Evercore Inc (EVR) 2016 Q3 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Evercore third-quarter and nine-month 2016 financial results conference call.

(Operator Instructions)

This conference call is being recorded, today, Wednesday, October 26, 2016. I would now like to turn the conference call over to your host, Evercore's Chief Financial Officer, Bob Walsh. Please go ahead, sir.

Thank you very much. Good morning, and thank you for joining us today for Evercore's third-quarter and nine-month 2016 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 third-quarter 2016 financial results. The Company's discussion of the third-quarter results 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 financial measures, which are non-GAAP measures that we believe are meaningful when evaluating the Company's performance. For detailed disclosures on these measures and to their GAAP reconciliations, you should refer to the financial data contained within our press release, which as previously mentioned, is posted on our website.

We continue to believe that it is important to evaluate Evercore's performance on an annual basis. As we've noted previously, our results for any particular quarter are influenced by the timing of transaction closings. I'll now turn the call over to Ralph.

Thanks Bob, and good morning everyone. As you might expect, we are quite pleased with our third-quarter and year-to-date operating results. While the announced M&A activity is generally weaker than last year, the operating environment continues to be quite favorable to our independent advisory business model, as clients increasingly seem to be embracing our approach of senior-level, unconflicted advice. Our third-quarter results were primarily driven by the success of our advisory business, particularly in the United States.

M&A activity in our Healthcare, TMT Financial Services, and Energy practices remained high, while at the same time, our restructuring, activist and defense, and capital-raising practices continue to be strong. We clearly have gained significant market share this year. As you know, we monitor our market share of advisory fees among all firms that are public and report their advisory fees separately. This includes all the large firms except Barclays, which does not report its advisory fee separately, and all of the public independent firms.

At the end of last year, our market share was 5.1% on a trailing 12-month basis, and it was 5.7% on a trailing 12-month basis at the end of the second quarter. While most of the European firms and the independent firms have yet to report, we are confident that our market share on a trailing 12-month basis at the end of this quarter will be 6% or higher. In equities, Evercore ISI was recognized by Institutional Investor as by far the best independent research firm in the US, as we ranked number three among all firms on an unweighted basis, and number two on a weighted basis.

We also had the second highest number of number-one ranked analysts, a testament to our commitment to both elite research and excellent client service. Our strong results also continue our record of significant capital return to our shareholders. Our Board has approved an increase of $0.03 to our quarterly dividend, which will be now be $0.34 per share per quarter. This is the ninth consecutive year that we have increased our dividend. And year to date, we have repurchased 3.4 million shares at an average price of $47.58, enough to offset all share issuance for bonuses, for new hires, and as Bob said, some of the share issuance in connection with the ISI acquisition.

With these market share gains, it appears that we are on a path this year to be sixth, seventh, or eighth largest factor globally in advisory revenues, quite a dramatic change from a few years ago. Let me briefly go over the adjusted numbers, and Bob will have additional comments on comparable GAAP measures in his remarks.

First, let's talk about the quarter. Third-quarter net revenues were $383.5 million, up 25% versus the same period last year, a record for the third quarter and our second-best quarter in our history. As we have discussed in the past, revenues are influenced by the timing of transactions closing, which impacted us somewhat favorably this quarter. It has been always our practice to highlight this when it impacts a quarter, positively or negatively.

This time it was positive, although even without this benefit, our results still would have been very strong. Net income, also a record for the third quarter, was $62.4 million with adjusted EPS of $1.22. These results are up 45% and 51%, respectively, from the prior year. Our adjusted EPS also is equal to our record quarterly EPS in the fourth quarter last year, as our focus on buybacks has reduced the share count year over year.

Operating margins were 27.7%, up from 24% a year ago. Our compensation ratio was 56.8% for the quarter, lower than the 57.4% in the same period last year. As we have discussed in the past, we review our targeted compensation ratio each quarter, and make adjustments reflecting our realized results and expectations for the remainder of the year. For the nine-month period, we have lowered our expected compensation ratio to 57.3% from 57.6%, driven by higher-than-expected rate of revenue growth.

