Q1 2022 Evercore Inc Earnings Call

Good morning, and thank you for standing by welcome.

Okay.

First quarter 2022 financial results conference call.

During today's call all parties will be.

In listen only mode.

All of them the presentation the conference call will be opened for questions.

I have a question. Please press the star followed by the one on you touched on the telephone.

Please press star zero for operator assistance at any time.

For participants using speaker equipment, it may be necessary to pick up your handset before making your churn.

As a reminder, this conference call is being recorded today Wednesday April 20.

2022.

I would now like to turn the conference call over to your host Evercore as head of Investor Relations ESG Katy Haber. Please go ahead.

Thank you so much good morning, and thank you for joining us today for Evercore first quarter 2022 financial results conference call and.

I'm, Katy Haver Everquest, new head of Investor Relations and ESG.

Joining me on the call today is John Weinberg, our chairman and CEO and so that's why our CFO .

After our prepared remarks, we will open up the call for questions.

Earlier today, we issued a press release announcing Evercore first quarter 2022 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 and are for investors section of our website and an archive of it will be available for 30 days beginning approximately one hour after the conclusion of this call.

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 that was discussed in everquest filings with the SEC, including our annual report on Form 10-K quarterly reports on Form 10-Q , and current reports on form 8-K.

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 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 everquest performance on an annual basis.

As we have noted previously our results for any particular quarter are influenced by the timing of transaction closing.

Now I'll turn the call over to John .

Good morning, everyone and thank you Katie.

We are very fortunate to have Katie here to take on this important role as head of Investor Relations and ESG and I know you will all join me in welcoming her to our team.

It was a solid first quarter for Evercore with $728 million and adjusted net revenues $625 million and adjusted advisory revenues and $3 80, and adjusted earnings per share.

All records for our first quarter.

Having said that I want to acknowledge the challenging geopolitical backdrop that underlies the start of 2022.

The war in Ukraine has increased uncertainty on a global basis, resulting in capital markets volatility and wide ranging strategic questions for corporate leaders.

However, even with this recent uncertainty the fundamental themes that drive M&A activity in the intermediate to long term are still in place rates are still low from a historical perspective markets are accessible and CEO confidence remains high.

On the corporate side. In addition to the search for growth by corporates, we continue to see innovation and new disruptive business models that we expect will drive multiyear M&A decision, making.

We also anticipate increased activity with respect to the evolving energy transition landscape ESG related drivers and increased private equity activity as sponsors invest record levels of accumulated capital.

Notably private equity dry powder now exceeds $3 four trillion in sponsors continue to focus on numerous ways to put this money to work.

Further we see increased activist activity with M&A, often catalyzed by certain activist campaigns.

With these drivers our backlogs remained strong although we would note that the war inflationary pressure supply chain constraints and rising interest rates led.

Led to some slowing of the pace of announcements in the latter part of the quarter and an elongation of the timing of transaction closings.

Looking at the overall M&A market this quarter.

Global and U S M&A announced dollar volume decreased 21% and 19% respectively compared to the first quarter of 2021 also the number of announced deals decreased 17% globally and 20% in the U S versus the first quarter of 2021.

For the largest deals those above $5 billion global activity cooled dollar volume declined 10% and the number of announced deals fell sharply down over 30% as compared to the first quarter of last year.

Looking at transactions in the 1% to $5 billion range dollar volumes declined 40%, while the number of transactions fell 36% versus the first quarter of 2021.

That said our teams remain active across a broad spectrum of sectors and capabilities.

These high activity levels helps contribute to another strong quarter for Evercore.

We remain confident that our firm is better equipped than at any point in our history to thrive in varied market environments.

A testament to our broad and deep capabilities built over a decade of significant investment.

Our firm today is watchful unprepared and importantly, we continue to be deeply engaged with our clients advising them on pressing strategic priorities. We are optimistic about our future and continue to invest in our growth by adding talent to our team across all levels and businesses.

We're pleased to have had a successful start to our external recruiting efforts in 2022.

As human capital continues to be the most important investment we make in our business and.

In advisory to senior managing directors joined Us in the first quarter and we have two additional S. M. DS committed to joining the firm later this year both focused on our technology franchise.

We are in active discussions with additional talented candidates in several areas of strategic significance.

Further.

Our new record class of 17 senior managing director promotes is off to a solid start this year, we look forward to their continued growth and further contributions as they ramp.

Turning to the quarter as I mentioned, our business diversity enabled us to achieve the best first quarter in the firms history in terms of adjusted net revenues adjusted EPS Advisory revenues indicative of the revenue generating power of our franchise.

In advisory we saw strength in some of the largest sectors, including technology media and telecom healthcare and industrials driven both by our corporate and sponsor clients.

In capital Advisory, we see sustained strength in our GP led transactions fundraising secondary investments continuation fund opportunities and real estate capital advisory in.

In terms of restructuring Wow Classic chapter 11 restructuring work remains slow given the health of corporate balance sheets, historically low default rates and relaxed covenants. We continued to be active in liability management engagements out of court restructurings and in debt advisory and placements.

Yeah.

