Evercore Inc. Q1 FY2021 Earnings Call

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Evercore First Quarter 2021 Financial Results Conference Call. During today's presentation, all parties will be in listen-only mode. Following the presentation, the conference call will be opened for questions. This conference call is being recorded today, Wednesday, April 28, 2021. I would now like to turn the conference call over to your host, Evercore's Head of Investor Relations, Hallie Miller. Please go ahead, ma'am.

Thank you, Crystal. Good morning, everyone, and thank you for joining us today for Evercore's first quarter 2021 financial results conference call. I'm Hallie Miller, Evercore's Head of Investor Relations. Joining me today on the call are John Weinberg and Ralph Schlosstein, our Co-Chairmen and Co-CEOs; and Bob Walsh, our CFO. After our prepared remarks, we will open up the call for questions. Earlier today, we issued a press release announcing Evercore's first quarter 2021 financial results. The company's discussion of our results today is complementary to the press release, which is available on our website at evercore.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. I wanted to point out that during the course of this conference call, we may make a number of forward-looking statements. Any forward-looking statements that we make are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors include, but are not limited to, those discussed in Evercore's 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 Evercore's 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’ll now turn the call over to John.

Thank you, Hallie, and good morning everyone. What a difference a year makes. This time last year we were in the early stages of the global pandemic. There was uncertainty about the science and trajectory of the virus and there was no visibility on vaccines. The economic environment was weak and the pace and shape of an economic recovery was unclear. With so much uncertainty and the weak economic environment and outlook, most of our clients turned inward to focus on operations, liquidity and in many cases restructuring, while restructuring activity and strategic activity was paused. From an operational perspective, I don't think any of us expected to spend the remainder of 2020 and a good portion of 2021 working predominantly remotely. Fast forward one year and we've made tremendous progress. Monetary and fiscal stimulus helped stabilize the economy and financial markets, and recovery is well underway. Vaccine distribution is gaining momentum and as a firm we are actively planning for a gradual return to our offices over the next several months. In fact, Ralph, Bob, and I are in the office today for this call and our business is robust, as we continue to act as an advisor to clients on strategic financial investment and capital initiatives. The momentum we experienced throughout the first half of last year has continued into the first quarter. Our results, which represent our best first quarter ever, reflect our teams' client focus, the breadth of capabilities that we can offer and the continued favorable environment for M&A and capital raising activity. Transactions announced in the second half of 2020 and some even earlier, moved towards completion during the quarter and translated to revenues. We've also realized revenues from transactions announced and closed within the first quarter, benefiting from increased demand for activist defense advice over the past several months. Capital advisory, both public and private has continued its strong contribution. The breadth of our equity capital markets capabilities, including IPOs and follow-ons, convertibles and SPAC has enabled us to participate in a meaningful way in the sustained strong levels of market issuance. In the first quarter we participated in nearly 40 public market transactions that raised more than $22 billion in total proceeds. In private capital advisory GP led transactions remained strong during the quarter and we have seen a strong recovery of volumes in new capital needs. In the face of economic recovery and strength in M&A and capital raising, classic restructuring activity has slowed and is concentrated among key sectors and issuers that have not rebounded as quickly as some others have. Our equities business, Evercore ISI has continued to stay connected and engaged for our clients and has provided valuable research insight and sales and trading execution, and solid performance drove AUM growth in our wealth management business. We continue to focus on expanding coverage of key industries and building out our capabilities. We welcomed Mark Mahaney in March to Evercore ISI as Head of Internet Research and Juan Pedro Pérez Cózar joined our Advisory business in Madrid as our new Head of Iberia earlier this month. We