Q2 2021 Evercore Inc Earnings Call
Thank you for standing by.
Evercore has a second.
Quarter 2021.
<unk> conference call.
On today's call all parties will be in listen only mode. Following the presentation. The conference call will be opened for questions. If you have any questions. He said on a song followed by the 1 on your Touchtone telephone piece.
Please press star 2.
Zero for operator assistance at any time for.
For participants using speaker equipment, if need be net.
She found making your selection.
As a reminder, this conference call is being recorded today Wednesday July 22020.
I would now like to turn the conference call over to your.
Evercore as head of Investor Relations Hallie Miller. Please go ahead.
Thank you Mary good morning, and thank you for joining us today for Evercore ISI Evercore second quarter 2021 financial results Conference call.
Hallie Miller Evercore as head of Investor Relations joining me on the call today are John Weinberg.
And Ralph last 9 our co chairman and co Ceos, and Bob Walsh, our CFO Celeste Malay, who joined Evercore earlier, this month and will be taking over as CFO on September 1st is also with US This morning.
After our prepared remarks, we will open up the call for questions.
Earlier today, we issued a press release announcing Evercore second quarter 2000.
'twenty 1 financial results our discussion of our results today is complementary to the press release, which is available on our website at Evercore Dot Com. This conference call is being webcast live in the for investors sections of our website and an archive of it will be available for 30 days beginning approximately 1 hour after the conclusion of this call.
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 in evercore its filings with the SEC, including.
Now I'll report on form 10-K quarterly reports on form 10-Q, and current reports on form 8-K.
I want to remind you that the company assumes no duty to update any forward looking statements.
In our presentation today, unless otherwise indicated we will be discussing adjusted financial measures, which are non-GAAP measures that we believe are meaningful.
Our and waiting 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 Ralph.
Thank you very much hallie and good morning to everyone.
We began our last earnings call commenting on what a difference a year had made and as we sit here today not only are things dramatically different from a year ago, but things are so also somewhat better than.
Even 3 months ago.
Over the past 3 months, we have witnessed a material improvement in the global economy, and global markets and in Evercore as business.
The rollout COVID-19 vaccines accelerated in the U S and in many countries around the world during the quarter and we experienced a decline in new.
Any cases in areas, where vaccination rates are high.
We are grateful for the progress being made against the pandemic, but we also are cognizant that there are many around the world who have not been as fortunate to date and are in earlier stages of overcoming this pandemic.
And while we are encouraged.
By the progress being made overall, we continue to monitor the new Covid variance the ongoing vaccine rollout in the U S and other parts of the world and the data on infection rates, which unfortunately seem to be rising right now, particularly in areas with lower vaccination rates.
<unk> delivered strongly for our clients over the past 17 months advising them on their most important strategic financial and capital requirements. During 1 of the most uncertain and volatile periods of our lifetimes.
And we produced extraordinary financial results for our shareholders.
And while we achieved a lot while operating as a predominantly remote firm.
Genuinely energized by the reopening of our offices that began towards the end of the second quarter.
Many of US are using the summer months to come into the office. So I am pleased to be here at our headquarters with my colleagues.
In person on this call this morning.
We remain firmly committed to our culture of in office collaboration apprentice ship and membership and we look forward to bringing our teams back to the office over the next several weeks and months.
That said, we have learned a lot about operating.
<unk> flexibly over the past 17 months and we are committed to integrating more flexible work arrangements into the way we work going forward.
As the macroeconomic environment continued to strengthen throughout the quarter, our business did as well.
Our results, which represent the <unk>.
Best first half in our history reflects the breadth and diversity of our capabilities, our team's relentless client focus and the continued favorable environment for M&A and capital raising and while we continue to believe that we are in the early stages of the next M&A Upcycle we are.
Paul that the resurgence of the virus in certain geographies the outlook for inflation and interest rates and potential regulatory scrutiny and tax changes could affect the trajectory and the length of that up cycle, even though there is absolutely no evidence of that today.
Mine high levels of announced M&A transaction volume continued during the quarter. The total dollar volume of announced M&A increased 17% sequentially as the number of transactions increased 7% and the average deal size increased 10%.
In fact, the second quarter represents the fourth straight quarter.
<unk>.
<unk> 1 trillion.
In announced M&A activity.
And the first time ever.
Trailing 12 months of activity exceeded 5 trillion.
And large transactions are making a significant comeback compared to this time last year.
This continued high level of.
The led to record second quarter revenues and is adding yet again to our already strong backlogs.
All of our capital advisory businesses public and private debt and equity continue to be meaningful contributors to our firm wide results.
While the heart.
Market for equity issue.
Active has cooled a bit during the quarter. It still remains remains well above historical averages.
Investments that we have made in our ECM capabilities and our enhanced sector coverage enable us to participate in a wide array of assignments across many sectors and to take an increase.
Increasingly large role in these assignments and.
In the private capital advisory businesses momentum in capital raising for financial sponsors continued and secondary market activity remained high.
Particularly activity related to single asset and multi asset continuation funds true.
As show on restructuring opportunities have been more limited given the strength of the economic recovery the.
The strong availability of credit and the positive environment for M&A and capital raising but our team is adapting to meet client needs working with financial sponsors and creditors on liability management and debt advisory assignments.
Additional admittedly not as busy as they were in July of last year.
Our equities business Evercore ISI continues to produce and deliver high quality research and service to our clients and we continue to make investments in our platform.
The team delivered a solid quarter in line with its historical.
The year quarterly average as the impact of lower volatility and trading was partially offset by investments we have made to support our clients more broadly, particularly in converts and agency options.
Solid performance continues to drive assets under management growth in our wealth management business.
We continue.
Eckel through to add talent in all parts of the firm providing the fuel for future growth and John will talk more about this in his remarks.
And we welcome Celeste Mellett to Evercore earlier this month, who is transitioning this summer to become our next CFO, succeeding Bob Walsh, who has been here for.