A capability that we are actively growing.

Turning to underwriting activity was broadly impacted by the significant spikes in volatility and macro headwinds that weighed on issuers and kept them on the sidelines in the first quarter, we executed 14 underwriting transactions and acted as book runner on 13 of these while our activity. This.

Water was strongest in health care, our ECM momentum continues in our pipeline is broad in terms of sector and product reach we are seeing the benefits of investments in this business, which should become clear when markets reopen more broadly.

Looking at the overall ECM market in the U S equity issuance declined over 80% year over year, and IPO issuance issuance declined over 90% versus last year.

Since bottoming in February however, market activity has picked up with issuance in March nearly doubling from February levels in step with the decline in the VIX.

When markets stabilize we expect activity to rebound as many IPO issuers, who had previously targeted first quarter execution windows are now looking to the second or third quarter timelines.

In our equity business, we remain connected and engaged with our clients, providing research insights, particularly around Ukraine developments and the fed and inflation implications. Our research combined with solid sales and trading execution led to record levels of client interactions and in turn strong and improving broker votes.

Further we are seeing the positive impact of our most recent investments with options and converts activity posting their best quarterly revenue contributions to date.

In wealth management long term performance remains strong.

We were pleased that the Evercore equity fund was named among the best diversified mutual funds of 2022 by Investor's business Daily. This award recognized as funds that have beaten their S&P 500 benchmark for the past 135 and 10 years.

Before I turn the call over to Celeste to review, our GAAP results and other financial matters I want to discuss our capital return strategy. We remain committed to our goal of returning excess cash not invested in the business to our shareholders in the form of dividends and share repurchases.

Even in this less certain environment.

We were able to raise our dividend a testament to the power of our diverse business model. Our buyback activity was also very strong to start the year. Despite a pause following the Russian invasion of Ukraine.

We returned $298 million to shareholders during the during the quarter.

Through dividends and the repurchase of 2 million shares our board declared a dividend of 72 cents per share an increase of 6% from the prior dividend declared we intend to return all other excess cash not reinvested in the business or set aside to fund future compensation obligations in the fourth.

Or share repurchases.

As previously announced during the quarter. Our board also approached approved our share repurchase authorization of the lesser of $1 4 billion or 10 million shares <unk> L. P units, reflecting our continued commitment to our capital return objectives.

Looking ahead, we remain excited about the opportunities in front of us and have a clear vision for the firm going forward as they laid out on our fourth quarter call, our consistent roadmap for growth, including investment in talent and in broadening and deepening our capabilities will allow us to continue to serve our clients and address their needs and almost any environment Let me.

Now turn the call over to Celeste. Thank you John .

The first quarter of 2022 net revenues net income and EPS on a GAAP basis were a record for a first quarter at $723 million $158 million and $3.79 respectively.

My comments from here will focus on non-GAAP measures, which we believe are useful in evaluating our results our standard GAAP reporting and a reconciliation of GAAP to adjusted results can be found in our press release.

First quarter adjusted net revenues were $728 million up 9% year over year first quarter, adjusted advisory fees of $625 million or 22% higher year over year, which was another first quarter record.

As John mentioned, our underwriting business had a slower start to the year along with the rest of the market with 36 million in revenue down 54% from the year ago period.

Our equities business continued to perform well given the market environment with commissions and related fees of $51 million down 5% year over year.

Adjusted asset management and administration fees were $19 million up 8% versus a year ago, driven by higher AUR due to positive flows and markets.

Adjusted net income was $173 million for the quarter up 7% versus the year ago period.

Adjusted EPS.

EPS of $3 80 increased 16% from the prior year.

As for our margins, we delivered first quarter adjusted operating margin of 29, 5% versus 31% in the first quarter of last year.

First quarter adjusted other revenue was a loss of $3 million, reflecting our losses on our investment funds portfolio, which is used as an economic hedge against a portion of our deferred cash compensation program. This amount fluctuate with market values and the market declined during the quarter drove the losses.

In accordance with the relevant accounting principles. Our revenue includes approximately $45 million of advisory fees that were driven primarily from transactions that closed in early April to compare we recognized $21 million in the fourth quarter of 2021 and $31 million in the first quarter of 2021 in accordance with.

At the same accounting principles.

Turning to expenses, our adjusted compensation ratio for the first quarter was 59%.

We historically have reflected a compensation ratio in the first quarter based on our best estimates for the full year as we always do we will continue to evaluate the key drivers of our compensation expense as the year progresses and make adjustments as appropriate.

As John indicated our backlog is strong given the elevated uncertainty globally, we are carefully monitoring the timing of deal closings.

First quarter adjusted non compensation cost of $84 million were up 15% from $73 million a.

A year ago, primarily driven by higher travel expenses in search and placement fees travel levels in the first quarter dropped from the fourth more than our usual seasonality due to the omicron variant so picked up as the quarter progressed, we expect travel levels will continue to normalize over time they'll remain below historical levels.

As we previously mentioned our non comps this year will continue to reflect firm growth, which drives increases in occupancy and equipment related depreciation and amortization certain tax related expenses and several other items, we anticipate that expenses will increase as the year progresses as travel.

