Evercore Inc (EVR) 2020 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Evercore Third Quarter 2020 Financial Results Conference Call. (Operator Instructions)

This conference call is being recorded today, Wednesday, October 21, 2020.

I would now like to turn the conference call over to your host, Evercore's Head of Investor Relations, Hallie Miller. Please go ahead, ma'am.

Thank you, Shannon. Good morning, everyone, and thank you for joining us today for Evercore's Third Quarter 2020 Financial Results Conference Call. I'm Hallie Miller, Evercore's Head of Investor Relations. Joining me on the call today are Ralph Schlosstein and John Weinberg, our Co-Chairmen and Co-CEOs; and Bob Walsh, our CFO. After our prepared remarks, we will open up the call for questions.

Earlier today, we issued a press release announcing Evercore's third quarter 2020 financial results. The company's discussion of our results today is complementary to that 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.

I want to point out that during the course of this conference call, we may make a number of forward-looking statements, including with respect to COVID-19. As discussed in our earnings release this morning filed on Form 8-K, the worldwide COVID-19 pandemic has posed and is expected to continue to pose significant challenges for our business. Any forward-looking statements that we make, including those about COVID-19 and its effect on our business, 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's 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 very much, Hallie, and good morning to everyone. It's hard to believe that this is our third earnings call for which we are not all together in the same conference room. For today's call, John is in our offices in New York City, it's his week in the office and I am in my office in North Salem, New York. And Bob is with our traders in our office in New Jersey.

Our business thrives on in-person collaboration and teamwork. And while we have been quite effective and successful over the last 7-plus months operating out of 1,800 offices around the globe, we certainly recognize that our business and our culture operate best when we are physically together. That certainly is our ultimate goal once the virus is no longer a factor in our lives. But in the interim, we remain committed to serving our clients with distinction and to collaborating with one another as we implement a gradual return to office around the world.

The first 9 months of this year have been volatile and have had significant challenges and uncertainties. But there also have been many opportunities to advise our clients on their most important strategic and financial needs.

The strategic investments we have made to broaden and diversify our capabilities over the past several years have enabled us to serve our clients on a wide array of strategic and financial matters and resulted in solid quarterly and year-to-date results, demonstrating both to our clients and our shareholders that Evercore very much is an all-weather firm that can produce good results in a wide variety of environments.

There unquestionably are still uncertainties ahead: the upcoming U.S. election; Brexit; the path of the virus; and the disparity between the financial market recovery and the real economic recovery with so many of our fellow Americans, Europeans and others around the globe still unemployed or with their small businesses shuttered. However, as we see the market for merger activity improve and we continue to see robust activity in capital advisory, restructuring, Underwriting and research and trading, we have never been more confident in our ability as a firm to help our clients achieve their most important strategic, financial and capital objectives.

Before I comment on our financials, I want to provide a brief update on how Evercore has broadly responded to the events of this year and on what we are focused going forward.

As I mentioned, we are beginning to implement a very deliberate and thoughtful return to our offices around the globe. Our transition back is occurring at a measured pace and follows all local government guidelines designed to protect communities in which we work. The health and safety of our employees and their families remains our paramount consideration and the return of any individual has been of their own choice.

Most of our colleagues continue to work remotely, and we anticipate that this will be the case for a reasonable period of time, probably measured in quarters rather than months. We remain focused on pivoting to meet the needs of our clients and leveraging our broad and diverse capabilities to advise them in the changing economic and financial environment.

The result is as follows: New M&A activity is being announced, in addition to the pre-downturn matters that have begun to reengage. We are seeing continued momentum occurring in our capital advisory business, both helping clients raise equity privately and publicly and advising clients on debt opportunities. Restructuring and refinancing transactions are continuing and we are having constant dialogue with our clients about their future financing needs. And finally, we are experiencing strong engagement with investors looking for research and our Wealth Management clients seeking strong financial advice.

Non-M&A activity, including Underwriting, has been a distinct opportunity during the past several months and has become an increasingly important part of our business in the current environment. We've been able to support clients to enhance their liquidity, raise investment capital and shore up their balance sheets. We are particularly proud of our CAPS product, which is designed to be an alternative to SPACs, which we originated during the quarter and which we are in the early stages of building our convertible securities capability, including enhancing our distribution capabilities and our origination team.

There was a significant increase in M&A announcements in the third quarter and that momentum seems to be continuing in the fourth quarter.

Despite the many potential uncertainties, which I outlined earlier, as we look forward to the remainder of 2020 and into 2021, our backlogs are strong, and we look forward to continuing our momentum in 2021 and in finishing this year strongly. And of course, we remain committed to maintaining our strong and very liquid balance sheet.

Let me now turn to our results. We're quite pleased with our results for the third quarter and first 9 months of 2020 as the diversity of our capabilities and the entrepreneurial spirit of our team allowed us to deliver revenues that are essentially flat year-over-year.