Continued 14 years, we look forward to working with Celeste as she helps to drive the next stage of our firm's growth let.
Let me now turn to our financial results.
<unk> achieved record second quarter and first half adjusted net revenues adjusted operating income adjusted operating margin adjusted net income.
The latter adjusted earnings per share driven by continued revenue growth and strong operating leverage.
Second quarter, adjusted net revenues of $691.2 million grew 34% year over year.
Year to date, adjusted net revenues of $1.36 billion increased 43% compared.
To the prior year period.
Second quarter advisory fees of 561, 4 grew 67% year over year.
Year to date advisory fees of $1.7 billion increased 54% versus the prior year period and represent the first time that we have exceeded $1 billion.
Advisory revenues for the first half of the year.
Our trailing 12 month advisory fees exceeded $2 billion for the first time in our history.
Based on current consensus estimates and actual results, we expect to maintain our number 4 ranking and advisory fees among all publicly traded.
<unk> traded investment banking firms for the last 12 months and to grow our market share relative to these firms and.
In the first half of the year.
<unk> also continued to narrow the gap between Evercore and the number 3 ranked firm in terms of trailing 12 months advisory fees.
Our efforts.
To solidify further our position as the leading invest independent investment bank and to compete with firms larger than us have been recognized by clients and by industry observers as we were recently selected by Euromoney to be North America's Best Bank for advisory in 'twenty.
On the 1 that was among all firms not just among the independent firms.
Second quarter underwriting fees of $48 million declined 49% year over year, but excluding 2 sizeable fees.
The second quarter of 2021 from P&C, Blackrock and 1 from Danaher underwriting.
<unk> were essentially flat year over year.
Year to date underwriting fees of $127.3 million increased 11% versus the prior year period, even including the P&C Blackrock and danaher fees.
While there was a slowdown in equity issuance during the quarter largely driven.
By fewer spec ipos.
<unk> for capital raising continues to be strong more broadly the breadth of our capabilities and enhanced sector coverage have enabled us to work on diverse assignments for clients and our second quarter underwriting revenues include engagements from 7 different sectors.
Quarter commissions and related revenue.
Revenue of $50.7 million declined 7% year over year as both volumes and volatility were lower relative to the elevated levels in the second quarter of 2020 year to date commissions and related revenues of 1 to $4.3 million declined 5% versus the prior year period.
Year to date revenues are 6% higher than the first half average of the prior 3 years, which includes the extreme volatility during the first half of last year.
Quarter asset management and administration fees of $19 million increased 25% year over year as quarter end AUM were $11.1 billion.
Increase of 23% year over year, principally related to positive investment performance and market appreciation year to date asset management and administration fees of $36.8 million increased 21% versus the prior year period.
Turning to expenses, our adjusted compensation ratio.
For the second quarter and year to date is 59%.
This reflects our current best judgment on compensation for the year recognizing both the factors that may affect revenues in the second half of the year and the current pressures on market compensation for our industry as always we will reassess our compensation ratio at the end of the.
The third quarter and again at year end and make adjustments then if appropriate.
Second quarter non compensation costs of $73.1 million declined 5% year over year, our non compensation ratio for the second quarter is 10, 6% year to date non compensation costs of $1.45.8 million.
<unk> declined 9% versus the prior year period, and Bob will comment more on non comp expenses in his remarks.
Second quarter, adjusted operating income and adjusted net income of $210 million on $154 million increased 105, and 115% respectively.
Year to date, adjusted operating income and adjusted net income of $412 million on $316.5 million increased to 122 and 144% respectively.
We delivered a second quarter operating margin of 34% and second quarter adjusted EPS of.
$3.17 and.
An increase of 107% over year over year year to date adjusted margin is 33% and adjusted EPS of $6.47.
<unk> increased 136% versus the prior year finally, we continue to execute our capital return.
Return strategy and we resumed our historical policy of returning cash non needed for investment in our business to our shareholders through share repurchases and of course dividends, we returned $221 million to shareholders during the quarter through dividends and the repurchase of $1.4 million.
<unk> shares year to date, we returned nearly $500 million through dividends and the repurchase of $3.3 million shares a record level of cash capital return for our shareholders. We achieved our commitment to offset the dilution associated with our annual bonus rsum grants through share repurchases in the first.
Quarter. So these additional repurchase in the second quarter represent discretionary buyback activity that shrinks the shareholder base.
Our dividend our board declared a dividend of <unk> 68.
Let me now turn the call over to John to discuss some of our business highlights from the second quarter and.
And to provide an update on our 2021 priorities.
Thank you Ralph our second quarter and first half results reflect the breadth and diversity of our capabilities supported by a positive macroeconomic environment for strategic merger activity capital raising and investing.
First on strategic and financial sponsors have been driven to transact as they are focused on growth opportunities technological disruption and the role of ESG and with the key ingredients for M&A strengthening the volume number and size of announced transactions increased during the quarter.
In.
This robust environment, our teams have been busy working on a variety of assignments globally for our clients.
We sustained our number 1 league table ranking in dollar volume of announced M&A transactions in the U S. Among independent firms for the 12 month period ending June 30th on.
Our high level of activity.
Both is translating to our financial results, we achieved a third straight quarter of advisory revenues greater than $500 million and as Ralph mentioned, we surpassed $1 billion in the first half advisory revenues for the first time.
With strong contribution across capabilities globally, including M&A.
<unk> advisory and strategic defense and shareholder advisory we have prominent roles on some of the biggest announcements of the year, including serving as the lead adviser to grab on its $40 billion spec merger the largest spec merger in history and serving as the sole advisor to nuance on pending $19.7.
Cap $1 billion sale to Microsoft.
And we worked on a greater number of assignments and grew our average fee size in the first half compared to the first half of last year.
Our industry, leading strategic defense and shareholder advisory team and continues to be extremely busy and it's currently advising companies.
Sending 1.5 trillion dollars in market value in activist defense.