are benefiting from Kristy Grippi joining us earlier this year as our new Head of ECM as well as other strategic adds we've made on our ECM team. With the key ingredients for M&A activity in place, a positive economic outlook, strong equity markets, and available credit, high CEO confidence and continued private equity activity, the momentum for strategic activity continues, and the desire for capital raising persists. Several of our key markets continue to be busy and our backlogs are strong. The strategic merger market accelerated in the first quarter. Global and U.S. announced M&A dollar volume increased 95% and 164% respectively compared to the first quarter of 2020 and increased 3% and 13% respectively from a strong fourth quarter. In ECM, the desire for capital raising remained strong. Though we have seen a cooling off in the SPAC underwriting market over the past several weeks, our investment in SPAC capabilities have positioned us well to serve many new clients; though we remain selective in our participation in underwriting opportunities. We continue to see activity in shareholder advisory and activist defense. The number of new activist positions in the U.S. reached its highest level in more than two years at the end of 2020 and activists are focusing on larger targets. On the private capital advisory side of things, we are seeing accelerating activity in both capital raising for new funds as well as secondary and GP level activities. In short, we feel continuing momentum in our business and we are excited by the prospects we see in front of us. Our broad capabilities have positioned us well to offer more services to clients as they execute on their priorities. Let me now turn to our financial results. We achieved record first quarter adjusted operating income, adjusted operating margin, adjusted net income and adjusted earnings per share, driven by solid revenue growth and good operating leverage. First quarter adjusted net revenues of $669.9 million grew 54% year-over-year. First quarter advisory fees of $512.1 million grew 43% year-over-year. Based on current consensus estimates and actual results, we expect to maintain our #4 ranking on Advisory Fees among all publicly traded investment banking firms for the last 12 months and to grow our market share relative to these same firms. We also continued to narrow the gap between us and the #3 ranked firm on our latest 12-month Advisory Revenue and market share basis. Our first quarter Underwriting Fees of $79.3 million more than tripled year-over-year. As we said last quarter, this business experienced a step-up in 2020 as the demand for capital raising increased substantially and the expansion of our capabilities and enhanced sector coverage enabled us to work on diverse assignments for clients. We have continued to broaden our participation across sectors, which we believe is helping us grow our business. While healthcare still represents the largest portion of revenues, TMT and industrials more than tripled their combined portion of revenues in the first quarter compared to the full year 2020. First quarter commissions and related revenue of $53.5 million decreased 4% year-over-year as volumes declined relative to the elevated levels in the first quarter of 2020. First quarter asset management and administration fees of $17.8 million increased 16% year-over-year on higher AUM, which was $10.6 billion at quarter end, an increase of 11% year-over-year. Turning to expenses, our adjusted compensation revenue for the first quarter is 59%. First quarter non-comp costs of $72.7 million declined 12% year-over-year. Our non-compensation ratio for the first quarter is 10.9%. Bob will comment more on our non-comp expenses in his comments. First quarter adjusted operating income and adjusted net income of $201.8 million and $162.5 million increased 145% and 181% respectively. We delivered a first quarter adjusted operating margin of 30.1% and a first quarter adjusted EPS of $3.29 increased 172% year-over-year. Finally, we continued to execute on our capital return strategy. We returned $275.3 million to shareholders during the quarter through dividends and the repurchase of 1.9 million shares. And we achieved our commitment to offset the dilution associated with our annual bonus RSU grants through share repurchase in the first quarter. Our Board declared a dividend of $0.68, an increase of 11.5%. We expect to continue our annual reassessment of the dividend each April. Our Board also approved a refresh of our share repurchase authority to $750 million. We will resume our historical policy of returning cash not needed for investment in our business to our shareholders through additional share repurchases. Now let me turn the call over to Ralph to discuss some of our business highlights in the first quarter and an update on our 2021 priorities.