Picks up and deal expenses ramp upon the execution of our ECM pipeline as well as overall inflationary pressures as we've discussed with you previously.

Our adjusted tax rate for the quarter was 17, 1%, reflecting the tax deduction associated with the appreciation in the firm's share price upon delivery of employee share based awards above the original grant price, which reduced our effective tax rate.

As John mentioned, we remain committed to returning excess capital to our shareholders with a 2 million shares repurchased year to date, we offset part of the RF RSC was granted earlier in the year and finished the return of all of our 2021 cash flow.

Our repurchases were made at an average price of $128 in 2014.

Our first quarter adjusted average diluted share count declined to $45 7 million from $47 3 million in the fourth quarter of 2021, reflecting repurchases.

<unk> from the Treasury stock method due to the decline in the share price during the quarter and partially offset by vesting.

Turning to our balance sheet as of March 31, our cash and investment Securities totaled 1.5 dollars $5 billion.

Our excess cash as a percentage of our total cash and investment securities was again in the low double digits.

As a reminder, our cash generation in knees are dynamic and are heavily influenced by our business needs expected compensation obligations and timing of capital return, which can result in a fluctuation of a relative excess cash position.

As John said, although the near term is uncertain, we will continue to execute on our long term plan and remain optimistic about our future with that we will now open the line for questions.

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

A reminder, if you have a question. Please press the star followed by the one key on you touched on phone.

You would like to withdraw your question press the pound key.

If you are using speaker equipment, you may need to lift the handset before making your selection.

Please limit your questions to two.

Youre welcome to rejoin the queue for additional questions time permitting.

Our first question comes from the line of Brennan Hawken.

With UBS.

Yeah.

Good morning, Thanks for taking my questions.

I wanted to start you.

You guys gave some very fair and balanced remarks about the environment.

Some of the uncertainty.

But.

Typically given your backlogs you have a vision, that's pretty decent out six to nine months.

What can you say about that outlook at this stage understanding that the timelines are starting to stretch.

And we've heard.

That financing markets are tightening up a little bit.

Have you seen this reflected in your dialogues with with sponsors so far and what color can you give on that and the impact. Thanks.

Good morning, Brian how are you.

We are.

We've always said that we can see three months out to six months out I would say that it's even more uncertain now than it's been in the past and I think we can see clearly three months out it's very hard to really look a lot further than that frankly, we see our dialogues are full.

And people are very busy we're talking to clients, it's very hard though to say that what the market is going to be like in six months, because there's so much uncertainty geopolitical.

Elements will actually probably overrun almost every other factor at this point if there comes some kind of extreme.

In terms of our dialogues with sponsors and other clients. They are very full and we're very happy and comfortable with with where we are right now.

Where our bankers are busy they're out on the road and we're really having what I would call is very full dialogue. So from that perspective, we feel quite confident but clearly it's really hard to look out further than three months right now.

But the activity levels is good.

Yeah, Great John really appreciate that and totally.

I understand that it's a it's challenging.

Doubleclick.

Double clicking on your some of your comments around sponsors.

You all have indicated in the past that $30 to 45% of the advisory revenue is sponsor related over the last few years can.

Can you may be give a general indication about what portion of that would be M&A, you know versus the private capital advisory and private fund business, how should we think about that mix and is it.

Is it fair to think about that range of 30 to 45 generally you're trending.

The last three years is trending towards the upper end of that range or has it more been bouncing around that range through that period.

I think the reason we have a range Brennan is because we really do think that it does go back and forth and so much can be driven.

Driven by overall volume volume volume levels.

30% to 45 remains a good place we've never broken out exactly what the elements of that would be but what I would say is that we are building the business on all levels. So for example on the capital Advisory business, we continue to invest there.

We promoted six new partners in that side of the business.

Last last last year, and we are very committed to that in addition, we are continuing to invest in the M&A side and so I can easily see real growth there over time, so I feel like that business continues to be a very important focus for us.

And we're going to continue to invest in it.

I think you can assume that we're going to be trying to grow each of those businesses and independently and jointly and so we hopefully will continue to have those businesses grow but we're not at this moment or at this time breaking that out specifically.

But we but I would just say that we continue to believe that those are all really strong businesses for us and real opportunities.

Okay. Thanks for that color John I appreciate it.

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

Great. Good morning, everyone. Thanks for taking my questions here first.

First question just want to dig in a little bit on.

Some of the higher growth industries and areas within technology, specifically you have seen some pretty severe selloffs already in the market you know some some areas are down over 50% in terms of valuation.

In recent months and your private valuations have held up better than kind of public valuations, but curious kind of how this is changing dialogue. If these are important areas of the M&A market and how clients are thinking about M&A with valuations having moved so much in and does it change kind of the conversation.

Or more maybe.

Opportunistic deals like the type of deals change or do we just see a big slowdown because call. It the bid ask has widened pretty materially maybe more than some other areas of the market.

Thanks, Kevin you know I would say that always when there is market movement, the seller and buyer expectations somehow widen and then they come back together and my thought is that sellers right now are still absorbing.

