back together in person soon so that we can continue to build and strengthen the culture that has been the foundation of our success. Let me now turn the call over to Bob.

Thank you Ralph and just a few items for me this morning.

Beginning with GAAP and some related metrics for the first quarter of 2021 net revenues net income and earnings per share on a GAAP basis for $662 million $144 million and $3 and 25, respectively.

Our GAAP tax rate for the first quarter was 16, 1% compared to 20, 588% for the prior year period.

The appreciation and the firm's share price upon vesting of employee share based awards above the original grant price positively affect affected our effective tax rate on both a GAAP and adjusted basis on a GAAP basis, our share count was $44 5 million shares for the first quarter the share count.

For adjusted earnings per share was $49 4 million for the quarter.

Focusing for a moment on non compensation costs as John noted, we continued to generate significant operating leverage and part due to lower non compensation costs firm wide non compensation costs per employee were approximately $40000 for the first quarter down 9% on a year over year basis.

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, including returning to our offices and engaging in person with our clients' costs associated with recruiting travel entertainment and other expenses are expected to increase.

I'd like to call your attention briefly to a modest change and presentation that we made and our income statement during the quarter commissions and related fees has been renamed to commissions and related revenues and now includes riskless principal profits, which were previously and other revenue including intra.

And investments.

Reclassified revenue principally represents the spread income earned riskless principal transactions and convertibles and other fixed income securities.

And the reclassification of amounts for this change going back eight quarters can be found in our press release finally, focusing on the balance sheet two points on March 29, we issued $38 million of aggregate principal amount of unsecured senior notes with a 197% coupon through a private.

Placement, we used the proceeds from the notes to refinance senior notes that matured on March 30th.

And finally at the end of the quarter, we held $411 million and cash and cash equivalents and $873 million and investment securities down from year end due to compensation related payments and strong return of capital.

I would now like to turn the call over.

Questions operator, if you could open the line.

Thank you Sir we will now begin the question and answer session.

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Hello.

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Our first question is from the line of.

Nicole Brown with K B W.

Great. Thank you operator.

Good morning, guys.

Good morning.

Yes, just I wanted to start with.

Some of the top priorities that you talked about for for long term gorilla.

And our narrow and on that a little bit.

And I guess alongside KOL day, we've seen a lot of major secular shifts and the way, we work and live and true.

Tremendous pull for the impact of digital and technology across all sectors.

So you obviously, you may be higher Mark Mahaney and and I was just curious as you think about <unk>.

Ongoing talent and mix, where do you think you'll need to continue to invest to make sure. You are at the forefront of these shifts and things like software cloud and the AI and a lot of these major trends is that an area, where you can address via hiring or is.

And the fact and a lot of these sub sector coverage may not really exist today and Thats something that you will address more with internal development and promotion.

We are very focused on the growth areas around our around our business and clearly technology is and is one of them and a major one.

We are investing and our tech business were looking aggressively for talent throughout the tech sectors, we have a strategy.

<unk> populate many of the areas that you've that you've talked about we have some very very good.

Tech bankers, who are already in those areas and we're working on them as you know we've built out our equity capital markets area in the Tech sector also but we're also looking at other sectors. Besides tech, whether it's health care and biotech.

Whether it's energy transformation, we really think there are several very high growth sectors that we are continuing to focus and grow and in addition, we have other.

Others are white space, whether it's in Europe, where we're looking and with respect to telecom and oil and gas.

Or whether it's generally and our equity capital markets area, which Ralph articulated is it's a very high gross area for us and where we're very much focused on the fact that we think we have real runway to grow there. So in direct answer to your question in technology. We are very focused we are looking aggressively for good talent and.

I think we feel like we have some very good dialogues and place ongoing right now.

Only thing I would add is that if you look at our income statement and let's take a five year look forward.

The growth, we would expect to come on two lines of that income statement advisory and underwriting.

And in both of those.

Obviously, we're benefited right now by a pretty robust markets and both advisory and underwriting.

But we believe the opportunity for us is to continue to take market share.

As we have over the last 12 years and advisory and over the last handful of years and up.

