Q4 2022 Evercore Inc Earnings Call
Yeah.
Good day, and welcome to the Evercore fourth quarter and full year 2022 earnings conference call.
Today's call is scheduled to last about one hour, including remarks by Evercore management and the question and answer session.
In order to ask a question. Please press the star key followed by the number one on your Touchtone phone at any time.
I will now turn the call over to Katie Heber, managing director of Investor Relations and ESG at Evercore Ma'am. Please begin.
Thank you Chelsea good morning.
And thank you for joining us today for Evercore fourth quarter and full year 2022 financial results Conference call.
Haiti Haver Evercore as head of Investor Relations and ESG joined.
Joining me on the call today is John Weinberg, our chairman and CEO and <unk> our CFO .
After our prepared remarks, we will open up the call for questions.
Earlier today, we issued a press release announcing evercore fourth quarter and full year 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.
In the course of this conference call. We may make a number of forward looking statements any forward looking statements that we make are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors include but are not limited to those discussed in 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.
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 evercore as 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.
2022 wasn't downwardly, a complex and challenging environment.
Yet through all the volatility and macro ahead, driven headwinds evercore was able to serve our clients and strategically invest in our business.
We continued to perform well both in the quarter and for the full year. In fact 2022 was our second best year on record for the firm with $2 8 billion in revenue $529 million and net income and $12 <unk> and earnings per share for.
For the full year and fourth quarter. We also made further progress on our goal of narrowing the gap between Evercore and the top three bulge bracket firm.
In terms of advisory fees.
2022 also marked a year of investment for Evercore as we continue to execute on our long term growth strategy.
We promoted and hired a plus talent in our important strategic target areas that will drive long term value for the firm, including seven advisory senior managing directors and <unk> senior advisor in 2022.
We also continued to build out important product capabilities and diversify our business to connect with our clients more deeply.
As we've discussed previously our revenues today are meaningfully more diverse than they have been historically.
In each of the past four years, including 2022 are non M&A businesses accounted for at least one third of our revenue.
The diversification of our business stems from the scale, we've built across many capabilities, including restructuring private capital advisory and fundraising.
<unk> capital markets capital markets advice, and execution equity sales and trading and wealth management <unk>.
Additionally, we've managed our balance sheet to create the capacity to invest in our franchise through cycles.
We will continue to execute on our long term strategy by investing in targeted areas of growth and in areas, where we see opportunities having the highest impact before I begin recapping the year I'd like to quickly touch on our recent CFO announcement.
Last quarter, we announced that Celeste will be leaving Evercore. This is celeste final quarter with us and while we are sad to see her go we feel fortunate to have worked with her and value. The contribution she has made to the firm as.
As you May have seen we are excited to share that <unk> will become our CFO effective March six over the last 22 years, Tim has been an integral part of Evercore as leadership driving the firm's successful growth. He brings a deep knowledge of evercore to the role and is highly respected as a partner with us.
Superior record of delivering operational excellence, we look forward to his contributions as CFO and are confident that he will position the firm for sustainable long term value creation.
With that in a similar fashion to a year ago I want to provide a more detailed view of the past year and again outline our plans for the future starting with global advisory our teams remain very active and in constant with constant strategic.
A dialog and execution with clients.
Looking at our market activity more broadly global announced M&A activity was down 36% compared to record levels in 2021.
However, M&A volumes in 2022 were generally in line with historical averages.
For Evercore, specifically, the number of announced global transactions was down only 9% in 2022 compared to declines of about 40% for our bulge bracket peers and 25% for our independent peers, while advising on a lot on large M&A transactions globally is very much core to what we do.
Meaningful portion of our business stems from deals less than $5 billion in transaction value.
Over the last year, we saw an increase in client seeking advice on a highly complex and unique situations, including public to private deals which reached record levels in 2022.
As for sectors Tech continues to be active as well as healthcare and industrials. We also saw strength in traditional energy renewables and infrastructure.
Next from geographic perspective, our team in Europe had a very strong year representative of investments, we've been making in the region over the last several years.
Our European Advisory business had its best year in Evercore history, we saw strength across the energy financials, and utilities and infrastructure sectors as well as debt advisory.
We continue to focus on efforts on.
On a client expansion in the region and around the globe to that end two of our 2022 SMT hires that I mentioned earlier were international.
