Evercore Inc (EVR) 2014 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Evercore fourth-quarter and full-year 2014 financial results conference call.

(Operator Instructions)

This conference call is being recorded today Wednesday, February 4, 2015. I would now like to turn the conference call over to your host, Evercore's Chief Financial Officer, Bob Walsh. Please go ahead, sir.

Good morning. Thank you for joining us today for Evercore's fourth-quarter and full-year 2014 financial results conference call. I'm Bob Walsh, Evercore's Chief Financial Officer and joining me on the call today are Ralph Schlosstein, President and Chief Executive Officer, and Roger Altman, our Chairman. After our prepared remarks we will open up the call for questions.

Earlier today we issued a press release announcing Evercore's fourth-quarter and full-year 2014 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 current reports on Form 8-K. I want to remind you that the Company assumes no duty to update any forward-looking statements.

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

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

I will now turn call over to Ralph.

Thank you, Bob, and good morning, everyone. 2014 was another record year for Evercore, our sixth consecutive year of significant growth in net revenues and earnings.

We once again made significant progress on our strategic objectives. While not all of our competitors have reported their results yet, we expect to gain market share again in advisory revenues, our seventh consecutive year of market share gains.

The productivity of our advisory partners improved by nearly 8% to approximately $11 million of revenue per advisory senior managing director. We recruited six advisory senior managing directors in 2014, and we have already announced the addition of another one in 2015. On Monday, we announced the promotion of six advisory senior managing directors, our largest group of internal promotions, indicative of our strong commitment to investing in and developing our own senior talent.

Also on Monday, we announced an investment in Luminous Partners, a newly formed advisory firm in Australia, which will enhance our ability to serve our clients in that important geography and to generate additional revenue in that part of the world. We now have a scaled equity business after the successful closing of our acquisition of ISI on October 31 last year. The combined business delivered solid results in the last two months of the year.

Our wealth management business again delivered above benchmark investment returns, and we finished the year with assets under management over $5.7 billion. And we returned significant capital to our shareholders, increasing our dividend for the seventh consecutive year, repurchasing sufficient shares to offset the dilutive effect of shares granted for bonuses and new hires on a cumulative basis over the past five years, and returning over $185 million to our shareholders through both share repurchases and dividends.

Let me quickly go over the numbers. First, our results for the full year. We achieved record revenues of $912 million in 2014, an increase of 20% over last year, as we further closed the gap between our Firm and our larger competitors.

Expenses of $701.7 million increased 20% also from last year, reflecting our sustained investment in our business and the higher level of revenues. Full-year net income was a record $124.3 million, up 20% from 2013. Earnings per share for the year were a record $2.59, up 15%.

The full-year compensation ratio was 59%, down modestly from last year, driven principally by the improving operating performance of our early-stage businesses. Our non-compensation ratio was up nominally during the year to 17.9%, reflecting the higher level of non-comp expense in our combined equities business. Full-year operating margins were 23.1%, essentially flat versus last year.

As we discussed last quarter, the announcement of the ISI acquisition caused revenues in our legacy equity business to decline materially for a few months. This fact makes the comparative review of our year-over-year operating margins somewhat challenging. If we exclude the results of the equities business from both 2014 and 2013 and the associated acquisition costs, our operating margins would have been 25.6% in 2014 compared to 24.4% in 2013. So absent the noise of our equities business created by the ISI transaction, we again made good progress in our operating metrics.

Now the fourth quarter. We had record fourth-quarter net revenues of $320.9 million, up 50% from this period last year and 43% from last quarter. Net income was $45.9 million with earnings per share of $0.90. Our operating margins for the quarter were 25.2%, our second-best result in the past six years.

Excluding the equities business, fourth-quarter net revenues were $273.5 million, up 35% from the same period last year and 26% from last quarter. Even without equities this would have been a record quarter.

Net income was $42.1 million for the quarter with earnings per share of $0.91 compared to $0.71 for the same period last year and $0.74 last quarter. Operating margins for the quarter would have been 27.6% compared to the 26.2% for the same period last year and 26.3% last quarter.

Let me now turn the call over to Roger to comment on our investment banking performance and the M&A environment more broadly.

Good morning, everyone. As you can see, investment banking had a record quarter and a sixth consecutive record year. For the quarter, net revenues were $294 million, a pretty remarkable figure if you put it in the context of Evercore's 20-year history. It's the first time we've had a quarter exceed $200 million, let alone one which almost reached $300 million. Those revenues are up 48% from the third quarter and 59% from the fourth quarter a year ago. For the full year, $804 million of revenue, up 23% from 2013.