Underwriting.

Okay, great and.

And just a quick follow up on that same topic.

And as we look at some of the hiring trends across the industry. It seems to be at least from my seat that things are a little bit slower ear and 2020 one.

And I can see that.

The M&A market being strong could could be keeping bankers at their current firm and and really.

And then be hesitant to make a move.

And until you know maybe their pipelines worked down over time, but I was wondering if you could expand on really what you are seeing and the hiring environment.

Agree with some of those assertions and I just made and.

And just be interested to hear how the hiring environment for evercore could trend relative to some of the historical periods.

Yes.

We've said for each of the last.

810 years that we expect to hire.

Four to eight.

New.

Smbs and our advisory business and as we sit here today.

We don't see any reason why.

This year would be different from.

And from prior years.

Do think.

There is an industry wide phenomenon right now.

Which is.

Hiring was relatively slow last year, because we were all.

Uncertain about the environment from early March on and that didn't really resolve itself until the fourth.

Quarter. So you have a pickup in and M&A and underwriting and just about every other activity.

And most firms are.

Not up a lot and head count versus last year or even flattish so.

Site for talent is.

Intense.

Right now.

But we don't.

Expect that that will prevent us from doing our normal hiring.

In fact, I would say that there are many ongoing dialogues with people and there are many people who are interested in talking to us I think one of the things that that Ralph and I have found is that.

We have a large number of people who seek us out as they think about their career moving forward and so we feel like we have.

A broad a broad offering of opportunities and were really working on them right. Now. So I think what Ralph said is absolutely right and that the environment is very competitive, but we're actually seeing our opportunities and where we're acting and and and aggressively trying to find people who we think are.

Top level talent.

Okay, great. So it sounds like it's a challenging environment, but nothing that you can't can't overcome.

Great. Thank you for taking my questions and ill hop back in the queue.

Your next question comes from the line of Manav.

And with Morgan Stanley.

Hi, good morning.

Good morning.

Wondering if you can unpack your comments on M&A activity can you talk about how your risks and analyst backlogs are trending relative to where you started the year.

I mean, and maybe the rate of replenishment of your pipeline and also how you expect that is all for the rest of the year.

They are strong yes.

Backlogs are strong.

And activity is very much ongoing as we said the ingredients are just in place whether it's economic.

<unk>.

Positive outlook.

The equity markets private equity activity CEO accounts all of those things are in place and we are in many dialogues throughout our sectors and.

And feeling like the activity level is strong so I think we feel optimistic as we said.

And if you look at.

The level of activity that John outlined in his opening remarks.

Which is just the dollar volume of M&A activity.

And our backlogs are consistent with that.

Okay, Great and then can you talk a little bit about the <unk> opportunity here.

We've seen activity slow a bit but.

There's still.

400, plus stacks out there looking for a deal.

Can you give us a sense of how you're seeing that activity will try and for the remainder of the or and what opportunity that presents for evercore specifically.

Yes.

<unk> had a.

Pretty good participation in particularly.

Sell sides.

Two specs or mergers that lead to steep destocking.

Transactions, so our backlog and that area is strong and the way. We think about this is you have essentially.

A new <unk>.

Private equity.

Cash pool.

And it's almost equal too when you look at the.

And the pipes that normally a company.

A spec or a dis backing transaction there is almost a trillion dollars of dry powder.

And the.

Specs that have not yet the specs and they obviously have a.

A time.

And which they have to make there.

Investments so.

And they are a.

Significant source.

<unk>.

Purchasing power and the M&A market alongside of course private equity firms and strategics.

Great. Thank you.

Your next question comes from the line of Devin Ryan with JMP Securities.

Great Good morning, everyone.

Hey, Devin.

Another question, just kind of bigger picture on the advisory market.

Clearly the advisory fee pool.

And as secular growth and then within that Evercore has been.

Expanding market share.

But I'm trying to think about.

The opportunity and the advisory market.

Kind of feels like we're in the step function of activity and I and I appreciate the ingredients for in place, but maybe lumpy just taken a layer deeper around.

Some of the drivers that are maybe unique now and whether this is.

