Q2 2022 Evercore Inc Earnings Call
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Right.
Good morning, and thank you for standing by and welcome to Evercore second quarter 2022 financial results Conference call. During today's call all parties will be in a listen only mode. Following the presentation. The conference call will be open for <unk>.
Questions. If you have a question. Please press the star followed by one one on your Touchtone telephone for participants using speaker equipment. It may be necessary to pick up your handset before making your selection.
Minder. This conference call is being recorded today Wednesday July 27, 2022, I would now like to turn the conference call over to your host Evercore as head of Investor Relations and ESG Katy Haber. Please go ahead.
Thank you operator.
And thank you for joining us today for Evercore second quarter 2022 financial results Conference call.
<unk> behaviour, Evercore head of Investor Relations and ESG.
Joining me on the call today is John Weinberg, our chairman and CEO and Celeste <unk> our CFO .
After our prepared remarks, we will open up the call for questions.
Earlier today, we issued a press release announcing Evercore second 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 in the for investors section of our website and an archive of it will be available for 30 days beginning approximately one hour after the conclusion of this call.
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.
Factors include but are not limited to those discussed in Evercore <unk> 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 companys 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 closings I will now turn the call over to John .
Thank you Katie and good morning, everyone.
Since we last spoke a quarter ago on our earnings call macroeconomic uncertainty and market volatility have intensified the outlook from here remains clouded given numerous macro challenges, including historically high inflation supply chain constraints rising interest rates.
Tensions in the current regulatory environment.
With this backdrop the equity markets to continue to experience instability.
S&P 500 suffered its worst first half decline in over 50 years.
In addition financing markets have also continued to tighten making it harder to access capital and now at higher rates and wider credit spreads. This is a notable change from where we were just a few months ago.
All of these macroeconomic and market factors have impacted our businesses as uncertainty is never good for M&A or capital raising.
However, with all that said Evercore generated a solid second quarter for the second quarter, we generated $637 million and adjusted net revenues 576, and adjusted advisory revenues and $2 46, and adjusted earnings per share. These results underscore.
The breadth and depth of our franchise, coupled with our focus on managing the firm for the long term.
Consistent with last quarter, our backlogs remain strong, but with more risk as we continue to face headwinds that I. Just noted these headwinds have led to a continuation of the slowing of the pace of announcements and then elongation of the timing of transaction closings.
Looking at the overall M&A market.
Year to date global and U S M&A announced dollar volume decreased 20% and 28% respectively compared to the first half of 2021.
Also the number of announced deals decreased 17% globally and 21% in the U S versus the first half of 2021.
For the largest deals those above $5 billion global activity remains below the record levels in 2021 with dollar volume down, 8% and the number of announced deals down 24% as compared to the first half of last year.
That said when comparing volumes to a more normalized year and not last year's record M&A activity is still quite solid.
We continue to have high levels of dialogue and activity clients. This is seen across a broad spectrum of sectors and capabilities.
It is an environment such as this one when interaction connectivity and thoughtful adviser most valued it is critical that we remain deeply engaged with our clients.
This is when they need our advice and support the most we believe we are well positioned to address our clients' needs and to help them plan for the dynamics of this environment highlighting the significant investments that we've made over time.
And although some of the conditions needed for a strong M&A environment in the short term are not in place the fundamental themes that drive M&A activity in the intermediate to long term remain intact.
Turning to the quarter. The previously mentioned macroeconomic and industry forces impacted investment banking revenues. However, our business diversity enabled us to achieve solid results for the firm indicative of the revenue generating power of this franchise.
In advisory we saw continued strength in some of the largest sectors, including technology media and telecom healthcare industrials and the beginnings of an improved environment for energy driven both by our corporate and sponsor clients. In addition, our European Advisory team.
A very strong quarter as a result of investments that we've made over time and we continue to fill white spaces, both geographically and from a sector perspective in the region.