Below-average M&A transactions in March, April, May, June affected our third quarter advisory results. However, as you have seen, announced global M&A volumes nearly doubled in the third quarter compared to the second quarter and increased 38% compared to last year's third quarter in the U.S. Announced -- in the U.S., announced M&A volumes increased more than threefold versus the second quarter and increased 55% compared to last year's third quarter.

During each of the 3 months of the third quarter, both global and U.S. announced M&A transaction volumes were higher than the monthly average over the last 2 years. And in September, global announced monthly volumes surpassed $450 billion for only the second time in the past 2 years.

Third quarter adjusted net revenues of $408.5 million and year-to-date adjusted net revenues of $1.36 billion were both flat versus the prior year period as revenues from capital advisory, restructuring, Underwriting and Commissions and related fees largely offset the decline in revenues from lower M&A activity.

Third quarter advisory fees of $271.2 million declined 16% year-over-year, and year-to-date advisory fees of $966.8 million declined 11% compared to the prior year period. Based on the current consensus estimates and actual results, we expect our market share of advisory fees among all publicly reporting firms on a trailing 12-month basis to be 8.3% compared to 8.1% at the end of June and 8.3% at year-end 2019.

Third quarter underwriting fees of $66.5 million increased more than 275% year-over-year, and the year-to-date underwriting fees of $181.2 million nearly tripled versus the prior year period. The diversification of our Underwriting business has contributed to a real step-up in momentum, and we continue to invest in broadening our industry coverage and our product capabilities. We are working hard to sustain this momentum in the fourth quarter and have a meaningful and diversified pipeline of IPOs, follow-ons and convertible securities.

Third quarter Commissions and related fees of $43.9 million declined 6% year-over-year as the heightened volume and volatility of the first 6 months of the year subsided. Year-to-date Commissions and related fees of $153.4 million increased 12% versus the prior year period.

Asset management and administration fees were $16.6 million in the third quarter and $47.1 million for the year-to-date, an increase of 11% for the 9 months and 7% -- I'm sorry, 11% for the quarter and 7% for the 9 months.

Turning to expenses. Our adjusted comp ratio for the third quarter and the first 9 months of 2020 is 63.6%. The 63.6% accrual for the first 9 months reflects, as it has in past years, our estimate for the full year compensation ratio, which includes an estimate of 2020 incentive compensation. This year, however, as we have pointed out on previous earnings calls, there is higher -- a higher level of uncertainty than in prior years about both the full year revenues and full year market compensation.

Third quarter noncompensation costs of $71 million declined 18% year-over-year. And year-to-date noncompensation costs of $230.9 million declined 9% versus the prior period.

Third quarter adjusted operating income and adjusted net income of $77.7 million and $52.6 million declined 8% and 13%, respectively, and adjusted EPS of $1.11 declined 12% versus the third quarter of 2019. Year-to-date operating income and adjusted net income of $262.9 million and $182.2 million declined 18% and 25%, respectively, and adjusted EPS of $3.85 declined 23% versus the prior period.

We remain committed to our historical capital return strategy in which we returned earnings not needed in our business to shareholders through dividends and share repurchases. Given our solid results for the first 9 months of the year, we have -- which have resulted in good cash flow generation, we are beginning to return to that pre-COVID strategy.

Consistent with that view, our Board declared a dividend of $0.61, a 3% -- a $0.03 per quarter increase, which is a 5% increase from the prior quarter. We plan to return to our normal reassessment of the dividend in April of 2021 and to begin to restart our practice of returning our cash earnings that are not required in the business to investors through share repurchases. Bob will provide additional detail on our cash position in his remarks.

Before I turn the call over to John to discuss the current market environment and to comment further on our Investment Banking business, I'd like to talk about the environment for talent.

We continue to see opportunities to further build out our capabilities and to expand geographically and we are building a pipeline of senior-level A-plus talent additions. This quarter, we welcomed Mike Meyers to the firm as an SMD in our Equities business to help expand the firm's convertible debt underwriting capabilities and distribution capabilities. We also remain highly focused on developing and promoting our high-talent professionals from within the firm.

Finally, we are especially proud of Evercore ISI's most recent showing in Institutional Investor's annual All-America Research survey, where we were recognized as the top-ranked independent firm by a wide margin for the seventh year in a row and ranked #2 or #3 among all firms, large or small, depending upon how you count. Ed Hyman, Evercore ISI's Founder and Chairman, was awarded the #1 position in Economics, a recognition he has earned 40 times. Furthermore, Evercore ISI claimed a record 39 individual positions and tied its 2019 record of 36 team positions. Thank you so much to our institutional investor clients for their ongoing support, and kudos to the entire Evercore ISI research, sales and trading team for their extraordinary performance.

With that, let me turn the call over to John.

Thank you very much, Ralph.

After several months of muted merger activity immediately following the onset of the global pandemic, I believe that absent a negative event, which could certainly happen, we are in the early stages of a recovery as many of the key conditions necessary for a healthy M&A market continue to improve. The equity markets are strong for many sectors, access to financing and readily available credit remains, CEO confidence continues to improve and there appears to be greater stability in the markets.

