Earnings Call Transcript - EVR Q1 2022

Operator, Operator

Good morning and thank you for standing by. Welcome to Evercore's First Quarter 2022 Financial Results Conference Call. During today's all parties will be in listen-only mode. Following the presentation, the conference call will be opened for questions. As a reminder, this conference call is being recorded today, Wednesday, April 27, 2022. I would now like to turn the conference call over to your host, Evercore's Head of Investor Relations, ESG, Katy Haber. Please go ahead.

Katy Haber, Head of Investor Relations and ESG

Thank you so much. Good morning and thank you for joining us today for Evercore's first quarter 2022 financial results conference call. I'm Katy Haber, Evercore's new Head of Investor Relations and ESG. Joining me on the call today is John Weinberg, our Chairman and CEO and Celeste Mellet, 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 2022 financial results. Our 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 our For Investors section of our website and an archive of it will be available for 30 days, beginning approximately one hour after the conclusion of this call. During the course of this conference call, we may make a number of forward-looking statements. Any forward-looking statements that we make are subject to various risks and uncertainties and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors include, but are not limited to, 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.

John Weinberg, Chairman and CEO

Good morning, everyone, and thank you, Katy. We are very fortunate to have Katy here to take on this important role as Head of Investor Relations and ESG, and I know you will all join me in welcoming her to our team. It was a solid first quarter for Evercore with $728 million in adjusted net revenues, $625 million in adjusted advisory revenues and $3.80 in adjusted earnings per share. All records for our first quarter. Having said that, I want to acknowledge the challenging geopolitical backdrop that underlies the start of 2022; the war in Ukraine has increased uncertainty on a global basis resulting in capital markets volatility and wide-ranging strategic questions for corporate leaders. However, even with this recent uncertainty, the fundamental themes that drive M&A activity in the intermediate to long-term are still in place. Rates are still low from a historical perspective. Markets are accessible and CEO confidence remains high. On the corporate side, in addition to the search for growth by corporates, we continue to see innovation and new disruptive business models that we expect will drive multi-year M&A decision making. We also anticipate increased activity with respect to the evolving energy transition landscape, ESG-related drivers and increased private equity activity as sponsors invest record levels of accumulated capital. Notably private equity dry powder now exceeds $3.4 trillion and sponsors continue to focus on numerous ways to put this money to work. Further, we see increased activist activity with M&A often catalyzed by certain activist campaigns. With these drivers, our backlogs remain strong although we would note that the war, inflationary pressure, supply chain constraints and rising interest rates led to some slowing of the pace of announcements in the latter part of the quarter and an elongation of the timing of transaction closings. Looking at the overall M&A market this quarter, global and U.S. M&A announced dollar volume decreased 21% and 19%, respectively, compared to the first quarter of 2021. Also, the number of announced deals decreased 17% globally and 20% in the U.S. versus the first quarter of 2021. For the largest deals, those above $5 billion, global activity cooled, dollar volume declined 10% and the number of announced deals fell sharply down over 30% as compared to the first quarter of last year. Looking at transactions in the $1 billion to $5 billion range, dollar volumes declined 40%, while the number of transactions fell 36% versus the first quarter of 2021. That said, our teams remain active across a broad spectrum of sectors and capabilities. These high activity levels help contribute to another strong quarter for Evercore. We remain confident that our firm is better equipped than at any point in our history to thrive in varied market environments, a testament to our broad and deep capabilities built over a decade of significant investment. Our firm today is watchful and prepared and importantly we continue to be deeply engaged with our clients advising them on pressing strategic priorities. We are optimistic about our future and continue to invest in our growth by adding talent to our team across all levels and businesses. We're pleased to have had a successful start to our external recruiting efforts in 2022 as human capital continues to be the most important investment we make in