In capital Advisory we saw continued activity in our GP led transactions fundraising secondary investments continuation fund opportunities in real estate capital Advisory.
In terms of restructuring we are starting to see an increase in dialogues.
It is becoming harder for companies to access the public debt markets. In addition to the cost of debt rising materially.
That said corporate balance sheets generally remain healthy default rates are still low historically versus averages.
And the environment is setting up differently than the restructuring cycle seen in 2020, we believe we are well positioned to advise our clients as activity picks up.
Underwriting experienced a difficult quarter.
Activity continued to be impacted by the significant spikes in volatility and macro headwinds that weighed on issuers and kept them on the sidelines away from traditional IPO and follow on activity, which has been extremely quiet and we've seen a strong uptick across our platform and at the market offerings also known as <unk>.
Atms as well as private placements.
Overall, our ECM business is becoming more diverse from a sector and product perspective, we continue to build our pipeline and would expect to see the conversion of the pipeline when markets stabilize and as financing needs in some sectors become more acute into the year end.
In our equities franchise, while the market volatility has had varied impacts on our business and our clients. Our team is deeply engaged with clients guiding them through the volatility the business continues to consistently deliver market, leading research and differentiated client service.
The firm also successfully hosted 10 conferences and symposiums in the second quarter, including our inaugural global clean Energy summit.
That was a cornerstone event for Evercore ISI.
Advisory energy transition efforts and was well received by our clients.
And lastly in wealth management long term performance remains strong and we continue to generate new businesses in.
Quarter, despite some shrinkage in AUM linked to market performance.
We remain optimistic about our future and continue to invest in our businesses.
By Opportunistically, adding a plus talent in areas of targeted growth.
Across our advisory teams. We are pleased to have added seven senior managing directors. So far this year all in key strategic areas, which we've previously identified including TMT.
Advisory and placement ECM in Europe .
As it relates to compensation, we are mindful of the environment and are focused on building our franchise prudently as we continued to invest in the key areas of growth that support our medium to long term strategy Celeste will discuss the compensation financial metrics in more detail shortly.
Lastly, our capital return strategy, we remain committed to our goal of returning excess cash not invested in the business in the form of dividends and share repurchases to our shareholders even in this less certain environment.
We bought back a significant amount of stock and we'll opportunistically buy back shares while maintaining a durable balance sheet.
Yes.
As we look ahead, we remain optimistic about our future and we have a clear strategy for the firm. Despite today's uncertain environment. We are confident that we have the team and capabilities to serve our clients throughout all environments and we will continue to drive towards achieving our long term goals now let me turn the call.
Over to Celeste.
Thank you John .
For the second quarter of 2022, net revenues net income and EPS on a GAAP basis were 631 million $96 million and $2.33 respectively.
Comments from here will focus on non-GAAP metrics, which we believe are useful when evaluating our results our standard GAAP reporting and a reconciliation of GAAP to adjusted results can be found in our press release, which is on our website.
Second quarter, adjusted net revenue or $637 million down 8% year over year.
Second quarter.
Quarter, adjusted advisory fees of $576 million or 3% higher year over year, driven primarily by an increase in the average fee size <unk>.
<unk> with market trends, our underwriting business continued to be adversely affected by broad market volatility that drove a significant decline in issuance, resulting in $14 million in revenue down 72% from the year ago period.
Our equities business continued to perform well with commissions and related revenue of $52 million up 3% year over year, driven primarily by higher trading volumes.
In wealth management, adjusted asset management, and administration fees were $18 million down 5% versus a year ago, primarily driven by market depreciation on AUR.
Second quarter adjusted other revenue net was a loss of $23 million largely reflecting losses on our investment funds portfolio, which is used as an economic hedge against a portion of our deferred cash compensation program.
This amount fluctuates with market values and the significant market decline during the quarter drove the losses.
In any given quarter, while the hedge has an impact on revenue the change in market value does not have an immediate corresponding impact on expenses.