We will, of course, further adjust this accrual in the fourth quarter, depending on both our results and expected compensation levels, both within Evercore and at our competitors. Non-compensation costs increased to $59.5 million, or 15.5% of revenues, principally reflecting continued growth in the headcount of our business. Bob will have more to say on this in his remarks.

Now let's talk briefly about the year-to-date numbers. Growth in revenues and net income for the first nine months also was very strong. Net revenues grew 22% to $988.9 million, and adjusted net income grew 39% to $148.6 million. This is the eighth consecutive year of uninterrupted revenue growth for the nine-month period.

Earnings per share for the first nine months increased 43% to $2.88, another record, once again reflecting our strong operating performance and our share repurchase activity. Operating margins in the first nine months were 25.5%, versus 22.5% last year. We are particularly pleased with the operating leverage that we are delivering, which is due to strong revenue growth, disciplined management of non-comp expenses, and a steady reduction in our share count. Let me now turn the call over to Roger to comment on our investment banking performance and the M&A environment in general.

Good morning, everyone. As Ralph said, we had a record third quarter and a record nine months in investment banking. Our revenues for the third quarter of 2016 were $365 million, up 30% over the comparable quarter a year ago. And for the nine months, revenues were $927 million, up 26% from the nine months of 2015. The operating contribution for the quarter was $102 million, up 55% over the comparable quarter a year ago. And the operating contribution for the nine months was $236 million, up 42% over the comparable period a year ago.

The advisory fees component of our revenue, which of course is the biggest, was $301 million for the third quarter, that's the second highest quarterly total we've realized. On top of that, underwriting revenues were $8 million for the quarter, up from the third quarter a year ago, and equities revenues or commissions were $54 million for the third quarter, down slightly from the comparable period third quarter a year ago.

Our third-quarter advisory revenues included 65 fees of $1 million or more, as compared to 35 such fees in the third quarter of 2015. That is an 86% increase, and for the nine months we saw 164 such fees, compared to 112 for the nine months of 2015, and that is a 46% increase. Our equity capital markets and debt capital markets groups, together, completed underwriting transactions in the quarter, which raised $14.8 billion per client, up from 4.3 billion last quarter, that is, a quarter ago.

And our total of advisory fees in the third quarter included $16.3 million in fees for advice on 17 capital-raising transactions. 17, that compares to advising on 11 such transactions during the third quarter a year ago. For the nine-month period, we advised on 51 capital-raising transactions, generating fees of $35 million in comparison to 31 such deals generating a similar amount of fees for the third quarter a year ago. All those totals are in addition to the underwriting totals.

As Ralph alluded, our comp ratio in banking fell to 56.8%, down from 57.9% last quarter, and down from 57.9%, the same number, for the third quarter of 2015, and that is what you would expect when revenues are strong as this quarter's were. So our operating margin in banking improved to 28.1% for the quarter, up very substantially from the 23.6% of a year ago's quarter.

On productivity, which is a measure, as you know, that we watch carefully, average revenue per SMD on our traditional rolling 12-month basis, was a strong $13.3 million globally, up 10% year over year, and it's particularly strong when you realize that the 2016 quarterly figure reflects 79 senior managing directors, versus 66 in the year-ago figure. Ralph talked about our market share; I won't repeat that. It is the highest it has ever been. But let me give you a few details within it.

We finished the quarter as the number-one ranked independent firm in the United States, in terms of the league tables for announced transactions in healthcare, and second globally. And we finished second among all firms in terms of the league tables on announced transactions in energy. Those are two of the most active sectors in the world, so those are pretty impressive results.

Of course, we finished first in terms of independent firms in the US market on announced transactions; in other words, Evercore was number one for the nine months in the US on announced transactions, and the league tables among independent firms. Ralph noted the superb results for Evercore ISI research; I won't repeat that, too, but very, very strong and impressive.

Headcount: the total investment banking headcount rose to 1,155 at the end of the quarter, up from 1,102 last quarter and 1,019 a year ago, and we completed the quarter with 81 senior managing directors. Now let me make a few comments on the M&A market. First, the data, then the commentary.