As a result of these improving conditions, we are seeing increased opportunities to serve our clients across multiple industry sectors globally. In financing, we have found multiple opportunities to help advise our clients in both equity and debt capital raises. Despite the rapid government stimulus at the onset of the pandemic and the swift recovery in the credit markets, we expect restructuring and refinancing activity to stay elevated as leverage remains high across all sectors, especially those that are distressed. Our restructuring group remains busy and continues to work through assignments and advise clients in sectors most hard hit by the pandemic. Private capital transactions for sponsors have increased and active assignments are beginning to reemerge again as well. While we are not yet back to pre-COVID levels, we are encouraged by the current pace of activity.

Returning to our investor clients, both institutional and Wealth Management clients remain focused on the evolving financial markets during the quarter and we continue to provide valuable research insights and wealth management advice. We expect this focus to continue, particularly as we head into the year-end. Trading activity in the third quarter, however, has not been as high as the first 6 months of the year as volatility has subsided.

I'm optimistic about the trajectory of the merger market overall, and I am pleased with our capital raising performance and our restructuring and debt advisory teams that have stepped up over these months.

Let me now turn to our performance in Investment Banking. I'm encouraged to see activity levels with both corporate clients and financial sponsors broadly increasing across our platform in many sectors. As announced M&A activity increased during the quarter, we sustained our #1 league table ranking for volume of announced M&A transactions over the last 12 months, both globally and in the U.S., among independent firms. Among all firms, we were once again #4 in the U.S. in announced volume over the last 12 months.

As I said, our restructuring and debt advisory teams remain busy. Our U.S. restructuring group has already completed more transactions year-to-date than in all of 2019 and has been involved in 9 of the 15 largest bankruptcies by total liabilities year-to-date. We believe there will be further opportunities to advise our clients throughout what we expect to be an elongated restructuring cycle.

The team continues to do a great job partnering with and leveraging the expertise of our industry-focused bankers.

In shareholder advisory and activism defense and our private capital advisory businesses, origination activity is beginning to pick up momentum. There has been a pickup in unsolicited activity, and we are pleased to be the financial adviser to CoreLogic, which is the biggest hostile situation at the moment.

Our Private Funds Group has successfully adapted to the virtual environment and has been a leader in the space, successfully completing virtual fundraises for both existing clients and new clients where the relationship has been developed entirely in remote environments.

Our Equity Capital Markets business is performing extremely well. We continue to gain momentum and we are maintaining our focus on building our team. We served as an active bookrunner or comanager on 6 of the 11 largest U.S. IPOs in the first 9 months of 2020 and we played a key role in 30 underwriting transactions in the third quarter alone. We are very proud to have served as the sole bookrunner, our first U.S. bookrun mandate ever, on Executive Network Partnering Corporation's $360 million CAPS IPO. This unique CAPS offering was part -- pioneered, structured and developed here at Evercore and brings innovation to the increasingly popular SPACs market.

Clients continue to look opportunistically to raise capital, and we are pleased with the breadth of the conversations and activity we are experiencing across a broad range of sectors, including health care, financials, technology and energy. We also continue to invest in broadening the business and building out the convertible origination team with important strategic hires. Although it is still early days for us in the convertible space, we have served as an active bookrunner for Helix Energy Solutions Group's $200 million convertible bond offering during the quarter.

In our Equities business, our investor and corporate clients continue to rely on us for valuable macro and fundamental insights, and our traders continue to help our clients execute in volatile markets. As Ralph mentioned earlier, we are very proud of the team's Institutional Investor results.

Our results this quarter demonstrate that our team can produce strong outcomes no matter what the environment, thanks to the breadth of our capabilities and the balance of our platform despite not being physically together in our offices. I'm very much encouraged by the current pace of activity and the momentum we are experiencing in our business.

I would now like to turn the call over to Bob.

Thank you, John. Let me begin with a few comments on our GAAP results.

For the third quarter of 2020, net revenues, net income and earnings per share on a GAAP basis were $402.5 million, $42.6 million and $1.01, respectively. For the first 9 months of 2020, net revenues, net income and earnings per share on a GAAP basis were $1.3 billion, $130.2 million and $3.09, respectively.

Our adjusted results exclude certain items related to the realignment strategy that began in the fourth quarter of 2019. At this juncture, we are finalizing all of the required communications that remain and are associated with the realignment strategy, and we are working hard to complete its execution by year-end. Ultimately, we expect to incur separation and transition benefits and related costs of approximately $43 million, which reflect a modest increase in the cost for our prior estimate.

During the third quarter of 2020, we recorded $7.3 million as special charges, which are excluded from our adjusted results. Year-to-date, we have recorded $37.6 million in special charges related to the realignment initiative.

