Evercore Inc (EVR) 2013 Q1 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Evercore Partners first quarter 2013 financial results conference call. (Operator Instructions). I would now like to turn the conference call over to your host, Evercore Partners Chief Financial Officer Bob Walsh. Please go ahead, sir.

Thank you. Good morning and thank you for joining us today for Evercore's first quarter 2013 financial results conference call. I'm Bob Walsh, Evercore's Chief Financial Officer, and joining me today are Ralph Schlosstein, President and Chief Executive Officer, and Roger Altman our Chairman. After our prepared remarks we will open the call for questions.

Earlier today we issued a press release announcing Evercore's first quarter financial results. The company's presentation today is complementary to that press release, which is available on our website at evercore.com. This conference call is being webcast live on the investor relations section of the website, and an archive of it will be available beginning approximately one hour after the conclusion of this call for 30 days.

I want to point out that during the course of this conference call, we may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties, and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors include, but are not limited to, those discussed in Evercore's filings with the Securities and Exchange Commission, including our annual report on form 10-K, quarterly reports on form 10-Q and parent reports on form 8-K. I want to remind you the company assumes no duty to update any forward-looking statements.

In our presentation today, unless otherwise indicated, we will be discussing adjusted pro forma or non-GAAP financial measures, which we believe are meaningful when evaluating the company's performance. For detailed disclosures on these measures and their GAAP reconciliations, you should refer to the financial data contained within our press release which is posted on our website.

We will refrain from repeating the information included in the press release and focus instead on the key opportunities, challenges, and changes this our business. We continue to believe it is important to evaluate Evercore's performance on an annual basis. As we've noted previously our results for any particular quarter are influenced by the timing of transaction closings, both on the advisory and investment management sides of our business.

I'll now turn the call over to Ralph.

Thanks very much, Bob, and good morning, everybody. Let me start by saying that we are very pleased with the continued momentum of our business. Our first quarter was the best first quarter in our history in terms of revenue, and our fourth best quarter ever also in terms of revenue. Our advisory business continues to perform well, as clients and boards of directors continue to embrace our Independent Investment Banking advisory model.

Overall market conditions were mixed during the quarter as the volume of M&A transactions announced globally declined by more than 34% sequentially from the elevated level of the fourth quarter last year, but increased 12% in comparison with the first quarter of last year. Equity trading volume improved sequentially, while declining in comparison with the prior year's quarter. Despite these lackluster conditions, we sustained or strengthened our market position in both of these businesses. Our advisory business maintained its strong position in M&A, ranking tenth in announced transactions in the US, and 11th globally for the quarter. We earned more than $58 million from Investment Banking clients outside of the United States, our second best quarter in our history by that measure, following the best quarter -- the fourth quarter of 2012.

Our early stage businesses continue to gain traction during the quarter. The institutional equities business gained share in US equity volumes, experiencing its tenth consecutive quarter of growth. Our capital markets team completed 12 transactions in the quarter, 14 actual year to date helping raise more than $6 billion of capital for clients. In Mexico, we completed a $1.7 billion follow on offering for Fibra UNO, the successful Mexico REIT launched in 2011. The US equities team completed its first transaction as a book run. Finally, our Investment Management business benefited from good performance and the rise in equity markets as our Wealth Management business increased assets under management to $4.7 billion, and overall assets under management for the Investment Management business increased to $12.7 billion.

Let me quickly go over the numbers. First quarter net revenues were $153.4 million, up 45% from the same period last year, but down 28% from last year's record fourth quarter. Net income was $16.8 million for the quarter, with earnings per share of $0.37. These results are up dramatically from the income reported in the first quarter of last year, but the EPS is down in comparison again to the record fourth quarter of 2012.

Operating margins were 19.6% for the quarter. Our compensation ratio was 59.7% for the quarter, in line with the past year, and was 59.2% for the trailing 12 months ending March 31 of this year, down slightly from the 12 months ending last December. Non-compensation costs were 20.7% of revenue, essentially flat in comparison to last quarter.