our business. In advising, two Senior Managing Directors joined us in the first quarter and we have two additional SMDs committed to joining the firm later this year, both focused on our technology franchise. We are in active discussions with additional talented candidates in several areas of strategic significance. Further, our new record class of 17 Senior Managing Director promotes is off to a solid start this year. We look forward to their continued growth and further contributions as they ramp. Turning to the quarter, as I mentioned, our business diversity enabled us to achieve the best first quarter in the firm's history in terms of adjusted net revenues, adjusted EPS, advisory revenues indicative of the revenue generating power of our franchise. In advisory, we saw strength in some of the largest sectors including technology, media and telecom, healthcare and industrials driven both by our corporate and sponsored clients. In Capital Advisory, we see sustained strength in our GP-led transactions, fundraising, secondary investments, continuation fund opportunities and Real Estate Capital Advisory. In terms of restructuring, while classic Chapter 11 restructuring work remains slow given the health of corporate balance sheets, historically low default rates and relaxed covenants, we continue to be active in liability management engagements, out-of-court restructurings, and in debt advisory and placements, a capability that we are actively growing. Turning to underwriting. Activity was broadly impacted by the significant spikes in volatility and macro headwinds that weighed on issuers and kept them on the sidelines. In the first quarter, we executed 14 underwriting transactions and acted as a book runner on 13 of these. While our activity this quarter was strongest in healthcare, our ECM momentum continues and our pipeline is broad in terms of sector and product reach. We are seeing the benefits of investments in this business, which should become clear when markets reopen more broadly. Looking at the overall ECM market in the U.S., equity issuance declined over 80% year-over-year and IPO issuance declined over 90% versus last year. Since bottoming in February, however, market activity has picked up with issuance in March nearly doubling from February levels, in step with the decline in the VIX. When markets stabilize, we expect activity to rebound as many IPO issuers, who had previously targeted first quarter execution windows are now looking to the second or third quarter timelines. In our equity business, we remain connected and engaged with our clients providing research insights, particularly around Ukraine developments and the Fed and inflation implications. A research combined with solid sales and trading execution led to record levels of client interactions and in turn, strong and improving broker votes. Further, we are seeing the positive impact of our most recent investments with options and converts activity posting their best quarterly revenue contributions to date. In Wealth Management, long-term performance remains strong. We are pleased that the Evercore Equity Fund was named among the best diversified mutual funds of 2022 by Investors’ Business Daily. This award recognizes funds that have beaten their S&P 500 benchmark for the past one, three, five and ten years. Before I turn the call over to Celeste to review our GAAP results and other financial matters, I want to discuss our capital return strategy. We remain committed to our goal of returning excess cash not invested in the business to our shareholders in the form of dividends and share repurchases. Even in this less certain environment, we were able to raise our dividend, a testament to the power of our diverse business model. Our buyback activity was also very strong to start the year, despite a pause following the Russian invasion of Ukraine. We returned $298 million to shareholders during the quarter through dividends and the repurchase of 2 million shares. Our Board declared a dividend of $0.72 per share, an increase of 6% from the prior dividend declared. We intend to return all other excess cash not reinvested in the business or set aside to fund future compensation obligations in the form of share repurchases. As previously announced during the quarter, our Board also approved our share repurchase authorization of the lesser of $1.4 billion or 10 million shares and/or LP units, reflecting our continued commitment to our capital return objectives. Looking ahead, we remain excited about the opportunities in front of us and have a clear vision for the firm going forward. As I laid out on our fourth quarter call, our consistent roadmap for growth, including investment in talent and in broadening and deepening our capabilities will allow us to continue to serve our clients and address their needs in almost any environment. Let me now turn the call over to Celeste.