Operating income for the quarter $77 million, up 61% from quarter three and 75% from the fourth quarter a year ago. Operating margin 26.1% for the quarter. For the full-year, operating income $187 million, up 24% from 2013.

For the quarter the Firm received a record 63 fees greater than $1 million apiece. That compares to 50 such fees in the third quarter and 51 for the quarter a year ago. For the full year, we saw a record 173 such fees, up from 132 such fees last year, quite a major increase. For the year the total number of fee-paying clients was 418, up from 358 in 2013.

Let me say a word about the breakdown of fourth-quarter investment banking revenue, and I want to try to go slowly here so everyone has a chance to understand this because it is a different picture now with ISI. As I said, there were $293 million of fourth-quarter investment banking revenues. That included $44 million of revenue from secondary market equity sales, in other words, commissions and commissions sharing agreements, $44 million.

The round number is $9.5 million of underwriting revenue. In other words $44 million, then $9.5 million and $28 million in fees related to equity capital markets advisory, net capital markets advisory, our private funds group and our private capital advisory business. Those are all advisory businesses, which relate to capital raising.

One more time. $44 million in secondary market equity sales, separately $9.5 million in underwriting revenue, separately $28 million in fees related raising capital, all as part of the $293 million of fourth-quarter revenue. I hope that is clear.

Let me remind everybody that all of this revenue, all of it, is in the form of fees. Evercore does not use capital in any of its businesses on a day-to-day basis or any other businesses. These are -- it's all fee income.

Turning to productivity, our average revenue per senior managing director rose to $11 million globally. That is 9% above the third quarter, 7% above the fourth quarter a year ago. As you know, we do these calculations on a rolling 12 month basis. I was just reminded that this is the highest productivity per SMD in seven years, and Evercore is always strong in this category.

In terms of personnel, the number of bankers across the Firm grew by 177 in the quarter, that is driven almost entirely by the closing of the ISI acquisition. Total investment banking headcount, all investment banking headcount, is 918 at year end. We added two additional senior managing directors in the fourth quarter, recruited laterally: Mark Hanson, who is now co-heading Healthcare Services based in New York, and Swag Ganguly, focused on Debt Capital Markets Advisory based in London.

We, once again, added six new senior managing directors in 2014, recruited laterally and we just promoted six new SMDs internally, for a total of 12 new investment banking partners on the advisory side in 2014. As those of you who follow us closely know, we have been recruiting 5 to 6 to 7 new partners externally each year, and we believe that will continue in 2015. We've been doing that very steadily for many years.

Ralph referred to market share, we believe that our market share increased again in 2014, although all of the data has not yet been reported.

Let me say a word or two about the M&A market. 2014 was a strong year for it. Globally the dollar volume of announced transactions was up 47% to $3.4 trillion, very strong. The US totals rose even higher, 51% to $1.5 trillion. Completed transaction volume rose 16% to $2.4 trillion on a global basis and 31% to $1.1 trillion on a US only basis.

Now, if you think about those numbers, what it tells you is, what particularly changed in 2014 was average deal size because you can see the dollar volume total rose between 2 and 3 times the rate of increase that the total number of deals did. That was what was really different in 2014, larger deal size.

In terms of the outlook, I don't see any reason, absent an exogenous shock, why 2015 should not be another good year in global M&A and in US M&A. Interest rates remain stunningly low, credit availability relatively high, stock market levels high and, at least in the US, business conditions are quite a bit better than they were a year ago. There are always ups and downs in individual sectors, we have all taken careful note of the oil price fall, of course, but our backlog is good and I don't see any reason why, as a whole, 2015 should not be another good year in global and US M&A and also for Evercore.

I'll turn this back to Ralph.

Thanks, Roger. Let me talk just a little bit about the equities business and investment management. First the equities business, and as we suggested, the equities business for the quarter was effectively a tale of two cities. In the period prior to October 31, the results of our legacy equities business continued to be soft although they benefited modestly from the increase in volatility in October, as did all equity businesses.

As I mentioned in our third-quarter earnings call, the ISI team performed strongly in October, reporting its best results for a single month in its history up to that point. While the period of time since closing is short, two months, we are very pleased with the results of the combined business following the closing.

In the last two months of 2014 we earned revenues in excess of $44 million in the equities business, including more than $40 million from secondary activities, all agency, as Roger pointed out, and more than $4 million attributed to underwriting, half of our Firm-wide underwriting revenues, producing operating margins of approximately 10% in those last two months.

In the last two months of 2014, revenues for the business were roughly equal to the total revenue earned by the two businesses when they operated separately in November and December of last year. So the early indications are that one plus one will equal at least two. The cost structure for the business is, as we anticipated, higher than our targeted levels and our equities team is working hard to bring our costs into line.