Thank you very much, John. Our first quarter results clearly demonstrate that we are operating at a higher level than the level of which we have operated historically, as measured by any financial metric—revenues, operating income, net income, earnings per share, operating margins and senior managing director productivity and Advisory. While our operating margins clearly are benefiting modestly from the decline in travel and entertainment due to the pandemic, the strength in the other financial metrics is indicative of a real uptick in our business. Our diverse capabilities, and the more balanced mix of our business contributed to our record first quarter results, the third best quarter in our firm's history as well as to the record fourth quarter and full year results last year. On top of our strong financial performance, we sustained our #1 league table ranking in the dollar volume of announced M&A transactions, both globally and in the U.S. among independent firms for the last 12 months, ending March 31, and in the first quarter of 2021. We advised on the two largest M&A transactions announced in the first quarter. Additionally, while not first quarter events, we have prominent roles on the two biggest tech announcements this year, both of which were announced in April. We served as the lead advisor on Grab's $40 billion IPO via a SPAC merger, the largest tech merger this year, the largest SPAC merger in history, and the largest PIPE issued in conjunction with a SPAC merger at a little over $4 billion. And we also served as the sole advisor to Nuance on its pending $19.7 billion sale to Microsoft, the second largest tech merger this year. These are franchise defining transactions for our clients and for Evercore and are reflective of the breadth of our capabilities and the strength of collaboration and teamwork across the firm. Our underwriting business continues to perform well and produced its third best quarter ever. When we first acquired ISI almost seven years ago, we identified one of the most important opportunities created by that transaction to be our ability to increase our underwriting revenues to perhaps $75 million to $100 million of revenue per year over the ensuing few years. It unquestionably took a little bit longer than we initially expected to get to that level of revenue annually, but we have definitely seen a real step-function increase in this business. In fact, three of the past four quarters, including the first quarter of 2021, were in just one quarter within that $75 million to $100 million target that we had set for the full year. Activity in backlogs and underwriting continued to be strong and we remain focused on building out this business strategically so that we can continue to serve the needs of our clients without any use of our balance sheet. Needless to say, our revenue aspirations for this business have grown materially. The first quarter also saw a number of significant transactions in the convertible debt space, which we launched in the third quarter of 2020, including our first sole book-run convertible offering and an active book-runner position on a biotech convert. These transactions are indicative of the breadth and diversity of our platform and our capacity to meet increasingly diverse client needs. Our investments in ECM have earned us a place in the top 20 for underwriting revenue as estimated by Dealogic when bot deals are excluded. We continue to believe that we have runway here and we are focused on systematically gaining share as we have done in advisory historically. The breaking into the top-10 currently seems challenging given our aversion to block trades and our independent balance sheet-like approach. Activity in our private capital advisory businesses, our secondaries advisory business which we call PCA, our primary fundraising business which we call PFG, and our real estate fundraising in secondaries business continues to be strong as volumes increased meaningfully during the quarter. Our success in this area is driven by the strength of our client relationships and our superb execution track record, including our unique success executing transactions done solely through remote communication. In restructuring, the team’s activity level and footprint are resetting back towards historical levels as the economy and debt market liquidity have meaningfully improved. The team continues to work through assignments started in 2020 and is also focused on new liability management, private financing and conventional restructuring assignments in sectors that are still stressed by the pandemic. In equities, client connectivity and engagement continue to be strong as our macroeconomic and fundamental analysts continue to provide valuable insights to institutional clients. Our team also has continued to meet high client demand for our robust virtual conferences, webinars and corporate access events. The investments that we made in our platforms to support our ECM franchise including convertibles performed well during the quarter and are a natural capability extension for us. And we continue to expand our sector coverage with Mark Mahaney’s launch on internet stocks earlier this month. And as we've always said, we will continue to look for a senior impactful analyst who will serve our clients and contribute to the growth of this business. Finally, our wealth management business continued to grow AUM as long-term performance has remained very soft and as we have continued to provide important advice to our clients. Let me now turn to discuss some of our priorities for the remainder of the year. As we think about the rest of the year, we are focused on several important items. First, we are intensely focused on continuing to position our business for sustaining long-term growth by number one, providing outstanding advice and execution for clients as we continue to advise them on their most important strategic, financial and capital decisions. Number two, by continuing to enhance our coverage of the most significant client groups, including our initiatives around the Evercore 100 and financial sponsors. Number three, investing to further deepen and broaden our capabilities by continuing to build out certain industry groups, geographies and product capabilities. Second, we are focused on planning for our return to our offices globally, with the health and safety of our employees and their families paramount as we develop and execute our plans. Third, we are highly focused on integrating diversity, equity and inclusion and sustainability more completely into how we conduct our business and how we hire, train and mentor our talent. Finally, we are focused on operating with financial discipline and delivering strong returns to our shareholders. Returning excess cash not needed for growth investments to our shareholders through dividends and share repurchases, while maintaining a strong and liquid balance sheet. We are actively recruiting A+ and A-talent in Advisory to our team and we continue to have many conversations with talented individuals in key sectors and geographies, including TMT, fintech, biopharma, healthcare, consumer, financial sponsors, and Europe. Equally important is our long-term commitment to attracting, recruiting, mentoring, and promoting talented professionals and promoting them to Senior Managing Director from within. We strongly believe that in-person collaboration, training and mentorship are crucial to our culture and our apprenticeship model. These experiences are most effective when we are together and contribute to the development of our future leaders, which is why we are so focused on our return to office over the next several months. We are pleased to be sustaining Advisory Senior Managing Director productivity that is at a materially higher level than our long-term average. However, we are finding, probably due to the pandemic that it is taking new hires and new internally promoted Senior Managing Directors a little longer, perhaps a year or so longer to reach full productivity. Fortunately, this longer ramp time means that we have more partners who will contribute to our future growth. Before I turn the call over to Bob, I want to thank each and every member of our exceptional team. The first quarter results and achievements that John and I have summarized and really our results over the past year could not have happened without the dedication, teamwork, collaboration and commitment of our entire team. Every single one of our employees has stepped up to the challenges of the past year plus and there have been many such challenges. We very much look forward to bringing our teams back together in person soon so that we can continue to build and strengthen the culture that has been the foundation of our success. Let me now turn the call over to Bob.