Just kind of a culmination of the past year, and just and urgency to get deals done or if theres something.

Bigger happening here that maybe we haven't experienced before just as companies are thinking and new ways strategically that they haven't and the path.

And <unk>.

Well.

I don't think that we would see a step function necessarily I think what we see as debt.

CEO confidence and as we talked about the availability of money and peoples views have really led to momentum in terms of deals.

I think what we saw is that as the COVID-19. The COVID-19 weakness in the economy started to lift in the third and fourth quarter peoples dialogues started to pick up and so as you know merchants don't just happen overnight and there are many many dialogues that go on and as as as <unk>.

<unk> and as for where it's really consider them where they are strategically.

And what they do as they begin to put together a process, which is part of their strategic plan of growth and I think in many respects what we're seeing right now is the ramp up from the.

The cessation of some of these dialogues and the ramp up has really culminated in I think a lot of activity a lot of people looking at their growth and really thinking that that inorganic growth is a very good way to go given.

Where the economy is right now theyre.

And Theyre looking at.

What could be a continuing strong economy. They are looking at continuing access to money and Theyre looking at the fact that shareholders are really looking to them to really grow and so we see debt in the activities that we have there's a lot of focus on just that and so.

It's just a growing momentum.

And in addition, I think from our perspective, we continue to focus on big companies. We continue to focus on aggressive prolific companies and I think we are.

We're making progress and in that progress I think is showing that we were able to build some momentum and our business and.

And the only thing I would add Devin is if you look over the long cycle from 1980 through today.

Historically, we've had.

Five to eight year up cycles, and two to three year down cycles.

And the up cycle coming out of the financial crisis was probably 10 years long.

And the down cycle caused by the pandemic probably was six months long.

And so we're now in a period of recovery.

Again.

And notwithstanding the strong.

M&A volumes that we've had over the last two quarters.

And we're still below the historical.

Trend or an average of.

M&A.

Volume versus either.

Global market cap or.

Global GDP.

And so.

Yeah.

That's the way I look at it.

Yeah, that's great perspective, I appreciate it.

And then maybe one for Bob here, just thinking about.

And the comp flexibility throughout the year I appreciate there's a number of moving parts, but the 59% comp ratio and the first quarter's approximately in line with the full year 2020 level. So just wanted to get a little more perspective around some of the puts and takes.

And.

And of the comp leverage and maybe bigger picture operating.

Leverage as we think about 2021, especially given some of the commentary about how kind of all metrics are operating at kind of record levels right now.

Good Devin.

You would expect me to say, it's early days trying to figure out and comp on a full year basis and the first quarter.

As always requires a lot of judgment and is part art.

To the positive side with this kind of performance.

History would tell us we generate comp leverage.

Not to the negative side, but but yes.

Perhaps.

Putting some pressure against that is the level of investment that we successfully accomplished during the year.

We have a very successful year as Ralph has point.

Pointed out.

Anytime I think he's asked that cost goes through the income statement right away. So.

I think those are the two big puts and takes what's the top line, what's the level of investment.

And it is early days.

Yeah, Okay I appreciate it Bob and figured I'd try and get some color. Thank you.

Your next question comes from the line of Brennan Hawken with UBS.

Good morning, Thanks for taking my questions.

There was comment made in the prepared remarks.

And I believe Ralph it was from you.

And that the.

Youre seeing a longer ramp time.

And for some of the new recruits for new promotions.

Could you put maybe provide a little bit more color and context around that is there a difference and between the promotes and the recruits does.

And this is just apply to the last few years of vintages for lack of a better terms.

And.

Do you think it might be tied to the environment.

Specifically, given how unusual it is and we're seeing a lot of deals basically come back after they were put on ice before the pandemic and therefore a few.

If a banker has moved and does it.

Dislocation in the discussion and engagement with the corporates I'm, just trying to understand whether or not something is chevron or this is just the environmental okay.

So let me give you the genesis of that comment.

Historically, we've all and we've got data going back 10 12 years on this.

If you look at.

External promotes.

Sure.

The first.

