Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Evercore Third Quarter 2019 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. [Operator Instructions] This conference call is being recorded today, Wednesday, October 23, 2019. I would now like to turn the conference call over to your host, Evercore’s Head of Investor Relations, Hallie Elsner. Please go ahead, ma’am.

Thank you, Dmitria. Good morning. And thank you for joining us today for Evercore’s third quarter and nine months 2019 financial results conference call. I’m Hallie Elsner, Evercore’s new Head of Investor Relations. Joining me today on the call are Ralph Schlosstein, our President and Chief Executive Officer; John Weinberg, our Executive Chairman; and Bob Walsh, our CFO. After our prepared remarks, we will open up the call for questions. Earlier today, we released a press release announcing Evercore’s third quarter and nine months 2019 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 on the For Investors section of the website and an archive of it will be available for 30 days, beginning approximately one hour after the conclusion of this call. 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 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 as previously mentioned, is posted on our website. 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. I’ll now turn the call over to Ralph.

Thank you, Hallie. And good morning, everyone. As many of you know, Jamie Easton, our very first Head of Investor Relations is fulfilling a long-held entrepreneurial dream and starting her own business. We are rooting for Jamie to succeed in her new venture. And we are very fortunate to have recruited Hallie to take on this important role going forward. Recruiting Hallie was just one of our important accomplishments this quarter. We have continued to grow our business, though year-to-date revenues increased at a considerably slower rate than last year’s rapid pace. Despite slower growth, we have had the best first nine months of net revenue in our history, and our backlogs remain strong in each of our businesses. I’m excited about the opportunities that we have to continue to take market share in each of our businesses in the coming months. Throughout the year, we have continued to invest in talent and capabilities consistent with our long-term growth objectives. Seven advisory Senior Managing Directors have joined the Firm during 2019. The four SMDs added during the third quarter expand our coverage of financial sponsors and the retail sector and strengthen our global presence both in Canada and Israel, where we recently opened our 20th advisory office. Our total number of active and announced advisory Senior Managing Directors is currently 111. We have one additional Senior Managing Director committed to join in 2020 and our dialogue with potential recruits remains strong. We also remain very active with developing and mentoring our current bankers across all levels and the promotion of our own talent will continue to be a growing source of new Senior Managing Directors. Our market position in advisory has never been stronger as we have gained market share, climbed the league tables, and advised on a high proportion…

Thank you, Ralph. The current environment continues to drive demand for high quality independent advice that addresses a range of strategic and financial challenges as clients’ priorities and needs vary by sector and region. The fundamental drivers of M&A remain in place, equity valuations are strong, credit is readily available, activist engagement with corporate is high, and disruption of traditional industries continues. Client discussions and interest in pursuing strategic transactions remain high, but closing of transaction has been taking longer than in the past. The U.S. market remains the most active with the highest level of activity in the TMT, industrials, healthcare, and energy sectors. There’s also strong demand for capital advisory services as companies seek additional equity and debt financing. An elevated level of leverage debt outstanding over time drives strong demand for liability management and restructuring advisory services. Our debt advisory and restructuring teams continue to be fully engaged, and particularly strong levels in energy, retail and TMT exist. Our broad range of capabilities and ability to advice clients with differentiated teams positions us well to help clients with their most important strategic and financial issues. The environment for cash equities remains challenged as we continue to see clients reduce the volume of research they receive and refine both how they pay for research and the level of payments. Quality remains an important differentiator for Evercore ISI, and we believe the clients will compensate us appropriately for the value we deliver in our research. As Ralph mentioned, the recent annual Institutional Investor’s survey results demonstrate our commitment to quality across our research footprint. I’d like to highlight some more details on our advisory and underwriting businesses. We continue to be pleased with the results of these businesses and their ongoing momentum. We finished the nine months ranked fifth…