In accordance with relevant accounting principles. Our revenue includes approximately $67 million of advisory fees, driven primarily from transactions that closed in early July .
If you compare we recognized $45 million in the first quarter of 2022 and $59 million in the second quarter of 2021 in accordance with the same accounting principle.
Adjusted net income was $108 million for the quarter down 30% versus the year ago period, adjusted EPS of $2 46 decreased 22% from the prior year, our second quarter adjusted operating margin was 24% versus 34% in the second quarter of last year.
Turning to expenses, our adjusted compensation ratio for the second quarter was 61% in this environment compensation will be a function of revenue.
The second quarter compensation ratio is our estimate for the full year as of today, but is subject to change depending on how the balance of the year progresses as.
As we always do we will continue to evaluate the key drivers of our compensation expense, including hiring levels.
We are mindful of the environment and being thoughtful and prudent as we look ahead to the second half of the year by balancing the short and medium term with our long term goals.
Second quarter, adjusted non compensation costs of $95 million were up 30% from a year ago driven by several factors.
First higher travel expenses as our teams returned to more normalized travel as well as inflationary pressures on travel costs.
In addition, we also hosted some large in person conferences and events in the quarter.
Second increased search and placement fees driven by our recruiting efforts as well as other operating expenses related to higher head count, including a larger real estate footprint as we have grown the firm and cost of operating that space as employees continue to return to office.
And third there were a couple of episodic items in the quarter, including a fee sharing agreement with sub advisors as well as an increase in bad debt expense versus a reversal in the prior year period.
Q4, non comp expenses will be reflective of business activity levels as well as inflationary pressures our return to business as usual as it relates to travel and entertainment and continued investment in our businesses. We are consistently reviewing our expense practices.
Our adjusted tax rate for the quarter was 27%, which was in part affected by the stock compensation benefit as well as non deductable expenses, including meals and entertainment, which have increased as activity has picked up.
Turning to our balance sheet as of June 30, our cash and investment securities totaled over $1 5 billion.
Our excess cash as a percentage of our total cash and investment securities was in the low teens.
As a reminder, our cash generation and needs 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.
In addition in the quarter, we successfully completed a refinancing of our series B notes that were due in the first quarter of 2023 with the issuance of $60 7 million or 461% senior notes due in November 2028.
Our second quarter adjusted diluted.
Please standby your conference will begin momentarily.
Please standby.
Okay.
Okay.
Hi, Josh.
Okay.
Hello, Yes, Youre still on an open line all the we're still in the main room.
Hello, Hello can.
Can you hear me, yes, you're coming in loud and clear the participants can hear you as well.
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Sorry about that Josh.
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The casting of swim for switching the Q&A now.
Sure.
Okay. I'll go ahead and give the Q&A instructions.
Thank you we will now begin the Q&A question and answer session. As a reminder, if you have a question. Please press the star key followed by one one on your Touchtone telephone. If you are using speaker equipment, you may need to lift the handset before making your selection.
These limit to one question only.
You're welcome to rejoin the queue for additional questions time permitting.
One moment for questions.
Our first question comes from Richard Rams, then with Goldman Sachs. You May proceed.
Okay. Good morning can you hear me.
Yes, yes, I can Richard Okay great.
So obviously the strength in the advisory business was particularly impressive this quarter and at least based on what we can see it doesn't look as if it was driven by.
M&A just given volume levels. So could you talk about the non traditional advisory products that drove the strength this quarter and perhaps help us think through the sustainability of those as we head into the second half of the year.
Sure. Thank you Richard.
The first thing I'd say is that advisory did have some weight in terms of the performance in this quarter and so I think it's important to recognize that we have a diversity of sources of income which are both product driven as well as sector driven.
And <unk>.
Geographically driven and so for example.
We had strong performance in the U S. Obviously as always it's important driver for us, but also Europe had a very good quarter.
And some of the things that we've done in the past like added.
And.
A significant amount of talent into Spain really started to generate returns capital advisory businesses, where we're very solid.