The stub year, the best assumption is de Minimis revenue. The first full year historically has been 50% to 70%.

<unk>.

And what their ultimate normalized run rate would be and the second full year, they would get to that.

And internal promotes the line is a little different because theyre being promoted because they already have some revenue generation, but it generally.

It's the second or third full year. After they are promoted that they get to that normalized level as.

As well.

And what we're finding is in the last couple of years of hiring and promotion.

And really that third full year and not the second full year, where.

You're getting to normalized productivity.

Our hypothesis.

We're not going to know the answer until were for three or four years from now, but our hypothesis is.

That this is a function of the challenges of building a enhanced.

Client base and a period when you can't and.

Interact with people on a human basis. So if you think about.

One of the things that we I think benefited from last year.

As we've got a lot of senior bankers, who have long term relationships and when.

Companies needed to do things.

They are turning to their trusted advisors.

The corollary to that is for a.

Banker on a new platform or for a younger banker, who has just been internally promoted.

The debt capacity or the.

Ability to establish that kind of a trusted relationship and.

Person to person and contact is harder.

And so our hypothesis is that that's what's going on here.

Bob.

And that it's nothing really fundamental.

And the reason we called it out.

And is because it does mean that we have.

Even though last year was a relatively light.

Hiring year for Smbs, we were at the bottom rather at the top of our 4% to eight range.

We still have a fair number of people, who were hired and 19 and 18 or were promoted and 19% and 18 that are in that ramp up phase.

Brian and it's Bob the other point I might add is.

As you would all know.

Normalized productivity today.

It was materially higher than it would have been five or seven years ago.

And that to do certainly in part to the much broader capabilities.

Any SMA and.

And deliver to the clients the clients and the firm or other clients that followed them for the firm.

So as we as Ralph made and us.

Made a note and his comments and in our view this isn't all bad news and that as someone joins us.

Sort of plugging into all of those capabilities and connecting them to the clients.

While it takes a little bit longer.

Theres more upside in it.

I would just add and I'm going to say that you probably would expect that I'd say, it but I'm going to say it anyway, because I believe at the people that we've added and the last three years.

So our very high quality and we're feeling really good about their ramp and about really the progress, they're making and really the contribution they are making both in terms of commercially but as well as culturally we really feel good about our team and the ramp that we have in place with the people who are just coming up.

To stream right now.

Thanks for all that thorough color much appreciated.

Just a handful of kind of follow up items.

Probably for you.

Where where we where do we stand today on F&B head count.

And then when you think about I think there was a $6 million gain from hedges that you flagged six two.

Can you remind.

Is that fully flow through to comp at the same time as revenue or is the comp offset.

Spread over the vesting period and so.

Since this was tied to the cash component would be over the next few quarters instead of all in this quarter.

Well I'll do the easy one first 107.

And.

All of our deferred comp is amortized into the income statement.

Over the vesting period, which is generally.

Pro rate over.

And over a four year period.

Right, but this is tied to the cash which is a shorter vesting period right. So wouldn't it best over a shorter period.

On the deferred comp whether it is restricted stock units or the deferred cash program has the same vesting.

Okay.

So therefore like the revenue was benefited a bit more than the comp offset and so.

Probably flat or do you know how much that part of the comp ratio.

Yes.

I'm going to I'm going to go back to them and Ryan's question and say the comp ratio has.

A multitude of factors puts and takes none of them Brendan and translate down into how does as deferred cash comp amortization work.

Alright, whereas and shot.

Uh huh.

Your next question comes from the line of Richard Ramsden.

And then Sac.

Thanks. This is James <unk> filling in for Richard So for.

Perhaps you could help us understand the restructuring opportunity from here and what do you expect the cadence and this business to be over the course of the year and then do you lend any credence to the idea that the speed of the economic recovery has meant that companies that would have otherwise ended up and our restructuring situation ended up doing M&A.

Well the first question is.

And that.

You should.

As I said in my opening remarks.

Restructuring activity is returning.

Two it's historical.

Levels.

Last year was.

A bit of a.

Bump upward and we're returning back to historical.

Levels and I would reiterate what I've said in the past which is.

