Good morning, and welcome to the Evercore First Quarter 2024 Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Evercore management and the question-and-answer session. [Operator Instructions] I will now turn the call over to Katy Haber, Managing Director of Investor Relations and ESG at Evercore. Please go ahead.

Thank you, operator. Good morning, and thank you for joining us today for Evercore's First Quarter 2024 Financial Results Conference Call. I'm Katy Haber, Evercore's Head of Investor Relations and ESG. Joining me on the call today is John Weinberg, our Chairman and CEO; and Tim LaLonde, 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 2024 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 the For Investors section of our website, and an archive of it will be available for 30 days beginning approximately 1 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 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, which 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 closing. I will now turn the call over to John.

Thank you, Katy, and good morning, everyone. We've started 2024 on a strong note, having advised on 5 of the 15 largest global deals announced in the first quarter. Based on the current competitive landscape and our success so far this year in announced transactions, Evercore finished the first quarter among all firms, ranked fourth in the global league tables and third in the U.S. Consistent with our commentary from a few months ago, we continue to see momentum build as client activity levels remain high. Additionally, the dollar value of industry-wide global deal announcements, particularly of larger-sized transactions has increased. We also continue to see the broader market environment improve, including significantly increased equity issuance and leveraged finance volumes, indicating better financing availability for transactions. This has led to a further build of our backlogs. That said, activity levels in smaller to midsize transactions have been less robust, and while it is encouraging to see a significant increase in larger deals, the time line to close these transactions can be longer and the process more complex. As for sponsor activity, we've seen sizable transactions in April, and we believe sponsor activity should continue to gain momentum. We continue to watch the trajectory of interest rates, which may have some impact. Overall, our first quarter financial results do not yet meaningfully reflect the improvement in the announcement activity levels, which we expect to see realized in revenue later this year and into next. That said, we continue to closely monitor the geopolitical, economic and regulatory environment, which could further alter the trajectory of the recovery. As we have discussed at length last year, we hired our largest class of investment banking Senior Managing Directors in the firm's history, and we are pleased to have all 11 new SMDs now at…

Thank you, John. Through the end of the first quarter, we saw several themes play out, many of which we have discussed on our previous earnings call. Global announced M&A activity on a dollar volume basis in the first quarter was up 42% year-over-year, and U.S. M&A volume on the same basis was up 81%. Larger transactions have led the way. With the total number of deals announced globally above $100 million, down 7%, but the number of announced deals over $1 billion is up 47%. Evercore has played a meaningful role in that, with, as John said, advising on 5 of the 15 largest global transactions year-to-date. Our larger announced transactions are generally expected to close in the latter part of this year and into the following year. Given this dynamic, our first quarter financial results do not yet fully reflect the increased momentum we are experiencing. Overall, we continue to feel positive about the trajectory of the broader M&A, capital markets and financing environment as our backlogs continue to build, and we expect to see greater revenue strength in the second half of this year and into the next year. I will now discuss our first quarter financial results. For the first quarter of 2024, net revenues, operating income and EPS on a GAAP basis were $581 million, $84 million and $2.09 per share, respectively. My comments from here will focus on non-GAAP metrics, 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, which is on our website. Our first quarter adjusted net revenues of $587 million increased 2% versus the first quarter of 2023. First quarter adjusted operating income of $91 million decreased 22% versus the first quarter…

[Operator Instructions] Our first question will come from Devin Ryan with Citizens JMP.

I just want to ask a question, digging a little bit more around what you're seeing in the sponsor community. I know in the prepared remarks, you talked about sponsor activity picking up. But then on the other hand, interest rates could play a factor. So I just wanted to talk a little bit about what you're seeing with that client segment. And how much the mood has shifted with sponsors just with maybe the view that we're going to be in a higher for longer interest rate environment and how that's kind of evolved over the last few months. So just like how the tone has changed with that group and whether their enthusiasm has been shifting with that interest rate change as well.

Thank you, Devin. It's interesting. I think the sponsor community is becoming more set on moving forward than has been in the past. And I think part of it is that there's just an intensity level that they need to get back to business. I think that there is clearly going to be a higher for longer that there is -- that people are what looking at. But I think that there's a lot of dynamics in and around the sponsor population that really is going to play into how the deals go forward. And I think our observation would be that the activity levels are very high, and there is a real intention to start making things happen. One very important factor is the LP community, which really is very much of the view that they would like to see transactions happen and get some capital returned, frankly, so they can put capital back to work. It's been a long time since they've really had, really healthy returns and they really need that. GPs are thinking about how they raise funds. And I think generally, there is a view that it's important to start really showing activity. As you know, there's about $3.8 trillion of dry capital ready to go. And I think that really the sponsors are feeling like they need to move. Our experience with the sponsors is that there's a level of intensity and intention that we haven't seen for quite some time. So our view is that it's going to pick up. Clearly, rates will have some impact. I certainly don't want to paint a picture that that's not important. But I think that there are some other factors that play here that are going to make sponsors push much harder.

