Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Evercore Partners Second Quarter 2012 Financial Results Conference Call. [Operator Instructions] This conference call is being recorded today, Thursday, July 26, 2012. I would now like to turn the conference call over to your host, Evercore Partners' Chief Financial Officer, Robert Walsh. Please go ahead, sir.

Good morning, and thank you for joining us today for Evercore's Second Quarter 2012 Financial Results Conference Call. I'm Bob Walsh, Evercore's Chief Financial Officer. And joining me on the call today are Ralph Schlosstein, our President and Chief Executive Officer; and Roger Altman, our Chairman. After our prepared remarks, we will open up the call for questions. Earlier this morning, we issued a press release announcing Evercore's second quarter 2012 financial results. The company's presentation today is complementary to that press release, which is available on our website at www.evercore.com. This conference call is being webcast live on the Investor Relations section of the Evercore website, and an archive of it will be available beginning approximately 1 hour after the conclusion of this call for 30 days. I want to point out that during the course of this conference call, we may make a number of forward-looking statements. These forward-looking statements 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 Securities and Exchange Commission, 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 pro forma or non-GAAP financial measures, which we believe are meaningful when evaluating the company's performance. For detailed disclosures on these measures and to their GAAP reconciliations, you should refer to the financial data contained within our press release which, as previously mentioned, is posted on the website. We will refrain from repeating the information included in the press release and focus instead on the key opportunities, challenges and changes in our business. We continue to believe that it is important to evaluate Evercore's performance on an annual basis. As we've noted previously, our results for any particular quarter are influenced by the timing of transaction closings, both in the Advisory and Investment Management sides of our business. I'll now turn the call over to Ralph.

Thanks very much, Bob, and good morning, everyone. Despite a quite challenging market environment, we are pleased with our second quarter and first half results, as we delivered record quarterly and 6-month revenues and record quarterly net income. Our investment banking revenues for the first half of the year grew by 23% on the strength of our global advisory business. We achieved this growth despite the 30% decline in the volume of completed M&A transactions globally for the period. Our early stage Investment Banking businesses were in the black for the quarter, contributing marginally to profitability. Our Investment Management business generated $21 million of revenues during the quarter, an increase of 2% in comparison to the first quarter. Our operating margins for the quarter returned to levels that are acceptable in the current environment, though the 6-month results continue to lag in light of the weak first quarter. We continue to have success recruiting new senior managing directors, expanding our geographic and sector coverage. As we recently announced, we will be opening a new advisory office in Toronto next week, which will be our 12th advisory office globally. Let me quickly go over the numbers, starting with the second quarter. Second quarter net revenues of $172 million were up 63% in comparison to the prior quarter and up 23% year-over-year. Our revenues are the highest we have ever achieved in a quarter. Net income was $21 million for the quarter with EPS of $0.49 a share. Net income is up 391% from the first quarter and 19% from the same period last year. Our net income for the quarter, also, was a record and our EPS are $0.01 short of our all-time high, which was achieved in the very strong environment of the second quarter of 2007. Our compensation ratio…

Hi, everybody. You can see from our release that the Investment Banking business at Evercore, which, of course, dominates the firm, performed very well during the second quarter. Reflecting Ralph's comments, our net revenues in banking were an all-time record, $151 million, up 78% from last quarter and up 35% from the second quarter a year ago. Operating income, also a record, $35.5 million, also up nicely from the 2 prior comparisons. Operating margin is essentially the same as a year ago, down a small fraction. Six months, arguably a better gauge, Investment Banking net revenues were $236 million, up from $193 million for the first half of 2011. That's a 23% gain. Operating income, slightly down for the 6 months, $43 million versus $45.7 million. But the main point is that both those numbers are very strong numbers. And that change or slight decline really reflects the extent to which we continue to add senior managing directors and the higher business development costs, which come along with that, which are, in the long run, a good thing. And the fact that we integrated Lexicon largely during the first half of this year, including moving out of our own office, moving out of their office into a new third one, and then the cost associated with that. The number of fee-paying clients increased to 137 in the quarter, up from 104 in the first quarter and 77 for the year-ago quarter. Number of clients paying the firm $1 million or more reached 30, very strong number. The comp ratio in Investment Banking was 59.4% for the quarter, down from 64.5% in the first quarter and from 60% year-earlier quarter. Non-comp cost, 17.1%, down from the first quarter and up a little tiny bit from the quarter a year ago. I…