What has happened but frankly.

In the dialogues that we're having there is still a very fulsome set of expectations that deals will get done and can get done as much as anything in the on the tech side I think people are really recognizing that that the value of these businesses may be impaired by markets, but they click.

Nearly always seemed to bounce back and so buyers are still very interested and sellers are are really watching and seeing what kind of prices. They can get and so the dialogues that we're having are full they continue to be at the same kind of velocity that we've had as we've said.

The environment has elongated.

What I would call as the timing of deals, but I don't think it has really at all impaired.

<unk>.

The dialogues themselves and the velocity of the dialogues I think that really we are seeing just these dialogues continue and our bankers are very busy on these and especially in our tech and our tech franchise is growing I mean, one of the things that that we've that we've really done is continued to look to.

Best on the on the Tech franchise, just because the activity level is so high.

Okay, great to hear jumped.

And then just a quick follow up here I wanted to dig in a little bit more on some of the commentary on kind of recruiting outlook and it seems that whenever it was incredibly busy and I know people are still quite busy right now at Evercore, but.

When the industry is kind of you're hitting on all cylinders as maybe it was over the past year or two.

When people are working with clients is hard to harder or maybe to pull them away.

To join kind of a new firm and so I'm curious if you're if you can give a little bit more clarity around kind of the tenor of conversations that you're having with.

With potential bankers I know that youre very selective so it's kind of always a tough environment or competitive environment to recruit but.

Any thought around maybe if things are a little bit slower here, obviously to start the year and in coming months does that create more opportunities to have conversations with people that otherwise maybe would have been working on the transaction.

To close with their prior firm.

Devin.

Good question and what I would say for our for US is that we are very focused on on getting high quality talent and we started the year by bringing two people in.

One of.

A Japanese partner, who is going to help us with our Japanese business and then another David Lycia, who is who is in the debt advisory side and really helping us build out that business we have two.

Other recruit two of just basically accepted offers from us both in tech.

And we have several other recruits who are very much in in in strong and in strong.

Yeah.

Very full dialogue with us that we expect will happen I would say that that were in the four to eight that we've always said that where we focus on I think we're going to be at the high side of that and the reason is because we feel like we've got really really good opportunities and we're hiring aggressively into our big opera.

Attunity, we feel like the group of people, who were talking to right now are a level talent and we've always said that if we have the opportunity to improve our business with a level of talent. We will we will act on it and that's exactly what we're seeing right now so we see we see real opportunity and were filling out a lot of the areas that we've talked about.

With you things like the tech business.

The Fig business.

Biotech clean Tech fin Tech all of those areas are areas that we are looking at very closely and we actually have some very strong people in around many of those areas who are interested in working with US. In addition, we're looking at some very very good opportunities.

Wally that we really believe we should be working on so I would say that we're finding the recruiting environment to be very full.

Where we feel like we have access to really strong talent and we're spending a lot of time on it right now.

Okay terrific, great to hear and I appreciate all color John Thanks, So much.

Our next question from the line of James.

Goldman Sachs.

Good morning, Thanks for taking my questions. So maybe if you could just sort of contextualize the strength of the traditional restructuring business I know you talked about capital advisory specifically and what extent that sort of contributed to results and then you know.

What you would think would sort of have to occur in the economic backdrop to catalyze this to return to say I don't know 2020 type levels.

Overall restructuring.

This was a little bit stronger.

Thank you for the question.

The restructuring business, we think is a real strength for us and we've.

We continue to be really excited about the prospects over time as you said with the markets are strong as they are and as they have been over the last couple of years and rates as low as they've been there hasn't been quite as much activity, our restructuring group, which is which are really.

A group of really high quality financiers have been very busy in out of court bankruptcy type discussions.

Liability management and debt advisory type situations and also building relationships with sponsors and with other hi, Hi.

High yield type situations.

There is clearly a.

A reasonable.

The likelihood that the markets will get more difficult that rates will continue to go up and that will in turn Cree.

Create some opportunities on the restructuring side.

We don't see anything right. This very minute, where we are seeing real volatility in the market, but we actually are looking outward and we think that it is very possible that the environment will turn we actually feel very comfortable that we're well positioned and I would say that that over.

Time, I think youll see us get very busy again as you know this is all a site a cyclical thing.

We feel we feel like the cyclicality is it's it's probably closer to the restructuring business getting busier than then.

Then before.

It's just we don't know exactly when that's going to happen, but I would say that we feel very well positioned for it we really liked the way we have positioned our team and.

I think they are ready in case clients need them.

That's really great color.

And then just for my follow up.

When you sort of think about the deal appetite on the M&A side from your clients, who seems to be sort of more likely to step into the market again. After this current.

A slowdown in M&A across the strategics.

And sponsors and maybe you could just sort of contextualize the difference in dialogue with those two types of clients.

Well starting with sponsors sponsors are ready to go you know they have a lot of dry powder as we said, it's 3.4 trillion and that's that is I mean, certainly I can't remember there ever being that kind of a balance of powder ready to go and I think a lot of the sponsors are really thinking about things I can tell you personally.