And there isn't a bright line between restructuring and M&A and other forms of advisory.

It's really sort of white gray to black and.

And.

So.

For example.

Last year, the capabilities that we have and restructuring.

It's incredibly important to some large.

Cap companies, who were raising large amounts of debt and we were and adviser.

To them on those.

Financings.

So number one there is always.

Some level of restructuring.

Restructuring activity, even in the most robust economic environment and the most liquid.

Debt environments, and we're kind of in that.

World Today, where there are particular sectors or companies.

Net have challenges, even though we're in a very liquid market.

Debt market at a very.

Healthy.

Economic.

Our recovery so the way I think about this is we're kind of back to normalized levels and we have some terrific capabilities.

And in that.

And our restructuring group and we are as we did last year utilizing these capabilities.

To help companies raise debt privately.

To do.

Not traditional restructurings, but liability management.

And then also obviously as I did say in my remarks in any given year. There are always some individual companies or some sectors that have some stress.

The only thing that I would add to that as debt.

What we have done and what our group has done is they have expanded their their opportunity set and that they are extensively debtor and creditor and they also have spent more time with sponsor portfolio companies that may be seeing some distress so as.

As a result, there are more opportunities there are more targets for them and we.

We see some of those coming through so over time, I think youll see that group continued to create its own momentum.

And that's something that we're really happy with.

Got it.

So we've seen such a strong backdrop and M&A announcements so far this year and it's clear you do expect this to continue and so not to be overly negative but is there anything and you think that could derail. This M&A improvement such as perhaps further COVID-19 related shutdowns and have you seen any of this and any of the geographies. So far this year.

We really haven't seen.

Any flagging of the momentum that's not to say that it won't happen.

But really what we're seeing is the continuing.

Continuing momentum and we see the dialogues if anything's strengthening even more but we really don't see now obviously there are things that can happen, whether it's and international issue that could could drive it there could be some political issue that does comes back there.

And there could be a disruption we don't really see that.

So I think our view is that debt not to be.

Overly optimistic.

That certainly over the next three to six months the momentum will continue as it is.

We don't see any real disruptor and on the horizon.

That's great.

And then your non comp ratio came in and once again better than you would have expected and we're now a year into this new environment, but you are focusing on returning to the office. So maybe you could update us on your expectation for the permanence of some of these lower.

And related non comp costs from here.

Yes.

Inevitably.

The the rate and pace at which travel and entertainment expense.

Recovers.

Is difficult and our expectation is.

It will not return.

And a step function to historic levels.

Many clients.

Like the flexibility and the efficiency.

They've learned we can achieve.

Using using remote communication technologies.

I think if you ask Ralph for John already of the bankers.

We're looking forward to engaging face to face at senior levels, but perhaps execution won't require the travel that are used to we think there'll be some changes and engagement with research analysts et cetera. So.

We will go up.

Hard to imagine it going down from from the extremely low levels of today.

The pace and is hard to judge.

And <unk>.

<unk> is a function of success and.

I'll just revert to the comment that I made on.

On the comp question, we were optimistic that it will go up but there is work to do.

Alright, Thanks, a lot and congrats on the results.

Thank you.

Your next question comes from the line of Steven <unk> with Wolfe Research.

So Bob maybe wanted to start off by just following up on that earlier question on non comps just as we prepare for some reversion to a more normal T&D now if I look at the historical trajectory of non comp per employee, which I know is your favorite metric.

2019 was the high watermark and 194000 2020 was the low watermark and about 170000 and just curious from your point of view as you underwrite non comps are just budget for non comp I should say, how should we think about that new normal baseline for that metric.

And once T&D reverts to some new normal.

I think you should.

As you talk about that high water Mark.

Youll recall at the time that there that we emphasized.

And some significant real estate and technology investments sort of disproportionately high.

So.

Much of that is behind us.

And that those those accelerations on costs are.

Our now into our operating model Stevens.

I don't see that high watermark.

And the pace from that 2020 low to some.

Something below that high watermark as is and uncertainty for us but again.

We're far more focused on.

No.