Within global Advisory we continue to be active in other areas outside of traditional M&A first our strategic defense and shareholder Advisory team remained very active in 2022 is the number of campaigns, particularly in the U S was on par with 2021 levels.
The trend of targeting large cap companies continues representing almost 30% of activist campaigns in 2022 from the prior year.
Evercore has advised companies representing over $1 five trillion and market value in this space and we have the largest team of dedicated activist defense professionals on Wall Street.
Turning to restructuring the business won a significant increase in assignments over the past 12 months and we are entering 2023 with a robust pipeline of opportunities the growth in the business reflects a mix of company and credit assignment ranging from bankruptcies and out of court settlement to liability management and.
Distressed financing.
While default rates are still relatively low rising rates and corporate margin pressure should present significant additional opportunities for our restructuring team. We are well positioned for this upcoming cycle and our restructuring team continues to collaborate with industry bankers to provide our clients with the most comprehensive advice.
Next our market, leading businesses focused on private capital, which include fundraising buying and selling of LP and GP Stakes continuation funds as well as our real estate capital team.
2022.
Represented the second best year on record for these businesses in aggregate collaboration across these teams and the sponsor M&A and industry team has driven synergies and will continue to be a great platform for growth.
We've also continued to build out our private capital markets team, which advises and execute on privately placed equity and debt financings as well as complex balance sheet and capital structure issues.
The underwriting business had a challenging year with industry issuance down 80%, resulting in the lowest tier of issuance since the great financial crisis.
While broad industry trends impacted our business, we outperformed on a relative basis and continued to gain share once.
We will continue once activity rich.
Return.
In the second half of the year.
While the IPO market was quiet ever corporate sentiment participated in one third of all U S ipos greater than $50 million in and four or five largest U S. Ipos in 2022.
Notably.
Our role continues to elevate as we were bookrunner on all of our equity and equity linked underwriting transactions since 2022.
Healthcare continued to be a standout sector for us and we were involved in almost 50% of all healthcare underwriting deals in 2022.
Additionally, we've continued to invest in other products, such as convertibles, which continued to gain momentum and provide an additional product offering for our clients we.
We are pleased with the advancements of our underwriting business and expect to see a pickup in activity when the market stabilize.
Next our equities franchise continues to focus on providing our clients with the highest quality research and service as they navigate volatile and uncertain markets.
Our research franchise had a noteworthy year, we were ranked number one by institutional investor on an individual weighted basis for the first time ever and had the highest number of top three analysts have any firm on wall Street.
And finally in wet and wealth management.
While the broad market declines impacted our clients' portfolios and assets under management for the year. The business continued to have strong long term performance and client retention.
Now I want to turn to our growth roadmap for the long term.
An important pillar of our strategy is tied to the expansion and enhancement of our client base and coverage model.
We have a very strong traditional M&A business and we continue to fill areas of sector and geographic white space, where there is ample room to expand.
We remain focused on investing in the fastest growing segments of the economy, including Fintech clean tech biotech and more traditional areas of technology, such as software as well as expanding our global footprint.
We continue to invest and develop our sponsor coverage efforts we've increased focus on.
On expanding our private client capital businesses.
And believe there are incremental opportunities to serve this client base both in this business and our sponsor M&A practice in.
In addition.
As we mentioned last quarter, we added several senior bankers to our U S financial sponsors group as we continue to invest in this important space.
Overall, we see real opportunities from deepening and broadening many of our product capabilities. We are opportunistically investing selectively across our business and see strong returns from doing so as we make these investments we will continue to navigate the market for talent who.
We will stay active and selectively recruit a plus talent, while maintaining a high bar for all hires.
We begin 2023 with seven newly promoted Smbs, and our advisory and underwriting businesses across various sectors and capability as well as one in our equities business cultivating. The next generation of talent is core to our success and we are excited about our pipeline of talent.
Already this year, we have had an additional SMT commit to joining our private capital advisory business later this quarter.
Before I turn the call over to Celeste to review our financials I want to make a few final comments.
<unk> 2023 will be another complex year and it will be difficult to repeat the record results that we had in the first half of 2022 that said, we remain focused on our expense base, both comp and non comp and maintaining a durable and liquid balance sheet.
Quite a bit of discussion around the probability of a recession as we begin 2023, while some believe we will enter one others do not.
Either way, we feel we are well positioned.
We're starting off the new year with a strong backlog, although it's down from where it was a year ago, which followed the strongest year for M&A activity on record.