<unk> that I've been in several conversations with sponsors who really are looking at deals that are larger on the large side for them.

That they think are really interesting and they'd like to do and they're waiting for an environment. They think is stable enough solid enough. So that they could launch them. So I would say that sponsors are really ready to go. They really are thinking that the environment will come to them and I think that you know that.

That most of the sponsors are really very very active at creating opportunities that they think will be very good for their investors in terms of corporates.

The corporates haven't stopped their their strategy strategic discussions in their boardrooms.

I can just tell you that we have been and I've been in many boardrooms over the last month or two where there has been discussions about real deals that are that are actually quite.

Quite defining for these companies and they're not.

These deals have not been basically canceled they've been put on hold watching the environment come.

So I can easily see that if the environment really stabilizes.

Could easily see that the deal the deal business could really pick up quite quickly because theres been a lot of activity analyzing things.

Right now, though I don't think a lot of boards have an appetite to be stepping into a market that they think is so uncertain and so that's why we're seeing things slow down.

You are seeing some big deals that are getting announced.

And in situations that are happening, but there are fewer and further between and some of the things that we're seeing are big big deals others. The smaller middle sized deals arent happening quite as much but I think what we what we all see is that there is a backlog of deals.

That could happen if the market turns and looks to be stabilizing and so my own point of view is that.

Sponsors are really ready to go and.

I think that corporates really haven't canceled the things that they've been looking at Theyre. Just waiting also so we'll see as the environment starts to firm up I could easily see things really taking offered and certainly getting much busier.

Okay. Thank you for taking my questions.

Our next question is from the line of Jim with Seaport Global.

Hey, good morning.

And then maybe talking about the the internal promotes obviously your largest class I think of that translates to 22% growth in advisory at some D. So and it does seem like a good chunk of them were in capital advisory. So how do we think about the different.

Productivity rates of I guess internal promotes versus external hires and then also.

Capital advisory versus more traditional M&A.

Well I'll.

I'll start with capital Advisory, Yes, we did have quite a few capital advisory promotes and honestly. The reason is because we have an extraordinarily strong group of people.

And that business is a very very strong business and so one of the things that we've really taken pride in and tried very hard to do is become a firm that really promotes from within as much as we can.

In many of our businesses, we have some very very high quality talent and so I must say one of the things that I feel best about is when we're able to hire really strong people from within and allow them to actually become leaders in the organization. It's a great message to the organization. It motivates everybody at all levels and I think.

It's a really powerful positive thing for the firm in terms of the capital advisory businesses.

They're very good businesses.

We really have never broken out productivity per banker per se, sometimes you all run the numbers yourselves and see these things, but we don't but I would say that the capital advisory business is a very busy and so you can imagine that there's a.

Quite a strong productivity level in terms of the ramp you asked about the ramp between.

Talent that we bring in laterally versus talent that we promote.

Generally I think the talent you bring in laterally there.

We're at a at a level where they are at a level town. That's the reason, we promoted them, they're going to probably ramp faster than the people. We promote having said that we are really we're really thoughtful and I think tried to be very very rigorous about the people, we promote and so I would say that.

Personally I feel very comfortable that every single partner that we the person that we promote to partner.

Is somebody that we believe and I believe are going to be producing at the level of the other partners at the firm.

Obviously not every partner produces at the same level. Some partners are more than others. Some of our promotes I think are going to be the stars of our organization and.

In two or three years I mean, they're really in my opinion that good so.

But I do think that lateral probably ramps faster than internal promotes because the internal promotes are just still growing there are people. We've identified there are producing at a very good level. That's why they've got promoted but they may not be quite at the level of the a plus talent that we would be bringing in laterally.

No. That's helpful. And then just maybe as a follow up switching gears to the buyback.

You did about 20% of the capacity in the first quarter is that how you're thinking about it that in four to five quarters you can.

Utilize the entire buyback or is it going to be just quarter by quarter determining the amount of cash flow you have.

Hey, gentlemen, Celeste baseless.

Yeah, it will be really dependent on the.

And the free cash flow generated by the business.

We still do have shares that we need to buyback.

Do you offset the RFU issuance that we did.

In the first quarter so yeah.

Probably a couple of hundred million dollars of what we need to buyback to offset the RF.

Ah the RF you dilution.

And then well you know as we said, we generally deploy our free cash flow on a one quarter lag so.

So as the year go sell well our buybacks go we typically authorized for a multi year period, we obviously because of the strength of last year, we're able to.

Do you a lot more very quickly.

But it would really be dependent on the environment.

As you know.

We want to ensure that we have cash available to do the things, we want to do and invest in our business.

And make sure that we're we're protecting the franchise in all environments.

Okay. Thanks.

Our next question is line of Manhattan.

Stanley.

Hi, good morning.

John maybe a follow up to your comments on sponsor and strategic activity.

Do you think that the fed actions impact this.

So the last time, we saw.

An elevated level of uncertainty in early 2020 things deteriorated for a couple of quarters and then you saw a sharp rebound as we got into the back half of 2020, so how much muscle memory do you think there is from that time.

Our sponsors and other clients actively engaged in looking for opportunities or.