Global announced M&A totals were down 8% quarter over quarter and 21% year over year. The key weakness there was in the US market, which was down 44% quarter over quarter, and 31% year over year. On the completed transaction side, rather than announced, completed transactions in the US market for the nine months were up 3%. Completed transactions across the world were down 8% year to date.

A couple of editorial comments. Number one, a lot of the weakness in announced deals year to date may have been remedied by this recent spate of transactions we have seen, a rash of transactions over the past week or two. We will have to wait and see the data on that, and of course, we're still in the first part of the quarter, anyway.

But more important, secondly, 2015 was a very, very strong year. A record year in terms of global M&A. And so 2016, while down a bit, is a strong year by any historical measure. And if you look at M&A totals on a rolling four-quarters basis, which is an intellectually more sound way to look at it, you see that the past three years have seen very strong and rising M&A totals, until this year.

But my point is this is a solid, that is the word I would use, a solid US and solid global M&A market, and the reason for that, as we've discussed many times on these calls, is that the basic elements which are always conducive to healthy levels of merger volume, remain in place. Namely, ultra-low interest rates, high equity prices, abundant credit availability, and reasonable business confidence. When you have those elements, you're going to have good levels of M&A volume, and we do. I'll turn it back to Ralph.

Thanks, Roger. Let me talk briefly about equities and investment management. Our equities business contributed net revenues of $55.6 million in the quarter, including $2.2 million attributable to equity underwriting. Commission revenues were down 8% versus the third quarter of last year, reflecting the overall decline in the US equity market volume of 13% versus this quarter last year.

Of note, volatility last year surged in July, given global growth concerns and concerns about growth in China, and we did not experience a similar period of sustained volatility this quarter, and you can read in the papers this morning about the record low volatility we have in the equity markets today. Net revenues for the business are $177.5 million year to date, including $167.4 million from commissions and checks, which are up 3% in comparison with the prior year.

Overall, the business produced operating margins of 22% in the quarter and 21% in the first nine months of the year, up from last year and meeting our expectations, given market conditions. Once again the eliteness of our equities business was recognized in the Institutional Investor ranking. As I noted at the outset, and Roger did as well, Evercore ISI has been recognized as the number one independent research firm in the US, and number three among all firms. Last year, we were tied with three other the firms for the number three position, but over the last year we have outpaced our competitors, and seen the single greatest year-over-year increase in votes of any firm in the ranking.

We appreciate this vote of confidence from our clients, and we continue to work hard to serve our clients and to translate this recognition of our capabilities into greater financial returns. Investment management reported net revenues and operating income of $18.3 million and $3.7 million, respectively, and produced an operating margin of 20% for the quarter. Year to date, net revenues were $62 million, and operating income was $16.3 million. The year-to-date operating margin was 26%, compared to 22% last year.

These results predominately reflect contributions from our wealth management and trust businesses, which continued to perform very well. We completed the transfer of control of our Mexican private equity business to Glisco Partners, an entity formed by the principals of that business. Bob will provide further comments on our GAAP results, as well as our non-comp cost and several other financial matters. Bob?

As Ralph mentioned, we completed the transfer of control of our Mexico private equity business at the end of the quarter. As this transaction is a sale, we recognized a gain of $400,000 in our GAAP results. This gain is excluded from our adjusted results. The sale includes earn-out consideration, which will be realized over time as the economics are related to fee streams and carry that are by their nature contingent. Assets under management of $304 million related to this business have removed from our reported AUM amount in Q3.

Revenue on a GAAP basis of $386.3 million and $994.7 million were a record for a third-quarter and nine-month period, respectively, just as they were a record on an adjusted basis. Net income attributable to Evercore Partners Inc. was $34.7 million for the quarter and $64.1 million for the nine-month period, each reflecting substantial growth in comparison with the comparable prior-year period. Consistent with prior periods, our adjusted results exclude certain costs that are directly related to our acquisitions and dispositions, particularly costs related to our equities business. Most significantly, we adjust for costs associated with the vesting of LP units and interests granted in conjunction with the ISI acquisition.