Investment management, our investment management business delivered a mixed year in the quarter. Net revenues were $104.6 million, up 2% from last year. Operating income was $18.1 million, delivering an operating margin of 17.3%. Operating income for the investment management business for the quarter was $4.1 million on net revenues of $27.1 million.

Assets under management decreased 3% to $14 billion in comparison to the end of the third quarter, although assets under management increased 3% from last year. Net outflows for the quarter were $538 million. Those were primarily, however, in our Mexican liquidity funds, as they represented over $500 million of those outflows. We also suffered a little bit from the depreciation in the peso, which cost roughly $165 million of net assets under management in the quarter.

Our wealth management business is performing extremely well, adding talent, clients, and assets under management. It had its second extremely strong year in a row of investment performance. Wealth management assets increased more than 16% for the year, ending 2014 with $5.7 billion.

Our affiliated asset managers continue to focus on investment performance and client service, and we are encouraged that the pace of outflows in those businesses has essentially abated.

Bob will now provide further comments on our non-comp costs and several other financial matters. Bob?

Let me just make one, it's Roger, comment. Make sure you understand what Ralph said at one point there. He referred to the cost structure in effect of ISI. What he meant was ISI's cost structure, historically, has been higher than Evercore's. One of the many reasons we like this step is because we are going to bring it into line with ours. That is part of the plan. There's nothing new there. There's no news there. I just want to be made clear. That's just part of the plan, exactly what we've been saying all along.

Okay. Just a few quick points. Our adjusted results for the fourth quarter exclude approximately $1.1 million special charges in acquisition and transition costs that are directly related to our equities business and the acquisition of ISI. In addition, special charges includes a charge relating to the write-off of deferred consideration associated with the disposition of Pan, which occurred last year and was reported as a discontinued operation at the time.

As Ralph indicated, non-compensation costs were elevated in the fourth quarter principally due to the higher costs from the combined equities business. We've eliminated approximately $3 million of annualized non-compensation costs from that business and are working hard to achieve further reductions.

Our adjusted pro forma tax rate for the year is 37.8%, essentially flat when compared to 2013. As we have indicated before, changes in the effective tax rate are principally driven by the level of earnings in businesses with minority owners and earnings generated outside of the US.

Our share count for adjusted purposes was 51.3 million shares, an increase of approximately 4.6 million shares from Q3. This increase reflects the inclusion of 4.7 million shares associated with the acquisition of ISI. This is at the midpoint of our expectation. The offsetting decrease is due to a change in our average share price. Our average share price for the quarter was $50.06.

Finally, our cash position remains strong, as we hold $390 million of cash and marketable securities with current assets exceeding current liabilities by approximately $300 million.

Okay, this is Ralph again. Let me conclude by making just a few remarks.

First, our full-year and quarterly results reflect the strength of our business model and our commitment to disciplined investment in our future growth. 2014 was a particularly important year for Evercore on the investment front. First, we added six new senior managing directors in our advisory business, as Roger indicated, similar to the investment we have made in past years.

Second, we purchased ISI and merged it into our inceptive equities business. We undertook this transaction because we believe that the agency-only equities business is an attractive business in and unto itself and because we thought this transaction would add to the growth rate in our investment banking business, both by increasing our equity underwriting revenues and by enhancing our ability to attract additional advisory senior managing directors to our platform.

While we are only three months into this transaction, the early financial and anecdotal results are encouraging. First, secondary revenues in the last two months of 2014 were over $40 million, which is roughly equal to the total secondary revenues of the two businesses last year. Equity underwriting revenues during that period, two-month period, which are by definition much more lumpy, exceeded $8 million, a significant increase from our prior activity.

While we certainly would not advise annualizing two months of results, you have heard us comment many times not to annualize a quarter or a half year, we do believe that these results to date are encouraging. The early evidence suggests that the hoped-for effect on our advisory revenues may over time also materialize in both of the ways that we had anticipated. First, the pace of equity underwriting activity seems to have picked up this year for Evercore. Second, it appears that our very strong equities business will be an added inducement for certain advisory bankers to join our Firm.

Notwithstanding the early encouraging results, we still have much to do, both in increasing our secondary and underwriting revenues and in addressing the excessively high non-comp costs in our equities business. And as Roger said, this is nothing new. We talked about this when we announced the transactions last August. We expect to make progress on reducing these expenses throughout the course of 2015, as we said last August, although the full effect of these reductions will not be felt until 2016.