Would you say that is the last time the fed actions war.

Or a tailwind.

And at this time, we don't have that tailwind any longer so things could take a little bit longer to rebound.

Thanks, Matt and I and I think it's a really interesting question.

In my career watching these things over many many many many many many years I would say that that fed actions and the way. The government plays does have what I would call intermediate term effect on the merger markets and on activity levels having.

Having said that I'll make a general statement, which is that as the.

The participants in the merger market get used to the levels that are that are set up.

They begin to start going back into the water and start looking aggressively at deals having said that I want to be careful because we all know that in the sponsor business.

What it costs to actually finance that deal does impact their economics, and I've had several conversations with sponsors who say I will absolutely do this this particular deal at this level, but it is getting more expensive as rates go up and I'm really starting and I will reach a point, where I can't do the deal because I can't get the economics I want so.

I'll be want to be.

Direct and say the sponsor business will be sensitive to how high rates go. We've always said that access to capital is more important than rates within reason.

We don't know how high rates are going to actually go we clearly know what we think the fed's going to do my own personal view is that it's going to be really what you said, which is that we'll have a momentary low as rates kind of try and find a.

A statue appoint where are they stable get stable and then you could see people really getting much more aggressive about merchant deals.

I think that from everything I see and this is just a personal opinion I think that that the participants in the Mercury market will go slower as there is uncertainty and volatility, but when there becomes more certainty as to where things start to settle and people feel like theres access.

The capital and.

And people start to have buyers and sellers expectations coming closer together I could see the deal market coming back so I'm optimistic in the medium term feel really good about that but obviously as you say.

Things can change and we're in.

A volatile uncertain environment.

And in.

I've not seen one that I have felt is as volatile and uncertain.

Quite some time, obviously, the the downturn in 2008 and the financial crisis was one that we all lived through that we that we saw was was in many respects as uncertain as volatile as this some would say maybe even more.

But I think that my opinion is that that there is reason to believe that there will be a stabilizing and the deal business will come back in it in a in a in a medium term.

Type of period.

That's great color. Thanks, so much for that closer.

Close to answer.

I also wanted to ask about what Youre seeing geographically.

As the U S better or similar to that you can't just the conversations you're having.

And how does the current situation that back to your expansion plans in Europe and I noted that was one of your four key growth areas.

Has the current situation.

Yeah in the region changed any of your plans there.

And you know.

From my perspective, the current situation has not dampened at all what I think is a very important initiative for us which is to really continue to invest and grow in Europe and in fact, I would say that my dialogues over in Europe in terms of the type of people that we're talking to right now and looking at are probably even.

A larger.

Even greater and more numerous and more serious than we've been in the past. So I would say that and I have been over a couple of times very recently to actually talk to some candidates.

I'd say that were not I would say doubling down is the wrong word, but we are we are increasing our activity level because we see some really good people there that fill some of the needs that we have been really yearning to actually fill and so I think that in terms of the recruiting and filling out our plants there I feel actually.

Excited that we're actually going to make some real progress in terms of the deal side. So we.

In Europe , it really depends.

Our business is more geared towards the U K as you all know.

And in the UK is less impacted than some other parts of Europe .

We have a we've a pretty good activity level.

Over in Europe , just driven by U K.

We have some very very strong dialogues in the sectors that we're in.

And I actually think that you know in terms of the the impairment that the current environment is having on the business.

It's not a major impairment for US right now so I think our European business is actually quite robust I feel quite constructive about how it's going to deliver over the next quarter or two.

We'll have to see as I said, there is uncertainty as you get further out than three months, but I think that the activity level is.

Is is good.

Not a lot different from my perspective than what we're seeing in the U S. But clearly you know people are going to go slow.

Not like I really don't want to leave the impression that I think that we have a really robust environment over in Europe , because obviously, it's impacted maybe even more than the U S with respect to the tremendous uncertainty over there, but I do think that what we're seeing is activity levels that are there.

Actually quite.

Quite real.

Right good.

Great. Thanks, so much.

Our next question is from the line of Steven <unk> with Wolfe Research.

Good morning, This is Brendan O'brien filling in for Steven.

So the commentary on the backlog was encouraging given the macro uncertainty, but was hoping you could provide a bit of context around the strength of the backlog today relative to both the start of the year and this time last year, just trying to reconcile your commentary with what we're seeing in the public data which shows back.

All of us are down pretty meaningfully so far.

Well as we said last year at this time, and we're saying again, our backlogs are strong we never really differentiate between levels of our backlog other than trying to give you an indication at the time that we make this statement as to where it is.

You know what I, what I, what I want to be clear about is what I said, which is that we really don't have a great view.

More than three or four months out right now just because there's just so much uncertainty.

Having said that from what we see in our backlog.

It's strong.

As you know, though backlogs only really predict what you think youre going to do.

What they don't do is say what actually is going to happen because deals can either elongate and not get done they can be put on hold lots of things can happen, but right now we.

Our backlog is strong and we feel like it's it's.

It's really what it was.

You know when we made when we made the statement and it would be very hard for me in north, but I really do say.