Thanks, Roger. Let me briefly update you on our other businesses. First, institutional equities. The business generated marginal profitability this quarter, generating $6.7 million in revenues, a 29% increase in comparison to last quarter, while maintaining expenses at the first quarter levels of $6.6 million. During the quarter, we continued to increase our market share as our transaction volumes increased by 22% in comparison to the first quarter, compared to a 2% increase in volume in the broader market. Our capital markets team participated in 8 transactions during the quarter, helping clients raise $6.4 billion in capital, and we remain optimistic in our pipeline for the second half, market conditions permitting. Our private funds team was successful in closing 2 capital raises during the quarter and has won several new mandates, improving its backlog for the remainder of this year and beyond. It also contributed to profitability this quarter. Investment management. Operating income for the Investment Management business for the second quarter was $900,000 on net revenues of $21 million. Assets Under Management decreased 8% to $11.8 billion, as we continued to experience outflows in our institutional asset management businesses as performance challenges at Atalanta Sosnoff continued. Quite honestly, this is the one cloud in our business right now. Our Wealth Management business continues to perform well, increasing assets under management by 3% for the quarter to $3.6 billion. And finally, our unconsolidated affiliated managers contributed positively to this quarter, delivering $0.8 million of net profits, with ABS being the largest contributor there. I'll let Bob now comment further on some of our non-compensation costs and other financial matters, and then we'll open it up to questions.

Thanks, Ralph. As we've indicated, our non-compensation costs were just about $33 million for the quarter, up 9%, and these were delivered by higher facilities costs, as we've indicated in prior calls. As Roger mentioned, we have completed the move out of both Paternoster Square and Hill Street, and as a result, the redundant facilities costs in the U.K. is now behind us. We've also had higher business development costs in the quarter as well as somewhat higher professional fees, again, due to growth, as Roger described. Our tax rate for the quarter was 38%. Our financial position remains strong, with nearly $200 million of cash and marketable securities. And during the quarter, we repurchased a bit more than 1 million shares of stock, performing against our commitment to offset the dilutive effect of equity that was awarded for bonuses. Finally, our board declared a dividend of $0.20. So with that, operator, can we open the line for questions?

[Operator Instructions] The first question comes from Hugh Miller from Sidoti & Company.

Had a question about the color you guys had given about the sustainability of the revenues in the second half of the year, barring an implosion in Europe. And I was wondering, are you saying sustainable from the second quarter levels or from the first half of the year's revenue levels?

The comment was about the first half.

Okay, okay. And the -- within -- a couple questions on the Asset Management segment. Comp ratio kind of trended up a bit higher than what I expected. Was wondering if there's anything in particular that may have been driving that?

With respect to the whole business, was that or...

Yes, for the whole business, for the Asset Management segment.

Oh, for Asset Management. Yes, I mean, it's really a function of when revenues go down, both the comp and non-comp ratios, unfortunately, go up because not all the comp is variable and most of the non-comp is not variable, which is why we've seen much lower margins in that segment.

Sure. I guess, it just -- it trended up a touch higher. But one thing I did notice in that area was that the pace of outflows slowed from this quarter relative to the March quarter. And I was just wondering if that's just a function of those can be quite lumpy or are you noticing any trends there where you'd anticipate some improvement on the flow side?

The pace did slow somewhat. I think it's too early to say whether that is a systemic change or whether it's anecdotal.

Okay. And on -- I know you guys have detailed this before, but on the non-comp side within the Investment Banking segment, you referred to some redundant costs. Was wondering how should we be thinking about that reduction as we head into 3Q?

We think that roughly $2 million of the costs that we saw in 2Q should be -- should not recur as we go forward.

Okay. And then you talked about, obviously, strong trends on the recruiting side and that it appears that 3Q is off to -- will be off to a good start. Does the operating environment that we're in right now give you any pause on the recruiting side, especially given that, I guess for the first time we've seen in some time this year that you did have some turnover with the SMDs and some people moving to senior managing role. Just your thoughts there would be...