We have seen.
These are sponsors business continues to produce.
In addition, our activism business has been quite active as the activity.
To move forward and so generally we have a number of sources that kick in and I think thats one of the things that we have driven for which is to try and balance out.
Our.
Our business.
Revenues and.
Our capabilities in terms of sustainability, it's a very uncertain environment and I don't think there is any business that we have that is immune to what I think are the shocks that are being felt in the system, whether it's macroeconomic.
The geopolitical concerned about interest rates and I think frankly, the view on on what's happening with respect to inflation.
So I think that we.
We feel.
We are we are in a in a decent place, but I think there is real uncertainty and volatility in the system. So it's very hard for me to give you any guarantee that these are sustainable I will say that our backlog is strong it remains strong.
But there is there is elevated risk of conversion of that backlog.
Okay. That's very helpful. Thank you very much.
Thank you one moment for questions.
Okay.
Okay.
Our next question comes from Jeff Harte with PSC you May proceed.
Hey, good morning, guys.
Parcels everyone. So.
On more of a macro thinking level. It is so historically unusual to see strong strategic dialogue in the face of plummeting confidence spiking financing costs and recession expectations I'd be I'm glad to see this but I can't shake the feel is just a matter of when not if kind of the next shoe drops John you've been through a number of cycles.
Now how do you view, the current environment versus kind of prior recessionary times.
Well.
I think your question is a really good one and we've been we've been thinking about this a lot as we look out into the future and I would say that that there. There are certain things that are still in place and is and I think it's why there are still some strong dialogues going out in in corporate board rooms, and with management teams.
Yes.
Companies still have good.
Good leverage levels and that they.
They have they have quite a bit of cash I would say that while this could change.
A very large number of companies are really well capitalized and have cash.
There is there is a sense that there is a growth long term in the market driven by a number of the factors that we've had in the past, which could be technology disruption it could be clean energy. It could also be the fact that we just see that companies believe that their businesses will expand over time.
And as a result, I think when when companies get together and when board speak they really are talking about what are the prospects.
In addition, there is a there's an acceptance across companies that M&A is unacceptable topic.
And I think that you've seen the slowdown because we've seen that in the merger staffs.
But the slowdown is not necessarily a slowdown in dialogue is the slowdown in actual activity and I think that there is definitely a view at the corporate board level that had been in several corporate board meetings in the last two weeks, where we've had this conversation which is <unk>.
Companies may not want to set.
Set out into something that is.
Really out out in a transaction in a market that is so volatile, but I think there is a view that that being ready if the market turns.
Is smart and so I think youre seeing real dialogue.
I think that there is a view that that.
There is just so much uncertainty that people just don't know at this point. So your question, which is when will the shoe drop none of US know, we definitely see the volatility we definitely see the uncertainty I think corporates and corporate and their boards and Ceos are all evaluating this just as we are and we.
We're all watching and by the way the interesting thing is it's hard to be really smart about this because some of this is just.
That's going to occur and we're not going to know about geopolitical risk. We just cant predict any of that and as we all know that if we go into a significant recession that will actually also impact M&A activity and advisory activity generally.
Okay. Thank you.
Thank you one moment for questions.
Our next question comes from Steven <unk> with Wolfe Research you May proceed.
Good morning, Hi, This is Brandon O'brien filling in for Steven.
So on sponsors after their acute stabilizing M&A activities or in the Covid crisis. There is a belief that this dynamic would repeat in the next downturn.
Or commentary from some of the larger p/e firms on our peers suggest that deployment is likely to remain slow until early next year.
Based on your conversations have you felt like there was a change in talent slash volume has some sponsors to transact.
What is your outlook for sponsor activity in the near term immediate term.
Thanks for the question Brennan.
I think sponsors is to a large extent are sitting on the sidelines right now and watching.
There is there is no question that the.
Is that the markets themselves, whether it's leveraged loan market the high yield market. Those are markets that actually have have actually been been.