You know right now is different or really give you a a discernible exact view of our backlog.

Right now versus this time last year.

At this time in the year before.

But we feel.

We feel like it's everything that we would want it to be in terms of the.

The opportunity that we have with clients and the dialogues that we're having so I hope that's helpful. I can't give you the specifics on the backlog nor the exactitude on the backlog that youre looking for.

But I can tell you that we're feeling like the the dialogues we're having are quite strong.

I appreciate the color there John and then as a follow up on the underwriting business considering the market backdrop. The results. There were are quite encouraging and we're well above the levels you are running at prior to the pandemic.

Implying pretty significant share gains I wanted to get a sense as to what you view as a sustainable run rate for that business in a more normal environment.

Given these share gains.

The continued build out of the conversion business and alike.

Well, let me make a.

And overall statement and then I'll ask Celeste to talk a little bit about the run rate.

We continue to build that business.

And.

We believe that's a real opportunity for us because we've got.

Excellent research, we've got really strong players who were who we are.

<unk> in equity capital markets and invest in a very specific sectors. We have really strong bankers, who are able to really give good advice and.

And help clients move forward and I think one of the things that we've shown in a lot of the underwritings that we have been is that we actually add value we may not be.

It may not be a big bulge bracket firm, but where we're involved.

We really are able to add value, whether it's market intelligence, whether it's judgment as a deal person.

Whether it's really understanding the buyers and sellers of specific.

Security.

And so I think that that our aspiration is to continue to move up in the overall league tables for underwriting.

I think this quarter, we were somewhere I think we're at 18.

We had a really strong quarter in terms of healthcare ECM.

I think we really have an aspiration to move.

Close to the top tenants, we possibly can we think we can we think we can get close but we're really working hard for that.

We are not hesitating, when we find an a level talent on the equity capital market side, who we think will really help us move forward.

We are actually kind of pull the trigger and hire those people we have a very strong head of equity capital markets, Chris Ripley, who is a I think a really inspired leader and very helpful. In terms of thinking about exactly where we want to invest I think I think that our business is actually making real progress. So maybe this is what you were saying.

But I'm just affirming we feel very comfortable that we are making good progress in that business. We actually have a vision for what we think we can do in terms of value add capability and really the impact we can have on transactions for our clients.

And we're going to continue to push that forward and as I said, we're going to continue to invest.

Got it.

To reiterate John mentioned, we want to get close to <unk>.

Within around the top 10, we think given our business and.

Lack of balance sheet that is a reasonable place for us.

We continue to execute and we've had as John said a lot of success and very focused on matching up.

Yeah, the resources that well you know can lead to deals and very.

You know that leadership from Christie has led to.

And a lot more organization around the pitching and we're really we're seeing a lot where we show up we're seeing a lot of success, we're pitching and we're winning in and we feel we were excited about the momentum there.

Thanks, Thank you both for your.

Color there.

I appreciate it.

Thanks Brendan.

Our next question is from the line of Michael Brown with <unk>.

Hi, good morning.

Good morning.

Maybe I'll just follow up on the on the equity capital markets side of the business there.

Giant catch comments about about the market and it sounds like it could bounce back in the second or maybe third quarter here just wanted to hear.

Your thoughts are in terms of which sectors are aspects of the ECM market could be the first out of the gate year once once the window opens up.

Well.

It's a really good question.

My own point of view is that.

As you said the the equity market can move very fast in terms of opening up I mean, I think that one of the interesting things is.

Our first quarter.

In the beginning of the first quarter. It went really slowly and then all of a sudden there was a couple of week period, where things just got became became except acceptable the markets seem to be open and boom, we did a number of deals.

And it was really quite exciting that it happened so quickly.

From our perspective as you know we have a very strong we have a very strong healthcare business. We also are investing a lot in our tech business I would say that that what we see is that the health care and tech are both businesses.

Our our sectors that really do need capital and those businesses will actually go to.

Go to try and start monetization and raising money as quickly as they can as you know, especially in biotech those companies need cash and they need it.

A pretty regular basis and so the minute the market is open they'll hit that market.

But also there's a number of sectors like consumer and Fintech.

Where you really see companies that are lined up and ready to move and so I'd say there are a number of sectors that could actually be ready to go and are under loading up.

And I think that that that you know it.

A lot of it centers on the new opportunity sectors biotech clean tech.

Fintech and regular tech and software I mean, I think youre going to see those those sectors.

Aligning up to try and hit the market when it opens.

Okay, great. So it sounds like broad base ends up demand there.

So.

So another element of the market that I guess, you didn't touch on in terms of the advisory market as the stock market and it looks like there is more than 600 stacks out there still hunting for deals.

That that part of the market certainly has been a lot more challenged in recent months and quarters, particularly from a regulatory side, but just wanted to check in on and get a pulse check on that market and what are your expectations there for Hal.

How those look backs to contribute to the advisory activity as we.

If you look out here to the balance of 2022.

Well, we have a we have quite a robust.

<unk>.

Our set of opportunities in the destock process, which you mentioned was a very large number of companies that are looking to basically buy companies and Deepak.