Yes, that's great color.

Our next question will come from Brennan Hawken with UBS.

I'd like to clarify on the Tim's comments on the noncomp ratio. So when you say pre-COVID, if I take a look at the average of years 2013 to '19, I get to about 17%. Is that the sort of approach that you would suggest? Or were you looking at a narrower band of years? And how should we interpret that?

Yes, and thanks for the question, Brennan. If you look at the pre-COVID years, it bounced around a bit, and some of it depends on how the revenue is. And honestly, we think we can do better than that is what we're anticipating. It's going to depend, of course, to where the revenues fall out, right, because that's part of the equation. But we think we can do better than that.

Okay. Okay. So we should more think about it like the range of the pre-COVID years rather than like just an average?

Yes.

Our next question will come from Steven Chubak with Wolfe Research.

This is Brendan O'Brien filling in for Steven. So I guess I just wanted to touch on the election. I mean, last quarter, it sounded like you and your peers have yet to see the election have any noticeable impact on your dialogues with clients. However, with the election, at least in the U.S., now just 7 months away, I want to get a sense as to whether that has changed at all? And if you see any risk of the election having a dampening effect on M&A activity in the back half of the year?

It's always hard to look forward that far. Having said that, if you look at past elections, they haven't really had a major impact on the merger market generally. Now that can always change, and this could be different. Our premise really in the way we're thinking about the world is that it's not going to change, with respect to how people think. Now there are other factors that we are looking at very closely, whether it's how the market performs, the geopolitical stability, how -- what's going to happen with inflation, those are all things that are important. And obviously, interest rates, which we've already mentioned, will be something that I think will have a real impact. But with respect to the election, we're not looking for that to have really major game-changing impact.

Our next question will come from James Yaro with Goldman Sachs.

You did talk about continued strength in restructuring in the quarter. Maybe if you could just help us contextualize your outlook for this business over the course of the balance of 2024 and maybe into 2025, given higher for longer interest rates.

Our view on restructuring has been consistent, which is it's a very strong business for us, and it's continuing that way. And higher for longer, obviously, will impact the business in a positive way. But even when we thought that rates were going to go down, a very big part of our business is liability management. There are many companies that really have capital structures built on very low interest rate environments and some of those are coming up for refinancing. And so the liability management side of the business is going to continue strong. And really from the prospects that we see in our backlogs, continuing along at the pace where we feel very comfortable that they're going to continue to perform at a high level. So as we look at our projections and we're looking at how things are going, we believe the business will continue along the path of being quite strong.

[Operator Instructions] We'll go next to Ryan Kenny with Morgan Stanley.

Just wanted to dig in a little bit on the comp ratio side and the comment around aiming to improve this year. Is that an improvement from last year's level or from the first quarter level? And how should we think about the likelihood of comp ratio maybe decreasing in the back half of the year as revenues pick up?

Right. So let me just expand my commentary a little bit around the comp ratio. And so we talked about it being kind of generally similar to our full year estimate. Based on what we know today and more importantly, it's our best estimate of the appropriate accrual for the quarter. But ultimately, where our comp ratio will finish the year is going to depend heavily on the timing and magnitude of improvement in revenue, among other factors, which also, of course, include things like headcount, market level of comp for nonpartners and so on. But we are committed to making progress on our comp ratio. We're intending to balance that objective with our plan to continue building the firm. And as I said, where we land at the end of the year is largely going to be a function of the strength of the revenue in the latter part, which is not perfectly knowable at this point.

Our next question comes from Aidan Hall with KBW.

Great. Just wanted to dig in on the recruiting commentary. It sounds like conversations remain robust. But I guess can you just give us a better sense of your expectations on the SMD hiring front as it relates to the remainder of the year? And as we think of building pipelines across the industry, how that might maybe elongate some of the recruiting time lines?

Thanks for the question. And obviously, we focused a great deal on recruiting and really making sure that we continue that momentum of the organization and our growth. This -- the pipeline is, from our standpoint for us is robust, although I would say that there is -- it's really hard to know exactly where that's going to come out. It's recruiting and the numbers of people we bring in is more of an output than an input, meaning that really, we have a very strong set of dialogues going on with some very talented people. And it's hard to know which ones are going to actually land. I would say that if you're trying to figure out where we are is we're going to continue to look for A+ talent in areas where we think there's real significant growth ahead for us. We've always -- what we said in the past is 4 to 8. Last year, as you know, we went to 11. We're not going to be constrained by any number, but we think we'll have a good year this year, and we're very much in the middle of many different dialogues that we think are with very strong people. So I think you can assume that we're not going to change dramatically.