Thank you, John, and good morning. Beginning with our GAAP results. For the third quarter, net revenues, net income and earnings per share on a GAAP basis were $402.2 million, $43.3 million and $1.01 respectively. For the first nine months, net revenues were $1.35 billion, a record for the year-to-date period, just as they were a record on an adjusted basis. Net income and earnings per share were $192.3 million and $4.43, respectively. Net revenues of $2.3 million was recognized in the third quarter for transactions that closed in the fourth quarter. Consistent with prior periods, our adjusted results for the quarter, exclude certain items that principally relate to our acquisitions and dispositions, and also include the full share count associated with those acquisitions. Specifically, we adjusted for costs associated with divesting of Class J LP Units, granted in conjunction with the ISI acquisition. For the quarter, we expensed $4.6 million related to these Class J LP Units. Our adjusted results for the quarter also exclude special charges of $1 million related to accelerated depreciation for leasehold improvements, and $0.4 million of acquisition and transition costs. Turning to other income. Other revenues were down for the third quarter, but up significantly for the first nine months in comparison with 2018. These changes primarily reflect gains or losses on the exchange traded funds we use as a hedge for our deferred cash compensation program obligations. This amount will continue to fluctuate in volatile markets. Looking to non-compensation costs. Firm-wide non-compensation costs per employee were $46,800 for the quarter, down 5% from the prior quarter and up 1% on a year-over-year basis. As Ralph mentioned, the increase in non-compensation costs, principally reflects the addition of office space and related depreciation to accommodate future growth and investments -- future growth and investments in software, targeted at enhancing operating efficiency and the security over the intermediate term. We had approximately 1,900 employees at the end of the third quarter. Our GAAP tax rate for the quarter was 28% as compared to 22.8% in the same period last year. The third quarter share count for adjusted earnings per share was 48.1 million shares, lower in comparison with the prior quarter, principally driven by share repurchases. On a GAAP basis, the share count was 42.8 million shares. Finally, looking to our financial position, we hold $304.7 million of cash and $620.1 million of investment securities at September 30th with current assets exceeding current liabilities by approximately $894 million. Investment securities include funds from our recent debt raise and investing a portion of our minimum cash requirement and requirements for our upcoming bonus payments. With that, operator, we’d now like to open the line for questions.

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from the line of Brennan Hawken with UBS. Please proceed.

Good morning. Thanks for taking my questions. So, understood your comments on the business being lumpy. Is what we saw here in the third quarter, just to say it plainly, is it similar to what we saw last year, right? I seem to remember third quarter of ‘18 timing was also an issue, made the quarter look a little bit soft. Now, of course, you guys follow that up with a pretty remarkable fourth quarter and finish to the year. So, is it similar to that, or is there something else happening where we’re starting to see a little bit of slowing of velocity in the market and the timing of deals getting slowed down? I’m just trying to delineate here whether or not this is normal lumpiness or maybe a little bit of slowdown mixed into? Thanks.

Well, I think the M&A data for the year-to-date are available to everyone. They’re off low double digits, both in the dollar volume of transactions and in the number of transactions. So, there is definitely a little bit less activity in the market as a whole. Evercore continues to take market share. So, the story in the advisory business, I think, is very similar to the story that we discussed last year in the first quarter as it pertained to our equity business where we said that the wallet will shrink a little due to MiFID, but we expect because of our -- the quality of our research that our market share will gain. So, I think that’s what’s happening. And with respect to the third quarter specifically, it’s exactly what happened in the third quarter of last year. We had a number of transactions that we expected to close in the third quarter or right on the cusp. And as I said in my opening remarks, those were delayed and are -- have closed or are expected to close in the fourth quarter. So, it’s very much a timing issue as we see it and not a serious fundamental change in the activity in our primary business.

Okay. Thanks for that color, Ralph. And then, Bob, you might have mentioned this. I could have missed it. But, what was the pull forward from October into the third quarter for revenue this quarter?

$2.3 million.

$2.3 million? Thanks so much.

And our next question comes from the line of Devin Ryan with JMP Securities. You may proceed.

So, my question is a little bit a follow-up just on some of the -- maybe the overarching kind of views around the M&A backdrop. I mean, there is a lot of macro events that the market’s watching right now. And, just trying to think about what you guys would maybe point to you as a catalyst to either improve activity or what would be a bigger concern? We have the Brexit situation in Europe, you have -- trying to trade deal, you have a presidential election kind of moving closer here. So, I’m curious kind of what the biggest topics are that you’re talking to clients about and maybe what the factors are that you think have slowed activity a bit and what could drive maybe reacceleration or change kind of for the broader backdrop?