As we mentioned earlier this year, we have entered into an agreement with the leaders of our business in Mexico to purchase our broker-dealer there, which principally provides investment management services. Completion of this sale is subject to regulatory approval, which was submitted in June and is expected to occur shortly after that approval is received. In addition, leaders from our Advisory business in Mexico announced earlier this month that they are departing Evercore to form a new strategic advisory firm, TACTIV, which we will partner with under a new strategic alliance. We believe this alliance model best positions the team in Mexico to address client needs and build a diverse and growing array of capabilities.

Our adjusted results in the third quarter and first 9 months of 2020 also exclude special charges of $0.1 million and $2.1 million, respectively, related to accelerated depreciation expense.

Turning to other revenues. In the third quarter, other revenues increased compared to the prior year period primarily as a result of a gain of approximately $8 million on the investment funds portfolio, which is used as an economic hedge against a portion of our deferred compensation program.

Other revenues for the first 9 months of 2020 decreased versus the prior year period, primarily reflecting a net gain of $1 million from this portfolio compared to $9.2 million for the first 9 months of 2020. Of course, this amount fluctuates as market values move and the continued strength of the market during the quarter drove this quarter's gains.

Focusing on noncompensation costs, firm-wide noncompensation costs per employee approximated $39,000 for the quarter, down 17% on a year-over-year basis. The decrease in noncompensation costs per employee versus last year primarily reflects lower travel and related costs and lower professional fees. As we continue to evolve towards more normal operation, costs associated with travel, professional fees and some other expenses will begin to recur.

Our GAAP tax rate for the third quarter was 23.5% compared to 28% for the prior year period. On a GAAP basis, our share count was 42.3 million shares for the third quarter. Our share count for adjusted earnings per share was 47.4 million shares.

Wrapping up and looking at our financial position, we held $1.1 billion of cash and cash equivalents and approximately $100 million of investment securities or $1.2 million (sic) [$1.2 billion] of liquid assets as of September 30, 2020. By comparison, at September 30, 2019, we held approximately $305 million of cash and cash equivalents and $620 million of investment securities or $920 million of liquid assets.

As we have discussed in the past, we hold cash and investment securities both for operations and to fund our deferred compensation obligations. At the outset of the downturn, we shifted our holdings to a highly liquid portfolio, reducing expenditures and buybacks to maximize our financial flexibility. We plan to begin to reestablish our longer-term investment portfolio so that funds held to satisfy our deferred compensation obligations as well as a portion of our permanent capital base generate a greater return. This investment strategy will result in shifting funds to investment securities relative to cash and cash equivalents.

We continue to monitor our cash levels, liquidity, regulatory capital requirements, debt covenants and our other contractual obligations, including deferred compensation regularly. And as Ralph noted, we will begin to return cash earnings not needed to support these needs to our investors.

Let me turn the call back to John.

Thank you, Bob. Just a couple of comments before we go to questions.

First, I want to take a moment to acknowledge our exceptional team. The results Ralph, Bob and I just summarized and the current pace of activity we are experiencing are direct result of the dedication, teamwork, collaboration and commitment to our clients that our people have demonstrated throughout this year. Thank you to our entire team for their efforts on behalf of our clients and for keeping our firm sustained during a challenging period.

Second, during our last call, we talked about the importance of diversity and inclusion at Evercore. We remain committed to pursuing our diversity and inclusion goals, and I'm proud to share that during the quarter, we added diversity and inclusion as a stand-alone core value. We are committed to holding ourselves both as individuals and as a firm accountable in this important area and we look forward to continuing to make progress.

Finally, as Ralph and I shared with our employees during a recent virtual town hall that we conducted while socially distanced in the office, we are all very much focused on finishing the year strongly and preparing for 2021. While there are still uncertainties ahead, we have never been more optimistic about the strength, breadth and diversity of our platform to help our clients regardless of the environment.

Now I'd like to invite you to ask questions.

(Operator Instructions) Our first question is from the line of Manan Gosalia with Morgan Stanley.

As you said, we've seen a pretty strong rebound in M&A announcements for the industry. And based on what's publicly available at least, we've seen an uptick on deals in which Evercore has been advising on as well but maybe not to the same extent that we're seeing for the industry as a whole. And I sort of realize that public data isn't perfect, that very often it's only updated with a lag, so I just wanted to make sure that we have the right takeaway here, is that we can't see the full picture yet, but based on what you're seeing in the pipeline, we should see a nice rebound in completions as we go into the fourth quarter and 2021. And maybe as you address that, you can talk a little bit about the competitive environment right now given the flurry of activity.

Sure. We feel very good about our pipeline. We are solid -- our backlog is solid and strong and our dialogues have picked up dramatically. We feel like we have real momentum in our business, and we feel quite good about where we stand. Our dialogues are good. We have some very, very, very strong relationships that continue to have very good dialogues, and we -- and our clients are definitely looking at doing things. And so we feel quite good about our market position.

And competitively, the environment is, as always, quite rigorous. There are people out there in the merger business who are doing things.