This is an important capability for us because many of our defense clients subsequently turned to us for advice on strategic matters.
Our underwriting business had a solid quarter and activity and backlogs in this business continue to be strong.
We participated in a number of significant transactions across a variety of sectors. During the second quarter, including 31 transactions that raised nearly $10 billion in total proceeds across several sectors.
<unk> of the ECM transactions that we participated in during the quarter, 60%, whereas an active book.
Grunter, including in consumer lead left book runner on post holdings stack in Biopharma active book runner on sand Tessa Pharmaceuticals IPO.
In E Commerce active book runner on first Dibs IPO.
And we participated in our first directly.
Direct listing for ZIP recruiter as their financial adviser.
As we mentioned last quarter, our investments in our ECM platform have earned us a place in the top 20 for underwriting revenue as estimated by geologic for the 12 month period ending June 30th for deals listed on the U S exchanges excluding bought.
<unk> deals.
We are focused on strategically gaining share and working our way towards the top 10, which is currently comprised of banks that use their balance sheets to win underwriting business.
Given our strategic approach to spec underwriting we believe we can consistently gain share without the volatility that others, who work higher.
Really dependent on specs may experience.
Activity in our private capital advisory groups, our secondary advisory business and our primary fund rating racing business continued to be very strong our success. In this area is driven by our strong client relationships and our outstanding track record we continue to invest.
Best in this business and recently welcomed several new members to the team.
In restructuring many companies and sectors continue to take advantage of the strong economic recovery and access to capital to restructure out of court. Our team continues to work through previous engagements and is focused on liability management assignments and partnering with our.
Debt advisory team for private financing activity, we continue to believe that there could be a longer tail to the restructuring cycle as certain sectors and companies take longer to recover.
And equities, while volumes and volatility moderated from there.
Their pandemic highs across the street, we remaining.
Main engaged with our clients and focused on producing and delivering high quality research and service for them.
Our corporate access team was especially busy in the quarter and ran 3 flagship conferences, including our inaugural TMT conference, our 13th annual macro investment conference and our second annual consumer.
Consumer and retail summit.
Each with hundreds of institutional investors participating.
We also arranged highly topical full day thematic events that were well attended by clients.
Our newer capabilities, including options and convertibles continued to perform well during the quarter as well finally.
Assets under management on our wealth management business finished the quarter at $11.1 billion as long term performance remains solid and net new business continues to be positive. We also made several hires for this team, including a national director of wealth planning and a director of Trust services.
Let me now.
Ill discuss some of our priorities going forward, including our initiatives focused on long term growth.
We continue to believe that there is substantial opportunity to grow our investment banking business through a combination of maintaining our high current levels of activity. The continued seasoning of ramping smt's as they work towards full.
Turn to activity and broadening our footprint on our client coverage through strategic hiring.
The breadth and diversity of our platform positions us well to participate meaningfully in the current M&A and capital raising environment. We also have more than 30 smbs on our platform that have either joined or been.
Full product within the last 3 years that represent additional opportunities for growth as they continued to ramp to our high levels of productivity.
And we continue to focus on expanding our capabilities enhancing our sector and geographic coverage and improving our coverage of the most significant client groups.
The expansion of our underwriting.
Alright, and capabilities has driven significant revenue growth and there continues to be meaningful growth opportunities as I mentioned, just a few minutes ago.
On the advisory side, we believe that there is significant opportunity to expand our coverage model. So that we can continue to grow both revenues and our share of fees.
Our efforts to fill in the white space are focused.
Focused on effectively covering large multinational firms and financial sponsors and enhancing our sector and geographic coverage, including the <unk> biotech Fintech Greentech and TMT.
Pharma and consumer in the UK and Europe.
As we move into the second half of the year, we remain focused on.
On adding talented individuals to our firm as we seek continued growth. We are actively recruiting highly talented individuals to our team and we continue to have many conversations with senior level candidates in the capabilities sectors and geographies that can contribute to our growth objectives.
Competition for the caliber of talent we are recruiting.
<unk> is always high in our dialogues with senior level recruits continued to be elevated historically, we've added 4 to 8 advisory smt's per annum and we continue to believe that we will be at or near the high end of that range and perhaps above it.
In addition to the 2 senior advisory and directors, who joined US earlier this year.
We have 3 committed advisory senior managing directors, who will join us over the next several months strengthening our coverage of the healthcare fintech and our coverage of financial sponsors.
In addition to hiring at the most senior levels. We are building out our teams at all levels to meet the demands of the industry.
Year, we elevated pace of activity.
As we add to our teams.
We are also focused on returning to our offices globally with the health and safety of our employees, our top priority and we develop plans to to meet that need we have seen a steady increase of in person attendance.
<unk> in the summer months, and we look forward to up to more of a full return in September.
We also continue to make meaningful progress on our ESG initiatives and diversity equity and inclusion.
In May we published our inaugural sustainability report and launched our dedicated day Eni webpage.
Over the and just last week, we held 2 day of understanding events associated with our commitment of signatories of the CEO action pledge, we look forward to continuing to have candid dialogue around day, Eni and inspiring change across our firm globally.
Lastly, we remain committed to.
Operating our firm with financial discipline, and delivering strong returns to our shareholders returning excess cash not needed for investments in our business or to fund prior deferred compensation arrangements to our shareholders through dividends share repurchases.
While maintaining a strong and liquid balance sheet before I turn.
Turn the call over to Bob I want to thank all of our teams for their hard work and perseverance not just during the past quarter, but over the last 16 months that had been on uniquely challenging for each of and every 1 of us.
We very much look forward to bringing our teams back together in person. So that we can continue to build on strengthen the.
Culture that has been the foundation of our success now let me turn the call over to Bob for some additional financial commentary.
Thank you John as always lets begin with our GAAP results for the second quarter of 2021 net revenues net income and earnings per share on a GAAP basis were 688 million.