Well, I think what we have found is that CEO confidence has -- is down slightly, but we have found that our dialogs have been every bit as frequent and robust as they’ve been in the past. And we’ve really found that there continues to be real activity to look for growth and that’s what companies are doing. And so, there is still a real desire from companies to be thinking aggressively about how they move forward and how they grow. Having said that, there are currents -- crosscurrents in the market, and I think everyone is aware of them and focused on them. In terms of catalysts for activity, certainly something dramatic that happened would slow things down. Right now, what we’re seeing in terms of our activity levels is that that things are as Ralph described, which is we feel like the activities are every bit what they were and our dialogs and the frequency and the number of dialogs are where they have been. So, our activity levels continue to be strong, and we feel like we continue to have a lot of activity that we’re serving right now.

The only thing I would add Devin is that the uncertainty or -- is obviously the enemy of M&A and activity and ultimately advisory revenues. And we’ve had two sources of uncertainty that you identified, Brexit and trade. They seem to be on the path to resolution. And I would point out that -- and this is building on John’s remarks, that a slow-growth economy is a real good environment for M&A activity, because as John pointed out, when companies have relatively low organic growth, and keep in mind, revenues are driven by nominal growth in GDP, not inflation adjusted, a real growth, and we’re in an environment where real growth is low and inflation is low. So, nominal growth is very low compared to historical levels. And that kind of environment, as John pointed out, causes companies to look for growth inorganically, which obviously we are a beneficiary of.

And then, just a quick follow-up, maybe for Bob. If possible, just any way to get any more context around or quantify the level of business that was expected in the third quarter that ended up slipping into the fourth quarter? Anything you could provide there, I think would be helpful as we are getting some questions on it. And whether, I guess, also you’re seeing any deals that were maybe expected in the fourth quarter, slipping into the first quarter of next year, just based on the same dynamic?

Well, clearly, on the last question, I don’t have a clue, because it’s October. As we said in our remarks, there were several larger fees that we had expected would close in the third quarter and they did not. So, I don’t -- I can’t give you more than several or large, but hopefully you can run with that.

I’ll try. Thanks, Bob.

And our next question comes from the line of Steven Chubak with Wolfe Research. You may proceed.

So, looking at the results through the first nine months, despite mid single digit revenue growth, some of the share gains you cited, the operating margin did contract about 160 bps. I recognize there are some investments you’re making in non-comps in new personnel. I was hoping you could speak to your philosophy around the commitment to managing profitability while continuing to invest. And in particular, we’re getting a bunch of questions on how to think about on handicapping or managing the risk of deferral headwinds, if the environment softens further?

Okay. Let me take a crack at that. First of all, when you have -- we’ve said consistently on these calls for the last 10 years plus, first Roger and I, and now John and I that we will continue to invest to create long-term value in our -- the per share value of the Company. And we intend to do that through good environments and more challenging environments because ultimately that’s what will create the greatest per share value, which is the only thing we focus on, over the intermediate to longer term. So, we are in an environment where top-line revenues have grown more slowly. We’ve had to make investments in both, space and technology to accommodate the investments that we are making. And I think, what we’ve always said is that in reasonably good environments, we expect to be able to manage this business in a way that the margins are in the mid-20s. And that’s for full years obviously, not for part years. And in weaker environments, obviously, it will be somewhat lower than that. And in strong environments as we had last year when advisory revenues grew 32%, we were as I believe 28% -- north of 28%. So, obviously, we’re not immune from lesser activity in either of our businesses. But, as I said at the beginning of -- in response to Brennan’s question, yes, we do see that we are continuing to take market share. And certainly, the long-term per share value of the Company, the growth of that is predicated on us continuing to invest in talent in our business. So, we will continue to do that. It’s also true that when you have a -- it’s tautological that when you have a consistent deferral policy which we’ve had over the last many years, and you have a growing business, it’s tautological that the amount of deferral in each subsequent year grows a little bit. And we certainly do have that phenomenon here. I don’t know Bob if you want to add anything to that.

No.

Okay. Very helpful color, Ralph. And just one follow-up for me. I think, previously, you had alluded to an expectation that there could be lumpiness in individual quarters but that revenues should -- there would be higher in ‘19 versus ‘18. Recognizing it has been a softer environment, can you update us on your confidence that you should still be able to deliver on that objective?

Well, first, I’m virtually certain I never said that. And so, therefore, I’m not going to provide an update on something I never said.