I think one of the interesting things is that clients are very much willing to engage in dialogue now. There's a lot more idea generation going on. Clients are looking for opportunities to bring their businesses forward.

So we see that the pace of dialogue and the pace of activity with clients just continue to pick up, and we feel like the environment, if it continues, is going to continue to give us the opportunities to really find really good situation for our clients.

We also -- as we've said, our breadth of capabilities has really given us a whole new dimension of ways that we can serve our clients, both in M&A and beyond. And so we believe that we have even more opportunities to be important to our clients as they look at their -- at the challenges ahead of them.

Great. And can you talk a little bit about the impact the elections are having on deal activity? I mean how are clients preparing for the possibility of an increase in taxes? Are you seeing more deals being pushed through before year-end? Or are more clients waiting to see what happens with taxes before agreeing on a price and deciding to close?

Yes. The elections, while they're certainly on a lot of people's minds, haven't really affected deal activity in any material way except for one, which is, in a handful of privately held companies, there has been a desire to transact before the end of the year. But other than that, it's really not having much an effect on the overall M&A environment.

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

I want to follow up on some of the last line of questioning just on activity and backlogs and -- the first time we've heard were strong in a while, which I know is a purposeful word. And so when we think about just the momentum you're seeing in the business, I'm just trying to get a better understanding of whether people are just getting over the fact that you can't still -- travel is still restricted and people still aren't meeting in person. So I've always thought that, that's very important to M&A activity. And so are people just willing now to buy assets sight unseen? Or has there been a shift to now everything is virtual if you kind of think about whether there are certain deals that are moving forward and so that's filling up the backlog in one area, but there are still a number of deals that are being held back just because there are still restrictions on travel and things are not as active as they normally are there?

Well, as John said in his remarks, there has been a real pickup in activity. That's obvious in -- from the third quarter numbers and from the numbers that we've seen at the beginning of this quarter as well.

There have been transactions that have been done primarily or exclusively remotely, but we're also seeing that in larger transactions, people still want to interact and have face-to-face discussions. Those are done in a safe way with masks and social distancing. And even outside, there probably have been more garden meetings for transactions than have occurred in the last 10 years. But there's definitely a demonstrable pickup in -- and interest in strategic and inorganic activity.

The thing that I would add to what Ralph said is that I think, and I'm sure you all feel the same way, there has been an increasing comfort with the Zoom call equivalent, where people really believe that they can accomplish almost as much or maybe just as much through that mode of communication, and deals and transactions and dialogues have taken place in that medium very effectively. And so maybe there's a behavioral change.

We believe that we're all going to go back to face-to-face in the office, obviously, we really believe in that, and also seeing clients face-to-face. But there is an element of comfort with that mode of communication and that mode of actually transacting.

Terrific. And then just to follow up on the compensation ratio. Year-to-date revenues are roughly flat. The comp ratio is about 550 basis points above last year's level year-to-date. And appreciate that the backdrop throughout the year has been uncertain and still is quite uncertain, but I'm just trying to kind of think about whether where we are year-to-date is more about being conservative with the uncertainty versus mix of revenues versus a view on the competitive environment for talent. And really, I'm thinking about what the implications are this year, and then also whether there's any implications, the fact that we're kind of at a higher level year-to-date through the first 3 quarters, and if that has implications on thinking about maybe the go-forward comp ratio in a more normalized revenue environment, especially if momentum in M&A continues here.

Yes. I think it has all of those factors. We are -- notwithstanding the fact that the first 3 quarters were essentially flat in revenues, we certainly are not -- we have greater uncertainty as to what the fourth quarter will bring than we do under -- in normal years, number one.

Number two, as you correctly pointed out and as I did in my opening remarks, we have very little idea of what our competitors, large and independent, will do with respect to compensation at year-end. And that, of course, affects the majority of our team who are not senior managing directors whose comp is more tied to the ups and downs of revenue.

And to the final question that you asked is that we would not imply anything from the first 9 months of this year in terms of what the comp ratio will be next year or in following years. And I think this is a unique and unusual year.

And as we said on earlier calls, we're focused on a couple of things. Number one, we have a great team. It's a team that's produced over $2 billion in revenue in 2018 and 2019 and in more normalized environments, which we seem to be returning to. Obviously, it could be just derailed again, but we certainly, at this moment, look like we're heading toward the beginning of a more normalized environment. And so there's no reason that we can't produce results like that again.

And in '18, we had a comp ratio below 58%. In '19, we had a comp ratio of 58.2%. And we'll -- obviously, when we get to next year, we'll do our very best to estimate what it will be for the full year of 2021.

I think you should also take into account that the last 2 or 3 years have been years of reasonably heavy talent investment of -- and of some very senior people, including my co-Chair and co-CEO, which has been a phenomenal addition to the firm. But those investments are flowing through the income statement last year and this year, and they start to become significantly less impactful in future years.

So I wouldn't deduce anything from where we are for 9 months as having any implications at all for 2021, 2022 or beyond.