Third, let me also say something about SMD productivity. Most certainly we are encouraged by the uptick in our productivity in 2014 to $11 million per senior managing director, the highest level we have achieved since 2007 and the highest, by far, among all of our publicly traded competitors. As Roger also said, we are pleased that we promoted six of our managing directors to senior managing director earlier this week. We are extremely proud of this fact as it validates our commitment to developing and promoting our own talent.

Two things are worth mentioning here. We had an unusually high number of candidates qualified for promotion this year. In the next couple of years, we would expect the number of internal promotions to return to more normal levels.

Second, it is possible that these promotions might cause a slight drag on average senior managing director productivity in 2015, all things being equal, as it would not be realistic to expect these six new SMDs to increase immediately their revenue production by amounts equal to our average production levels last year. In other words, they were here last year, we shouldn't expect that each of them is going to have an $11 million increase in their production this year. Nothing significant here, but at least it is worth mentioning.

Finally, we expect to continue our policy of returning, through dividends and share repurchases, more than 100% of our adjusted earnings, once again purchasing enough shares to offset the issuance of RSUs to current and recruited professionals, and also to offset part of the share issuance in connection with the ISI transactions.

Thank you for your attention, we will now answer any questions that you have.

(Operator Instructions)

Our first question is from the line of Ashley Serrao with Credit Suisse. Your line is open, sir.

Good morning.

Hi, good morning, Ashley, thank you for publishing on us.

You're welcome.

I wanted to focus on the ISI acquisition. You are a few months in. Can you just talk about how conversations are going with the corporate C suite in terms of just thinking about Evercore as an avenue with greater potential for ECM activity? Then, how are those bankers, who have traditionally been indifferent to having an ECM capability in their toolkit, adapting?

I think that in both cases, it's going to be a process. It's not a light switch that goes on and all of a sudden everybody recognizes that we have these capabilities. But the early signs are extraordinarily positive in both respects. The clients are very pleased to see that there is a firm out there that has both A+ advisory capabilities and A+ equity capabilities.

I think most of our clients would say the two things that they consider strategic in terms of their interactions with Wall Street are M&A and equity. We are now in the unique position among all advisory firms to be relevant to our clients on both of those matters. That is getting a good reception, and as Roger has pointed out a number of times, in the old days, the paleoanthic era, there were firms like an Alex Brown or an H&Q or a DLJ that had a comparable suite of capabilities that were extraordinarily well received by corporate executives.

And on the banker side, we have, by virtue of the way we have built the Firm, a mix of people in terms of their historical experience with equities. We have some people who are classic M&A bankers, who haven't done equities for quite a while. Then we have, because of our recruiting efforts, a not inconsequential number of bankers here who have equity experience in their relatively near past.

We do have a bit of a proselytizing effort here, but one thing that is absolutely true about bankers is that if they have a very high-quality capability that can be of value to their clients, they learn about it and they discuss it with their clients. Long answer. I would expect this to be a two- or three-year process, not a light switch, but we are very optimistic about what we had hoped for.

Thanks for the color there.

Then, I heard your comments around exogenous factors in your M&A outlook, so I wanted to follow up with a two-part question on the European M&A landscape. One, I know it's early, but I was curious if you're able to provide some thoughts on what QE means for M&A? Two, while Greece is by no means a hotbed for M&A activity, how is the ongoing political drama impacting CEO confidence in the region?

Maybe we should have lunch so we can cover that.

I don't know what impact, if any, the European Central Bank decision towards quantitative easing is going to have on M&A levels. Whatever effect it has, it would likely be a delayed effect.

As far as Greece is concerned, I don't see any impacts at this minute on the M&A outlook either in Europe or around the world that you can trace to the current drama in Greece. That is the best answer I have on that. Europe, in general, is in a difficult macroeconomic condition, and so it is likely to be a slow recovery in Europe.

Okay. Thanks for the color and taking my questions.

Thank you.

Our next question is from the line of Hugh Miller with Macquarie. Your line is open.

Hi. Good morning.

Morning.

I was wondering if you could just give us a little bit of color on what you're seeing within the energy M&A vertical and whether or not there's a difference in tone of discussion between clients regarding their near-term appetite to consummate M&A versus raising capital?

It is still early to judge the true impacts of the oil price fall on investment banking activity in the energy sector. There is a huge debate, for example, as to how long these lower oil prices, for that matter natural gas prices, persist. Some people think they are going to persist for some time. Some people think not long.

One's view on that has a lot to do with one's view on the outlook for one's business, depending on the business that you're in and so forth. In addition, there are a lot of companies, both in the industry and, for example, financial sponsors, who are very keen to take advantage of this environment and be buyers. Then, there will be certain amounts of restructuring activity that would not have occurred otherwise.