Been chilled a bit because of the activity levels and obviously there is some hung bridges out there and I think that that there is it's less easy to finance sponsor deals. So on the buy side Youre seeing sponsors taking a look and watching.
Think the buy side is also watching carefully to see whether the the prices that are being looked at are going to come down and whether theres going to be a matching of buyers and sellers expectations for price.
I don't think that youre going to see.
<unk>.
The sell side of sponsors churn.
Quickly until they really believe that prices are going to come down.
I'd say then that your premise, which is that there is a slowing of sponsor activity is true, but that that definition of activities really whether theyre going to actually do do things specifically, there's a lot of activity going on at sponsors right now, we're having a lot of dialogues where theres a lot of people talking about what is the possible and a lot of them.
<unk> investments, where sponsors have a thematic point of view, they're looking very carefully at what what what could be happening in terms of price, especially those who are looking to purchase to see weather.
The prices come down so I would say that the sponsor activity right now is is moderate.
Is going to be difficult to really call. The turn for them they happen to often be more agile and move faster and so we're just going to have to watch. So I would say that your premise that at that right now, we're having a slowing and we don't exactly know when thats going to turn is true.
Great. Thank you for taking my question.
Thank you one moment for questions.
Our next question comes from Brennan Hawken with UBS you May proceed.
Good morning, Thank you for taking my question.
Just wanted to start on I guess.
Sorry to limit to one question. So for mine wanted to focus on comp.
So after I believe you'd indicated that you expect 61% comp ratio for the rest of the year. Typically you guys have reasonably good visibility about six months out on the revenue side and of course, our comp ratios informed by both the numerator and the denominator. So just would want to confirm that.
That is that would be the case and what.
Components underpinned.
Your assumption around the comp ratio how about recruiting do you expect to stay active in the back half of the year end.
Is it considering some of the continued upward pressure from recruiting.
And how are you thinking about recruiting right now is the market attractive evercore has gotten active in prior downturns and it's.
Definitely helped in the long run even though sometimes it can add some near term pressure. So any color would be helpful. Thank you.
Let me start with the recruiting question and then I'm going to turn to select a really pretty specifically about how we set that comp ratio, but in terms of recruiting we intend to stay active as you as you heard we've we've made seven hires in the senior level.
So far this year.
We are continuing to talk to a plus talent and if we have the opportunity to hire a plus talent, we're going to continue to do that because we do believe that is always an opportunity. When there is a lull in the market to really see whether there is talent, who is who really fit what we need to bring over.
So you will always see it in the market for a plus talent, we may get more active or less active given with the opportunity set is but we're going to stay in the market.
We continue to watch carefully in terms of the activity levels.
Frankly, I will just make one other comment and then turn it Celeste which is.
There's more uncertainty.
And volatility in what we see as the outcomes for earnings and then then you could see in the past so when we say we look six months out.
But there is just more uncertainty now that we're dealing with then it then it most times that we've spoken to you in our earnings calls.
Thanks, Ken.
And then look given the environment the comp ratio really is going to be a function of revenue.
The <unk> ratio is based on our estimate as of today for the full year and it will change depending on how things progressed and as John said, we have less visibility than we do versus past stronger periods and we do have a strong backlog, but there is a lot of risk associated with that.
It's really driven by the outlook for the business we.
Last year had a significant amount of operating leverage to some extent youre seeing that reverse this year. So.
We we obviously pay for performance, but when we have really really excellent years that krish and were able to reduce our comp ratio and this year youre seeing a bit of the reverse.
So it's really driven by revenue in this environment.
The one thing I'll say at a distance.
To reemphasize, because I think it bears re emphasizing which is.
We have a strong backlog.
The way, we're thinking about right now is that there is an elevated risk of conversion and thats really what needs to be evaluated.
All of that's really fair thanks, a lot for the color.
Thank you one moment for questions.
Okay.
Okay.
Our next question comes from Michael Brown with <unk> you May proceed.