Let me conclude my opening remarks before I turn it over to Roger by reminding everyone that we believe our business is best judged over periods of time longer than one quarter, as we do not control timing of transaction closings. Last quarter, which, of course, was a record, we benefited from elevated transaction activity at year-end which inevitably accelerated some revenue that otherwise would have fallen in this quarter. This quarter we also experienced some slippage of closings into the second quarter. Both of these effects were particularly pronounced in the US.

Looking at our banking business over trailing 12-month period, revenues were a record $599 million, as advisory revenues for SMD increased in both the US and Europe by 15% to in excess of $10 million per senior managing director. It is this multi-quarter performance and the momentum that we believe is most indicative of the trajectory of our business. Let me now turn the call over to Roger, who will talk about our advisory performance and the M&A environment generally.

Good morning, everyone. By I think most standards or all standards, Evercore had a quite solid first quarter in Investment Banking. As Ralph said, this applies to banking business as well as the whole firm. It was the strongest first quarter in the firm's history. It was the fourth strongest quarter overall in terms of revenue. And keep in mind that over time, this is true, I think, for us and most firms like us, first quarters are not generally as strong as fourth quarters, because there is a seasonality factor.

So it's a solid first quarter. We had $130 million in banking revenue, $27 million of pretax income, at revenue figures 53% higher than the first quarter of last year, in other words year over year. We had 26 fees equal to or greater than $1 million, up from 17 a year ago. With the exception of the last three quarters of 2012, that figure 26 equals the best performance on that metric we've ever had. We also had, in this past quarter, four fees in excess of $10 million.

The number of our fee paying clients was 115, that's up from 104 a year ago.

Ralph alluded to partner productivity. That's a metric we watch very closely, we measure it as you have to really on a rolling 12 month basis. It was $10.2 million globally for the past 12 months, $10.8 million in the US. That global figure is the highest one we've realized for four years. So we feel quite good about that. On head count, we ended the quarter with 63 banking partners, reflecting the three promotions we made at the beginning of the year. Total investment head count was up four people to 583. Based on the recruiting activities we have going on right now, I think you'll probably see us have the same type of additional partner recruiting this year that we've had in recent years.

For the quarter, the comp ratio in banking was 59.8%, that's down from 64% a year ago. We had as Ralph noted, a good quarter on our still-emerging equity capital markets business, we served as a manager on 12 equity financing transactions which raised an aggregate of $6 billion, and generated $11 million of revenue for us. That's our best quarter we've ever had, although this business is really only two years old. On the secondary market side we generated just under $7 million of revenue, also our best result for this relatively new business.

Let me say a word about our backlog. As you know, we don't disclose the amount of it or the trend in it. But you can look at publicly available information. So if you look at Thomson Financial's total on publicly announced transactions, you can see, doing a little digging, that Evercore had had five consecutive quarters, including this past one, in which the number of such announcements on which the firm advised went up. With the exception of a brief interruption in mid-2011, that metric has been up for every single quarter over the past three years. It's a very good measure of the health of one's business.

A word on market share. We also look at that on a rolling 12 month basis. Ralph talked about the past quarter, I'm using a rolling 12 month basis. We ranked 12th among all firms globally, we ranked third globally among independent firms behind Lazard and Rothschild in that order, those are the firms to which we primarily compare ourselves. In the United States, we ranked ninth among all firms, and second among independent firms. The firm's market position continues to be quite strong.

Let me close with a couple of comments on the broader M&A environment. Announced transactions around the world totaled $537 billion during the first quarter globally, now. Completed transactions, $485 billion. Those totals are both up on a year over year basis. Globally in terms of announced, they're up 12%. On the US side, which is the biggest market of all still, in terms of announced, up 97%. And that $537 billion total if you look at each quarter over the past three years, just each quarter's global total, is not far from the average figure you'd see over the past three years.