Celeste Mellet, CFO

Thank you, John. For the first quarter of 2022, net revenues, net income and EPS on a GAAP basis were a record for our first quarter at $723 million, $158 million and $3.79 respectively. My comments from here will focus on non-GAAP measures, which we believe are useful when evaluating our results. Our standard GAAP reporting and a reconciliation of GAAP to adjusted results can be found in our press release. First quarter adjusted net revenues were $728 million, up 9% year-over-year. First quarter adjusted advisory fees of $625 million were 22% higher year-over-year, which was another first quarter record. As John mentioned, our underwriting business had a slower start to the year along with the rest of the market with $36 million in revenue, down 54% from the year-ago period. Our equities business continued to perform well given the market environment with commissions and related fees of $51 million, down 5% year-over-year. Adjusted asset management and administration fees were $19 million, up 8% versus a year ago, driven by higher AUM, due to positive flows in markets. Adjusted net income was $173 million for the quarter, up 7% versus the year-ago period. Adjusted EPS of $3.80 increased 16% from the prior year. As for our margins, we delivered first quarter adjusted operating margin of 29.5% versus 30.1% in the first quarter of last year. First quarter adjusted other revenue was a loss of $3 million, reflecting our losses on our investment funds portfolio, which is used as an economic hedge against a portion of our deferred cash compensation program. This amount fluctuates with market values and the market decline during the quarter drove the losses. In accordance with relevant accounting principles, our revenue includes approximately $45 million of advisory fees that were driven primarily from transactions that closed in early April. To compare, we recognized $21 million in the fourth quarter of 2021 and $31 million in the first quarter of 2021 in accordance with the same accounting principles. Turning to expenses, our adjusted compensation ratio for the first quarter was 59%. We historically have reflected a compensation ratio in the first quarter based on our best estimates for the full-year. As we always do, we will continue to evaluate the key drivers of our compensation expense as the year progresses and make adjustments as appropriate. As John indicated, our backlog is strong. But given the elevated uncertainty globally, we are carefully monitoring the timing of deal closings. First quarter, adjusted non-compensation cost of $84 million were up 15% from $73 million a year ago, primarily driven by higher travel expenses and search and placement fees. Travel levels of the first quarter dropped from the fourth more than our usual seasonality, due to the Omicron variant, so picked up as the quarter progressed. We expect travel levels will continue to normalize over time; they will remain below historical levels. As we previously mentioned, our non-comps this year will continue to reflect firm growth, which drives increases in occupancy and equipment, related depreciation and amortization, certain tech-related expenses and several other items. We anticipate that expenses will increase as the year progresses as travel picks up and deal expenses ramp upon the execution of our ECM pipeline, as well as overall inflationary pressures as we've discussed with you previously. Our adjusted tax rate for the quarter was 17.1%, reflecting the tax deduction associated with the appreciation in the firm's share price upon delivery of employee share-based awards above the original grant price, which reduced our effective tax rate. As John mentioned, we remain committed to returning excess capital to our shareholders. With the 2 million shares repurchased year-to-date we offset part of the RSUs granted earlier in the year and finished the return of all of our 2021 cash flow. Our repurchases were made at an average price of $128.14. Our first quarter adjusted average diluted share count declined to $45.7 million from $47.3 million in the fourth quarter of 2021, reflecting repurchases, tailwinds from the treasury stock method due to the decline in the share price during the quarter and partially offset by vesting. Turning to our balance sheet. As of March 31st, our cash and investment securities totaled $1.55 billion. Our excess cash as a percentage of our total cash and investment securities was again in the low double-digits. As a reminder, our cash generation 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 our relative excess cash position. As John said, although the near-term is uncertain, we will continue to execute on our long-term plan and remain optimistic about our future.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Our first question comes from the line of Brennan Hawken with UBS.

Brennan Hawken, Analyst

Good morning. Thanks for taking my questions. I wanted to start, you guys gave some very fair and balanced remarks about the environment and some of the uncertainty, but typically given your backlog you have a vision that's pretty decent out six to nine months. What can you say about that outlook at this stage understanding that, that timelines are starting to stretch? And we've heard that financing markets are tightening up a little bit? Have you seen this reflected in your dialogues with sponsors so far and what color can you give on that and the impact? Thanks.

John Weinberg, Chairman and CEO

Good morning, Brennan. How are you? We've always said that we can see three months out to six months out. I would say that it's even more uncertain now than it's been in the past and I think we can see clearly three months out. It's very hard to really look a lot further than that. Frankly, we see our dialogues are full and people are very busy, we're talking to clients. It's very hard, though, to say that what the market is going to be like in six months, because there is so much uncertainty. Geopolitical elements will actually probably overrun almost every other factor at this point if there comes some kind of extreme. In terms of our dialogues with sponsors and other clients, they're very full. We're very happy and comfortable with where we are right now. Our bankers are busy. They're out on the road and we're really having what I would call is very full dialogue. So from that perspective, we feel quite confident, but clearly it's really hard to look out further than three months right now but the activity level is good.

Brennan Hawken, Analyst

Yes, yes. Great. John, really appreciate that and totally understand that it's challenging. Double-clicking on some of your comments around sponsors, you all have indicated in the past that 30% to 45% of the advisory revenue is sponsor related over the last few years. Can you maybe give a general indication about what portion of that would be M&A versus the private capital advisory and private fund business? How should we think about that mix? And is it fair to think about that range of 30% to 45% generally you're trending from the last three years is trending towards the upper end of that range? Or has it more been bouncing around that range to that period?