Similar to last quarter, there remains greater risk to execution as transaction announcements continue to be slower in the timing of closings is elongated.
And while economic stability and market conditions will continue to influence deal activity strategic dialogue with clients continues at very high levels.
As we look forward, we are confident in the outlook for our business. We believe the firm is well positioned to capitalize on the current environment and the opportunity that lies ahead as market stabilized with that.
Let me turn it over to Celeste.
Thank you John before I review, the financials I want to thank John and the rest of the team.
This is my final earnings call at Evercore.
It's been a great pleasure to work with this team as well as our sell side research analysts and shareholders.
For the fourth quarter of 2022 net revenues net income and EPS on a GAAP basis were $831 million.
$140 million and $3.44 respectively.
For the full year net revenues net income and EPS on a GAAP basis were $2 8.477 billion and $11 61, respectively.
My comments from here will focus on non-GAAP metrics, which we believe are useful when evaluating our results are.
Our standard GAAP reporting and a reconciliation of GAAP to adjusted results can be found in our press release, which is on our website.
Fourth quarter, adjusted net revenues of $837 million declined 26% versus the fourth quarter of 2021, which was a record fourth quarter.
On a full year basis, adjusted net revenues of $2 8 billion declined 16% compared to 2020 one's record results.
Fourth quarter, adjusted operating income and adjusted net income of junior and $18 million and $152 million decreased 53% and 55% respectively.
Adjusted earnings per share of $3 50 decreased 51% versus the fourth quarter of 2021.
Full year, adjusted operating income and adjusted net income of $723 million and $529 million, both decreased 37%, while adjusted earnings per share of $12.01 decreased 31% versus the prior to the full year 2021.
Our adjusted operating margin was 26, 1% for the fourth quarter.
Five 9% for the year in line with pre 2021 historical averages.
Turning to the businesses fourth quarter advisory revenues of $704 million declined 27% year over year.
Advisory revenues were $2 4 billion for the year.
14% decline compared to 2021, and our second best year ever for advisory.
In accordance with relevant accounting principles, our revenue includes approximately $116 million from.
Actions that closed in early January and or had other conditions pending a period end.
You compare we recognized $21 million in the fourth quarter of 2021 and $32 million in the third quarter of 2002 in accordance with the same accounting principles.
Fourth quarter underwriting revenues of $44 million were down 32% compared to the fourth quarter 'twenty one.
All year underwriting revenues were $123 million down 50% versus 2021, reflecting the decline in overall market issuance.
Commissions and related revenue of $54 million in the fourth quarter were down 2% year over year.
For the full year commissions and related revenue of $206 million were flat compared to 2021.
Fourth quarter, adjusted asset management, and administration fees of $17 million decreased 23% year over year, while full year revenues of $71 million decreased 9% compared to 21, reflecting a decline in AUM driven by market depreciation.
Fourth quarter adjusted other revenue net was a gain of approximately $18 million in part reflecting the increase in value.
And value of our investment portfolio, which is used as a hedge for DCP commitments as equity markets rallied in the fourth quarter.
For the full year adjusted other revenue net was a loss of $9 million as equity markets were negative for the year.
Other revenue was a gain of $32 million in 2021, driven by positive equity market.
Turning to expenses the adjusted compensation ratio for the fourth quarter was 62, 5%.
Our full year reported adjusted comp ratio was 69% versus 55, 7% for 2021.
When adjusting the compensation ratio to exclude the hedge on our DCP.
Comp ratio for the full year would have been slightly lower at 63% compared to 56, 2% in 2021, when making the same adjustments.
Fourth quarter non compensation cost of $96 million were down 5% from a year ago, primarily driven by a decrease in other operating expenses.
Last year reflected the initial charitable contribution to the newly created Evercore Foundation.
This was partly offset by increases in travel which began to resume during the fourth quarter of 2021 and increased throughout 2022.
For the full year non compensation cost of $365 million were up 11% largely driven by increases in travel and travel related to return to a return to more normalized levels of travel and professional services as well as increased costs due to return to office.
<unk> pressures on technology and higher occupancy expenses as we added more space during 2022.
As we have previously mentioned, we are focused on our expense management practices across comp and non comp per head count is down quarter over quarter and since June .
Continue to manage out lower performance and limit incremental replacement hires.
On the non comp side, we are managing expenses tightly we expect growth in non comps in 2023, but at a significantly lower rate than what we saw in 2022.