Okay.
Hi, good morning.
Good morning Celeste.
Yes.
In your prepared remarks, when you were cutting expenses you made a statement you say we are.
Additionally, reviewing our expense practices, which which seems like a purposeful statement.
But of course, not surprising to hear in this challenged backdrop.
So assuming the revenue environment does remain challenged here can you kind of expand on the levers that you see in the expense base to help manage the margins.
Relative to this backdrop.
Correct.
We're not sure where the call dropped off so I'm going to give more detail than you are asking for.
That everybody.
Is on the same page with what we think we told you so.
Just.
We said all year non comps will continue to run about 2021 levels, which was very much reduced by.
People not doing normal things because they were at home.
And there are a number of factors that including the ones. We talked to you about the beginning of the year, but other factors that drove this quarter. So.
There we are seeing an increase in travel as people are getting back to sort of business as usual post COVID-19.
Bankers are on the road seeing clients in that as John said, it's really important for us to get out to see our clients. So we're going to continue to encourage that.
And we're also seeing the big increase increases in in person conferences like the clean energy summit, which was really.
A great event for us as well as other events. So we've talked to you about over time, we probably get to 70% to 80%.
Currently you know the sort of pre Covid trips, we still think that's a good good good level.
Domestically our trips as a percentage of.
Trips pre Covid showed the same quarter in 2019 were around.
69% and then as we Luxor include.
Including all of the global travel was about 64% so.
Youre seeing a lot more domestic chips left of the international stuff, yet so still some room, a little bit a little bit of room to ramp up and people are really getting back out there.
Chris.
Yeah.
The body.
<unk> read about and it maybe has experienced the increase in travel costs just given the inflation. There. We've also we also saw an increase in professional fees those.
Move up and down they are related.
The ones that you would expect like legal and things like that but the movement a lot from.
From quarter to quarter for us.
Is driven by typically driven by search and placement Theres, one thing I'll call out in a minute that was more episodic and then generally our costs.
Associated with the growth over time and drives a bigger footprint.
Are you seeing increase because we're a bigger footprint. So we have more people in the past, meaning more space and then frankly as people come back to the building we it costs more money to run the building.
So we added some states in New York at the end of June we that we added some space in London earlier in the quarter. So you'll that youll see some of that flows we saw some of that flow through this past quarter you see some flow through in the third quarter, they're not huge numbers, but they add up.
I want to call it the episodic items in the quarter in professional services. There was a very much larger than normal sub advisory fee share.
That.
Flow through.
You usually have those but they're typically very small.
And then we had our bad debt tends to be very lumpy. We don't it's not like a big balance sheet company, where you have a sort of consistent estimate. So we did see bad debt increase based on just one one very old deal in the quarter last year was a reversal of bad debt.
So include excluding these items, our non comps would be closer to where kind of where the street was to your question.
We are looking at and we always do look at all of our expenses.
I always say, Bob ran a very tight ship.
But in this environment always going back and looking at.
Policies and data spend and areas.
And that's sort of what you need to really invest in your business, so, but but as a reminder, you can see it in our income statement. The bulk of our expenses are in compensation and they will move up and down with revenue.
So we have non comps a lot of them are fixed and we're really focused on the ones that.
That's where we don't need to spend or we can defer or we can reduce or just do things differently and especially as we get bigger so.
That is what we're focused on it and it is a continuous improvement generally even in better periods.
Thank you very very fulsome answer I appreciate all the colleagues Celeste.
Thank you a moment for questions.
Our next question comes from James Mitchell with Seaport Research Partners you May proceed.
Hey, good morning.
On the one hand, your stock is down and cheaper but on the other hand, it's an uncertain environment. So how do we think about your I guess ability you sort of the excess cash position you have and how youre thinking about.
The risk and reward of buybacks in the second half.
Thank you and thanks for the question sure.
So we remain committed to returning Oliver.