John Weinberg, Chairman and CEO

I think the reason we have a range, Brennan, is because we really do think that it does go back and forth. And so much can be driven by overall volume levels. 30% to 45% remains a good place. We've never broken out exactly what the elements of that would be, but what I would say is that we are building the business on all levels. So for example, on the capital advisory business, we continue to invest there. We promoted six new partners in that side of the business last year, and we are very committed to that. In addition, we are continuing to invest in the M&A side and so I can easily see real growth there over time. So I feel like that business continues to be a very important focus for us and we're going to continue to invest in it. I think you can assume that we're going to be trying to grow each of those businesses independently and jointly, and so we hopefully will continue to have those businesses grow. But we're not at this moment or at this time breaking that out specifically. But I would just say that, that we continue to believe that those are all really strong businesses for us and real opportunities.

Brennan Hawken, Analyst

Great. Thanks for that color, John. Appreciate it.

Operator, Operator

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

Devin Ryan, Analyst

Great. Good morning everyone, thanks for taking the questions here. First question, just want to dig in a little bit on some of the higher growth industries and areas within technology specifically. You have seen some pretty severe sell-offs already in the market. Some areas are down over 50% in terms of valuation in recent months and private valuations have held up better than kind of public valuations. But curious kind of how this is changing dialogue, if these are important areas of the M&A market? And how clients are thinking about M&A with valuations having moved so much and does it change kind of the conversation, is there more maybe opportunistic deals like the type of deals change or do we just see slowdown because call it, the bid ask has widened pretty materially maybe more than some other areas of the market.

John Weinberg, Chairman and CEO

Thank you, Devin. I believe that whenever there is a shift in the market, the expectations of sellers and buyers tend to diverge before returning to a consensus. Currently, sellers are still processing recent developments, but discussions indicate that there remains a robust belief that transactions will occur. Particularly in the technology sector, there is a recognition that the value of these businesses may be affected by market conditions, yet they have a tendency to recover, which continues to attract buyer interest. Sellers are carefully observing potential pricing, and our ongoing discussions are plentiful and maintaining their previous pace. While the market environment has extended the timeframe for deals, it hasn't diminished the substance or speed of our conversations. These dialogues are ongoing, and our bankers are actively engaged, with our tech division expanding. We are committed to investing in our tech franchise due to the high level of activity in this area.

Devin Ryan, Analyst

It's great to hear, John, thanks. I want to follow up a bit more on the recruiting outlook. It seems that when the industry is busy, like it has been over the past year or two, it's challenging to attract people from other firms while they are engaged with clients. I'm interested in hearing more about the nature of your conversations with potential bankers. I know you are selective, so recruiting is always competitive. Given that things have slowed down a bit at the start of the year, do you think this creates more opportunities to engage with individuals who might have been focused on closing transactions at their previous firms?

John Weinberg, Chairman and CEO

Devin, it's a good question. And what I would say for us is that we are very focused on getting high-quality talent. And we started the year by bringing two people in, one a Japanese partner, who is going to help us with our Japanese business and then another David Lischer, who is in the debt advisory side and really helping us build out that business. We have two other recruits, who have just basically accepted offers from us both in tech and we have several other recruits, who are very much in strong very full dialogue with us that we expect will happen. I would say that we are in the four to eight that we have always said that where we focus on. I think we're going to be at the high side of that and the reason is because we feel like we've got really, really good opportunities and we're hiring aggressively into our big opportunities. We feel like the group of people, who are talking to right now are A-level talent and we've always said that if we have the opportunity to improve our business with A-level talent, we will act on it. And that's exactly what we're seeing right now. So we see real opportunity and we're filling out a lot of the areas that we've talked about with you. Things like the tech business, the SIG business, biotech, clean tech, fintech, all of those areas are areas that we are looking at very closely and we actually have some very strong people in around many of those areas, who are interested in working with us. In addition, we're looking at some very, very good opportunities internationally that we really believe we should be working on. So I would say that we're finding the recruiting environment to be very full where we feel like we have access to really strong talent and we're spending a lot of time on it right now.

Devin Ryan, Analyst

Okay, terrific. Great to hear and I appreciate the color. John. Thanks so much.

Operator, Operator

Our next question is from the line of James Yaro with Goldman Sachs.

James Yaro, Analyst

Good morning, thanks for taking my questions. So maybe if you could just sort of contextualize the strength of the traditional restructuring business, I know you talked about Capital Advisory specifically. And what extent this sort of contributed to results? And then, you know, what you think would sort of have to occur in the economic backdrop to catalyze this to return to say, I don't know, 2020 type levels when overall restructuring business was a little bit stronger.