Our next question is from the line of Richard Ramsden with Goldman Sachs.

Perhaps we can talk a little bit about the restructuring business. I know there's been a lot of debate over how the broad availability of liquidity is going to impact this restructuring cycle 6 months, I guess, post the pandemic kind of really hitting. What are your thought process -- well, how is your thought process around this restructuring cycle? And I guess the key question is, when do you expect to see peak revenue recognition from the restructuring business?

Well, in terms of our business, we continue to see real activity. And as Ralph and I have both said, our restructuring group is performing extremely well. We are involved in many, many restructurings and even more dialogues. And in fact, our restructuring group gets involved in helping to give advice to any number of clients, corporate clients, such that there's a tremendous amount of activity going and coursing through that group.

In terms of the liquidity in the system, there's a lot of liquidity in the system, and clearly, that means that the restructuring cycle is elongating and that some of the companies that might have had -- really struggled have actually been able to get financing and to glean enough liquidity such that they're not in complete distress. So it's elongating.

In terms of calling the top of the cycle, that's really hard to do. But what I would say is the activity level continues to be very high for us. We feel like we're in very, very good dialogues with multiples of clients. And we anticipate that, that activity level and our productivity will continue over the next quarters.

Okay. Great. And then perhaps you can talk a little bit about the ECM business. I mean that looks like it's on track to make well over $200 million of revenue this year. Can you talk a little bit about the trajectory for that business? And what do you think is a realistic or feasible market share within ECM fees if you think about the medium term, let's say, 3 to 5 years for that business for you?

Well, when we -- in the ISI transaction 6 years ago, we articulated 3 reasons for doing it. And probably the most consequential was we felt that we could build an Underwriting business that would have some consequence for the firm.

I was cautious at that time. I said -- I thought it would be $75 million to $100 million. And I did that based on looking at firms like Stifel and Blair. And they were all doing $75 million to $125 million, so I figured we could do $75 million to $100 million with the quality of our bankers. We achieved that level, $93 million, last year.

And I would say what's happened this year is a big step function forward, and there are a number of reasons for that. First of all, as you've certainly seen, ECM activity has been up across the board. Although not -- it's been up double-digit percentages for all firms, obviously no firm, I think, has had the experience that we've had of triple-digit increases.

So I think a couple of things have happened. One, in the period March, April, May, June, July, M&A activity was essentially put -- or discussions were put on pause and clients were heavily focused on liquidity, restoring their balance sheets, equitizing their balance sheets. And our bankers, who are incredibly talented, had very strong relationships and very entrepreneurial, figured out that their clients were not going to talk to them over this period of time about the next merger or disposition or splitting of the firm. And so they engage with clients and produce a fair amount of business.

And so the characteristic of our Underwriting business this year is really good in 2 respects.

Number one, a much broader industry diversification. Obviously, in the past, we've had a very strong health care and biotech underwriting practice. We have that again this year. But the interesting thing is that both our health care and our nonhealth care underwriting revenues are already ahead of all -- total revenues for Underwriting last year year-to-date, our year-to-date revenues. So a significant pickup in the diversification.

And I would say there's also a step function change in what should be the run rate of our equity underwriting revenues. I mean, obviously, we never make any guidance or forward-looking statements. And obviously, equity underwriting revenues are always attached to the overall level of equity underwriting in the markets. But if you asked -- if I were asked today what should be our aspiration, it's certainly where we're headed this year and hopefully beyond.

And going back to the remarks I made earlier in response to the -- Devin's question, the $2 billion in 2018, we did $2.080 billion of revenue, we did $64 million worth of Underwriting revenues that year. In 2019, we did $2.030 billion of revenue with $93 million of Underwriting revenue. If what I just described comes to pass in Underwriting, which I feel pretty confident of, that there's a step function change in the run rate of that business, the opportunities for our firm in a more normalized M&A environment are pretty significant.

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

Can you give us any more color on the advisory fee revenue mix? And I'm kind of saying that from -- this is another quarter with a really meaningful beat versus expectations that we generally derive from kind of visible transaction data. So I'm just trying to get a better feel as to what's contributing to the strength.

Well, as a general matter, this -- as we said in our earnings release and John's comments, M&A is a little weaker and restructuring, capital markets advisory are a little stronger. We're not going to provide any information like that, and the reason is there's so much -- there are so many assignments that we have that involve more than one type of advisory work. It's not at all uncommon. And in fact, some of our largest fees this year had restructuring, they had M&A, they had financing advisory. In some cases, they even had hedging advisory. So to try and parse individual fees so that it would fit into those buckets just doesn't make sense. And so the answer is we won't. And it's not because we're trying to hide anything. It's just very difficult to disaggregate them in the way that you're suggesting.

Okay. Just it makes it more challenging when the things we're used to looking at are really not getting us close to where we probably should be.

On a related.

I sympathize. I sympathize. That's helpful.