As you know.

I'm sure you know, we don't play as much in the Ipos of Spacs.

But what I would say is that the regulatory changes.

Changes in overlay for specs I believe we're going to slow down.

A lot of leaseback activity, because there's going to be a level of scrutiny and diligence that is required from some of the new regs that is actually going to change.

How easy it is to do the stacks and also what I would call as the advantage of a stack.

Or the relative advantage of a spec versus traditional methods.

Of Modernizations and M&A and so I would say that the stack structure is here to stay I think you will continue to see specs that are coming out I think it's going to be hard for all of these facts that as you said you said it was 600 I didn't even know it was that many I thought it was more in the four to 500, but.

But I think it's going be hard for all of those specs to actually find places to in effect <unk>.

Because it's just so it's just such a big number.

And I think that there's it's kind of it's going to take a great deal for the market, but beyond that I think the regulatory overlay is going to slow a lot of things down and it's kind of put a higher standard on a lot of the participants in the market and I think that in and of itself is going to have somewhat of a dampening effect and so.

I think this back market is going to become smaller.

And less active but it's not going away. It's a structure that works and theyre going to be people, who want who do that structure and theirs and the spin.

And the specs that are out there are not going to give up until they have to they want they'll want to try and find.

A place to these back.

Okay, great. Thanks, Thanks for all the color there John .

As a reminder, if you would like to ask a question. Please press star followed by the one key on your Touchtone phone.

Our next question is from the line of Jeff Harte with Piper Sandler.

Hey, Jeff we can't hear you if you're on the line.

Jeff Your line is open please check your mute button.

Yet those it I had mute pushed sorry about that.

Congratulations on another really strong quarter couple of questions left for me.

One.

This may be tough to answer but on the M&A outlook, you sounded a fairly positive tone, despite the step up and macro uncertainty and market volatility.

When do you become more concerned that kind of this near term headwinds.

Turn into more kind of sustained cyclical downturn and kind of what what should we be watching for there.

Well.

I think we're all watching carefully I don't want I don't want you to get the impression that I am.

Irresponsibly buoyant about the environment for the next.

Six to 12 months, because I like you I'm looking at what's happening and trying to evaluate exactly what it all means so I want to make sure that I'm that I am clear that that as much as we feel like we're in a good position right now.

There is a lot that is uncertain and I am watching it just like you are trying to assess what that all means feel like we're well positioned.

In terms of cyclical downturn, there are a lot of things that could drive a cyclical downturn clearly peoples loss of confidence in in kind of the economy and the markets. So far we've seen economies that have recovered really well.

From the Covid and I think that what we've what we've seen is that people have really been quite enthusiastic about how corporates are going to respond and continue respond as the market goes up to the extent, we have a real recession that has driven maybe by interest rate increases or.

Or a lack of confidence by Ceos and pulling back from investing.

That could really have an impact and it could create some cyclicality.

I think there's a real possibility that happens.

At this moment I don't see it and I'm not thinking it's going to happen, but I definitely think it is a possibility. So I just want to make sure that that that that I'm sure that I'm clear about the fact that whereas we feel comfortable.

Comfortable that we're on solid footing right now really there's so much uncertainty anything can happen and I just want to make sure that we all will together get back together in three months on this call and we can talk about exactly what we're seeing next.

But right now I think it's solid I think we will continue to see some recovery.

Do think the market there'll be reasons.

Reasonable.

But let's let's let's all understand that that there's a lot of uncertainty right now.

Okay. Thanks.

Finally.

Thinking about kind of the underwriting and I guess, the capital advisory and capital markets Advisory business.

With your exposures there can you talk a bit about current trends you're seeing in the financing markets, but I'm thinking more about the demand side right the availability of financing as opposed to the issuer side.

Companies willing to try and raise capital.

Well I think that the.

The.

Buy side is watching really carefully because the last thing the buy side wants to do in a market where there's so much volatility is to go big into places, where there could be immediate weakness and therefore be putting together portfolios that show loss immediately with a very volatile.

And very hard to make it back so my.

My own point of view and this is really a personal opinion is that youre going to see especially with the the funds that are actually making their decisions.

Day to day and week to week about where what they want their portfolios to look like.

Youre going to see people being more careful right now because the market is uncertain and there is volatility and I think theyre going to be a lot of smart investors, who pulled back and want to watch and see what happens.

Don't think youre going to see some of the big investors go all in into sectors. There was a time when everybody wanted to go all in into the Fang and they would just basically buy really big into tech and we've seen that there has been some uncertainty in that sector as long along with all the other sectors right now theres been a.

Lot of bouncing around so I think that is.

My own opinion is that Youll see.

Hi, Syed go more carefully and be a little bit more restrained.

That's my my thought.

Thank you everybody we all okay you in three months.

We're approaching the end of a lot of time I would like to turn the floor to John Weinberg for closing comments.

Thank you all for plugging in we really appreciate you spending the time with us.

We'll see you in or speak to you in three months. Thank you very much.

This concludes evercore first quarter.

<unk> financial results Conference call you may now disconnect.

Okay.

[music].

Yes.

[music].