This will be driven by continued normalization in travel practices.
<unk> pressures across both travel and tech.
As well as continued occupancy related increases driven by the annualized <unk> of new space and contractual rent increases.
If the market environment improves and activities subsequently picks back picks back up we could see an increase in deal related expenses.
Our adjusted tax rate for the quarter was 28, 2% up versus last year.
Full year adjusted tax rate was 24, 5% also up versus last year.
The increase for the quarter and the full year were primarily driven by an increase in state and local taxes as well as nondeductible expenses, including meals and entertainment and stock comp expenses.
Turning to our balance sheet as of December 31, our cash and investment securities totaled about $2 1 billion.
Our excess cash as a percentage of our total cash and investment securities was in the low teens.
We review, our excess cash position with respect to the current business environment and we continue to hold more cash than what is required to run the firm as market and economic uncertainty persists.
We remain committed to returning all excess cash.
Now I'd like to just capital not invest in the business to our shareholders over time, while maintaining a durable balance sheet.
In 2022, we returned a total of $655 million to shareholders through dividends and repurchases of $4 4 million shares at an average price of $117 in 2007.
During 2022, we more than fully offset the dilution from the <unk> that were granted as part of our annual bonus compensation process and we expect to continue to do so in future periods.
Our fourth quarter adjusted diluted share count increased slightly to $43 5 million from $43 2 million in the third quarter of 2002, primarily reflecting the increase in the share price and vesting of awards, partially offset by share repurchases.
Relative to a year ago, our share count is down significantly from $47 3 million in the fourth quarter of 2021.
With that we will now open the line for questions.
Thank you.
We will now conduct the question and answer portion of the conference. Please limit yourself to one question only.
Welcome to rejoin the queue for additional questions time permitting.
Again in order to ask a question. Please press the star key followed by the one key on your Touchtone phone.
Our first question will come from Brennan Hawken with UBS. Your line is open.
Hi, good morning, Thanks for taking my question.
So the outlook commentary was a bit more limited than we're used to hearing.
Likely reflecting the uncertainty but.
<unk>.
What do you think a recovery might look like because this is something that's often debated and I know, it's a tough question to answer but recency bias.
Results in folks often looking at the most recent recoveries which were.
Aided by a fed that was quite accommodative and so if we end up seeing a less accommodative central bank. How do you think that might play through in a recovery and when you. When we look back to prior cycles, which cycles would you think might be most apt.
As you sit here and play it out what a recovery might look like.
Obviously, depending on whether or not we landed a recession or not but.
Generally based on what we can see today. Thanks. Thank.
Thank you for the question and in terms of how we're how we would chart this cycle versus other cycles I think it's hard because this is so it's such a unique situation.
The way the way we think about it is that clearly what is happening now is that there is a lot of <unk>.
Standing back by Strategics and bye.
Sponsors looking and saying we're in a wait and see mode and I think that is happening we've seen that the investment grade public market has opened up on the on the on the credit side and I think that so certainly there is beginning to see some liquidity in the market for strategic transactions.
But I think that a lot of the boards and management teams are still standing back and waiting because there are so many exogenous things that could happen and I think they are they are watching to see what happens to the fed today and.
The messaging from the fed I think people are watching to see how inflation is behaving and I also think people are continuing to monitor the geopolitical situation I think generally I think that the.
Management teams and boards would love to start working on their strategic.
They are strategic dialogues and really start working on with what they want to have as their growth patterns.
On the sponsor side.
Think that the.
The investment the non investment grade markets leveraged finance markets are still somewhat restricted and I think that people are waiting and seeing clearly private credit is out there and its available but its not big enough to really drive a huge market and we're also watching to see whether buyers.
Buyers and sellers expectations for values are coming.
Closer together and I think with the way. This will play out is that youre going to see a few transactions start to start to go forward and as those go forward people are going to be watching carefully to see what the reaction is.
You'd see it taking some real time to start the momentum of the.
The recovery and then I could see the recovery accelerating I do think that that even though rates will remain relatively high from recent history.
With regard to recent history I do think what Youll see is youll see that.
<unk>.
People are going to want to start really looking at getting going on their plans and I think that so many.
Management teams and sponsors have been planning for this recovery and wanting to participate and I think youre going to see it.
Things look more positive is it some deals get done I think youll start to see an accelerating.
The pace of transactions.
John Thanks for that color.
Thank you.