In the first nine months we expensed $66.1 million related to this equity, in comparison with $65.1 million for the first nine months of 2015. As a reminder, our adjusted presentation includes all of the shares we expect to issue for the equities business in the EPS denominator. Our forecasts that the drive the number of shares expected to be issued did not change in the quarter.

Turning to non-compensation costs: firm-wide operating costs per employee, which is the key metric we track, were $112,000 for the first nine months, a 5% decline versus 2015, as growth in non-compensation costs, other than business development costs, were lower than our growth in headcount. Firm-wide operating costs per employee were $38,000 for the quarter, which is up 3% from the second quarter of this year. The biggest driver of the increase is costs related to growth and headcount, including increased facilities costs, as we grow our physical space, and elevated professional fees principally associated with recruiting new senior managing directors. Quarter-to quarter comparisons will be inherently lumpy, as many of our costs are seasonal and relate to the level of business activity, or are otherwise non-recurring.

In the equities business, our adjusted operating margins, which govern the ultimate payout of the G and H units, are 14% for the first nine months. The decline in adjusted margins in the third quarter reflected the revenue decline indicated by Ralph, while expenses remained essentially flat. As I have indicated previously, we remain very focused on expense discipline in this business, but progress will be lumpy at times.

Our adjusted tax rate for the nine-month period increased to 38.05%, as we're generating an increased percentage of our earnings in the United States. Our GAAP results reflect an effective tax rate of 47.3% for the first nine-month period. Our GAAP effective tax rate is impacted by the non-deductible nature of the ISI acquisition-related compensation expense, as well as the geographic ranks of our earnings.

Our Q3 share count for adjusted earnings per share was 51.4 million shares, essentially flat in comparison with the prior quarter, as the reduction inherent in share repurchases offset the normal increase attributed to the vesting of deferred compensation awards. On a GAAP basis, the share count was 43.7 million shares.

Finally, our cash position remains strong, as we hold $512 million of cash and marketable securities at September 30, with current assets exceeding current liabilities by approximately $380 million. Ralph?

Thanks, Bob. Let me just conclude with a couple of comments. First, let me talk about our advisory business. Adjusted advisory revenues have grown 35% on a year-to-date basis, strong growth compared to virtually all of our competitors. The five largest US universal banking firms have all reported their results, and they range from an increase in advisory revenues of 10% year over year to a decline of 14%.

While many of the large European firms and our independent firm competitors have yet to report their third-quarter results, it is likely, based on their first half results, that our growth rate has outpaced all of them, except perhaps one or two of the smallest independent firms, which of course, over a short period of time, can grow more rapidly because they are growing from a much smaller base.

This will be our eighth consecutive year of advisory revenue growth. In the period from 2010 to 2013, looking back in history, the dollar volume of announced M&A transactions was essentially flat, but our advisory revenues grew at a compound rate of growth of 20% during that period.

In 2014 and 2015, as Roger indicated, announced M&A activity grew strongly, and our advisory revenues similarly grew at a compound annual rate of 20%, benefiting from the stronger M&A environment. In this year, despite a decline in year to date in both announced and closed M&A activity, our revenues have grown even more significantly. The point is simple, and by the way, it is not that we're going to grow 20% year over year every year no matter what happens. The point is, that while it is obviously easier to grow in a rising M&A environment, we have demonstrated an ability to grow consistently by taking market share even without growth in overall M&A activity.

Second, let me talk about our equities business. There's now almost exactly two years since we closed on the purchase of ISI and the 40% of our existing equity business that we did not already own. At that time, we said that this acquisition, we thought, would accomplish three things for Evercore. First, that we could have an equities business with good operating margins, perhaps not quite as high as our advisory business, but 20%, plus or minus.

Second, that we expected that having a strong equities platform would add to the growth rate of our advisory business, both by making Evercore a more attractive platform for senior advisory talent and by broadening the ways in which we serve our clients. And finally, that our equity underwriting revenues would over time grow at a healthy pace. So now that we are two years into this effort, we're making good progress on all three of these objectives.