Thank you, Ralph, and just a few items from me this morning. Beginning with GAAP and some related metrics, for the first quarter of 2021, net revenues, net income and earnings per share on a GAAP basis were $662 million, $144 million and $3.25 respectively. Our GAAP tax rate for the first quarter was 16.1% compared to 25.8% for the prior year period. The appreciation in the firm's share price upon vesting of employee share-based awards above the original grant price positively affected our effective tax rate on both the GAAP and adjusted basis. On a GAAP basis, our share count was $44.5 million shares for the first quarter. The share count for adjusted earnings per share was $49.4 million for the quarter. Focusing for a moment on non-compensation costs, as John noted, we continued to generate significant operating leverage, in part due to lower non-compensation costs. Firm wide non-compensation costs per employee were approximately $40,000 for the first quarter, down 9% on a year-over-year basis. The decrease in non-compensation costs per employee versus last year, primarily reflects lower travel and related expenses. As we continue to evolve towards more normal operations, including returning to our offices and engaging in person with our clients, costs associated with recruiting, travel, entertainment, and other expenses are expected to increase. I'd like to call your attention briefly to a modest change in presentation that we made in our income statement during the quarter. Commissions and Related Fees has been renamed to Commissions and Related Revenues, and now includes riskless principal profits, which were previously in other revenue, including interest and investments. The reclassified revenue principally represents the spread income earned from riskless principal transactions in convertibles and other fixed income securities. The reclassification of amounts for this change going back eight quarters can be found in our press release. Finally focusing on the balance sheet two points. On March 29, we issued $38 million of aggregate principal amount of unsecured senior notes with a 1.97% coupon through a private placement. We use the proceeds from the notes to refinance senior notes that matured on March 30. And finally, at the end of the quarter, we held $411 million in cash and cash equivalents and $873 million in Investment Securities, down from year end due to compensation related payments, and a strong return of capital. We'd now like to turn the call over for questions. Operator, if you could open the line.

Our first question is from the line of Michael Brown with KBW.

Great, thank you operator. Hi, good morning guys.

Good morning.

Good morning.

I wanted to start by discussing the top priorities you've mentioned for long-term growth and focus on that a bit more. Alongside COVID, we've observed significant shifts in how we work and live, as well as a substantial acceleration in the impact of digital technology across all sectors. You've recently brought Mark Mahaney on board, and I'm interested in your thoughts on the ongoing talent mix. Where do you believe further investment is necessary to stay ahead of these trends in areas like software, Cloud, electric vehicles, and AI? Can you address these needs through hiring, or will the lack of coverage in some sub-sectors be better tackled through internal development and promotions?

We are very focused on the growth areas around our business and clearly technology is one of them and a major one. We are investing in our tech business. We're looking aggressively for talent throughout the tech sectors. We have a strategy to in effect populate many of the areas that you've talked about. We have some very, very good tech bankers who are already in those areas and we're working on them. As you know, we've built out our equity capital markets area in the tech sector also, but we're also looking at other sectors besides tech, whether it's healthcare and biotech, whether it's energy transformation. We really think there are several very high growth sectors that we are continuing to focus and grow in. In addition, we have other whitespace, whether it's in Europe, where we are looking with respect to telecom and oil and gas, or whether it's generally in our equity capital markets area, which Ralph articulated is, it's a very high growth area for us and we're very much focused on the fact that we think we have real runway to grow there. So in direct answer to your question in technology, we are very focused. We are looking aggressively for good talent. And I think we feel like we have some very good dialogues ongoing right now.