So to me, these figures suggest a stable and fine environment. It's not white hot, it's not cold. And we see that that relatively healthy environment continuing for all of 2013. In particular noting rising levels of shareholder activism, high levels of activity among financial sponsors and very good capital market conditions.

To close on this note, I know the press likes to say or you know the press likes to get all excited at the beginning of the year, wow, we're back to an environment of a giant deal every week. Then you get toward the end of the quarter or the last few weeks, and people say oh, I guess your environment has really fallen off. Well, neither was really right. The environment is a perfectly good and stable one by historical standards and it's certainly an environment in which Evercore should have a strong year and we expect that. Back to Ralph.

Thanks, Roger. Let me talk briefly about institutional equities and Investment Management. Our Institutional Equities business continues to add clients and to increase revenues. We now have research coverage of 294 companies and serve more than 320 clients. As Roger indicated this quarter, the business generated $11.4 million in revenues, a 61% increase in comparison to last quarter, driven principally by increased underwriting activity. Expenses in the business were $10.9 million for the quarter, so we made money.

Our equity capital markets is operating at a pace significantly ahead of last year. In fact, we did more business in the first quarter than we did in the entire year last year. And we feel confident in our pipeline in this business. We are pleased that the equity business, obviously, contributed operating profits in the first quarter and expect to achieve our goal of having this business be profitable for the full year.

With respect to Investment Management, operating income for Investment Management for the first quarter was $2.2 million on net revenues of $23 million. Margins were approximately 10%. Assets under management increased 5% to $12.7 billion. Wealth management experienced net inflows in the quarter, while institutional Investment Management business experienced modest outflows but significantly below those experienced in prior quarters. Each business also benefited from appreciation in the markets.

Our Wealth Management business continues to perform well, increasing assets under management more than 3% for the quarter to $4.7 billion. Finally, our unconsolidated affiliated managers contributed positively to the quarter, with ABS Investment Management contributing the majority of these profits. Let me now turn it over to Bob for some final comments on financial information.

Thanks, Ralph. Just a few items. As you've seen our noncompensation costs are comparable to the prior quarter and in line with our expectations as head count remained essentially flat. Our tax rate also remained flat to last year and as we indicated in the past, changes to the effective tax rate are principally going to be driven by the level of earnings in our early stage businesses and the level of earnings generated outside of the United States.

Our share count for adjusted pro forma earnings per share increased to 45.9 million shares for the quarter, an increase of more than 2 million shares. This increase is due to the 40% increase in weighted average share price for the quarter. As you've all seen our share price moved significantly and to the effect of this increase on our earnings per share calculation using the Treasury method. The majority of the increase related to the Mizuho warrants and to a lesser degree uninvested RSUs. Offsetting this increase, we repurchased 784,000 shares.

Finally, a quick comment on our financial position -- in late March, we exchanged loans that we had made to Pan-Asset Management, one of the unconsolidated Investment Management affiliates, into common shares of the entity and, as a consequence, we consolidated its assets and liabilities in our quarter and end results, adding less than $1 million of assets and liabilities respectively to each.

For GAAP purposes, the consolidation is treated similar to a step up acquisition, which among other factors gave rise to a $1.7 million pretax loss associated with the recognition of cumulative translation losses that had been included in other comprehensive income. We excluded this loss from our adjusted results. And finally our cash position remains strong as we hold $171 million of cash and marketable securities.

With that, let's open the call for questions.

Thank you, sir. (Operator Instructions). Our first question is from the line of Steven Chubak with Autonomous. Please go ahead.

Hi. Good morning. Recently one of your competitors flagged faulty valuations as a key impediment to deal activity. Have you heard such concerns begin to emerge in some of your discussions with senior management?

This is Roger. I'd say the answer to that is no.

Okay. That's very helpful.