My real answer is, it is really too soon to judge what the effects are going to be on the both the volume of business and the mix of business. As a Firm, a whole firm, not just energy, our backlog is good right this minute. All of our comments about what 2015 should look like take all this into account. The energy sector, not just for us, but for everybody remains very, very busy, very busy.

Okay. I appreciate the color there.

As we take a look at the global M&A backlog data, as you talked about in the prepared remarks, last year was really dictated by the rise of mega cap deals. It seems like there is a little bit of initial signs of a potential shift towards more middle market activity with a pickup in the number of transactions in the backlog for the industry. I was wondering if that's something that you are starting to see, that shift more towards a little bit more middle market activity and any color on that?

First of all, it is useful to keep in mind that the preponderance of transactions that occur for Evercore or any other firm in the business occur in the mid-cap and upper mid-cap sector. That's just where the majority of deals are and have been for a long time. I mean a very long time.

Your thesis that there's going to be more deals in the mid-cap and upper mid-cap sector next year, or this coming year, sorry, 2015, is really an old one, not a new one. That's just generally true historically.

I don't think 2015 is going to be particularly different than 2014, I think you are going to see a certain number of quite large transactions. But there are always relatively few of them. Even in a year when they rise, the number of really, really large deals is always very few. I mean 15 of them around the world, something like that, if you're talking about really big ones.

But I think the mix of deals in 2015 probably is going to look like 2014. I don't see any reason why there won't be at least a few mega deals, because of the macro conditions I referred to in my earlier remarks. The essence of my answer is, I don't think the mix in 2015 is going to be different, particularly, than it was in 2014.

Okay. That's helpful. I appreciate the color. As we think about the ISI operating margin, 6% excluding the ECM business and then 10% including that, I believe it's the 6% mark that's relative to the 12% performance threshold for 2015. If that is the case, how should we be thinking about the achievement of that 12% threshold relative to where it stands now in terms of top-line growth versus cost reduction?

You should assume the 12% will be hit. Obviously, nothing is absolutely set in gold, in stone and you know the world can change. The reason I say that so confidently is, number one -- and, Bob, if these numbers are not perfectly correct, please correct me. In the two-month period that we are talking about here, which the comp ratio was a little north of 60%, we have a -- and that's just not a function of anything other than, that's what happened to fall into that two-month period in terms of the total second half of the year comp.

In our contract, we have a 55% economic comp ratio. That alone will get us to the 12%. We also have taken a number of steps already in reducing non-comp expenses, which when carried through the full year of 2015 will also contribute to an improvement in that secondary only margin. We are operating here with the absolute presumption that that will be achieved.

Sure. As we think about that threshold, is it based off of the 6% figure, which doesn't include the impact of ECM, to get to that level? Or is it based off of the total figure, which was the 10% metric?

No, the 6% threshold is the right to focus on. The one comment I would add to Ralph's is, there is a lot of constructive work going on in terms of the cost structure of the business. We do have to earn the revenues.

Okay. That's helpful. Thank you.

You guys had alluded to the promotion of the six internal managing directors to SMD. Can you give us a little color based on historical performance? We realize that they're not going to be able to achieve the type of productivity that we'd see ahead of someone else who is bringing on their full book of business.

Historically, what have you seen? How long does it take them to achieve that type of a level and what percentage of that productivity is roughly, historically in line with what they do in year one?

Let me refer to a comment we have made many times over the years. When we recruit, externally, a new partner, this is now on the external side, it typically takes, depending on the individual, around three years for them to hit their full stride and full productivity, two to three years. This ramp, that Ralph talked about quite appropriately, applies to externally recruited partners, not just internally recruited ones. We've said that many times on these calls.

The same basic dynamic applies to the internally promoted ones. It is really the same phenomenon. Whether you recruit a new partner from the outside or a new partner from the inside, it takes two or three years for them to hit their maximum. We just added 12 partners, and Ralph is observing that 12 partners on top of a total now of --

It was 68 advisory funds.

68, okay. 12 as a percentage of 68 is a pretty good number, so you're going to have a contingent that's going to take 2 to 3 years to hit their full stride. That's the long and the short of it. It is not new. We've been dealing with that ever since the beginning of the Firm.

Just to add one modest tweak to that. My comment was a pure mathematical tautology. These six people were here in 2014. They were not sitting on their thumbs waiting to be promoted. They were working and they made a contribution to revenues.

When they become senior managing directors in 2015, they don't magically produce an incremental revenue equal to what our average SMD productivity is. That's just a mathematical tautology.

Sure, I understand. Thank you very much. That's helpful.

Our next question is from the line of Steven Chubak with Nomura.

Hi, good morning.

Morning.