Okay. Well, 2 things. First of all, with respect to the second, those are healthy, constructive things for the firm and they are -- they have been done with the mutual assent of the individuals involved and the firm. And I think any organization that is healthy and growing and aspires to be the elite firm, which is what we aspire to be, will have some sorting out of senior professionals, either as their interests change or as the firm's direction changes a little bit. So I view that as -- I certainly can't think of anyone, any example of something that happened that we weren't a party to and interested in. Second, as Roger indicated, we've announced 3 hires. We have made 3 others, which are not yet announced, which we will announce before next earnings call. We have, because of the environment, consciously, not taken advantage of every single opportunity we had this year. I would say, this year, we could have, had we chosen to, hired 10 or 12 senior managing directors. And by the way, some of those very much in response to incoming calls, which is a fairly unique change from previous years. And we have been -- we've always been highly selective, but this year, we were ultra-highly selective. And we basically have tried, this year, to balance our desire to continue to deliver good returns to shareholders and to grow and lay the foundation for significantly increased value in the company in the future. And we've discussed this in the past, but the reality is that every hire that we make costs a few cents a share in the -- on the income statement of the period in which they're hired because the basic meter of these things is they tend to leave their firm in April or May or June. They've got 3 months garden leave, in some cases, 6 months, so they don't join the firm until August, September; one case, October. And it is literally almost impossible for someone to generate revenues in a 3- or 4-month period of time because that involves getting hired, getting a deal announced and getting it closed, which is very difficult to do. So we have moderated what the amount of hiring that we're doing because of our -- the other half of my comments about the caution about the exogenous environment.

Okay, great color there. I appreciate it. And the last question I had was with regards to capital deployment. And you guys have always been a bit opportunistic on the share repurchase side, and obviously, you issued a strong dividend in the quarter. But has there been any discussions about maybe focusing a bit more on share repurchase and less on returns via dividend, given the current stock price?

The answer is no.

The next question comes from Devin Ryan from Sandler O'Neill.

Most of my questions were just asked, but just one on the M&A outlook. I know that your average deal size is on the larger side. But within your outlook for M&A activity, I'd just be interested to get some perspective on whether you're seeing any difference between the appetite or need to do deals between the large clients that you speak with versus maybe some of the more middle market clients? Is there any difference or is it kind of all the same drivers?

I think it's all the same.

Okay.

I mean, I could elaborate, but it wouldn't add anything.

Okay, good. Yes, just curious there. And then secondly, just on the Restructuring environment. Just kind of circling back, I know things have kind of trailed off. But given maybe some increased macro uncertainty, I don't know if that's changing the outlook or kind of beginnings of the pipeline there or if we're just not there yet?

The Restructuring environment is better, I think, than a lot of people think it is. And it's not really because, wow, there are some dark clouds out there and Restructuring has picked up. It's that there just has continued to be a series of Restructuring opportunities. We're doing rather well, but so are some other people in that business. And those opportunities, by the way, some of which -- some of them are in Europe and so it -- the business never, in a sense, dried up after the events of 2008 and 2009, although, of course, it did -- was at such high levels immediately after that, that it came to lower levels. So I would describe this Restructuring business, at least at Evercore, as really quite healthy. And I think it's going to continue to be because there's no sign, at least to me, that it won't be.

Okay, great. And then just lastly, I don't know if you guys can provide an update, I'm sorry if I missed this, but on acquisition appetite or just even whether opportunities are continuing to come across the desk and kind of what the thoughts are there currently?

I would say that given our outlook for our business and the current value of the stock, it's hard to imagine that there's anything more attractive for us to buy than Evercore stock at this point.

The next question comes from Joel Jeffrey from KBW.

Just to follow on Devin's question, and maybe you just answered it, but I'll go ahead and ask it anyway. I mean, you've done a number of deals on -- in terms of your Investment Management business and you've been suffering some outflows in that business lately. I mean is there any sort of thought in a different strategy or taking that business in another direction than you're currently operating it in?

Not at the moment. No, I think we want to continue to grow the businesses that we have. We have been -- last year, we did -- we had a number of early-stage businesses and we've been gradually addressing them. We shuttered our private equity business or put it into runoff, about 3 years ago. We closed Evercore Asset Management, the small and mid-cap value manager that had been in business for about 5-plus years last year. We have another small Asset Management business that we're looking at right now, so I think we're basically in a mode of making sure that the businesses that we have, have long-term strength and viability, and then building those. And in terms of use of firm capital, my statement before I hope is pretty clear that given where the stock is today, the free cash flow that we have that's not used for dividends is going to be used for share repurchases.