If you want, I could talk for a while but I'm in touch with as am companies as probably any banker on Earth and that's not true in my experience. Most CEOs do not look upon their own valuations as frothy, and partly because that's the psychology of it and partly because they take a long-term point of view. So the answer, again, is no.

Okay. And then transitioning to the recruitment side, have recruitment pressures eased at all in Europe due to the proposed changes to incentive compensation structure particularly at some of the big banks?

Are you asking about Europe?

Yes.

I would say -- this is Ralph. First of all, talking about recruitment generally, I would say the level of push, and we've discussed that when people join us it's usually a combination of push and pull. I would say both the push and the pull of these discussions is -- has never been higher, the push being senior bankers' level of dissatisfaction in their current positions and pull being the attractiveness of independent firms generally and Evercore particularly to those same people.

Having said that, you know, we also have to recognize that each one of these recruitments is a separate story that in many cases people who are looking to at least explore changing firms have been at their current firms for a long period of time, in many cases they're risk averse, and so getting each individual to make the move, notwithstanding the increase in both push and pull, is an effort in each and every case.

And I would also say that at least in some cases, the cost of these people has gone up a little bit because the high level of deferral that they have experienced over the last couple years in their current positions, which means that they have generally a little bit more deferred compensation on the table when they explore discussions with us. But as Roger said in his opening comments, we expect this year to be no different from our previous years, and we expect to be able to hire four to seven, five to seven, new senior managing directors.

Thanks. That detailed commentary was very helpful. And finally on the Institutional Equities business, you've indicated in the past that you feel as though you're appropriately sized for the opportunity, but given signs improved momentum in that business of late, Are there additional verticals that you're potentially considering to add to that business potentially this coming year or beyond that?

Certainly not this year. This is a year about proving out the model and generating positive contribution to earnings. And after that, we'll, obviously, look at things. But we'll be as cautious as we have been in launching this business to maintain the momentum that we have both on a revenue and earnings basis.

Okay. Thanks for taking my questions.

Sure.

Thank you. Our next question is from the line of Alexander Blostein from Goldman Sachs. Please go ahead.

Alex, are you there

That's a tough one. That's a tough one.

Can you guys hear me?

Now we can. Yes.

Sorry. So going back to the broader discussion of M&A, I guess, every time we get on these calls it always helps to hear you guys's perspective on the backdrop. And it feels like for the last couple of quarters there are kind of visible signs of why M&A's sort of been on the holdback despite the fact that corporate balance sheets are healthy, revenue growth is slow, and margins are peaking. So all the reasons why M&A should happen and hasn't happened in a bigger way are kind of clear. Now it feels like we're through the election, through the debt ceiling issues, and a lot of the talents are off the table? What do you think needs to happen for a more robust M&A cycle to unfold?

That's a good question. And it is a good time to talk about it since we did solve the fiscal cliff, did solve the debt limit, and all those issues in Washington so skillfully. I would challenge your premise a little bit.

As I tried to say in my own remarks, I don't think the environment is either very hot or very cold in terms of deals and deal activity. I think it's stable and it's fine. I tried to draw attention to this observation about Thomson financial data and the degree to which essentially over the past three years, Evercore has advised on more announced transactions each quarter than the quarter before or essentially a three-year period including, of course, the last several quarters. So you can imagine with that, we feel the environment is fine.

And I think -- I just think there's a lot of -- it's natural, it's psychology. It's just the way it is. But there's a lot of exaggeration on both sides. You know that old axiom that markets overshoot, both on the downside and on the upside. I think that's generally true historically. And I think it's true in terms of expectations.

So at the very beginning of the year after you had some announcements, Dell, Heinz, -- and others, you know, the press - I'm not trying to criticize them. That's just the way it is. The press would still talk about how the Dealmania was back. And then over the past few weeks when there haven't been megadeal announcements, to the same degree, there's a perception, wow, the deal environment is very disappointing.