The only thing I would add is that, if you look at our income statement, and let's take a five-year look forward. The growth we would expect to come on two lines of that income statement, Advisory and underwriting. And in both of those, obviously we're benefitting right now, by pretty robust markets in both Advisory and underwriting. But we believe the opportunity for us is to continue to take market share, as we have over the last 12 years in Advisory and over the last handful of years in underwriting.

Okay, great. And just a quick follow up on that same topic. Now as we look at some of the hiring trends across the industry, it seems to be at least from my seat, that things are a little bit slower here in 2021. I could see that the M&A market being so strong could be keeping bankers at their current firm and really have been hesitant to make a move, until maybe their pipelines worked down over time. But I was wondering if you could expand on really what you are seeing in the hiring environment and if you agree with some of those assertions that I just made, and I’d just be interested to hear how the hiring environment for Evercore could trend relative to some of the historical periods? Thanks.

I think we've said for each of the last 8, 10 years that we expect to hire for the eight new SMDs in our Advisory business. And as we sit here today, we don't see any reason why this year would be different from prior years. I do think there's an industry-wide phenomenon right now, which is hiring was relatively slow last year, because we were all uncertain about the environment from early March on and that didn't really resolve itself until the fourth quarter. So you have a pickup in M&A, and underwriting and just about every other activity and most firms are not up a lot in headcount versus last year or even flattish. So the fight for talent is pretty intense right now, but we don't expect that will prevent us from doing our normal hiring.

In fact, I'd say that there are many ongoing dialogues with people and there are many people who are interested in talking to us. I think one of the things that Ralph and I have found is that we have a large number of people who seek us out as they think about their career moving forward. And so, we feel like we have a broad offering of opportunities, and we're really working on them right now. So I think what Ralph said is absolutely right that environment is very competitive, but we're actually seeing our opportunities and we're acting and aggressively trying to find people who we think are top level talent.

Your next question comes from the line of Manan Gosalia with Morgan Stanley.

Hi, good morning. I was wondering if you can unpack your comments on M&A activity. I mean can you talk about how your rest and analyst backlogs are trending relative to where you started the year? You know, maybe the rate of replenishment of your pipeline and you know, also how we expect that evolve for the rest of the year?

They're strong.

Yes, backlogs are strong and activity is ongoing. The conditions are favorable, including economic factors, a positive outlook, equity markets, private equity activity, and CEO confidence. We are engaged in many discussions across our sectors and feel that the level of activity is robust. Therefore, we are feeling optimistic.

And if you look at the level of activity that John outlined in his opening remarks, which is just the dollar volume of M&A activity, and our backlogs are consistent with that.

Okay, great. And then can you talk a little bit about the de-SPAC opportunity here? We've seen activity slower with that, you know, there's still 400 plus SPACs out there looking for a deal. Can you give us a sense of how you think that activity will trend for the remainder of the year and what opportunity that presents for Evercore specifically?

Yes, we've had pretty good participation in particularly sell sides to SPACs or mergers that lead to steep de-SPAC-ing transactions. So our backlog in that area is strong. And the way we think about this is, you have essentially a new private equity cash pool and it's almost equal to when you look at the pipes that normally accompany a SPAC or a de-SPAC in transaction, there's almost $1 trillion of dry powder in the SPACs that have not yet de-SPAC-ed and they obviously have a time in which they have to make their investments. So they are a significant source of purchasing power in the M&A market alongside of course, private equity firms and strategics.

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

Hey great. Good morning, everyone.

Hi, Devin.

Another question just kind of bigger picture on the Advisory market. Clearly the Advisory people secular growth and then within that Evercore has been expanding market share, but as I'm trying to think about the opportunity in the Advisory market, it kind of feels like we're in a step function of activity and I appreciate the ingredients are in place. But maybe I'd love to just take it a layer deeper around some of the drivers that are maybe unique now and whether this is just kind of a culmination of the past year and just an urgency to get deals done or if there's something bigger happening here that maybe we haven't experienced before, just as companies are thinking in new ways strategically that they haven't in the past?