Okay, great. And then this is maybe a bit of a housekeeping question, but I mean, when you're discussing the Institutional Equities business and the revenues generated out of that, was the capital markets activity included in that number?

As is typical in most firms, it's half of the capital markets equity -- activity. That's generally split between banking and the equity business.

Okay, great. And then...

Half of the revenues are accounted for in terms of Advisory and half in terms of equity.

Okay. And then just lastly. I'm not even sure if this is still relevant, but I mean, you had some warrants attached to the Mizuho debt deal you've done a few years ago, and I think the stock price around -- was around $21. I mean, if the stock continued to stay below there, would those be considered anti-dilutive going forward?

Yes.

The final question comes from Alex Blostein from Goldman Sachs.

I was hoping you could give us a little bit more color the way you kind of think about operating margins in the Investment Banking business over the next couple of quarters, I guess, given the backlog that you guys are seeing and the toughest assignments that you guys are getting on. Because if I look at the margins on a year-over-year basis down about 600 basis points, 18% year-to-date. Is that a decent run rate, you think or there is -- could be more things you can do on the cost side to get the margin back to kind of mid-20s?

I think our comments -- the comments I made were intended to essentially say the following: first of all, there are the year-to-date margins when you have one less good quarter as we did in the first quarter and year-to-date numbers that represents roughly 50% of the time at the end of the second quarter, it represents 1/3 of the time at the end of the third quarter and 1/4 of the time at the end of the fourth quarter. So given the outlook that we have for our business, there's a tautological, mathematical improvement that should come from margins as that quarter becomes less consequential to the year-to-date numbers. The second thing, I think, that Bob said, is that there are some number of onetime items associated with consolidation of facilities and other factors that we also believe are somewhat helpful in that regard.

I would add one comment, which is I think our margins in banking are lower than they should be. And so we'll see if we can get them up. We should be able to, but I don't want to make any promises until we actually do it.

Got it. And then maybe my second question, I guess, on the recent hires you guys have made and the pipeline that you're seeing. Could you elaborate a little bit more, I guess, on the structure of the pay packages as far as the best thing, maybe the breakdown of percentage of deferred stock versus kind of upfront cash to kind of help us better gauge the flexibility on expenses going forward?

Well, we're not going to go through it in great detail as to the kind of offers that we make, because we consider that proprietary.

And basically each case is different.

Yes, they're all different.

I mean, sometimes you hire people who, for one reason or another, aren't leaving anything behind and then you don't have to deal with it in terms of earned but unvested equity, and in some cases, you're dealing with people who are. And in some cases, you're dealing with people that walk in, they're very confident, they just want to start work. And in some cases, you're dealing with people who want a first-year assurance. Every case is different. It really is, every case is different.

But the one thing that is true of all of them is that their first year, which is a stub year, impact on the income statement is negative.

Well, anybody you hire from an existing firm, and that's everybody in our case, is subject to garden leave. And some firms have 3 months garden leave, some firms have 6 months garden leaves. So they just can't just show up until midyear at -- in general, midyear. And as I've often said, it's almost impossible to actually close a deal within the 6 months of your arrival just because of the amount of time it takes once the deal is announced to actually close it. So by and large, the first year for almost everyone is a 0 on the revenue side. And then they begin to produce beginning in their second year. That's just the way the world works because of garden leaves.

I would say, though, too that the hires that we made last year have had an important impact on the success of our business this year. So certainly, the historical evidence over the last few years, and we've gone back and looked at this pretty carefully, is that any good hire is significantly accretive to the value of the business and produces rates of return that are much higher than any other use of capital that we have.

There appears to be no questions at this time. I would now like to turn the floor to Ralph Schlosstein for any closing comments.

All right. Well, thank you, all, very much, and we're going back to work and hopefully generating some good returns for you the next couple of quarters. Thank you.

This concludes today's Evercore Partners Second Quarter 2012 Financial Results Conference Call. You may now disconnect.