$140 million and $3 on 'twenty, 1 respectively year to date net revenues net income and earnings per share on a GAAP basis were $135.285 billion and $6.46, respectively.
During the quarter <unk> holdings, our former affiliate in Brazil.
<unk> repaid.
They are outstanding note to us for approximately $12 million U S, enabling us to financially exit our relationship there to.
The settlement resulted in a gain of $4.4 million, which we have excluded from our second quarter 2021, adjusted net revenues, our GAAP tax rate for.
The second quarter was 22, 1% compared to 24, 5% in the prior year period year to date, our GAAP tax rate is 19, 2% compared to 25% in the prior year period.
On a GAAP basis, the share count was $43.7 million.
For the quarter and $44.1 million for the first half.
Our share count for adjusted earnings per share was $48.5 million for the quarter and $49 million for the first half.
We're focusing on non compensation costs, we continue to generate significant operating leverage in part due to lower.
Compensation expense firm wide non compensation costs per employee were approximately $39000 for the second quarter down 8% on a year over year basis.
This level of non compensation costs per employee contrast to our 3 year quarterly average measured from.
Lower non <unk> 17 to <unk> 2019 of approximately $47000 per employee.
Not surprisingly the decrease in cost per employee versus last year, primarily reflects lower travel expense.
As we look ahead, we expense, we expect expenses on a per head basis to begin to increase.
From <unk> as we continue to evolve towards more normal operations, including returning to our offices travelling to engage in in person.
<unk> had meetings with our clients and to recruiting and Onboarding senior talent, which we expect in the second half of the year.
We do expect however, some cough.
<unk> efficiency as we move forward as we utilize the technologies that enabled us to work so effectively over the past 16 months.
Looking at our balance sheet as of June 30, we held $1.5 billion in cash and cash equivalents and investment securities up from the prior quarter.
Quarter as our balance sheet grows throughout the year as we accrue for compensation obligations that will be paid in the first quarter of next year.
As we have said before we hold cash and investment securities to fund, our obligations and commitments cash and investment securities at the end of the quarter support the minimum level of capital required.
Cost of separate our businesses, including regulatory capital requirements.
Crude comp that is both on the balance sheet and committed but not yet expense and of course earnings that were earned in the second quarter that have not yet been returned to shareholders.
Finally in closing for me and before we turn to questions.
Questions as Ralph noted and most of you know this is my final earnings call with Evercore.
The past 14 years as the CFO of Evercore has been an exciting and challenging journey.
To thank the analysts and investors who are on the call and all of those that procedure for your engagement and lively discussion over the years there have been.
Several lively ones, we have built a strong team over the years a team that makes these calls easy for Jon Ralph on me and a team that I have been privileged to work with and to lead.
Our leadership as our analysts and investors remain in very capable hands.
With that operator.
On the line for questions.
Thank you we will now begin the question and answer session.
Minder, if you have a question. Please press star followed by the 1 key on your Touchtone phone. If you would like to do on your question press the pound key.
If you are using speaker equipment, you may need to lift.
Can we open.
Sure.
Our first question is from the line of Devin Ryan.
Securities Your line is open.
Great. Thanks, so much good morning, Ralph Jonathan Bob first off just want to say, Bob it's been an absolute pleasure.
Best wishes.
What are the debt so best wishes in the future here.
Hum.
Maybe just to start.
For everyone as you think about the addressable market overall evercore hasnt been historically thought of as a middle market focused firm, though clearly.
Evercore is active in the middle markets.
So I'm just curious as you expand your sponsor connectivity and think about white space. How much more is there to do in the middle market and how much more of an opportunity maybe is that relative to what you guys have been doing there.
A lot.
Answer yes.
Clearly I think that we.
The middle market is a huge market as you know and we believe that there is a great deal of room for us to continue to focus both in terms of covering emerging middle market companies that are growing and an important spaces.
That we cover as well as talking to sponsors who have portfolio companies in the middle market and to buy and sell for them and so as we look at that opportunity. We think it is almost limitless and the only thing limiting us is the bandwidth of our talented bankers.
<unk>, who are who are all at this point quite busy, but we think theres a lot of open ground for us and a lot of white space to covered here.
Devin the vast majority of.
M&A transactions are.
On $1 billion and below.
And.
We're no different.
From any other firm in that regard historically, our media and transaction size has been in the 6 to.
To $700 million I don't know what its been the last 12 months, but on.
Virtually certain it's in that.
ZIP code.
And so we've been very active there, but as you point out it's a vast market and so there is certainly lots of opportunity there for us to grow.
Okay.
Okay, great. Thank you.
A follow up here on some of the commentary on recruiting competition on compensation.
I appreciate that Youre, having an active recruiting year end. So it sounds like there's still quite a bit of momentum in conversations but just curious.
Whether I guess the.
Competition, and maybe increased compensation that youre seeing in the market is that just kind of where we are in the cycle.
We've seen this before or is there anything more structural that you think maybe pushing that higher and so therefore some of this may stick more then.
Historically it does when you get into the.
A hot market and that things cool off and then you see a reversion there I'm just curious how you guys are thinking about.
<unk> seeing in the market right now.
I think that's it.
Cyclical but.
Sort of cyclical a little bit.
Hence by what's happened in the last 18 months. So if you think about the last 18 months.
Covid hit.
Everybody went from focusing.
Completing their backlog.
Helping clients with liquidity.
Raising capital and focused on their own liquidity.
And so my guess would be certainly true here at Evercore, If you look at.
The amount of lateral hiring that was done.
On.
In the first 9 months of 2020, and probably all of 2020.
In firms generally it was below what it had been in.
Probably many prior years. So you have this phenomenon where the.
There was relatively low.
Incremental hiring.
In most of 2020 and then the market came roaring back.
So.
That's the enhancement and I think they are.
We're working through that the level of activity is very high.
Everybody is short staffed every firm.
Thats doing well is extremely short staffed.
And so that creates.