I would argue neither is quite correct. And actually the deal environment is fine. And again, the totals as I talked about in my comments, you know $537 billion of announced transactions globally in the first quarter, that's a perfectly good number by standards of the last three years. Is it the highest? No. Is it the lowest? No. Not even close. It's kind of right in the middle.

So is this an environment in which Evercore, for example, should have a good 2013? And the answer to that question is yes. You're not going to hear us, I don't think, unless the environment deteriorates further, and I don't think it will, you're not going it hear us complain about the environment because it really isn't bad. Yes, we've seen better ones, but wow we've seen a lot worse ones. So I just think you have to step back and put it in medium term and some degree longer term perspective. And by the way I think conditions right now -- you did note that some of these deadlines, politically speaking, have been passed, right now I think conditions are really quite favorable between the obvious robust credit market environment, it's about as good as it gets, relatively high valuations which do tend to promote deals rather than -- rather than deter deal, and the sense that at least in the United States, the business environment is slowly improving. It may be inching forward but it's moving up rather than sideways or down.

I think there's a pretty widespread expectation that 2014, for example, will be a stronger year in the United States than 2013, 2012 or 2011. And of course a lot of corporations and investors are looking forward to that. So that's my best answer.

Got it. That's very helpful. Thanks for the additional color there.

One quick question for Bob on the buy back and share counts. Clearly the creep up on share counts is warrants on is this quarter maybe some of it solves itself in the quarter, maybe not. But as you think about it longer term are you still committed to keeping the share count flattish on a fully diluted basis? And how do you I guess balance that if, you know, with I guess with the tertiary method of accounting and if the stock kind of hangs there, you know, the warrants continue I guess kind of weigh in on the share count would you consider offsetting that with more buy backs as well or the buy backs are more kind of RSU-related?

Let me -- this is Ralph. Let me a first talk about the RSU issue and then let Bob talk about the warrants. And if you look over the last three years, we have purchased, either in the open market or with net settlement with employees, more shares than we have issued RSUs in four year-end compensation. In some years, we've actually repurchased enough shares to make a significant dent in the shares that we've issued for new hires, as well. And so that is the policy that we have followed for the last three years, and it is the policy that we intend to follow for the foreseeable future -- Basically, purchases that exceed the amount of issuance for year-end comp in each and every year.

So from a policy point of view, that's where we've been and that's where we're going to be in the future. So the volatility, as you've identified, in share count really comes from two sources. One, the change in our share price, higher share price means because of the warrants and other things, a higher share count. And second, to the extent that we use shares to expand our business and most specifically to hire new senior managing directors and to replace shares that they are leaving behind from their former employers.

Bob?

I have not much more to add than what Ralph has said. I think we've navigated share repurchases fairly consistently. Some have observed opportunistically. And I think we'll continue to do that while adhering to the commitments that Ralph summarized.

Got it. Thanks a lot again.

Thank you. Our next question is from the line of Brennan Hawken from UBS. Please go ahead.

Good morning, guys.

Good morning.

So quick question here on revenues this quarter. When we look at the revenue versus publicly available data, this quarter seems to be tracking sort of worse than the recent history and not just with you guys. You know, we saw it at a boutique last week and we saw it amongst many of the large (inaudible) firms. Was there anything specifically this quarter in your experience that caused that?

Let me just ask you about your question. I mean we're just sitting here so we can kind of be informal. I don't really agree with the premise of that question. Maybe I misunderstood it.

I think what he's referring to is that if you look at the publicly available Thomson data, some of the analysts use that and put a multiple on it to estimate our revenues. And that multiple might be a little lower this quarter than it has been historically. And the answer to that really is that we -- you know, and I kind of alluded to it in my opening remarks.

If you look at, first of all, the very heightened activity in the fourth quarter of last year, which led to very high announced transactions globally in the aggregate statistics and led to a record quarter for Evercore. There was some sort of acceleration in effect of revenues that might have occurred in the fourth quarter and the first quarter into the fourth quarter of last year and we suspect that some of that was induced by tax law change in the United States because the effect was particularly pronounced in the United States.