And the benefits from travel and the benefits of entertainment and the benefits of that.

Net sting.

And new talent.

And if it goes up.

And a disciplined way.

That's a positive for us because it should drive further growth on the top line.

Okay. Thanks for that color, Bob and maybe just.

One follow up on the underwriting outlook.

Activity has started to slow a bit for the industry I immediately following.

Breaking pace. These last few quarters at the same time, it's also clear that the new normal run rate for Evercore is going to be well above the <unk> target of 75 to 100 million and at the time that you acquired ISI and was hoping you could maybe just speak to how youre thinking about the new normal run rate for the business given the expansion into new.

Tam such as converts.

And as industry wide activity levels begin to normalize a bit.

I don't think we really have an answer to that.

Because the.

The level of.

Underwriting revenue.

As a function of two things number one the total level of underwriting activity.

And Evercore is market share.

Within that underwriting activity.

The second.

And quite confident of that.

When you strip out.

Block trades, which were not in that business.

And you look at underwriting revenue and geologic is the best source for this.

As I said in my opening remarks, we broke into the top.

20.

Over the last over on a trailing 12 month basis.

And it certainly seems reasonable for us to continue to move up in that.

And the in the teens.

Towards 10.

And do.

Do we have an opportunity to break into the top 10.

I think we do but thats going to be harder than advancing from.

Breaking into the top 20 and moving through the net.

And the teens.

And.

Yes, the only thing I would say is if we were sitting here.

10 years ago, when we probably broke into the top 20 and advisory.

And you had asked me that same question I, probably would've given you the same answer about advisory that seems pretty easy to go.

From market share gains from 20% to 10, but harder.

To break in beyond that and we're now number four and the world.

And advisory revenues.

And what I'd like to add to that is that there is there are there are.

At least two and maybe more ways that we're going to Inc.

Increase our revenues.

With our existing base of business.

First is that the.

The.

The more active we become in the deals that we're involved and and and the further to the left we go the higher the fees are with respect to those and the contribution and we feel like we are continuing the March left meaning we are trying a look more and more active role in.

And those deals that we do get a chance to work on and we think we are contributing more and more and Thats number one number two.

Right <unk> seen healthcare was really our leading edge in equities and equity capital markets.

We will continue to invest and that business.

But what we also are beginning to really.

Developed and.

And see momentum in is.

Expanding into other sectors, whether that's technology industrial.

Of.

And really other types of transportation and we think that that evolution for us will continue.

And we don't see that there is going to be a restriction to that so we're really as you would expect with any business that is beginning and evolving and growing we are seeing increasing opportunities just to get to the the scale sector by sector that we think we can get to.

So I think those two things that are that are may be exogenous factors to growth.

Alright, thanks for that very helpful color and just if I could squeeze in one more just very quickly on capital structure since I've gotten a number of clients thinking.

Just wanted to get some perspective, Bob on the fact that a lot of your competitors.

And I have touted the fact that they do have a debt free balance sheet and admittedly. They are also trading at higher p/e multiples. Despite similar earnings growth profiles.

Just curious given the strength of your liquidity position why do you need to have any debt within your capital structure and capital stack, especially given how small it is relative to your overall liquidity and maybe just speak to the appetite to maybe accelerate buybacks, giving you did see a little bit of share creep as I look at the share count on a year on year base.

For us.

So the.

Yes.

The share creep.

And.

That you see in the quarter is a little bit of a good news problem.

Which is.

The mechanics of share count as you think about.

The unvested.

Rs Hughes is such that the number of shares that go into the share count increases significantly.

And when you're a company share price increases significantly.

And so if you sort of Peel, the onion back a bit on the quarter.

Major factor contributing to this share count increasing and the quarter was a direct function of the improvement and the share price. So.

Yes.

Perhaps a negative outcome to a good problem.

And David in terms of the.

Corporate finance analysis, let.

Let me just bring this all the way down to a very tactical decision.

I talked about and my remarks, which is we have $38 million of debt.

Net.

Mature.

And the end of the quarter.

Borrowing at 197%.

And then.

Basically refinancing that.

<unk> was a <unk>.