John Weinberg, Chairman and CEO

Thank you for your question. We believe our restructuring business is a significant strength, and we are genuinely excited about its future prospects. As you noted, despite the strong markets and low interest rates we've experienced in recent years, there hasn't been as much activity. Our restructuring team, composed of highly skilled financiers, has been actively engaged in discussions around out-of-court bankruptcies, liability management, debt advisory, and building relationships with sponsors and in high-yield scenarios. There is a reasonable chance that the markets will face more challenges, interest rates will rise, and this could create opportunities for restructuring. Currently, we aren't witnessing significant market volatility, but we are looking ahead and believe the environment may change. We feel confident that we are well prepared, and I anticipate that we will become busier over time. As you know, this business is cyclical, and we think we are closer to seeing increased activity in restructuring than ever before. However, the timing remains uncertain. Overall, we believe our team is well positioned and ready to assist clients as needed.

James Yaro, Analyst

That's really great color. So, and then just for my follow-up, when you sort of think about the deal appetite on the M&A side from your clients, who seems to be sort of more likely to step into the market again after this current slowdown and M&A across strategics and sponsors and maybe you could you sort of contextualize the difference in dialogue with those two types of clients?

John Weinberg, Chairman and CEO

Sponsors are prepared to act and have significant capital available, totaling $3.4 trillion. This level of available capital is unprecedented. Many sponsors are considering larger deals that interest them but are waiting for a stable market environment to proceed. They are actively looking for opportunities that would benefit their investors. On the corporate side, companies continue to engage in strategic discussions within their boardrooms. I've recently participated in numerous board meetings where meaningful deals were discussed, and although these deals are currently on hold due to market conditions, they haven't been canceled. If the market stabilizes, I believe deal activity could rebound quickly as there has been extensive analysis of potential opportunities. Currently, many boards are hesitant to engage in the market due to its uncertainty, resulting in a slowdown. While some significant deals are being announced, there are fewer occurrences overall, particularly among smaller and mid-sized transactions. However, there remains a backlog of potential deals that could materialize if the market shows signs of stabilization. From my perspective, sponsors are ready to move forward, and corporates are still interested in their potential deals; they're simply waiting for the right moment. As the market begins to improve, I expect activity to increase significantly.

James Yaro, Analyst

Okay, thank you for taking my questions.

Operator, Operator

Our next question is from Seaport Global.

Unidentified Analyst, Analyst

Hey, good morning.

John Weinberg, Chairman and CEO

Good morning.

Unidentified Analyst, Analyst

Maybe we should discuss the internal promotions, as they represent your largest class. If that results in 22% growth in advisory and SMD, it seems that a significant portion of them were involved in Capital Advisory. How should we evaluate the productivity rates between internal promotions and external hires, as well as Capital Advisory compared to more traditional M&A?

John Weinberg, Chairman and CEO

I’d like to start by discussing Capital Advisory. We had a significant number of promotions in this area, largely due to our exceptionally talented team, which makes this business very robust. One of our main goals is to promote from within as much as possible, and we are proud of the high-quality talent we have across our organization. It really motivates everyone when we can foster internal leaders. In regard to the Capital Advisory businesses, they are thriving. While we don't specifically analyze productivity per banker, the activity level indicates a strong level of productivity. Regarding the ramp-up time for newly hired lateral talent versus internal promotions, typically, lateral hires come in at a higher skill level and tend to ramp up faster. However, we are very careful and thorough when it comes to promotions, ensuring that every new partner we elevate is competent and capable of producing at a level comparable to our existing partners. Though not all partners perform at the same level, I believe that some of our recent promotes could become standout stars in the next couple of years. Overall, while lateral hires generally ramp up quicker, our internal promotes are also performing well, and that recognition is what leads to their promotions, even if they may not be quite at the top-tier level of our lateral hires.

Unidentified Analyst, Analyst

That's helpful. And just maybe as a follow-up, switching gears to the buyback, you did about 20% of the capacity in the first quarter, is that how you're thinking about it that at four to five quarters, you can utilize the entire buyback? Or is it going to be just quarter-by-quarter determining the amount of cash flow you have?