I think a little bit more comp pressure than you might have in a normal upcycle.
I completely agree with that and I also think that the.
The fact that there.
There are so many deals out there and so much activity that has built and is building right now just puts.
Tremendous pressure.
And all of the firms, including US are looking at our people and number 1 defending.
Pending debt high quality of people, we have but on the other hand, we are looking out and seeing if there are some some special people on the market in terms of the comp expense.
I think it's going to be like it's been in the past, which is we're going to have a very strong.
Period, where there is the activity is very high and then there will become a period where activity level gets lower and we cycled down and when you cycle down what happens is earnings get compromised at some of the firms and then the firms need to actually find some some margin in their comp.
Long with and Thats, how it cycles back down and I don't think that this is this is going to be totally a secular change I think it will continue to be sensitive to the merger cycle.
But devin we see absolutely no evidence of <unk>.
Cycling tap at this point right.
Cycle.
Yep.
Understood Yes.
The color Theyre looking for that detail. So thanks, so much I'll hop back into queue.
Right.
Our next question is from the line of Jeff Harte.
Your line is open.
Yes.
Hey, good morning, guys congrats on yet another strong quarter.
You talked about absolutely no evidence of that.
Cycling down and strong backlogs.
Admittedly backlogs are limited, but how does the backlog look sequentially versus last quarter after quarter, where a lot on a lot.
A lot of stuff close does it kind of still moving on the right direction are treading water.
Continues to be strong.
And with the activity level is as.
As it has been very very robust.
We think that if there is there is no reason to believe that things are going to we can at all.
We just feel like the backlogs are continuing to be it at a very strong and robust level.
Okay.
We think about productivity I mean, we're kind of used to focusing on revenues per ask some day, but just the kind of support structure grows.
How much more important revenue for employee be car market I would make less important revenue.
Alright.
Perhaps 70 is kind of the franchise expands on your kind of build out some of the subsectors.
Jeff We watch both carefully as you point out and dialogue with investors.
<unk> revenue per SMT tends to get more attention.
But sort of linking back to your comment on comp.
Revenue per employee is equally as important.
It is.
Reflective of the product.
Statistic is reflective of the productivity.
That we're seeing 4.4.
Smbs.
Okay, Bob I know Youre going to Miss me asking this every quarter, but were there any revenue pull forward from <unk> into <unk>.
Yes.
Did you on another number.
You want the number to Jeff $56 million.
Okay. Thanks.
And finally, just a cleanup for me I missed the stated non comp per employee can you either repeat that or maybe give us the employee number.
The employee number is a little dirty meaning.
Always at the end of the second quarter, it's 1900.
But.
To the second quarter, you have sort of analysts cycling out.
Analysts cycling in et cetera. So at 1900, that's the number of debt, but it's.
Honestly don't don't think of that step up of 100, as a run rate or a trend.
For.
The quarter non comp per employee was 39000.
Sure.
Yes.
Okay. Thank you.
Our next question is from Bill.
Line of Jim Mitchell with Seaport Research line.
Is open.
Hey, good morning.
But at the end maybe.
Maybe Ralph you've noted at the at the beginning of your comments that you feel like we're in the early stages of the next M&A cycle.
But at the same time, we've had 3 quarters in a row of record levels. It's a little unusual for a cycle to start off so strong so how do we think about.
That.
Start to a cycle, how do you feel confident about the growth continuing and I guess, where do you see that that growth coming from current levels.
I think they are.
2 things you have to focus on when Youre looking at the prospects for Evercore is growth.
1 is which was the focus.
Focus of your question, which is the aggregate level of activity.
It's high no question about it.
And.
If you look back historically.
M&A is a cyclical business it tends to be.
Characterized by 5.
At year up cycles in 2 to 3 year.
Down cycles.
The.
And those 5 to 8 year up cycles, it's not a <unk>.
Absolute straight line.
Things bounce up and down.
But they are generally strong strength.
<unk> M&A activity.
M&A activity is clearly strong.
Right now.
2 or 3 quarters ago I commented.
The down cycle that we had.
May have been just 6 months 6 to 9 months because of the unprecedented.
<unk> on an amount of monetary.
In fiscal stimulus.
So we're clearly in a period of strong activity and recovery.
And as John.
Commented in his answer to 1.1 of the questions.
It is.
Some point.
So that period of strong activity and growth in the market will.
Sure.
We will have bet.
But as I commented you can come up with lots of things that could cause that to happen, but there is absolutely no evidence of that.
Today.
And as a result, I also said that this high level of activity is adding yet again to our already strong backlogs there.
The second thing, though that affects.
Evercore is growth rate is our market share.
And.
The entire.
Period from 2009.
To 2021.
On a trailing 12 month basis, almost every quarter Evercore has gained market share in terms of advisory revenues.
And quite honestly we.
We don't see that.
Our bedding.
Regardless of what happens to the overall level of activity harder to gain market share.
The size that we are now, but we still continue to do that.
No that's all fair and so I mean I agree.
M&A tends to build throughout a cycle on that peak.
So it's why it's so so unusual.
But maybe just last for me on.
Non U S seems to have lagged non U S activity, whether it's Europe to the rest of the world.
Is that a source of sort of catch up over the next year or 2 in your view.
Well, we don't know.
I.
At the beginning you go back 10.15 years ago.
North America was a.
A smaller proportion of global M&A activity than it has been for the last.
A few years.
Got it.
If if that have keeps happening maybe there is a.
I mean, if your mental difference in the.
Level of activity.
In North America versus the rest of the world.
Compared to history, it's certainly seeing if you look at the last few years.
It would certainly suggest that.
The only thing I would add is that clearly the U S.
Funded and maybe too.
And extent, China have led the way in terms of economic recovery U S. Obviously has had.
A robust recovery and continuing and.
Clearly the European markets have been.
Slower because COVID-19 has held on longer there.
There, even though COVID-19.
Re emerging everywhere at this point, but.