No brainer corporate finance decision, even for a simple accountants like me.

Leaving and that cash available for buybacks and to return to shareholders.

Fair enough. Thanks, so much for taking my questions.

Your next question comes from the line of Jeff Harte with Piper Sandler.

Good morning, guys great quarter once again.

A couple of questions left for me at least one following up on some of the spec conversation earlier.

Spec IPO underwriting business is somewhat unique to you versus the other independent peers. How much do you think that will help you and landing dis backing advisory roles as we move through the next couple of years.

Well first of all.

We are a very modest participant in spec underwriting.

And we're very selective.

Ben on the.

The cutting edge of creating.

New.

Blind pool investment vehicles spec light vehicles.

Lower underwriting fees.

Promotes that are much more aligned with the institutional investors.

And as you can imagine and.

On a hot spec issuance market.

The vast majority of sponsors are opting for more generous.

Promotes.

And then what we've done and we've done a couple of traditional specs as well.

Are.

Real strength.

And this business is not even though we are unique among independent firms as an underwriter.

But it's not driven by.

That.

Capability here, it's driven by the fact that we've invested very very heavily in having.

Not only industry capabilities, but.

Spak merger capabilities.

And so the.

The opportunity for us.

As an independent adviser.

Two.

Private companies that are.

Boeing public.

View through a.

Merger and dis backing transaction and we've got a.

Pretty robust backlog of those kinds of advisory assignments they are.

Completely unrelated to the fact that we happen to be the only independent firm with.

With underwriting capability.

As well.

And they do provide us.

A modest amount of.

The opportunity to be a participant in the pipe.

<unk>. So for example, and the and the grab.

Merger into all Tim Bitters Spak.

We were the lead adviser to grab on that transaction from an M&A point of view and we are a participant.

In the $4 billion plus.

Right.

As well.

So.

The thing that is most material to us in terms of future revenues.

Is the 400 or so.

Specs that are out there who have raised capital and are looking for a partner.

And.

And so that's a long answer I apologize for it but that's really what the.

The way that this either the ramp up its back activity and the first quarter where the.

Slow down right now.

It's not a major effect on our business to be honest.

And the other thing I would say that one of the interesting things that debt we've seen as debt. We have a very strong group of people, who are actually who are actually our spec experts and what they've done is they have translated this expertise and appreciation for what Spacs and.

Actually do offer and really what clients can really all different clients and opportunities can get from <unk>, and I think theres and appreciation through our through our whole advisory business that we have a capability, where we can really give good advice and be out there talking to those companies who could benefit.

And I'm doing this back and giving them good advice with respect to that so I think we have a high level of knowledge that we are applying to the marketing of our capabilities in specs and we and we think that that is leading to really a bigger opportunity set for us to participate and <unk>.

Backing and the M&A side of it.

Okay, and a final one on kind of the outlook for productivity, So I'll get and revenue for SM deal something close to $16 million and the first quarter, which is historically high but well below some of the peaks. We have seen how are you thinking about the forward trajectory there given that.

A lot of businesses are simultaneously strong right now, which is a little unusual but you've also got such a much more broader pronto product service offering relative to what you had say 10 years ago.

Yes.

And I.

I'll make a general comment and then I'll, let Bob go through the math.

I think we feel as we all have always debt to look at one quarter's numbers.

It was a crazy thing to do.

And so.

And when when we look at SMB productivity, it's always on a.

12 month basis, Rolling 12 month basis full year basis.

And so.

And the way we calculate that.

I'll, let Bob go through but not the bottom line is not all 107.

Smbs that Bob are identified earlier are in the denominator, because we don't cloud and the denominator of those that joined a week ago.

Yes, Jeff I think.

Many people calculate.

Productivity different ways.

Ralph is referring to our internal metric, which is where the external hires we don't really.

And put them in the denominator for a year.

Year.

And so really accounts for that ramp period that Ralph described earlier.

What do you put in the denominator.

As long as you do it consistently doesn't really matter. It's the trend I think that you are asking about.

I'm going to.

To take the company stance of we're not going to comment on the trajectory of the numerator.