Then in addition to that, as I said in my opening remarks, we had, as we sometimes do, some slippage from the first quarter to the second quarter of transactions as well. So I think that looking at the data sort of the multiple of our revenues relative to what's publicly visible on any one quarter has the same challenges that looking at any aspect of our advisory business in any one quarter has.

Well, I just have a simpler addendum. We thought by standards of first quarters, which tend as I said to be weaker than fourth quarters, it's just been true for a million years, it was a good quarter. And so are we expecting a strong year? We are. So that's just our take on it.

That's great. And actually following up on that addendum. So I mean given sort of your commentary here so far, my guess is that -- the pipeline from what you guys can see has remained pretty solid. You guys have still continued to announce, be involved in a bunch of announced deals. So your continued outlook for revenue here this year is not waning at all. Right?

No. If you were in our shoes and using Thomson financial data, the number of announced deals of which you advised in had risen in five consecutive quarters and essentially every quarter over the past, with slight exception, over the past three years, would you feel good about your business?

Yes. No doubt. I'm just looking for stuff beyond what I can see.

That's pretty good -- right.

I think looking if we look at our backlogs both on a risk and unrisk basis, they look strong. But you also have to recognize that, the visibility in this business, it goes out maybe three to six months, but it doesn't go out 12 months or 24 months. So I think from what we see right now we feel pretty good about the market generally, and we feel even better about Evercore's capacity to take share within that market.

Cool. That's helpful. And Roger, I can -- we put a note out with some of those -- that public data so you can take a look. We were just trying to point to the data that was all.

It's a very good question. And I -- I don't mean to challenge the question. Periodically my colleagues refer to me as having acid reactions to certain questions, we get but yours was not one of them.

I can relate.

Those are normally to internal people.

Last one for me. On Institutional Equities, I know it's a small piece of the business and I certainly don't want to dig in on something that's a small impact to the bottom line, but I think it was on the fourth quarter on the expense side that you guys indicated that you had some investments that caused the expenses to be higher. But yet, this quarter expenses I think took even a step up from that. I know revenues were better. But how should we think about profit margins in that business? Were there any unusual items in the expense line item? How do we think about profitability as you guys continue to grow there in the near term?

I think the way you should look at it is that there is some uptick in expense that is tied to revenue, most importantly in the compensation line that just like in any one of our businesses occurs as revenues go up a fair amount, there's some drag up in compensation, as well. But as we get to this level of expense and above, you should expect to see some improvement in margins.

And quite honestly, if revenues fell back a little bit, you would also expect to see expenses fall back a little bit, as well. I mean we alluded to it in our comments. But we did have a particularly strong quarter in terms of equity underwriting revenues, ECM revenues, and I certainly would not want to predict that that will be annualized through the full year.

Okay.

and we are looking for this business, we're it is in black we're looking for it to stay in the black as it moves through the year. But it's not going to move the bottom line.

No. Absolutely. Fair enough. Thanks.

Thank you. Our next question is from the line of Hugh Miller from Sidoti. Please go ahead.

Good morning.

Good morning.

Morning.

I had a question within the asset management segment, which hasn't been touched on as much. It seems like from the industry we did see kind of a shift in sentiment towards money coming back from equity use and while you guys did see net inflows with the market appreciation, it seems like you're still seeing some challenges there on the redemption side.

I was wondering if you could just talk about how conversations are going you know just given that change in the dynamics versus relative performance, and whether or not if the sentiment continues we can see assets becoming equities, do you anticipate that we will start to see that being a benefit for you, as well?

Okay. First of all, the principal place where we might experience that is in the institutional Investment Management business and most specifically in the interest that we have in Atalanta Sosnoff. And as we have discussed in the past, they have had an overhang of weak returns which goes back to 2011, actually 2012 was a good year, first quarter of 2013 was also good.