First question I have is on, Bob, your guidance that you had provided on the non-comp side. You'd indicated that there is about $3 million of savings that you have already extracted from the equity side of the business. Should we assume that that $3 million relates exclusively to the brokerage side? I suppose I'm just trying to derive what the pro forma margin would've actually looked like in the quarter, not only if you make the comp adjustment but also ascribe credit to the savings that you've already extracted from the business?

I think as Ralph said, if you look at the revenues we earned for the two months, apply the 55% comp ratio, and reduced the non comps for the savings we have identified, in that scenario we think the margins would hit the 12%, perhaps better.

Okay. How much more in the way of incremental savings should we expect by year end or exiting 2015?

Ralph's comment was, we won't really see the full benefit in that business until 2016. We'll be taking the costs out during the course of the year. As we've said before, we think you will start to see the numbers reflect those savings more visibly in the second half versus the first half.

The business, as we said after we closed, was running a non-comp ratio in excess of 30%. We don't see that business moving sub 20% for a variety of reasons, the way the rest of our businesses perform. So, Steven, why don't we just pick the midpoint as a conversation point.

Okay, that is helpful. Then, was curious whether there was any earnings drag specifically from the US dollar strengthening that we saw in the quarter? I know some of your competitors had alluded to that. Granted you are a bit more geared toward the US side. Just wanted to gauge whether there was any impact?

There wasn't.

Okay. That's it for me. Thank you for taking my questions.

Thank you.

Our next question comes from the line of Alex Blostein, Goldman Sachs.

Good morning, everybody.

Hi, Alex.

Sorry to beat the dead horse, here. Bob, maybe it's just easier for us to -- as we think about the starting point, Q1 2015 being the first cleaner quarter, any way we can just get the non-comp run rate dollars and then just think of that as a starting point and the savings from there? Or non common institutional equities? I should specify, sorry.

Your question had quite an impact outside of the room; somebody just fell over. Alex, I think we have talked about as much of the cost structure on that business as we want to get into.

Okay. The question just on the operating leverage in the core M&A advisor business, your comment on 25.6% I thought was pretty interesting, so essentially you are seeing the advisory business running at a pretty meaningful margin ex the institutional equities. Given, Roger, your comments on the backdrop for revenues and the promotes that you have done this year, how should we think about the progression of that 25%, 26% operating margin in the advisory business into 2015?

I think that is a pretty good margin. If we were to stop investing in the business, and investing in the business is hiring, you would expect it to go up. We don't expect to do that. To try and ascertain a margin for this Business is like asking us to predict revenues or asking us to predict any number of other things, which we have visibility on for one or two months, not a full year.

I think we are, as we have said many times, we expect to make steady progress toward margins for our whole business, that are 25% or north. We have consistently done that, and we intend to continue to do that.

However, if we do get the opportunity to invest a bit more than we have historically, meaning recruiting, the pace of that might be slowed. That is unquestionably, in our view, good for shareholders over the longer term. We expect to keep you fully informed of the pace of that investment during the course of the year, as we have in the past.

Understood. My last question, just on the equity capital markets revenue, quite good results in underwriting, even with ISI in the run rate only for essentially two months. Can you guys speak to just the conversations you started having with corporates once this deal got completed, and how much having this combined business contributed to the ECM revenues that you put up in the fourth quarter? Maybe a point on market share, as well, as we move forward?

I want to make a broader point then come to your question. This is just a personal observation.

I've been in the business a very long time. I think there are three great businesses in investment banking from a margin point of view: M&A, restructuring and equity financing, especially IPOs. Now Evercore is solidly in all three of them and ultimately will be a leader in all three of them, a real leader. That is the very, very long-term rationale for how we have evolved the Firm, on the advisory side.

There are sectors, technology is one, energy is one, real estate is one, transportation is one, where the equity financing intensity is much higher than in certain other sectors. That is just the way it has been since the dawn of time. The quality of conversations depends on the sector and the relevance of equity financing to the sector.

But this is a very, very long-term investment we have made here. I think it is going to take quite a long time, although I expect it to be steadily upward, for us to spread the word into every corner we want to and to cover everybody we want to, where the equity financing intensity factor is high enough.

There is no doubt that the Firm is enhanced in terms of its relevance to clients by this move. By the way, both in terms of research, as well as equity sales and equity financing capability, not just the latter. It is just an unadulterated plus. Assuming we can make the cost structure come in line with ours, which we expect to, this should be a really major strength of the Firm going forward.

That's all I really can say about it.

The only thing I would add from a granular point of view is, we did roughly $25 million of equity underwriting revenue in the US in 2013. We did roughly, almost $28 million in 2014.