I do think the actions taken.

Actions completed.

A year ago.

Really focused on looking at productivity looking at the.

Potential of individuals' either based on their <unk>.

Personal.

And the profile or the markets in which they operated.

Has had a positive impact on productivity people, there just werent going to be productive.

From this platform.

You don't have moved out so I do think Thats positive and I think that continued focus on making sure. We've got the right productivity for everyone on the team.

And that will push will help to the upside without taking a view on what future revenues are going to put it another way.

The question that was asked earlier or Bob how many advisory Smbs, where you're at he answered 107.

Had that question been answered and I don't remember asked and I don't remember if it was on this same call a year ago not.

Notwithstanding the fact that we hired some smbs.

Externally last year and we promoted some at the end of last year. The number that you would have received would have been higher than a 100 712, yes.

Okay. Thank you.

Your next question comes from the line of Jim Mitchell with Seaport Global.

Good morning, Jeff.

Okay, maybe just a strategy question longer term, you talked about investing and new capabilities and trading to support convertible underwriting, including riskless principal trading and convert said even fixed income so.

Assuming success and our hybrid security like converts is there and eventual and I mean eventual step towards pure debt underwriting is that sort of maybe the test year that you could start to expand it to another vertical and other fee pool.

Longer term.

At this time, we're not thinking of doing that we have a very robust business in debt advisory.

And financial advisory, but we're not at this time thinking that that is the place we need to go because we're as we've said and we're consistent with that.

We are a a balance sheet light firm and.

And as you know getting into the debt side of the business you really have to be thinking much more from a balance sheet perspective. So I think it is not currently on the chart for us to use that as a place for growth. We have several other places that we're thinking of as we've mentioned a lot of them on the call here, but but thats not one of them I think the bright line.

And here is really simple.

If it requires capital risk.

Either in the form of bought deals or.

Block trades and the equities business.

And we're just never going to be and those businesses.

So.

What what we really are.

Doing here is for example, when we.

We're the sole underwriter and the first quarter.

A.

Convertible offering.

We have to be a stabilization agent and the aftermarket.

And.

We are and a very big fee and.

Could one of those trades wind up with a de minimis losses, but when you look at the totality of it.

It's a very very.

Hi.

Earnings high revenue low risk <unk>.

Activity.

Debt is not.

So that's not not a business that we aspire to be and.

Right.

And private placements yes.

Public debt underwritings no. Thank you.

Okay fair enough and and maybe just on the buyback.

Rob is there I mean stock price I guess holding that neutral is the assumption or the expectation is you want to return to sort of net net share count reduction from here given the environment.

I think thats the outcome.

What's the expected outcome again with the caveat and share price.

So and my first quarter, just to kind of restate.

<unk> the principles.

And the first quarter, we offset the dilution.

<unk> added with our annual bonus grants, which has always been our first principle.

From here on out our intent is to return the cash.

Cash flow and that is not needed for investment and the business is not needed to drive future growth.

Through dividends, which the board increased ad.

And buybacks.

Consequence of that.

And to be.

A reduced share count.

Absent the noise that comes from our stock price.

If you held the stock price constant the share count would shrink every year.

Okay, great. Thank you.

Your last question comes from the line of Brennan Hawken with UBS.

Hey, guys. Thanks for taking the follow up it's actually related to that last question from Jim So it seems as though Bob.

A return to a more normal capital return approach could result in.

And capital returns exceeding earnings as they have in prior years, when we take both the totality of the dividend as well as the buyback.

Obviously, it's going to depend upon what the denominator is but.

Is it fair to say that debt you don't have any binding constraints is for.

Far as earnings generation and whatnot as far as capital return gross.

That's fair.

Thanks very much.

There appear to be no questions asked and no further questions. At this time I would now like to turn the floor to <unk>.

Scott Stein and John Weinberg for closing comments.

Thank you all very much for joining us today, if you have any other additional questions that occur to you. Please don't hesitate to reach out to our Investor Relations team highly analysts Smith. Thank you all.

This concludes today's Evercore first quarter 2021 financial results Conference call you may now disconnect.

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