But the reality of the money management business was both outflows and inflows tend to lag performance, and you need a sustained period of time before you -- an individual firm might be a beneficiary of a shift from fixed income or cash to equities, which is occurring more broadly in the market.

In our Wealth Management business, those tend to be more often than not balanced accounts or asset allocated accounts so they have some material amount of equities but aren't 100% equities. And there it's really driven not by an allocation one to another but just by client acquisition.

Sure. Yeah. I'm sorry. The question certainly was focused on the Institutional Equities portion of the business with Atalanta Sosnoff, and I understand it there. Probably to get up to the three and five-year metrics in order to kind of get some benefit on the flow side. But so it just kind of running the course you guys and continuing to wait until the relative performance improves?

That's correct. And the good news is that the outflows which, once again, are a residue of the underperformance in the second half of 2010 and 2011 have slowed materially relative to what they've been in prior quarters.

Okay. And the other question I had was you had kind of talked about the disparity between kind of some of the headlines for M&A announcements versus the reality and how those dynamics had kind of shifted over the last several months versus the reality being somewhat stable. Have you noticed any change in kind of CEO confidence levels, you know, and are they kind of, would you say, tracking more the reality of it being somewhat stable, or are you seeing kind of them following the headlines and with the discussions you're having?

I would say that this is the type of thing that you can't measure or really appropriately look at on a quarter by quarter basis. So let's step back. Our CEO confidence level as far as M&A is concerned is up relative to two years ago, the same, or down? And the answer is they're definitely up. And I think slowly but, nevertheless, definitely they also are moving up.

There's a tremendous focus, I might say on megadeals and people tend to think that if there is a spate of megadeal announcements, wow, M&A is taking off like a rocket, and if there aren't megadeal announcements, wow, it's falling down. Keep in mind that if you look at any given year or any given three year or five year period, the actual number of megadeals always relatively small. And for any firm, Evercore, Goldman Sachs, whatever your example is -- the day in, day out bread and butter are what you would call mid-cap and upper-mid-cap transactions.

So I would suggest -- I always try to get people to focus on the number of deals to a greater degree than the amount of announced deals, because the amount can be inflated or deflated by one or two great big deals. I always hope we're the ones in those deals but by one or two great big deals, whereas the number of deals is probably a better long term indicator. So if you look at the number of deals I think the trend is pretty healthy.

Okay. I appreciate the input. Thank you.

Thank you. Our next question is from the line of Joel Jeffrey from KBW. Please go ahead.

Good morning, guys.

Good morning

Just thinking about your comments of the strength of your international business. Can you talk a little bit about which markets you see the strength in and if you see this continuing throughout the year?

Well, you know, we -- notwithstanding the general fallout over the market in Europe, we actually had a good quarter in Europe. It was pretty much across the board. We had a good quarter in Mexico, obviously, and we had normal quarters in the Hong Kong, Asia, and in the business in Brazil. So when you add it all up, it adds up to the second highest activity that we've had in any quarter for non-US clients.

Is this something you think is a trend that's going to continue for the remainder --

Well, I think, look, once again, I think judging any business like this on a one-quarter basis is an error. And I think one of the things that we're seeing now in Evercore, which is a very good thing for us and for our shareholders is the benefits of diversification. We're considerably more diversified by industry than we were three or four years ago. So if an industry that we happen to have a particularly strong knowledge base in happens to be slow, that has less impact on your revenues and profitability than it would have three or four years ago. And similarly, we are somewhat more diversified geographically than we were historically. So both of those things tend to mute hopefully the quarter by quarter volatility in our revenues and earnings.

Okay. And on the Investment Management side, the gains you guys had during the quarter were a little bit higher than what we were looking for. And I'm trying to think about what was driving that and maybe if there's a higher run rate we should think going four or are these one-time issues

I think they're more one time issues, Joel.

and what was driving them? Sorry.

We had increases in our private equity marks as -- as we are required to do, they tended to be more favorable this time and in a business in Mexico, the activity spiked a bit the in the quarter but there's no indication that that's going to repeat itself.