Our next question will come from James <unk> with Goldman Sachs. Your line is open.
Hey, John Thanks for taking my questions I, just wanted to ask quickly on the debt financing markets, which do seem to have reopened to some extent.
So far in January and I guess in February .
Maybe you could speak to whether some of the financing pressures holding up M&A deals have subsided and that's what we're seeing and how this could impact the speed of an M&A recovery.
And then Conversely could this have a more negative impact in terms of reducing the restructuring opportunity.
Well first I'll start with the latter part of your question, which is I could easily see and this doesn't often happen I could easily see the merger market really picking up and restructuring continuing at a very hot pace, just because I think that in terms of restructuring. This is really a raw.
A broad type of application for restructuring, it's not industry specific it's really company specific and we're seeing a lot of opportunities both in terms of distressed financings.
Companies that really need advice.
With respect to their capital structures Theres, a theres a real broad diversity of activity going on in our restructuring group. So I can see that move.
Moving forward, even if the merger market is recovery.
In terms of the credit markets. There's no question that the opening of the credit markets and the strength of the credit markets has really helped investment grade corporates and big companies really looked at the market, but really the recovery is not really.
They havent don't have access to being able to do deals. It's really that they are really watching the market to see when the market will be receptive to doing big deals and then I could see that recovering and so I think that there is no question that the credit markets makes it easier.
But I think that it's really going to be management teams and boards getting the confidence to actually move forward with sizable situations to drive their strategy. I think there is a there is a real pent up demand from corporate and sponsors to do deals and so I think.
The minute they think that that there is going to be broad acceptance to deals youre going to see it start.
As I said I think it's going to build.
That's really clear thank you.
Yeah.
Thank you.
Our next question will come from Matt <unk> with <unk>. Your line is open.
Yes.
Hi, good morning.
Just wanted to touch on the non M&A advisory contribution.
More recently, we've spoken to this coming in closer to kind of a third of the total revenue pie over the past three years, but I'm curious I guess as to how this has trended in relation to this number over the past year.
Kind of considering the push and pull dynamics with lower underwriting fees and sort of what I would imagine there's a larger contribution from the private capital advisory and restructuring side. So wondering that shift within this market.
One.
2022 figure came about through a similar proportion to what you've disclosed over that three year period as to how we should be kind of thinking about this outlook on these non M&A advisory revenues in 2023, particularly with.
What we're seeing on the M&A pure M&A advisory specifically.
Sure. Thank you well generally I think we're still in the one third area as to where where these businesses are are are actually coming out in terms of our total revenue I think it's generally in the same place. These are very very strong businesses that are I think well.
And then I think that that the prospects for these businesses is very good and we're actually investing in them whether it's.
In restructuring we promoted another senior managing director, who is going to be very productive, they're very busy right now, they're they're taking on many new assignments and they've got a lot to do and so I think that we feel good about that business private capital advisory we're investing there too I mean, we really think we have.
Best in class businesses, there and we're trying to Florida, we're giving them opportunities to grow we're thinking it's a real strategic opportunity for us and we think that's important and then the other businesses like equity capital markets and equity trading are actually well positioned and everybody seems to be gaining some ground.
Relative sense.
Debt advisory the same wealth management I think is doing quite well I think so I think the answer to your question is that these are good businesses and they will drive performance.
Right now they continue to be in the one third area and I don't think thats going to change because I think that I think our merger opportunities will continue to grow. So I think right now I think it's it's not changing dramatically other than I feel like we are we feel good about the prospects of those businesses and really how.
The dialogues that we're having in there first do you want to say anything more of them.
As John said.
The merger business will remain the most important business for us as a firm.
As you pointed out ECM will ebb and flow with strong ECM here for us Ken help that number it helps a lot of things that provides us with a lot of operating leverage.
I think as John mentioned, we're investing in all of our businesses and.
But that.
That merger business will remain the most important that we're very happy we've invested and built the diversification over the last 10 years.
Great. Thank you.
Thank you.
Our next question will come from Jim Mitchell with Seaport Global Your line is open.
Hey, good morning.
You mentioned Europe as being having a record year last year. It did start off strong just from the environment perspective, but I know you've been investing heavily there too. So can you just talk a little bit about.
Your outlook there both from your own investment standpoint, the momentum we have as well as the environment.
Sure the environment started out very strong at the beginning of last year as you know and I think a lot of our competitors I think felt the same thing.
The environment started to basically cool off a little bit towards the latter part of the year.