I don't believe we will see a sudden leap in activity. Instead, what we observe is a growing confidence among CEOs, coupled with access to capital and perspectives that have generated momentum in deal-making. As the economic weakness from COVID began to improve in the third and fourth quarters, conversations became more frequent. Mergers don’t happen overnight; they involve extensive discussions where executives and boards evaluate their strategic positions and start to formulate growth plans. Currently, we are witnessing an increase in activity resulting from renewed discussions, as many companies consider inorganic growth viable due to the current economic conditions. They are optimistic about a potentially strong economy, consistent access to funds, and aware that their shareholders expect growth. Consequently, our focus on large, aggressive companies is yielding progress, which is evident in the momentum we are building in our business.

And the only thing I would add Devin is, if you look over the long cycle from 1980 through today, historically we've had 5 to 8-year up-cycles and 2 to 3-year down cycles. The up-cycle coming out of the financial crisis was probably 10 years long and the down cycle caused by the pandemic probably was 6 months long. And so, we're now in a period of recovery again, and notwithstanding the strong M&A volumes that we've had over the last two quarters, we're still below the historical trend or average of M&A volume versus either global market cap or global GDP. So, that's the way I look at it.

Yes, that's great perspective, I appreciate it. And then maybe one for Bob here, just thinking about near the comp flexibility throughout the year, I appreciate there's a number of moving parts, but the 59% comp ratio in the first quarter was approximately in line with the full year 2020 level. So just, you know, I want to get a little more perspective around some of the puts and takes in, kind of comp leverage and maybe the bigger picture operating leverage as we think about 2021 especially given some of the commentary about how, kind of all metrics are operating at the kind of record levels right now?

Yes, Devin, as you would expect me to say it's early days. I'm trying to figure out comp on a full year basis in the first quarter. It always requires a lot of judgment and is part art, to the positive side with this kind of performance. History would tell us we generate comp leverage not to the negative side, but perhaps putting some pressure against that I mean, is the level of investment that we successfully accomplished during the year, if we have a very successful year as Ralph has pointed out, anytime I think he's asked that cost goes through the income statement right away. So, I think those are the two big puts and takes. What's the top line? What's the level of investment, and it is early days.

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

Good morning. Thanks for taking my questions. There was comment made in the prepared remarks. I believe Ralph it was from you, that you're seeing a longer ramp time for some of the new recruits and the new promotes. If – could you maybe provide a little bit more color and context around that? Is there a difference in between the promotes and the recruits? Does this just apply to the last few years of vintages, for lack of a better term? And do you think it might be tied to the environment specifically, given that how unusual it is and we're seeing a lot of deals basically come back after they were put on ice before the pandemic and therefore if a banker has moved, then there's a dislocation in the discussion and engagement with the corporates. I'm just trying to understand whether or not something or this is just environmental?

Sure, let me explain the background of that comment. We have data spanning back 10 to 12 years on this. When we look at external promotions, the initial stub year usually reflects the minimum revenue. Historically, the first full year has generated 50% to 70% of what their ultimate normalized run rate would be, and by the second full year, they typically reach that level. For internal promotions, it's a bit different since those individuals already have some revenue. Generally, they achieve normalized levels in the second or third full year after their promotion. Recently, however, we've noticed that it's often the third full year in which these individuals reach normalized productivity. Our hypothesis, which we won't be able to fully confirm for another three to four years, suggests that this delay may be due to the challenges of building a stronger client base during a time when in-person interactions are limited. One of the advantages we had last year was our senior bankers with established long-term relationships, as companies sought out their trusted advisors. In contrast, it's more challenging for newer bankers or those who have recently been promoted to forge such relationships without in-person contact. This hypothesis indicates that the situation isn't fundamentally flawed. The reason we highlighted it is that, despite last year's lower hiring for senior managing directors, we were at the bottom of our projected range, yet we still have several people hired or promoted in 2018 and 2019 who are still in the ramp-up phase.