Okay. Great. And then just lastly for me, and possibly risking getting an acidic answer from Roger on this -- in terms of the overall health of the market, I understand certainly deal volumes have held up a little bit better, but we continue to see a decline in the number of deal announcements. I know your guys pipeline is holding up nicely, but is there a point in which that becomes a concern for you guys?

Well, by the way, I try to refrain from any acidic responses on earnings calls and just save them for internal dynamic where it's much more fun, but looking at a chart right here in front of me on measuring announced deals and completed deals, US and global, 2013 versus 2012.

And I have to fall back on my earlier comment that I think the market is -- again, looking at it on a two year, four year basis, whatever medium term time frames you like, the market is stable. Otherwise the numbers we're seeing right now -- again I'm challenging the premises a little bit are not signifying a weak market by historical terms. Are they weaker than the fourth quarter of last year? Yes. Are fourth quarters in general the strongest quarters? Yes. So are these numbers today, I have another chart this my hand that takes all this stuff back to 2008 I'm looking at right now. Are these numbers, if you look at the past five years, signaling a weak market? No. Are they signaling a white hot market? No, they're not doing that, either. That's just our take on it.

Great. I appreciate the color. Thanks for answering my question.

Thank you. The next question is from the line of David Trone from JMP Securities. Please go ahead.

Good morning gentlemen. I just wanted a qualification real quick -- you mentioned four and seven SMD adds this year. Was that just banking or was that Evercore-wide?

That would be the advisory business.

Okay. Are you giving any thoughts on the other units?

If you look at the -- I think we said that we don't expect really any head count growth in our Institutional Equities business. We don't expect any head count growth in our private funds business. And so I mean I think you would expect the head count growth to the extent that it occurs would be in our advisory business.

and you mentioned earlier the deferred issue, the pickups. In a base case, I know they're all probably different but in a typical case, are you picking up a hundred percent?

Well, we're, you know, in the midst of those discussions right now. Historically that has been the case. And historically, this is a very rough rule of thumb, but historically, people's deferral tended to be in the same ZIP code as their annual compensation.

Yes. Right.

It just works out that way. With some of the firms that have done virtually all deferral for the last two years, that ratio starts to creep up a little bit and we're having discussions with people about the degree to which, if at all, we can share that risk.

Okay. Great. That's good color. Thank you.

Thank you. The next question is from Michael Wong from Morningstar. Please go ahead.

So what amount of scale do you think your need in your asset management business? And are you still generally keeping away from institutional investment management acquisitions?

I would say right now, as we have said in the past, our capital is being deployed to grow the advisory business and to repurchase our stock and to pay dividends. So we don't have any plans underway at the moment to expand our asset management business. And then, with respect to the leverage in each of those businesses, each of them operates independently. We tend to own a piece of them rather than 100% of them, so there isn't the operating synergy that you would have if they were all one business. But each of them has some amount of operating leverage in their own business.

And just talk to me about operating leverage. I was wondering if you can go into a little more detail into the potential increase in expenses related to institutional equities and maybe a split between expenses layered to the higher revenue and maybe a drop-off of compensation from last quarter due to expensing of your REIT team that was hired mid-year?

The increase is entirely driven by the growth in revenues.

And just a quick last question -- is there any particular reason for the high number of capital raises in the quarter that you participated on?

I would say that it's we're doing a good job.

Okay. Thank you.

It's some increased activity, generally, and some increase in our market share. It's both.

Okay. That's great. Thanks.

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

Nothing to say. I think I'll turn it over to Roger. I think he'll be much more pithy.

Well, it's the old story, you know. Lyndon Johnson used to say, I hope you have some questions for my answers. So thank you very much for serving up the question fitting our answers. Have a good day, everybody.

All right, take care, everybody.

This concludes today's Evercore Partners first quarter 2013 financial results conference call. You may now disconnect.