And on a related point, should we be thinking about a potential advisory air pocket coming? And I guess I'm asking it because advisory down 16% in what could be the completed M&A for the industry low point is surprisingly strong. I mean is there more of an air pocket to come? Or are the announcements picking up quickly enough that M&A revenues could actually just start going upward from here?

I think we've said in various forums that we expected the third quarter to be the weakest quarter from a top line perspective in 2020. And sitting here today, there's nothing that we would look at that would suggest that, that will not be the case. But as John said and I said, there's a lot of things that can happen, whether it's the election or market volatility or Brexit discussions or a myriad of other things. So -- but sitting here today, the comments that we've made earlier about the third quarter likely would be the midyear in terms of revenues, we certainly don't see anything that would cause our view to change on that.

Okay. And looking at noncomp, and I don't know that there is an answer here, but can you guys help us think about kind of what the outlook there is going to be coming from the perspective of activity levels are starting to pick up nicely in 3Q, yet we still saw noncomp down quarter-over-quarter? Can you give us any kind of idea of how quickly that could pick up, how much it could pick up and kind of just the outlook there?

Bob, do you want to take that?

Jeff, I -- for sure. Look, Jeff, I think it's -- there's really going to be 2 drivers of that number turning. One, as Ralph said, there's very active market for talent. And to the extent there are professional fees associated with bringing some of that talent on board, that could drive an uptick.

And then sort of building on what John said, our bankers are accomplishing an awful lot virtually, but travel will return.

Okay. While I got you Bob, too, is there -- did you guys cite or can you cite the revenue pull forward from 4Q closings if there was any?

About $20 million.

Our next question is from the line of Brennan Hawken with UBS.

So a question here on some of the comments that you've made earlier on the investments. You guys have SMD headcount that's actually up from recent years in Advisory despite the restructuring. So kind of interested to hear what you're seeing below the surface in productivity. What kind of trends are you seeing on these new SMDs that you brought in? How many of them are still in the ramp stage? And what kind of color can you provide on that front? That'd be helpful.

Look, the -- we have 2 -- first of all, we have 2 forms of ramping: the internally promoted and peak talent that's joined us externally.

Externally, the best assumption is -- and if you look at 2018 and 2019, we had roughly 25-or-so senior managing directors in our Advisory business that we're ramping, split about equally between external and internal.

The internal ones are really -- they tend to be younger people, and they're building each year, hopefully, and growing productivity.

The external ones, the best assumption is in the year we hire them, although there are exceptions to this, assume very little, if any, revenue. In their first full year, 50% to 70% of our normal productivity. And our second full year -- in their second full year, pretty much normal productivity as long as they're in a sector that is -- doesn't have a cloud over it. So had we hired, for example, a cruise line banker in 2018 and their first full year was '19, they would not have hit full revenue in 2020 because of what happened with COVID. So -- but absent those things, by the second full year, they tend to be ramped.

And this year, we've had a -- we generally hire 4 to 8 SMDs externally. We'll be probably toward the lower end of that range this year and really only 1 or 2 in pure Advisory. So the -- there are more ramped -- or there are fewer ramping SMDs in 2020 than there were in '19, and there are -- or '19 than there were in '18. So that -- I think that provides some opportunity for us. And in normal M&A environments, we would hope to see our productivity return to '17, '18, '19 levels.

I'd just add just a couple of things to what Ralph said. First is, and I'd just like to emphasize the fact that hiring people into sectors that are slow makes it a very difficult environment to be measuring that because ramping in an environment like we've been in, in the last couple of quarters makes it really difficult. And so I think we're going to see a lot more of how these all play out as we go forward.

And the second thing I would say is that as you've seen, we've invested quite a bit in our Equities business, Equity Capital Markets, which you have seen the productivity of that group. And so that in and of itself will actually help, and we're going to continue to hopefully grow that area and the revenues from that group, which, as you've seen, have been very, very productive.

And so the sum and substance of it is we feel very good about the people we have and the people we've brought on. And I think as the environment continues to improve, I think you'll see that these -- that the productivity will trend upward.

Great. And certainly, an unusual environment to ramp, which is a very fair point.

So just 2 more things for me. One, I don't think you mentioned, but if you could give the quarter-end SMD count.

And then also, how should we -- yes, it was interesting to hear your comments about the election not really impacting activity. This has been a strange year on so many levels. How should we think about seasonality? Is it going to be strange for seasonality as well? Or should we think about 4Q being a typical source of seasonal strength, particularly given the fact that we've seen some pickup in activity? You flagged some smaller deals that are getting done for tax reasons before year-end. How does all that come together?

Well, that would fall into the -- I'll let Bob give you the quarter-end SMD count. But the second part of your question falls into the third rail, which we never touch, which is statements about the next quarter revenues or anything of that nature. I think the...

Oh, come on, Ralph. I paint the inside corner on that. All good.

I think the statements that we made earlier that if things don't change, we're confident that the third quarter will be the lowest quarter of the year should give you as much as we will possibly ever give you.