Our prospects are that we actually see that.
We are feeling good about.
The beginning part of this year with that business I think we were.
Midway through or towards midway through the third quarter, we were wondering but we feel like it's.
Actually strengthened and so we feel good about that business.
In terms of our investment in Europe , we continue to think that we should stay on the course that we have been which is we are really making strategic investments. There. We were basically targeted certain areas that we think we can actually.
Really.
Build and do it productively for our shareholders and so we're willing to continue to invest there in fact, we are aggressively looking.
For opportunities in those areas to really grow and I think where we.
We're in the middle of some very I think important dialogue so.
Our intention is to continue to grow Europe , but do it in a way, where we are really being thoughtful and careful about making sure that when we.
What we're doing there and when were putting.
Shareholder money to work there that it returns.
And I think right now, it's actually working quite well and we're going to continue to be careful and diligent about how we do it.
Great. Thanks for the color.
Thank you.
Our next question will come from Devin Ryan with JMP Securities. Your line is open.
Yes.
Great Good morning.
Bigger picture question.
Around really the demand for advice you know one thing we will always look at to think about kind of the advisory markets. Just looking at global M&A volumes I think a lot of people track that as kind of a proxy for what's happening, but as the market continues to evolve which is much more than that and all the other capabilities you bring for clients and so let me just get a little bit of a sense of that.
John do you would just frame.
The demand for advice more broadly has evolved or changed how you go to market with clients and how that's changed and just really also the willingness of clients to pay for other types of advice beyond.
M&A capabilities.
Thank you for the question.
Our philosophy is that we want to become the strategic advisor for our clients and so when we enter.
Our go to client situation, what we want to do is we want to build very strong relationships with the senior decision makers.
Offer what we think are best in class capabilities and products and really try and help them with the things that are important to them.
In the very early days of the firm I think we were doing that but we were also we were limited by having a much more.
It's a much more.
Smaller client.
Product base.
And we didn't have quite as many products too.
To offer the clients now we have a much broader.
Suite of products and as a result, we can go into Ceos, and Cfos and heads of of M&A and we can offer them a much broader set and we're finding that it's really.
It's giving us real opportunity to do more for clients and whether thats going in and having activist.
<unk> re assignment and really beginning the relationship that way or coming in with interesting ideas for growth or whether it's looking at capital structures, we're able to do all of those things and as a result, I think we're actually.
We are actually able to create more connectivity and having a much better ongoing set of dialogues that I think really help us bond with clients. So from our standpoint, what we've invested in and what we've done is really.
We're going to have some real impact.
And I think we are really trying to broaden our reach with respect to clients and so over time, we are investing more and more clients and building that client base.
We will be successful if we are able to continue to build the client base and offer them products that they think are best in class and very very importantly to be able to put advisors in front of them, who they will value at the highest level.
So the answer is I think the model is feeling good right now.
And John just one clarification on just their willingness to pay for types of advice beyond just something that's transactional.
Understood.
We are definitely getting advisory fees.
Restructuring advisory fees, we were able to really get fees and so on the one hand merger deal fees are really always going to be the big the big driver of revenue for the firm I think just because the.
The transaction driven fees are actually some of the best.
I really think that we are having a larger and larger base.
These that are being paid for that or non transactional and very much advisory. So I guess the answer to your question is we are building that and it's and I think that the more expertise.
The broader our product set as the more we're able to get that in.
We're successful we're able to do a merger and then maybe also have debt advisory and be able to have that connectivity from different parts of the transaction, where we're able to actually charge fees and so that's going that's going well, we're continuing to work on that and as much as anything it's us learning how to really.
Apply what we think are real capabilities to the clients and therefore, adding value that they think is worthwhile.
Great. Thank you.
Thank you. Our next question will come from Steven <unk> with Wolfe Research. Your line is open.
Good morning, This is Brendan O'brien filling in for Steven.
So wanted to ask on the comp ratio given all the uncertainties surrounding the outlook and with backlog entering the year at a weaker level this year than last.
Feels like Com pressures are likely to persist into at least the first half at the same time it sounds like the impact of your DCP hedge was a significant driver of the incremental comp pressures that <unk> seen this year, so wanted to get a sense as to whether the 61%.
Accrual levels seen this year should be a good place to start for next and also was hoping you could help frame, how we should be thinking about incremental comp leverage from here. Your full year comp expense was down about 8% versus a 16% decline in your overall revenues would you expect that same dynamic.