Celeste Mellet, CFO

Hey Jim, it’s Celeste. Yes, it will be really dependent on the environment and the free cash flow generated by the business. We still do have shares that we need to buy back to offset the RSU issuance that we did in the first quarter. So, probably a couple of hundred million of dollars of what we need to buy back to offset the RSU dilution. And then we'll, as we said, we generally deploy our free cash flow on a 1.25 quarter lag. So as the year goes so will our buybacks go? We typically authorize for a multi-year period. We obviously, because of the strength of last year we’re able to do a lot more very quickly. But it will really be dependent on the environment, as you know, we want to ensure that we have cash available to do the things we want to do and invest in our business and make sure that we're protecting the franchise in all environments.

Operator, Operator

Our next question is from the line of Manan Gosalia with Morgan Stanley.

Manan Gosalia, Analyst

Hi, good morning. John, maybe a follow-up to your comments on sponsor and strategic activity. How do you think that the Fed actions impact this? So the last time we saw an elevated level of uncertainty in early 2020 things deteriorated for a couple of quarters and then you saw a sharp rebound as we got into the back half of 2020. So how much muscle memory, do you think there is from that time our sponsors and other clients actively engaged and looking for opportunities? Or would you say that in the last time the Fed actions were a tailwind and at this time, we don't have that tailwind any longer. So things to take a little bit longer to rebound.

John Weinberg, Chairman and CEO

Thank you, Manan. That's an interesting question. Throughout my career, I've noticed that the actions of the Federal Reserve and the government's role have an intermediate-term impact on merger markets and activity levels. As participants in these markets adjust to the current conditions, they tend to become more active in pursuing deals. However, I want to emphasize that in the sponsor business, the cost of financing a deal affects its economics. I have spoken with several sponsors who express their willingness to undertake a deal at a certain level, but they acknowledge that rising rates are making it more expensive, and there’s a point where they may no longer find the deal feasible economically. I want to be clear that the sponsor business will be sensitive to how high rates increase. We have always maintained that access to capital is more critical than the rates, within reason. While we can't predict exactly how high rates will go, we do have an idea of the Fed's likely actions. In my opinion, we may experience a temporary low as rates stabilize. If that happens, I believe people will become more aggressive in pursuing deals. From what I observe, participants in the merger market may act cautiously amid uncertainty and volatility. However, as certainty increases and access to capital improves, with expectations between buyers and sellers aligning more closely, I see potential for a resurgence in the deal market. I'm optimistic about the medium-term outlook and feel good about it. That said, things can change, and we are in a volatile and uncertain environment that I haven't seen in some time. The financial crisis in 2008 was also marked by significant uncertainty and volatility, perhaps even more so than now. Nevertheless, I believe there is hope for stabilization and a recovery in the deal business in the medium term.

Manan Gosalia, Analyst

That's great color. Thanks so much for that fulsome answer. I also wanted to ask about what you're seeing geographically, is the U.S. better or similar to the UK, in terms of the conversations you're having? And how does the current situation is back to expansion plans in Europe, I know that that was one of your four key growth areas has a current situation in the region changed any of your plans there?

John Weinberg, Chairman and CEO

From my perspective, the current situation has not diminished the importance of our initiative to invest and grow in Europe. In fact, my recent conversations in Europe indicate that the interest from potential candidates is greater and more serious than before. I've made several trips there lately to meet with some candidates, and while the term "doubling down" may not be accurate, we are definitely increasing our activity because we see strong candidates who can help fulfill our needs. I feel optimistic about our recruitment efforts and believe we will make significant progress in our plans there. In terms of the deal size, so we in Europe, it really depends, and our business is more geared towards the UK, as you all know. And the UK is less impacted than some other parts of Europe. We have a pretty good activity level over in Europe, just driven by the UK. We have some very, very strong dialogues in the sectors that we're in, and I actually think that in terms of the impairment that the current environment is having on the business, it’s not a major impairment for us right now. So I think our European business is actually quite robust. I feel quite constructive about how it's going to deliver over the next quarter or two, we'll have to see, as I said, there is uncertainty as you get further out than three months, but I think that the activity level is good, not a lot different from my perspective than what we're seeing in the US. But clearly, people are going to go slow. It's not like, I really don't want to leave the impression that I think that we have a really robust environment over in Europe, because obviously, it's impacted maybe even more than the US with respect to the tremendous uncertainty over there. But I do think that what we're seeing is activity levels that are actually quite good.

Manan Gosalia, Analyst

Great, thanks so much.