We fully expect that there will be recovery in Europe as those economies begin to get going again, and we fully expect that they will and so we think that there will be a strengthening over in Europe.
And I think that the.
Mark will continue as long as.
The economy does does not dissipate and that there continues to be strength. So it's in many respects it set the market.
The pace of market recovery market by market.
Okay, great. Thanks for taking my questions.
Yes.
Our next question is from the line of Greg.
With Goldman Sachs. Your line is open.
Hey, good morning, guys. So I had a <unk>.
Couple of questions. The first is on the financial sponsor side I think activity is up something like 25%.
Quarter on quarter on it does seem to be outpacing the increase.
<unk> strategic M&A pretty significantly can.
You talk a little bit about the dialogue with financial sponsors and specifically talk about the pipeline.
Your financial sponsor business heading into the second half on whether or not you think this type of activity can be sustained.
Yes.
Yes.
Sure. Thank you Richard.
Our competitive our sponsor business is quite robust right now where we are participating both on the buy side and the sell side and have been very very involved with some of the strategic.
<unk>.
Portfolio management.
And sponsors.
We are seeing that activity growing dramatically and frankly, 1 of the things that we're focused on I think you heard in our discussion on recruiting is to add capability and.
People into our coverage of sponsors and that continues to grow as you know we have a.
Very robust and broad sponsor coverage business, we get involve both on the on the limited partner basis in terms of thinking about how to help sell and do their interest.
And also.
We also get involved in thinking through for GPS things.
Like how to drive continuity.
Funds and also how to help.
Them to think about.
If they ever sell a partial interest so we have a very very broad coverage of sponsors.
On the pure banking side.
Our activity level with sponsors.
<unk> continues to grow therein lies why we're adding some people because we really need to continue to be able to service those big sponsors as well as middle market sponsors and the activity levels.
Our industry groups continue to cover the sectors extremely well and therefore, our ability to get business.
I suggest those sponsors in the places where they have portfolio companies or an interest to acquire those companies.
Has been quite successful so I think in general we're sharing in that the increase in the in the activity levels of sponsors and we plan to continue to be able to service that is that.
That's very very important sector.
Okay. That's helpful and then secondly on the strategic M&A side.
President <unk> recently signed an executive order, where I think you referenced is excessive market concentration on some.
Histories, and he talks about promoting more competition.
It's very early but can you talk.
This from US about the impact you think this could have especially on larger U S transactions and if you think this elevates the risk of deals not closing thanks a lot.
I would say that.
We clearly.
And the Biogen administration have an administration debt.
Little bit verbally and I would say through its appointments.
Expressed.
A greater.
Scrutiny of transactions.
Then has occurred.
In the past.
On the 1 hand.
On the other hand.
The number of transactions that will be affected by that.
I'd go back to the.
Comment we made earlier that our media and transaction is clearly sub $1 billion.
I haven't gone back and we haven't gone back and analyzed.
Has over the last 5 years, if you wanted to take a.
Stronger magnifying glass.
2.
Transactions that have been consummated.
From an antitrust perspective.
What proportion of those would have been affected but my guess.
On a light as you could count that on a 1 or 2 fingers in terms of a percentage wise of all transactions.
Quite possibly less than that.
And obviously there will be some.
Large transactions there was.
Yes, this week the on Williston transaction.
And.
If a large transaction is contested.
Or by the government.
The participants have 2 options they can.
Was 1.
Abandon the transaction as did happen in the case of Aon Willis.
Or are they can go to court.
As happened in the case of ATT.
Time Warner.
And so.
Sure.
The law is what ultimate.
The governance.
Whether that antitrust enforcement.
Increase.
Can actually have an effect.
On the markets, so because of the law and the court system.
I suspect that the Biden administration.
<unk> will use that.
Their powers judiciously, because no 1 likes to lose in court.
And at the same time, they clearly will be.
More there will be more scrutiny than there would have been.
In previous.
Administrations so yes.
Yes.
It's a.
It's a serious.
Cirrus cloud not a thundercloud.
Okay got it alright, that's very helpful. Thanks, a lot.
Our next question is from the line.
Hakan.
UBS Your line is open.
Hey, good morning, Thanks for taking my questions.
There were a couple of comments around the competitive market for talent clearly, it's more expensive to recruit youre running youre going to be running above your typical 4 to 8.
Ads so.
Is this all.
A way to signal that we should be rethinking the comp ratio this year and based on I understood. Its the middle of the year.
You don't have visibility into the comp pool in the middle of the year, but based on what we're seeing right.
It sounds like there is more likely to be some upward pressure there than not.
That fair and what comments can you add at this point.
I think.
<unk>.
And Bob <unk>.
Answer this but.
Yes.
Every quarter, what we put in as our comp.
Now is our best judgment.
<unk>.
Where.
We think we will wind up.
For the full year so.
It never has a particular bias upward or downward.
And.
Obviously.
The.
The things that.
Affect the full year comp ratio or.
Full year revenues.
Full year.
The level of compensation for each person.
And the number.
The amount of new hiring.
That we do.
And I think.
We don't have we have no information on.
What full year compensation will be from a competitive point of view.
We have.
Half of the.
Cash and as to what full year revenues will be.
And some visibility to the rest of the year and we have.
Not full visibility on the number of hires or.
The seniority of those hires.
So.
But.
I would not in any way presume.
That there is a.
A more.
Greater risk of upward bias in the comp ratio.
Bob you want to add anything nothing more for me.
Okay.
And then.
Bob.
Instrument you.
You made reference to the non comp number in the.
I wasn't sure what the dirty comment around the employees exactly means but.
It will be lower at the end of the third quarter down so yeah, I'm, sorry, I wasn't clear.
Okay.
All good all good.
So is the primary factor of the non comp upward bias on comp.
Increasing <unk>.
It starts to normalize.
Do you have any visibility into what kind of quantum.