A hold in 2023.
Thanks for your question so.
Comp the comp ratio will continue to be driven by revenue in this environment.
And we will set a ratio and share it with you in April and that will be based at that time not on one quarter, but based on our our estimate for the year at that time, so our outlook for the full year.
As a reminder, our smbs are paid on performance that makes the largest part of our comp expense however base benefits.
And other things become more meaningful in this environment, but as you can see we've reduced our head count at quarter on quarter and since June we're more aggressively managing that lower performers were limiting additional head count and replacement hiring and we'll continue to do so as long as the environment remains weak. However, we will continue to invest in <unk>.
<unk> talent and really the comp ratio will be how all of those things come together and we'll be really thoughtful about all of those based on.
What would the revenue environment looks like and what we think the opportunities are for us to invest in the future of the franchise.
Just one additional comment which is that.
The comp ratio is really going to be impacted and most of all by revenues and revenue growth with respect to our backlog our backlog is strong and the real variable in my mind is that deals.
Backlog in our ability to realize that backlog into revenue.
At this point.
Is really influenced by what has been an environment, where it's taken longer to get deals done.
And it's all been extended and so the real question is.
What I would say the realization rate of that backlog because that backlog is strong and if we're able to start to see an acceleration of that realization rate I actually think you'll see the revenue come to go up and I think you'll see us.
Take a lot of the pressure off of the.
The comp ratio.
That's great color. Thank you both.
Thank you.
Our last question will come from Manan <unk> with Morgan Stanley . Your line is open.
Hey, good morning.
John You noted.
That dialogue with clients is still pretty active particularly on the strategic side. So any any differentiation you are seeing in terms of deal size.
I know that the high antitrust scrutiny is not new but is that still weighing on large deal activity and you're seeing more dialogue and smaller deals right now.
I think we're actually seeing really healthy across the across the board.
Personally I think there is something to be said that people are watching really carefully on antitrust and I think I'm glad you brought that up because it is important and it's something that we're all watching really carefully that's not stopping management teams from really looking at big things, but I think there is a there is a really careful scrutiny with respect to.
How antitrust will play in those in those situations in the middle which is oftentimes when we see recovery, we often say well, it's going to be led from the middle or the bottom and it will accelerate in this case I think that.
I think that the.
The middle market and the.
Under $5 billion deals actually are quite healthy, but I also would say anecdotally in what I'm seeing and I'm talking to a lot of our bankers very regularly.
I've seen that there are some really big.
Big deals that are being seriously considered and I could see them going so I don't think I would differentiate big from small right now, but I would say.
A lot of it is going to be the wait and see approach that we talked about earlier in this call is going to be really interesting to see when some when some transactions at different sized level start to go forward how quickly others in those areas or those those categories start to pick up.
Could easily see it actually being a relatively broad based recovery, but it remains to be seen because as you know we still have so much uncertainty in this market, which is really what's holding the margin back right now.
Yes.
Great. Thank you.
Thank you and.
And we do have a follow up question from Brennan Hawken with UBS. Your line is open.
Good morning, Thanks for taking my follow up one just sort of clarification quickly the 130 smbs.
You note in the release that that includes the <unk> recruit but does that also include the seven advisory promotions.
Hi.
Brian .
Sorry.
Promotions will vary.
Be reflected in the <unk> number because they are effective as of we just announce them, but they are effective as of March 1st So there'll be included in that <unk> number.
Okay excellent.
And I don't know if Tim you are I know next quarter youll be your call, but congrats on the new role.
And just a quick one to sneak in here.
You've been at Evercore for over two decades and held many roles. So from your perspective, what do you think is most misunderstood about evercore as far as the valuation of the company that was reflected running.
Brandon I am so sorry, but Tim actually is is out on that.
A medical situation for this morning, and so he's not here for this call you may be listening in but I don't think he's going to be able to charge into that one let's put that one on hold and in our next call. We will make sure. We remember an answer it for you.
I hope he is doing okay medical issue.
Thanks for clarifying.
But he couldn't be here today. Unfortunately, he would've liked to have been fair.
Fair enough. Thanks, so much.
Alright.
Thank you everyone see you next time.
Thanks, everyone.
Ladies and gentlemen, this concludes today's Evercore fourth quarter 2022 financial results Conference call you may now disconnect.
Thanks.
Great.
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Yes.
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