Operator, Operator

Our next question is from the line of Steven Chubak with Wolfe Research.

Brendan O'Brien, Analyst

Good morning. This is Brendan O'Brien filling in for Steven. So the commentary on the backlog was encouraging, given the macro uncertainty. But I was hoping you could provide a bit of context around the strength of the backlog today relative to both the start of the year and this time last year. Just trying to reconcile your commentary with what we're seeing in the public data, which shows backlogs are down pretty meaningfully so far?

John Weinberg, Chairman and CEO

Our backlogs remain strong, as we mentioned last year. We don’t make a distinction between different levels of our backlog, but I want to emphasize that we currently have limited visibility beyond three to four months due to ongoing uncertainties. Nonetheless, our backlog appears solid at this moment. It's important to note that backlogs reflect our expectations rather than guaranteed outcomes; delays and other factors can affect actual results. Right now, our backlog is robust, and it feels consistent with what we observed in previous statements. However, I can't provide a precise comparison of our backlog now versus last year or the year before. What I can share is that our conversations with clients indicate strong potential opportunities. I hope this information is useful, but I cannot provide the specific backlog details you are seeking. We feel confident about the strength of our discussions.

Brendan O'Brien, Analyst

I appreciate the color there, John. And then as a follow-up on the underwriting business considering the market backdrop the results there were quite encouraging and we're well above the levels you're running at prior to the pandemic implying pretty significant share gains. I want to get the sense as to what you view as a sustainable run rate for that business in a more normal environment given these share gains and the continued build-out of the converts business and the like?

John Weinberg, Chairman and CEO

Well, let me make an overall statement then I'll ask Celeste to talk a little bit about the run rate. We continue to build that business and we believe that's a real opportunity for us, because we've got excellent research, we've got really strong players, who we are positioning in equity capital markets. And in a very specific sectors we have really strong bankers, who are able to really give good advice and help clients move forward. And I think one of the things that we've shown in a lot of the underwritings that we've been, is that we actually add value. We may not be a big book firm, but where we're involved. We really are able to add value, whether it's market intelligence, whether it's judgment as a deal person, whether it's really understanding the buyers and sellers of specific security. And so I think that our aspiration is to continue to move up in the overall league tables for underwriting. I think this quarter we were somewhere I think we’re 18. We had a really strong quarter in terms of health care, ECM. I think we really have an aspiration to move as close to the top 10 as we possibly can. We think we can get close, but we're really working hard for that. We are not hesitating when we find an A-level talent on the equity capital market side, who we think will really help us move forward, we are actually going to pull the trigger and hire those people. We have a very strong Head of Equity Capital Markets, Kristy Grippi, who is, I think, a really inspired leader and very helpful in terms of thinking about exactly where we want to invest. I think that our business is actually making real progress. So maybe this is what you were saying, but I'm just affirming, we feel very comfortable that we are making good progress in that business, we actually have a vision for what we think we can do in terms of value add, capability and really the impact we can have on transactions for our clients. And we're going to continue to try to push that forward and as I said, we're going to continue to invest. You want to say?

Celeste Mellet, CFO

Yes, to reiterate what John mentioned, we aim to be close to or within the top 10. Given our business and the current state of our balance sheet, this seems like a reasonable target if we continue our execution. As John pointed out, we've experienced significant success and have been very focused on aligning our resources to facilitate deals. Christy's leadership has greatly improved our organization around pitching, and we are seeing impressive results. Wherever we present, we are experiencing success, and we are excited about the momentum we are building.

Brendan O'Brien, Analyst

Thanks. Thank you both for your color there. And I appreciate it.

John Weinberg, Chairman and CEO

Thanks, Brendan.

Operator, Operator

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

Michael Brown, Analyst

Hi, good morning.

John Weinberg, Chairman and CEO

Good morning.

Michael Brown, Analyst

Maybe just a follow-up on the equity capital markets side of the business there. John just commented about the market and it sounds like it could bounce back in the second or maybe third quarter here. Just wanted to hear what your thoughts are in terms of which sectors or aspects of the ECM market could be the first out-of-the-gate here once the window opens up?