Excess capital that we don't need to run the business to shareholders. We've returned over $500 million year to date between dividends and share repurchases. We increased the dividend as you know in the first quarter, we loss offset all of the Rs use that were issued as a part of bonuses.
<unk> bought back about another $1 1 million shares.
$3 6 million in total.
The way we're thinking about.
Back half of the year as we.
We do look at a share price and but where it will be opportunistic in terms of buying back stock, but we really want to focus on maintaining a durable balance sheet given the uncertainty of the environment. We wanted to ensure that we can invest in our franchise and do the right thing for our franchise over time. So we're trying to balance those things with an emphasis on.
On making sure we have what we need to get through this uncertain period by.
But over time, we will invest we will return all of our excess capital to shareholders.
Again.
As we go forward from here Opportunistically from a buyback perspective.
Okay. Thanks.
Thank you enrollment for questions.
Our next question comes from Devin Ryan with JMP Securities You May proceed.
Great Good morning, John and Celeste.
Most have been asked but I just want to dig in a little bit more here on some of the M&A outlook commentary you're hearing a lot about the elongation of deals.
But yes, I think John as you announced I mean volumes down 20%, but from a record year last year or so.
In absolute it's actually still pretty good numbers. So if you were able to close on kind of what's in your backlog room suites, So a pretty good year.
But theres a lot of uncertainty. So my question is are you seeing anything.
Break off yet where deals are actually falling apart versus just the timing being pushed and uncertainty there. So maybe a 2020 to be actually kind of falls into 2023, and so that's what's creating the uncertainty at the moment and then just the follow up within that is the environment.
It slowed as it still slowing.
Kind of real time here, so that's hard to gauge or does it just feel if you kind of.
We kind of slowed to a lower level and now it's relatively stable. Thank you.
Thanks, Dan.
In terms of the the way the flow of the deals go in the backlog I think your observation that the deals are being pushed out is a reality.
This whole discussion on elongation, which is that.
<unk> come in.
And then there is there is a much longer period.
We haven't seen things.
Basically terminate.
What we've really seen as things get pushed out now honestly I don't know whether when you see these things get pushed out whether eventually they will go away.
Certainly we want the way we manage our backlog we wouldn't allow something to stay in the backlog unless we thought it was legitimately still alive activity and so.
There is there is a view that our backlog is sound, having said that and we really believe that but having said that things are moving out and I think it would be unrealistic to think that if things if activities are taken.
Taking so long that some of them might not go away at this point the way, we're looking at things and we scrubbed. This hard we don't see anything like that in terms of your view that that things are still whether they are still slowing or whether we're kind of at a constant rate my own views, we're kind of at a constant rate right.
Now I just I don't think things are going to go down unless if we have a significant recession. I think then you really have to reevaluate what's happening because then the big companies and sponsors and the other markets go into a little bit more of a distressed situation, but right now I think we are at a constant place and I.
Don't see it deteriorate from here unless there is another shock and the shock could come as I said from a recession if it come from a geopolitical problem. It could come in any number of ways that I think one of the things that we've tried to articulate on this call is that the the level of uncertainty and the risk is much higher right now so interest rates are.
On a go higher and Thats something inflation is going to basically impact the way people feel about their businesses the market volatility will be a reflection of these things and there is always the geopolitical risks. So I just think in all of these.
Scenarios, you have to put more risk into it which really does make it more difficult to predict.
Yes.
I appreciate it's fluid, but thanks for all the context. Thank you.
Thank you one moment for questions.
Our next question comes from a non Ghazaliya with Morgan Stanley You May proceed.
Hey, good morning.
John <unk> been pretty constructive on the business in Europe , and it looks like that deliver this quarter you called that out.
Can you share how much Europe contributed to revenues this quarter relative to historical levels and how widespread that was you know whether that was <unk>.
<unk> that was pretty broad based and.
Yes.
This trends to just given the macro headwinds.
Do you think the stronger performance has to do entirely with share gain or is it deal activity, there just holding up better than expected.