Okay. I guess, we can debate that later on. But, thanks for taking my questions, Ralph.

Okay.

And our next question comes from the line of Michael Brown with KBW. You may proceed.

So, I just wanted to follow up on the timing related issues this quarter. Could you just kind of speak to what the factors were that drove some of the timing issues there? Was it just kind of the market volatility, some of the market dislocations that we saw during the quarter?

Really, as you would anticipate, each was bespoke and unique to the transaction ranging from factors precedented to closing public deals to private companies, prioritizing transactions versus other actions they were taking. So, each was bespoke, nothing systemic.

And as we’ve always said, this business is lumpy. So, in any normal period, there will be transactions that do span over a quarter just because of the lumpiness of the business and really the timing in which they fall. And so, it’s always going to be the case that there is going to be an unevenness as to how some of the big closings happen.

Okay, great. And then, the incremental senior note borrowing this quarter, can you just give us some additional color as to how that will be used? So, I understand it’s mainly for investment spend, but can you just give us some color as to where that spend will go towards, particularly on the tech side? And then, does this also imply a bit of a shift in the capital return strategy? I mean, you’ve taken out 5% of shares year-over-year. Is there a potential for that to continue or even accelerate from here?

I’ll let Ralph respond to we’re not going to use borrowings to change the capital return strategy. But, in terms of the deployment of the funds as we’ve been talking about really all year, we’ve made significant and are making significant investment in the expansion of facilities to accommodate growth in personnel, most significantly in New York City, but in Houston, Menlo Park and other cities in both the United States and in Europe. And, in terms of technology, we’re working on a number of projects to enhance the efficiency of that business from analytic tools for our most senior bankers to enable them to provide advice to clients on a more accelerated basis to tools that make our younger people more efficient. So, a range of technology projects.

Yes. And, I would say that you can look at the first nine months of the year to see a continuation of our capital return strategy. Historically, we’ve tended to pay out either in the form of dividends or share repurchases an amount at least equal to our net income. We didn’t do that I think last year because we funded some investments, including the year-end purchase of part of our Wealth Management business and our Private Capital Advisory business, which we now own 75% and 100% of. But, as a general matter, it has been our policy to return at least what we make in adjusted reported net income. We’ve done that as well for the first nine months of the year. And we expect that to continue to be our policy, absent some inorganic investment, which we don’t really anticipate, which would be a use of cash.

And our next question comes from the line of Jim Mitchell with Buckingham Research. You may proceed.

Maybe just a discussion around SMD headcount. I think, over the last less than two years you’re up 28% in your advisory business. That’s a lot of new SMDs. Could you talk to -- is that still in terms of the distribution? I think, in your presentation you talked to how 19% of current SMDs are outside of strategic M&A. Is that -- is the distribution of those SMDs becoming more and more outside of strategic M&A, and maybe you could describe some of the areas where that’s going, or are we still seeing opportunities across the board?

I would say that if you look back five or seven years ago, we would have had a smaller portion of our SMDs in the advisory business outside of industry groups or a smaller proportion in what we might consider product capabilities than we do have today. But, I would expect that over the last couple of years that probably hasn’t changed very much, and I would not expect that it would change tremendously in the future. I often say that we’re in every business that the large firms are in where you compete solely on the basis of ideas, intellectual capital and relationships. And the only source of revenue is fees. And to the best of our knowledge, we’re in all or almost all of those businesses that are not industry coverage today. So, we have debt advisory; we’ve always had a restructuring business; we have equity capital markets advisory; we have hedging advisory; we have tax; we have activist defense. The person, we’re adding early next year is a specialist in corporate restructuring as opposed to financial restructuring split spins Morris Trust Reverse, Morris Trust et cetera. But with that addition, I think, we’re, unless John, you have a different view, pretty filled up in terms of our product or expertise capabilities.

No. I completely agree with Ralph. And I would just state that if you really look at how we’ve grown our SMDs, you can look at the consumer retail group, the industrial group, which we’ve recently over the last three years or so grown substantially, the new addition to adding an SMD in Israel, those are all production areas, those are all M&A advisory type situations. And if you really look at the activity and our deal flow, you’ll see that those partners and those groups have begun to generate real activity and revenue for us. And so, we’ve continued to invest in the areas where we are advising clients and we’re able to execute transactions. So, Ralph, absolutely right in terms of the fact that we have thought about the content businesses and making sure that we have a content and the service to really provide a balanced diverse set of advice for our clients, but also we continue to be very focused on adding people who can get right to the industry sectors and actually give direct advice on M&A.