Brennan, it's Bob. The other point I might add is, as you would all know, normalized productivity today is materially higher than it would have been five or seven years ago. And that is due certainly in part to the much broader capabilities that any SMD can deliver to the clients of the firm or the clients that followed them to the firm. So, as we, as Ralph made in his, made a note in his comments, in our view this isn't all bad news in that as someone joins us sort of plugging into all of those capabilities and connecting them to the clients, while it takes a little bit longer, there's more upside in it.

I would just add and I'm going to say this, you probably would expect that I'd say it, but I'm going to say it anyway because I believe it. The people that we've added in the last three years or so, are very high quality. And we're feeling really good about their ramp and about really the progress they're making and really the contribution they're making, both in terms of commercially, but as well as culturally. We really feel good about our team and the ramp that we have in place with the people who are just coming up to stream right now.

I’m sorry, we have gone over the time limit. I’d like to turn the call over to Bob now.

Thank you. The first question was around our SMD headcount, and as you would probably expect that was 107 that were counted as at the end of the first quarter. And as for the economic impact of the pandemic on our organizational development, we see that as positive; we are optimistic as it relates to our hiring going forward propelled by demand in advisory services, and as upper class fills in. I’d be happy to take the second part of that question related to our borrowings and metrics around the gain from hedges.

Your last question comes from the line of Richard Ramsden of Goldman Sachs.

Thanks. This is James Yaro filling in for Richard. So perhaps you could help us understand the restructuring opportunity from here and what do you expect the cadence of this business to be over the course of the year? And then, do you lend any credence to the idea that the speed of the economic recovery has meant that companies that would have otherwise ended up in the restructuring situation ended up doing M&A?

The first question is that restructuring activity is returning to its historical levels, following a brief increase last year. I want to emphasize that there isn’t a clear distinction between restructuring and M&A or other advisory services; it blends together. For instance, last year our restructuring capabilities were crucial for some major companies that needed to raise significant debt, and we acted as their advisor in those dealings. It's important to note that some level of restructuring activity persists even in strong economic conditions and liquid debt markets. Currently, while we are in a very liquid debt market and experiencing a healthy economic recovery, certain sectors or companies still face challenges. Overall, we're back to normalized levels, and our restructuring group has excellent capabilities that we are using, just as we did last year, to assist companies in raising debt privately, conducting traditional restructurings, managing liabilities, and, as I mentioned earlier, there are always individual companies or sectors that encounter stress in any given year.

The only thing that I would add is that, what we have done and what our group has done is, they have expanded their opportunity set, in that they are extensively debtor and creditor and they also have spent more time with sponsor portfolio companies that may be seeing some distress. So as a result, there are more opportunities, there are more targets for them, and we see some of those coming through. So over time, I think you'll see that group continue to create its own momentum and that’s something that we're really happy with.

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

We really haven't seen any flagging of the momentum. That is not to say that it won't happen, but really what we're seeing is a continuing momentum and we see the dialogues if anything strengthening even more, but we really don't see, you know, obviously there’s things that can happen, whether it's an international issue that could drive it, there could be some political issue that does come back. There could be a disruption. We don’t really see that. So I think our view is that not to be overly optimistic, we think that certainly over the next three to six months that the momentum will continue as it is. We don’t see any real disruptor on the horizon.

That’s great. And then your non-comp ratio came in once again better than you had expected and you know, now a year into this new environment, but you are focusing on returning to the office. So maybe you could update us on your expectation for the permanence of some of these lower COVID related non-comp costs from here?

Yes, the recovery rate and pace of travel and entertainment expenses are challenging to predict, and we expect it won't return to historic levels in a straightforward manner. Many clients appreciate the flexibility and efficiency gained from remote communication technologies. While our team looks forward to engaging face-to-face at senior levels, it's possible that execution won't necessitate as much travel as before. We believe there will be changes in how we connect with research analysts and others, so we anticipate an increase, though it's hard to envision it reverting to the extremely low levels we're at today. The pace of this change is difficult to assess. Additionally, recruiting is tied to overall success, and as I mentioned regarding compensation, we are optimistic about improvements, but there is still work to be done.

All right, thanks a lot and congrats on the results.

Thank you.

Your next question comes from the line of Steven Chubak with Wolfe Research.