We do have a follow-up question from James Yaro with Goldman Sachs.

Just a quick one on the advisory revenue quarter-on-quarter decline this quarter. So I think this did appear somewhat weaker than the publicly available data, which is all that we have to go on. And I think your quarterly kind of is a little bit weaker than some of the peers that have reported so far. So maybe you could just help us understand what the drivers were? Was that M&A? Or was there some other business that slowed down relative to fourth quarter? And then anything you could just add on the pull forward of revenue into the fourth quarter and then again into the first quarter, and maybe that would help explain some of those moving parts.

Sure. Well, as you know, the business is quite lumpy for us. And what you really will see if you look at it quarter-to-quarter is hard, because several big transactions or 3 or 4 big transactions can change a lot. And I would just generally say activity levels for us are high. Our backlogs are robust and strong. And really, anywhere you look across our systems, that dialogues internally are very, very active. And so I would say that from our standpoint, there's tremendous activity inside. And even if you look at things like engagement letters or conflict checks very strong. Last quarter, Europe had a lumpy quarter before, which was strong. In the last quarter, they were relatively weaker. But I would say that, that would -- that's not an indication of the strength of the business. It's just a fact of what happens. So I would -- if you're really thinking about how to think about us, I think you should really assume that we're feeling quite constructive about how we're going to go. And as we said, we could see a build over the balance of the year and in the next year in terms of both announcements and revenue.

And we'll take our next follow-up question from Brennan Hawken with UBS.

Would love to sort of take a step back and hear about your perspectives. You guys have added a lot of senior banking talent, and one of the big metrics that I like to focus on is revenue per trailing MD, right? So looking at trailing 12-month MD count. And excluding the gogo years of 2021 and '22 the prior high watermark was about $20 million, and that was in 2018. When you think about the level and caliber of some of these stem winding bankers, John, as you refer to them, how should we think about that productivity number? And how much upside do you think there could be in thinking about an upcoming cycle, given what you've done to the team on the field?

Brennan, thanks for the question. And we think about a lot of the same things that you just mentioned and really kind of assess really what the impact of bringing really high-quality people is with respect to our growth. We've always taken the approach and we continue to and we will continue to really take the approach that high-quality talent is going to be significantly additive to the growth of the firm. We have, right now, 30-plus people ramping, both the high-level recruits that we brought in as well as the partner promotes that we've had over the last couple of years. So we think it's going to keep going. In terms of the revenue per partner level, we actually think it's going to be strong. Now will it get to the 2021 level? Maybe not immediately. Certainly, you have to have a really strong market to get to something like that. But we think that the revenue per partner is going to reflect the fact that we have a really strong, high-quality group of partners who are really focused on their clients right now, and activity levels across the board are picking up. And as you know, one of the big things to think about is are the right factors in place for the market to pick up? And those, as we've talked about before, things like CEO confidence, access to capital, stability of the markets and sponsor recovery. And if you think about it, each one of those right now looks to be pointing in the right direction. And so with those coming together in the right way, I could easily see revenue per partner levels picking up materially.

Our next question will come from Ryan Kenny with Morgan Stanley.

Question on underwriting. So there's a really large increase year-over-year, revenues more than doubled, strongest quarter in several years. Should we think of that as lumpy in the first quarter? Maybe it was exceptionally good for Evercore? Or is this a good base to build off of as underwriting activity picks up?

It's always hard to take one quarter and make that be multiplied out for the year. The underwriting business tends to be somewhat lumpy, although it is building. We're feeling strength in our underwriting business and the backlogs are good. We've been involved in several and we certainly have a lot of activity going on. So I guess the best and most fair way to answer your question is we feel very constructive. We think that the first quarter was a good first quarter. We anticipate that throughout the next 3 quarters of the year will come together in a way that where it's -- we certainly outperformed last year, and we think we'll feel good about really the end results. But it's very hard for me to call the shots with respect to the second and third quarters at this point. But I would say that the backlog levels are very robust.

Look, I think the -- just to add a little bit of detail. If you look at the equity markets in terms of dollar value, issuance is up 131% over last year. So our revenues were up 143% over last year. And we're certainly not sitting here saying you should annualize what you saw in the first quarter. But what we are saying is there is a noticeable change in the environment. And the deals that we have seen getting priced in this last quarter have tended to have better performance, both with respect to the pricing itself and to where they traded in the aftermarket. And so we're optimistic that at least those days of 2023 are kind of behind us.

We have no further questions in queue at this time. I would like to turn the call back to management for any additional or closing remarks.

Thank you all for joining us. We look forward to next quarter.

And this does conclude today's Evercore First Quarter 2024 Earnings Conference Call. You may disconnect your line at this time, and have a wonderful day.