<unk> returned to normal we should be counting on in our the or are there other factors that might be waiting into the non comp.
Sure.
I think look I think looking at the second half of the year on non comps travel and the costs associated with <unk>.
Adding talent.
The big.
Drivers of a different result in the first half of the year.
Net net both of those are high quality.
To increase cost.
What the quantum will be on the second half will be very much.
Covid dependent.
How how engaged how active are clients going to want to be.
And in person meetings.
Reason, not smart enough to gas how that will play out.
In the second half of the year.
Yes.
We wanted to highlight on average to get a better sense of normal cost on.
Per employee.
The idea that we would see.
<unk> shot back.
2.2019 levels.
Seemed to be overshooting.
What that number should look like so the average.
I wouldn't we don't give guidance I wouldn't try to say what it will be.
In the second half of the year Brennan, but thats the direction we.
Would expect it to move towards.
Yes, Okay that's fair.
And I guess, the sort of little last just a follow up actually Ralph you were talking about the median transactions being a $1 billion I know, there's a bunch of different ways to run the numbers, but did you by chance take a look at what the.
Transaction would be like if you revenue weighted and what that would be I would suspect it would be higher but would it be materially or is it in the same ballpark.
Bob I don't know the answer what Brendan there is there is a number that we always produce.
Which is the number of fees.
Of.
A $1 million or greater.
Sort of looking at how that performs over time.
On the important statistic is how many transactions are there so.
It's in the earnings release for the first half of the year there were 218 fees.
The $1 million or greater.
That compares with 150 for the first half of last year.
Roger reminded me once.
Yes, it is that simple.
Serve more clients to Edinburgh meaningful fees.
And there is a.
There is some correlation but its a pretty.
Pretty loose 1 between.
The size of the transaction and the size of the fee.
And what you would tend to see is that the largest fees are very often earned on.
Transactions that are.
Sell sides that arent the largest.
Actions, but have.
Hi.
Achieved a.
And unexpectedly high outcome.
Clients pay for that.
Good news as debt.
We are now large enough that.
That in fact, averaging.
Makes these numbers a little less volatile.
And a little more relevant and I would say that 1 thing that is happening with US is we do have an increased focus on larger companies and larger transactions and that will impact our results overtime.
Awesome.
That's all very very interesting and of course.
Bob Congratulations on your retirement and.
Congratulations on joining looking forward to working with you again.
Our next question is from the line of Lasalle.
Lasalle with Morgan Stanley Your line is open.
Hi, good morning.
Maybe just a follow up to that last question when I look at the fee rate over the last few quarters, whether its revenues per deal or even as a percentage of volume.
Does it look like that's up nicely for a few quarters.
How much of that do you think is from the environment and the fact that we have.
More large deals now or.
Maybe some of that is from actions that youre actively taking.
I was wondering if you can comment on that basically I'm just wondering how sustainable you think that is over time.
Look I think it went on it.
On any given quarter any given.
Covid period of time.
A very large transaction recognized in that quarter.
Push that average around.
So as always is the case with us looking at trends over a long period of time.
Is more meaningful.
It has gone up.
It.
Given there are so many factors that drive that John's focus on really focusing on.
Big important relationships and sustainable relationships with clients is key.
On the other hand.
The work we did at the end of 2019.
Sort of exiting.
Markets, where productivity simply could not meet our objectives.
And really being focused on the kind of business, we're doing or not doing.
Is equally important so it is going up over time.
Is something that.
If we on.
Forming effectively focusing on the right opportunities and equally not focusing on sort of unproductive markets. We should be able to drive that result over time I'd. Just encourage you to be more focused on longer measures trailing 12 months, then that any given quarter.
Okay great.
Thats helpful. And then maybe if I can just pivot over to capital return.
You've done about $400 million or so on buybacks for the last 2 quarters.
And that is certainly higher than what we've seen from you on the past.
Can you just run through how you're thinking about buybacks and how you are looking to continue to return on.
Capital through buybacks at a steady pace.
As the earnings come through or would you look to keep a little bit.
Cash on liquidity in your back pocket.
Maybe be a little bit more opportunistic if the market downs.
I am thrilled to have someone suggested.
That we could hold even a little more cash.
But I don't I don't get many fans of that.
Look at it.
We are back.
To a place that we had been and that we're very comfortable with.
Which is will the board will look at our dividend annually.
And.
No.
In the first quarter of the year.
The rest.
Rest of <unk>.
Free cash earnings will be returned through buybacks, which you've seen in the first half of the year has been strong.
Quite simply.
On a function of 2 things 1 in 2020.
As we discussed we really took the opportunity to strengthen the balance sheet.
I'm loath to use the word fortress.
Maybe it's a little.
Tiny outlining for it somewhere, but it's a pretty strong balance sheet and it's a very strong balance sheet for us.
So we don't we don't need to tie the way.
Even more.
Our liquidity, we're in a position to.
To.
Return it to investors as we have done so.
When we have strong earnings.
You can anticipate.
Dividends and buybacks.
Okay, Great and then I just want to add to the car on spot.
Q for everything and good luck with the retirement and slashed welcome and we look forward to an active dialogue.
As a reminder, if you would like to ask a question. Please press star 1.
The 1 key on your Touchtone phone.
Our next question is from the line of Michael Brown with <unk>. Your line is open.
Yeah.
Okay, great. Thank you thanks for taking my questions.
Just on on restructuring I think in your prepared remarks, you just.
Briefly touched on it and you know.
Clearly the assignments you down on a year over year basis.
I guess I was just curious how that activity has trended since since last quarter is it does it relatively kind of in line with expectations or are you kind of seeing opportunities for maybe.
A bit of a pick up in and mandates here.
Thank you.
I think more.
Just kind of see.
Steady state bumping, along it's awful hard for mandates to pick up when you have.
Extraordinarily low interest rates unlimited liquidity.
And.
And very receptive equity markets.
That of companies can't borrow money they can re <unk> themselves. So.