So Brennan, there's 114.

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

So I've had a lot of follow-ups on some of the comp commentary. So maybe we wanted to ask a more pointed question on the comp ratio. And just given some of the positive momentum cited in the backlog, it really feels like barring a negative macro shock, we should see revenues get back to that $2 billion level in 2021. And just assuming we can get back to that bogey and just given the restructuring actions and the headcount reductions that you did late last year, can we reasonably underwrite or return to that sub-60% comp ratio assuming a $2 billion-plus revenue outcome?

I think the answer to that is that when we're in 2021, we'll be prepared to have that discussion with you. But that is certainly our objective, okay?

Okay. I mean I guess what would preclude you from achieving that outcome?

Lower revenues, lower productivity.

But -- right, with the assumption that the revenue is at $2 billion-plus because that -- the one issue that I guess I and others are struggling to reconcile, the comp accrual this year is high. We recognize the revenue backdrop is challenging. If we can get back to a revenue run rate in line with '18, '19, what is a reasonable comp ratio that we can underwrite? You guys have taken a lot of expense actions, restructuring actions. I'm just not seeing that -- those underpinnings in this year's comp trajectory, but I'm wondering for next year, could we start to see some of those benefits come through?

Okay. Let me sort of go back in history and see if I can help you a little bit.

When I joined the firm 11.5 years ago, we had a comp ratio of about 15% -- or margins of 15% and a comp ratio in the like 67%, 66%, 68%, something like that. And what -- at that time, it was Roger and I on these calls. And we were, of course, asked this very same question. And the way we answered it is we said that we believe that we can run this business with sub-60% or, in other words, high 50s percent comp ratio and margins that are in the mid-20s. And we said that we would make steady progress toward that. We never said we're going to make -- get there in '14, '15, '13, '17. And we also said that if we have an opportunity to hire a disproportionate number of A-plus talents in any given year, we'll do that because it will increase value 2 to 3 years out because of the ramp period. And we'll let you know that. And so obviously, this has been a very challenging year for all kinds of reasons.

And I think that the statements that Roger and I made back then and that John and I have subsequently endorsed since John joined the firm 4 years ago, we're still comfortable with those. The only thing I would say is that we're not going to ever articulate a precise time when that can happen because we don't know what revenues are going to be, we don't know what market comp is going to be and we don't know what investment opportunities we're going to have. But certainly, as a place that we want to arrive and should be able to arrive, nothing has changed with regard to that.

Great. Thanks for that additional context, Ralph, recognizing there's a lot of uncertainty still lingering.

Yes.

One of the other questions I wanted to ask is just on some of the comments related to the SPAC alternative product. We've obviously seen a surge in SPAC volumes. It certainly seems timely that you're launching this now. Curious what some of the early feedback has been from corporate. So maybe what's differentiated about the value prop of that specific offering?

Okay. Look, I think historically, we've had a reluctance, that would be an understatement, to underwrite traditional SPACs. Our -- that reluctance has been predicated primarily on the view that there wasn't sufficient alignment between the incentives for the sponsor of the SPAC and the investors in the SPAC. And the point there is obviously that when a transaction is done, there's a big amount of dilution that goes to the sponsor just for doing a deal, which is quite different from more private equity brand incentives where the returns to the sponsor are tied to the returns to the investor. So we created the CAPS product, which is the -- does that and aligns the interest of the investors and the sponsor to a much greater degree. And we've done our first one, and we have a second one that we'll be doing shortly.

And having said that, the market is also evolving in the world of SPACs -- with SPACs. And when -- while it says in the legal document that the sponsor can get 20% of the capital -- or the outstanding equity of the company when the merger occurs, those get negotiated down a lot now. So there's more alignment by virtue of the merger discussions, not by the Underwriting but by virtue of the merger discussions. And in the last 6 to 12 months, merger into a SPAC has become a quite legitimate way of taking -- of introducing a company into the public markets and ultimately taking it public. So we're finding increasingly with our clients that are private that a consideration of capitalization alternatives includes a regular-way IPO, direct listing, merger with a SPAC or sale of the company.

And so we're -- obviously, we've been very active in the SPAC merger market, both representing SPACs as acquirers and companies being sold or merged into SPACs. And this is a -- it's becoming certainly a more legitimate and common way to capitalize the value of a private business.

Just to underline a couple of things that Ralph said, we've been very involved in talking to SPAC and SPAC sponsors in the middle of that market. Beyond the CAPS market, we have a lot of expertise in generally the SPACs market and the transaction itself. And so we're participating and we're evaluating whether we build more momentum into our involvement.

We clearly like our SPACs -- our CAPS product, but we also are looking in a lot of other places where we can, as an adviser, add value. And certainly, it's part of and important to our Equities Advisory business to be experts in SPACs.

There appear to be no questions at this time. This concludes today's Evercore Third Quarter 2020 Financial Results Conference Call. You may now disconnect. .

Thank you, everyone.

Thank you.