The way that those numbers can be positively impacted is twofold. Number one, because of the much broader research coverage we have and the much dramatically increased distribution capability, we have an opportunity to compete for equity underwriting position in a broader number of industries.

Then the second thing is, because of that stronger research capability and stronger distribution capability, we have the opportunity to play a more important role or in other words, get a little bit bigger piece of the economics in those equity underwritings, so more of them, and more economics in the ones in which we participate. Obviously, it is very early days, but we are seeing evidence of both of those occurring.

Great, thanks for all the color.

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

Hey.

Morning.

Just real quick. Is it possible to give us the legacy Evercore equities revenue this quarter?

One month, like less than $3 million, something like that.

Something like that.

Just for the month of October, $3 million?

Yes, just for October, yes.

Okay. When we think about ECM bankers, I saw that you hired one here. How many more are you thinking you're going to need to hire? Generally, what is your expectation for how long before you think you see a big impact on those numbers?

We will, as we have always, have a measured, disciplined pace of expansion. Obviously, we have a lot more to do there you. As we all know, activity in our business, generally, is human capital, people intensive.

If we hope to -- and I'm not saying this is what we expect to do, but I'm just saying if we had hoped to double ECM revenues, it is not unreasonable to expect a comparable, maybe somewhat less, because we definitely are not in the if we build it, they will come business model around here. But you have got to expect some comparable expansion in the people committed to that activity.

I think we had five people in our ECM business, before we announced this transaction. It would not be unreasonable to expect that to increase by 50% to 100% during the course of the year, but that's hardly going to be a massive material effect on our financials, to be honest with you, which is why Roger said, quite correctly, that the equity underwriting business is one of the very high-margin businesses in investment banking.

Okay. Thanks for that. Helpful color on the M&A environment, certainly.

We have seen some pretty volatile markets here in 1Q and we saw some bouts of volatility there in 4Q. Any concerns about some of the deals that have been announced actually getting to close, given that? Also, as we think about the US dollar strengthening, what knock-on effects do you see in the advisory market there?

First of all, on closings, apart from a few transactions that require regulatory approval where there are some uncertainties there, I don't see any of the recent volatility impacting the rate of transactions which close, no. The answer to that is no.

In terms of dollar strength, I've seen no evidence yet that is impacting M&A volume. The real question there will be whether some companies, large ones that are experiencing big FX headwinds and therefore lower earnings are going to be more cautious or not.

I just can't judge that. I don't know. But I don't think, so far, there is evidence that that will change the relatively good outlook that we talked about for 2015, at least not yet.

Okay, great, thanks for the color.

Our next question comes from the line of Joel Jeffrey with KBW.

Just going back to your comment about the increase in the number of promotions you made this year. You said that the increase was primarily due to an increased number being eligible this year. Just kind of wondering if you could talk a little about what would make someone eligible for the promotion? Two, is there in any way an impact from increased competition for bankers driving that increased promotion number?

The answer to the second question is no. You can see that Evercore has been very consistent on its recruiting, 2014, in terms of external recruiting, a really strong year. So we are not seeing any greater difficulties in recruiting bankers externally than we did a year ago, or two years ago or three years ago.

Internal promotions is just a function of talent. We promoted six this year because we have some amazing people that are ready. Next year, as Ralph said, probably a lower figure, because our historical figure is quite a bit smaller than six. That's all it's about.

We are optimistic about our business. We have great talent internally. We have access to terrific talent externally. We have a very strong recruiting hand, in general, and ISI enhances it, so there you go.

Okay. Then, just on ISI, I think on your last quarter's call you made the comment that you might be a little less stringent in terms of headcount levels, but would review it again after the first 2 to 3 months. Since we're at that level -- when you think about cost reductions going forward, is there any anticipated headcount reductions for this point or are you happy with where you are?

I would say that we are a little higher than where we thought we were going to be last August, and we continually look at that to make sure that we have a pure muscle business.

Okay, great. Then just lastly for me, in terms of the contribution that ISI made, can you guys give us a sense for how much of that was coming from macro strategies versus more stock-specific research?

The answer is no, can't do that.

It's not that we are truculent, although we are.

I am. (laughter)

At least some of us are. It is just that when you sit there and work with an institutional investor, they don't tell you x percent of what they are compensating you comes for macro versus stock.

We're not going to break that out as an ongoing matter, anyway.

Fair enough. Thanks for taking my questions.

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

Thank you, good morning, and congratulations on the strong quarter.

Thank you.

I guess just coming back to the detail on the energy vertical. I appreciate that information. I'm trying to put that in context.