The the restructuring environment.
It's certainly not dormant.
But.
There is some carryover.
<unk> activity from last year and there is.
Yes.
A reasonably.
Meaningful amount of activity and sort of liability management.
Debt recapitalization.
<unk> advantage of the very liquid markets.
Today.
They are busy but they're certainly not as busy as they were thankfully last July August September 1 of the important things that are a good restructuring business does and we think we have a really excellent restructuring businesses. They build relationships so that when the market.
It gets.
With respect to restructuring.
Expertise that we have access both in terms of portfolio companies and sponsors as well as other more leveraged.
Organizations.
And.
1 of the most important things.
So doing right now which is continuing to build relationships.
And.
Access to those important accounts clearly because the our group is known to be financial experts. There is a lot of dialogue going on in terms of getting advice on certain aspects of liability and.
Capital structures.
And we think that that will all over time.
<unk>.
Play out in terms of more business for the restructuring business going forward right now there isn't any sector that is really in trouble, even the energy sector, which has been a big sector for us has been.
Been strengthening as prices.
For oil and energy have stabilized and started to go up so right now some of the some of the big things that would be driving the business.
Arent, there, but we still have a high activity level. It's just it's just very different.
I would add just 1.
1 other thing in.
Yes.
There there are 2 reasons that we don't.
Provide huge amount of granular detail on our advisory fees.
1 is that.
They're not easily characterized so when you talk about restructuring.
It's not like there is a.
A bucket of.
<unk>.
Advisory revenues that fall clearly in the restructuring area.
In a bucket that fault.
Clearly in other areas so.
The characterization is not easy it's kind of a black.
Black the greater White, and where do you put the gray.
Is not easy the second thing is and we talked about this a fair amount last year when M&A was.
<unk> on hold.
We have a broader array of waste.
<unk> to help clients or a broader array of advisory capabilities in this firm.
Than any other firm has.
And.
No.
Previous calls we've gone down the list of them.
And what that.
Allows us to do.
Is too.
To advise clients on a broader array of things and as a consequence, we're more of an all weather firm.
That I think.
Our investors and perhaps even our analysts.
Appreciate it.
So.
Folk.
Focusing on 1 place or another.
In our view tends to be a little less relevant.
Yes, thanks for that that's all great great points.
And then just on on hiring last quarter, you guys were confident in the.
The ability to hire for.
S M DS.
Confident that you'd be able to comment on that range. This quarter, you reiterated that and it sounds like you actually could see it come in a little bit better. So just wondered maybe even a little more confident.
If I dive into that a little bit is it just that you.
You just have a couple of hires in the bag now.
So you can feel a little bit more confidence is that where that comes from or have you actually seen like on a.
On a pickup in interest or conversations kind of accelerating at a pace that you werent seeing last quarter, just trying to understand the nuance between this quarter and last quarter.
I think what we what we what we said was that we.
We could very well be within 4 to 8 although we could be above it. There is there is clearly.
Focus from our side as we always have to be looking at the market and seeing whether there is a plus talent out there that would be able to fit into.
What we're trying to accomplish and I think right now we see some interesting opportunities.
And we're in dialogue with those opportunities those people and really it's as simple as that I think we're not going to overstretch, we're not going to to basically hire where we don't think we have the a plus talent.
In many respects our recruiting is all about making sure that we keep the quality level of the organization up.
Respect our model so that we bring in people who can actually address the places that we think are interesting opportunities and to stay disciplined on that and I think that really is what we're trying to do in.
Environment, and I think that debt.
We'll see but we do do we do have some very strong people who have agreed to come.
And we think that we are in several dialogues and we'll see where those play out.
We said in the press release and John repeated.
<unk> remarks that we have 2 people who are ready to Smbs and advisory have already joined we have 3 who resigned from their current firms.
And have committed.
To come here, but are on garden leave.
And our.
Our suspicion is that when we.
Sit here.
3 months from now that will be debt.
A list of 5 who have joined we're committed we will be at or above the upper end of the range.
And just to be clear, we're always looking for a plus talent.
And so when it's available.
We will be.
And looking to bring in bring those people in.
Provided they address places that we think are interesting markets and sectors.
Okay, great. Thank you John and Ralph and then I guess, just 1 quick clarification did.
<unk> provide the current SMB head count.
And this 109.
The advisory SMT is with 109.
Great. Thank you Bob.
And congrats and best of luck in retirement.
Okay.
There appears to be no further questions at this time I would now like to turn the floor to Ralph.
John Weinberg.
Yes.
Okay, Let me just make.
A couple of Conclusory remarks, and I'd also point out debt.
When you said there were no more questions Bob raised his hand and victory.
Yes.
This is actually the 49th quarterly earnings call that Bob and I have done together.
Which must be some kind of record.
In the 19th that John Bob and I have done together.
Over that 12 year period of time, our revenues have grown almost.
Dean fold and our earnings even more than that.
We've grown together as the firm has grown and Bob has been a stunningly effective.
And professional partner and all of that has been accomplished here at Evercore.
Over his 14 years here.
Fifth throughout that entire period, he has been the consummate professional.
Operated with the highest integrity and developed and mentored a finance technology facilities and Investor Relations team that has facilitated all of that growth.
Without exposed.
Exposing the firm to operating risk.
I Couldnt imagine, having a better partner during those 12 years.
And I want everyone on this call to know that you'll be missed.
A partner and a trusted friend so.
Miss you.
It does.
Just on it.
Yes.
Alright, and thanks, everyone for joining us thanks to our team.
Who've done a brilliant job serving our clients and we look forward to being with you.
<unk>.
Do you have any questions throughout the day feel free to reach out to Investor relations will be here. Thank you.
Thank you great.
This concludes today's Evercore second quarter CASM Dwinell on financial results Conference call you may now disconnect.
Okay.
Yes.
Yes.
[music].
Sure.
Yes.
Yes.
Yes.
Yes.
[music].