John Weinberg, Chairman and CEO

Well it's a really good question. My own point of view is that as you said, the equity market can move very fast in terms of opening up. I mean, I think that's one of the interesting things is our first quarter in the beginning of the first quarter it went really slowly and then all of the sudden there was a couple of week period where things just got became accepted, the market seemed to be open and boom, we did a number of deals and it was really quite exciting that it happened so quickly. From our perspective, as you know, we have a very strong health care business, we also are investing a lot in our tech business. I would say that what we see is that healthcare and tech are both businesses or sectors that really do need capital and those businesses will actually go to try and start monetizations and raising money as quickly as they can. As you know, especially in biotech, those companies need cash and they need it on a pretty regular basis. And so the minute the margins open they'll hit that market. But also there are a number of sectors like consumer and fintech, where you really see companies that are lined up and ready to move. And so I'd say there are a number of sectors that could actually be ready to go and our loading up. And I think that a lot of it centers on the new opportunity sectors biotech, cleantech and fintech and regular tech and software. I mean, I think you're going to see those sectors lining up to try and hit the market when it opens.

Michael Brown, Analyst

Okay, great. So it sounds like it’s broad-based pent-up demand there. Yes, so another element of the market that I guess you didn't touch on in terms of the Advisory Market is the SPAC market, and it looks like there is more than 600 SPACs out there still hunting for deals that part of the market, certainly has been a lot more challenged in recent months and quarters, particularly from the regulatory side. But just wanted to check in on and get a pulse check on that market and what are your expectations there for how those SPACs contribute to the advisory activity as we look out here into the balance of 2022?

John Weinberg, Chairman and CEO

We have a strong array of opportunities in the de-SPAC process, with many companies looking to acquire firms through de-SPAC. While we don't focus much on SPAC IPOs, I believe the new regulatory changes will significantly impede SPAC activity due to increased scrutiny and due diligence requirements. This will alter the ease with which SPACs operate, impacting their advantages compared to traditional monetization and M&A methods. The SPAC structure is here to stay, and we will continue to see new SPACs emerging. However, it will be challenging for the large number of existing SPACs—more than 600, which surprised me—as they seek to facilitate de-SPAC transactions. The sheer volume makes it difficult for all of them to find suitable targets. Additionally, the regulatory framework will slow down the market and raise standards for participants, likely leading to a smaller and less active SPAC market. Nevertheless, the structure remains viable, and those involved with SPACs will persist in their efforts to find opportunities.

Michael Brown, Analyst

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

Operator, Operator

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

Jeff Harte, Analyst

Yes, those that I had mute pushed, sorry about that. Congratulations on another really strong quarter. Couple of questions left from me. One and this may be tough to answer, but on the M&A outlook, you sounded a fairly positive tone despite the step-up in macro uncertainty and market volatility? When do you become more concerned that kind of this near-term headwinds turn into a more, kind of, sustained cyclical downturn, kind of, what should we be watching for there?

John Weinberg, Chairman and CEO

Well I think we're all watching carefully, I don't want you to get the impression that I am irresponsibly buoyant about the environment for the next six to 12 months, because I like you and we’re looking at what's happening and trying to evaluate exactly what it all means. So I want to make sure that I'm clear that, that as much as we feel like we're in a good position right now. There is a lot that is uncertain. And I am watching it just like you are trying to assess what that all means, feel like we're well positioned. In terms of cyclical downturn there are a lot of things that could drive a cyclical downturn, clearly people's loss of confidence in kind of the economy in the markets. So far we've seen economies that have recovered really well from the COVID. And I think that what we've seen is that people have really been quite enthusiastic about how corporates are going to respond and continue to respond as the market goes up. To the extent we have a real recession that is driven maybe by interest rate increases or a lack of confidence by CEOs and pulling back from investing that could really have an impact and it could create some cyclicality. So I think there is a real possibility that happens at this moment. I don't see it, and I'm not thinking it's going to happen. But I definitely think it's a possibility. So I just want to make sure that I'm clear about the fact that whereas we feel comfortable that we're on solid footing right now, really there's so much uncertainty anything can happen, and I just want to make sure that we all will together get back together in three months on this call, and we can talk about exactly what we're seeing next. But right now, I think it's solid, I think we will continue to see some recovery. I do think the markets will be reasonable, but let's all understand that, that there is a lot of uncertainty right now.

Celeste Mellet, CFO

Thank you everybody, we’ll see you in three months.

John Weinberg, Chairman and CEO

Thank you all for plugging in. We really appreciate your spending the time with us. We'll see you or speak to you in three months. Thank you very much.

Operator, Operator

This concludes Evercore's first quarter 2022 financial results conference call. You may now disconnect.