When you speak to the strong backlog, is that what has already been announced? Then, are seeing any impact from deals that maybe have gone cold before they got to announcement, meaning there could be a bit of an air pocket here in revenues just as deals don't get to announcement, given the volatility? That's part one.

Part two, with respect to the mix, are you seeing anything yet that would fall into the restructuring bucket that's resulted from lower energy prices? Or is it going to take longer, in your opinion, to get to that type of activity?

First of all, my comment about backlog pertained to the Firm as a whole. Same comment we often make, I said our backlog is good for the Firm as a whole.

Second of all, I have not myself seen any evidence, and I work closely with our energy team, of deals that are in stream, in mid stream, and then went cold on account of this, so the answer to that is no. But, that is just my perspective. Thirdly, is there evidence that there will be some increased restructuring activity tied to energy, and the answer to that is yes.

But I don't want to overplay that. It's such early days in this. I mean, the real way to think of it is, too soon to tell. That's really the essence of it, but those are the answers.

I would just make one other comment on our business as a whole. We are an incredibly diversified Firm at this point, and while we might hypothesize, and it would only be hypothesizing since there is no evidence yet that the volatility in energy prices could have some affect on short run M&A activity in the energy sector, the history would suggest that it then picks up at whatever the new oil price or gas price is.

The broader point is that in any given year, there are going to be sectors that do a little bit better and sectors that do a little bit worse. We had a terrific year last year, and yet I could identify for you parts of our business, either due to the level of business activity in a sector or the fact that we just happened to miss a couple of really important things, that didn't make their normal contribution. Quite fortunately, I think for our shareholders and for Roger and Bob and I sitting in the seats that we sit in, at this point we own a diversified portfolio of exposures by industry, by geography, and that is quite beneficial to our shareholders.

Okay, great. I appreciate that perspective.

Then, maybe just coming back to the commentary on recruiting and all the detail there. Can you give us any additional information around where you're having conversations today? Specifically, are you getting any closer to entering the general industrials vertical? I know that's been an area that you'd like to do through the right A level banker hirer.

No, we can't give you any more color on our recruiting. Second of all, we have many of the pieces of a general industrial footprint. We have a defense, a very good defense and aerospace group, automotive group and some others. What we have been looking for is someone who would head the whole thing. That is just a question of when we find the right person.

Evercore, as you probably know if you follow us, has been very patient over the years in terms of waiting for the right person and it paid off very well for us. That's all we can say.

Got it. Okay, thank you very much.

Our next question comes from the line of Vincent Hung of Autonomous. Your line is open.

Hi, good morning.

Good morning.

First question --

It's good to hear from Autonomous, by the way.

Thank you. What was the full-year 2014 secondary revenues for ISI?

We don't have that. We didn't own them for ten months. I think what I have said in my remarks was, if you take the prior period's activity for our two businesses separately, that what we have done in the two months when we were together is essentially the same.

We gave information on what their historical numbers where when we announced the transaction in August. We are not in the business of reporting on the financial information of companies that we didn't own before we owned them.

Okay. You said you had eliminated the $3 million of annualized non-comp expense already. Is that just a case of eliminating the shared expenses between ISI and the legacy equities business?

No, they are real cost take outs.

Okay. I think I've asked this question before, but I might as well give it another shot. Of the MDs that you've hired in the past few years, could you give me a sense of how many are yet to be fully ramped up in productivity terms?

No.

Okay. Thanks.

Our next question comes from the line of Douglas Sipkin of Susquehanna.

Hey, Doug.

Good morning, guys. How are you? Just two questions. One, a little bit more on the equities business and taking some of the comments to heart about being an almost riskless business. Thinking about that business, though, would you ever considered doing, at least on the secondary underwriting side, bought transactions? I know that's pretty prominent these days.

No.

Okay, no, that's helpful. Then, maybe shed a little bit of color on the --

If you didn't hear that, the answer is no.

(laughter) Thank you, no, loud and clear. I got that. Then shed a little color on business that looks like it's doing really well for you, maybe the ECM and debt advisory business, maybe you could talk a little about the trends you're seeing there, the macro drivers and what is driving the nice trends in this business?

As a general matter we have not and never will give information on individual sectors, industries, geographies, business lines. I will go back to what I said. You own a broad portfolio of pure advisory activities, and in any given quarter or any given year, as a function of macro conditions, industry conditions and skill at Evercore, one or another of those are doing really well, and some of them are doing less well than they did the year before. You put it all together, it's a pretty good mix.

Okay. Great, thanks.

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

Just thank you for your attention. The nature of this business is we are back to baking bread on January 1, and see you next quarter. Thank you.

This concludes today's Evercore fourth-quarter and full-year 2014 financial results conference call. You may now disconnect.