And I would add one other thing that the uptick in the growth in the number of Senior Managing Directors is driven more by internal promotions than it is by external hires. We’ve been pretty consistent over the years in hiring four to seven external SMDs this year. As I indicated, we hired seven in the advisory business. But, the last two years, we’ve had, I believe it was eight and seven internal promotions, which is quite a bit higher than we’ve averaged over the years before that. And those of course don’t have the same impact on investment dollars that the external hires do.

It’s Bob. Just to make sure we are clear on the point though. As you look at the teams in terms of capabilities, there is significant opportunity to expand our footprint across all of those. We’ve invested significantly in restructuring. We’re seeing the results of those investments. And I’m confident if Ralph or John found several more exceptionally talented restructuring bankers, we’d be looking for an office for them.

Right. I mean, I think the question we get a lot from investors is, as you, I think John mentioned, in terms of the balance, is there any way to help us think about within the strategic advisory revenue bucket how much is sort of some of these non-traditional whether it’s restructuring, capital markets advisory to think about the size of that business relative to the whole?

We’ve never broken that out. We have given you headcount as a means to think about that. Productivity is staying reasonably constant across the different environments. And Jim, as you know and as we’ve talked about with investors for all these years, our approach to serving clients as teams to bring together coverage team, sector teams, and specialists to work together to meet the business needs. So, we don’t spend time tracking a restructuring number, a debt advisory number. We want everyone to work together to not break it into pieces. So, the number of heads we’ve given you is a good proxy for that with productivity being constant. And again, there is opportunity to grow those capabilities right in parallel, as we grow our sector and coverage teams.

And our next question comes from the line of Jeff Harte with Sandler O’Neill. Sir, you may proceed.

Hey. Good morning, guys. A couple for me. One, you commented a few times about the backlog remaining strong. Could you give us any color on where the backlog stands kind of to where it has been the relative past? Because the visible pipeline we can look at, looks like it slowed some.

Yes. I will repeat what we said and John said. The backlog remains strong. We very consciously resist pointing out ups and downs. The only thing I will say is that we track a number of things. Our unrisked backlog, which is the value of -- if everything that we were working on would happen, the risk backlog which assigns a probability to each one of those matters, which sounds, -- I think, I’ve said this before, when I first came here, I thought to myself and probably articulated publicly that we’re in a business where things happen or don’t happen. So, a 25% to 50% probability on something doesn’t -- if you add them all up, doesn’t seem to make a whole lot of sense. But, it tends to be a pretty good predictor of future activity. And then, of course, the most leading indicators that we track are new engagement letters and the most leading is new conflict clearances. Those are all -- remain strong.

Okay. And secondly, just on deal size. I mean, you guys have been really killing it on mega deals, especially any other non-bulge bracket player. But, when we look at your market share rank and kind of that $1 billion to $10 billion size transaction bucket, it’s been stickier and kind of sitting in the mid teens. Can you talk a bit to how important improving the market share in that kind of $1 billion to $10 billion bucket is, to the next leg up in revenue growth for you guys?

Well, we clearly are investing time and effort in making sure that we cover companies that are going to be in that zone with respect to deal size. And we’ve spent a lot of time making sure that we cover the companies in a comprehensive way that we’re giving them advice that we’re thinking about strategy with them. And so, we clearly are focused on it and it goes with the implication of your question, we do believe that’s important. So, we are definitely investing time and effort on that. And clearly, we would very much like to continue to grow our business in that category. With respect to the large deals, we feel very fortunate and happy about where we’ve been on those. There is absolutely no way to predict that you will continue to be able to do that, other than the fact that we think the quality of our calling efforts and the quality of our relationships continue to improve. We spend more time on it, we spend more effort on it, and we believe that we are making progress. And so, your question’s well taken, and we’re very much focused on it.

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

Thank you all for being on board. And we very much look forward to seeing -- hearing you and talking to you on the fourth quarter call. Thanks very much.

This concludes today’s Evercore third quarter 2019 financial results conference call. You may now disconnect.