First of all.
I apologize, but we really can't break that out for you.
So what we did but we did the reasonably emphasized it was because there was real productivity from Europe in terms of market share versus activity level in the market.
I think it's probably that that because that activity levels are what they are.
And lowered the fact that our some of our Valerie talented bankers have landed some pretty interesting situations has really.
As really allows the business to.
To really show results and so on.
I think that is.
It's too early to say that it's a real market share when it from any respect.
Think it is safe to say, though that.
You put really talented people against interesting situations youre going to youre going to be able to create some real value for the firm by crude by really being able to deliver value for clients and I think I think that's what's happening here, we have some very talented people who are applying themselves toward.
Challenges and problems for clients and that is actually evidencing itself in some of the results.
Yes.
I appreciate it that's helpful. Thank you.
Thank you one moment for questions.
A reminder to ask a question you will you will need to press star followed by one one on your Touchtone telephone.
Our next question comes from Brennan Hawken with UBS you May proceed.
Okay.
Good morning, again, thanks for the follow up.
Was curious.
You guys often talk about the non M&A portion of your advisory revenue.
As we enter a period where deal closing timeframes are elongated.
Restructuring outlook is picking up.
Increasingly important to try to think about and keep in mind.
These different.
Sources of revenue because they have different drivers and different levels of cyclicality.
Is there any way in which you could help us frame.
Where these different sources of revenue run.
Proportionally or at least give us an idea about how to think about those different sources and how they might behave in an environment like this thank you.
Sure Brennan, let me just start with restructuring because I think that's a good place to start to really important business for us.
And has been one of the stellar performers over a long period of time at this firm.
Our restructuring business is is very very active right now having said that do I think that there is a wave of big time restructuring.
Simon it's coming down the Pike I think there will be eventually but not right now and certainly there has not been that wave to date, we are actually very we're active we're active in.
Liability management, we're active and out of court bankruptcy discussions and restructurings we are active in.
In really thinking in serving both debtor and creditor groups and giving them advice.
Theres, just a lot of activity, but and we think we're really well positioned but right now the bankruptcy right as we said in our comments relatively low and so we're waiting for a change there and I think we're going to see over time.
What happens and as we've said, there's so much uncertainty in the market right now, but we feel very well positioned there and it's a very important business for us.
We see private capital.
Capital Advisory businesses.
Are very important to us they're really excellent businesses.
They continue to generate activity and so those are businesses that I think are important to us and we have a good sense for.
Our activism business is a business that really is.
Not necessarily market cyclical, although actavis get active indifferent.
In different scenarios, but there is quite a bit of activity in that business right now.
Then.
No.
The equity capital markets business, we have a very good number of assignments lined up.
In our backlog there and we believe that if that market opens up that's going to that's going to have real activity for us. So those are just a series of businesses that are non M&A. Obviously, we're building our sponsor's business very important effort for us to.
To the extent that the markets will begin to turn sponsors may start sooner than some of the big corporate that as has happened in the past, we're not predicting that but it could be but building out that business. I think is going to help US also so I think we have a number of places that are quote unquote nontraditional Emma.
M&A oriented businesses.
But at the end of the day I do want to make sure that I'm clear about one thing which is the merger business is a very important business for us and obviously.
It's very impactful for us.
I hope that helps Brandon.
It does.
Does.
I know in the past you all have avoided helping us.
Understand the proportion of advisory revenue that might come from some of these.
I just wanted to quick back on that part of the question in case. It was missed to give it another shot now unfortunately it wasn't met.
And I'm, sorry that I'm not responsive on that I'd like to try and do your thoughts there.
At this point, we can't do that alright.
Alright got it.
Worth a shot thank you.
Okay.
Thank you I would now like to turn the floor over to John Weinberg for any closing comments.
I want to thank all of you for tuning in today and look forward to speaking to you on our next earnings call.
Thank you. This concludes today's ever Corps second quarter 2022 financial results Conference call you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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