So, Bob, maybe I wanted to start off by just following up on that earlier question on non-comps, just as we prepare for some reversion to more normal T&E and now if I look at the historical trajectory of non-comp per employee, which I know is your favorite metric, 2019 was the high watermark at 1,94,000, 2020 was the low watermark at about 1,70,000. I'm just curious like from your point of view as you underwrite non-comps or just budget for non-comps I should say, how should we think about that new normal baseline for that metric once T&E reverts to some new normal?

I think you should, as you talk about that high watermark, you'll recall at the time that we empathized some significant real estate and technology investments sort of just proportionately high. So, much of that is behind us. Those accelerations of costs are now into our operating model Steven. So, I don't see that high watermark. The case from that 2020 low to something below that high watermark is an uncertainty for us. But again, we're far more focused on the benefits of travel, the benefits of entertainment, and the benefits of investing in new talent. So and it goes up in a disciplined way, and that’s a positive for us because it should drive further growth on the top line.

Thanks for the excellent color Bob. And maybe just one follow-up on the underwriting outlook. Activity has started to slow a bit for the industry, admittedly following a neck breaking pace in the last few quarters. And at the same time it's also clear that the new normal run rate for Evercore is going to be well above the stellar target of $75 million to $100 million at the time that you acquired ISI. I was hoping you could maybe just speak to how you're thinking about the new normal run rate for the business given the expansion into new TAMs such as converts even as industry-wide activity levels begin to normalize a bit?

I don't think we have a clear answer to that, because underwriting revenue depends on two factors: the overall level of underwriting activity and Evercore's market share in that activity. Additionally, when you exclude block trades, which we don't engage in, and focus on underwriting revenue, Dealogic is the most reliable source for this information. As I mentioned earlier, we have made it into the top 20 over the past 12 months. It seems reasonable for us to aim to move further into the teens and potentially break into the top 10. However, this will be more challenging than progressing from the top 20 to the teens. If you'd asked me a decade ago, when we first entered the top 20 in Advisory, I would likely have given a similar response. I would have suggested that gaining market share from 20 to 10 seems manageable but breaking through beyond that is tougher, and now we find ourselves ranked fourth in the world for Advisory revenues.

And what I'd like to add to that is, that there are at least two and maybe more ways that we're going to increase our revenues with our existing base of business. The first is that, the more active we become in the deals that we're involved in and the further to the left we go, the higher the fees are with respect to those and the contribution. We feel like we are continuing the march left, meaning we are trying a little more and more active role in those fields that we do get a chance to work on, and we think we are contributing more and more, that's number one. Number two, like you've seen healthcare was really our leading edge in equities and equity capital markets. We will continue to invest in that business. But what we also are beginning to really develop and see momentum in, is expanding into other sectors, whether that's technology, industrial and really other types, transportation. And we think that that evolution for us will continue and we don't see that there is going to be a restriction to that. So I think those two things that are maybe exogenous factors to growth.

Thanks for that, very helpful color. And just if I could squeeze in one more just very quickly on capital structure, since a number of clients pinging me, just wanted to get some perspective, Bob on the fact that a lot of your competitors have touted the fact that they do have a debt free balance sheet and admittedly they are also trading at higher PE multiples despite similar earnings growth profiles. I'm just curious given the strength of your liquidity position, why you need to have any debt within your capital structure capital stack, especially given how small it is relative to your overall liquidity, and maybe just speak to the appetite to maybe accelerate buybacks giving you did see a little bit of share creep as I look at the share count on a year-on-year basis?

So, the share creep that you see in the quarter is a little bit of a good news problem, which is the mechanics of share count as you think about the unvested RSUs is such that the number of shares that go into the share count increases significantly when your company share price increases significantly. And so if you sort of peel the onion back a bit on the quarter, a major factor contributing to the share count increasing in the quarter was a direct function of the improvement in the share price, so perhaps a negative outcome to a good problem. Steven, in terms of the corporate finance analysis, let me just bring this all the way down to a very tactical decision that I talked about in my remarks which is we have $38 million of debt matures at the end of the quarter. Borrowing at 1.97%, basically refinancing that was a no-brainer corporate finance decision even for a simple accountant like me, leaving that cash available for buybacks and to return to shareholders.

Thank you. This concludes today’s Evercore first quarter 2021 financial results conference call. You may now disconnect.