First, our year-to-date operating margins in the equities business are little above 20%. While they are not as high as our advisory business, they are strong and are making an accretive contribution to our operating earnings and our earnings per share. Second, our strong and elite equities platform clearly has contributed to our ability to attract certain senior advisory professionals, particularly those in sectors like biotech, tech, and energy, sectors in which equity issuance is an important part of the strategic advisory relationship.

And finally, while our US equity underwriting revenues are weaker than we had hoped for this year, they have declined less than those of the five large universal banking firms. Ours are down 22%, and the five large US firms are down 23% to 48%, and they still have grown materially since before the closing of the ISI transaction. Finally, combined with our ability to use the earnings from our equities business to increase our share repurchases this transaction already is materially accretive to our earnings per share.

Finally, let me talk broadly about our goal for Evercore. We are a global, independent, investment banking advisory firm. By that, I mean we are a firm that is only in businesses in which we compete solely based on our ideas, our intellectual capital, and our relationships, and in which the only source of revenues is fees. If there is balance sheet risk in the business, we're not in that business, both because we don't want to have exposures that put us in conflict with our clients, and because we don't want to risk our shareholders' capital.

Our goal is really simple. We want to be the most elite global, independent, investment banking advisory firm in the world. True eliteness requires scale, it requires globality, and it requires true eliteness. In both of our businesses, there are measures of eliteness. In advisory, it is the average revenues that the firm generates per senior managing director.

It is a pretty simple concept: what are the firm's clients paying the firm for senior professionals for its advice? The higher that is, the more highly the clients value your advice. For the past two years, as Roger indicated, we have consistently been in the $12 million to $13 million range for senior managing directors, considerably higher than all of our public independent firm competitors. And in equities, there is also a measure of eliteness: the Institutional Investor ranking, where we have done extraordinarily well over the past two years.

Believe me, we have lots more to do here. And we certainly are not resting on our laurels, but we're making good progress in consistently establishing our eliteness in our two key businesses, and we are quite consistently taking market share in a highly competitive business in good times and in less good times. Let's now open the floor to questions. Thank you.

We will now begin the question-and-answer session.

(Operator Instructions)

Ashley Serrao, Credit Suisse.

Good morning. This first question on the hiring outlook. I know that you have been selective, but curious whether you are seeing an increase in Evercore-caliber talent being available for hire in its advisory business, and how would you characterize the overall hiring environment today? Thank you.

It's probably a little early to tell; over the next month or two, we'll start to build a backlog for next year. I would say that because of the accomplishments of the firm, we unquestionably are a destination of choice for those high-quality advisory bankers who are interested in the independent advisory model. I would also say that there have been quite a large number of senior professionals who have left the larger firms for firms like Evercore and our competitors, and also to establish even smaller firms, so-called kiosks.

So we expect to be able to do as we have. We always say we're going to hire four to seven senior managing directors in our advisory business. I don't see any reason, sitting here today, that we wouldn't say exactly the same thing about last year. So far this year, we have hired five. Last year we were able to hire a total of 10, although two were in equity capital markets, ECM, so it was really eight in the pure client-facing advisory businesses. So I don't expect next year will be different sitting here today from any other year.

Jim Mitchell, Buckingham Research.

Hey, good morning. Bob, cash balances were up, it looked like almost $200 million quarter-over-quarter. Didn't seem like your borrowings increased. Was there anything unusual in there, or is that just cash flow and limited buybacks during the quarter?

Cash flow from operations, Jim.

Given how much -- I think that is the highest level you've ever had in the third quarter -- typically it goes up in the fourth quarter as well -- do you feel like that you are going to put all that excess capital to work? Is there any change in how you think about buybacks versus say a special, or something like that?

No, I wouldn't anticipate any change in what we've been doing, Jim.

Okay, and then maybe on your outlook, you talked about all three areas looking constructive, including restructuring. I think some of your peers have been sort of mixed on restructuring, given that the environment's improved, particularly in energy. What gives you more confidence in the outlook for restructuring from here?

Don't misinterpret what we said. Please. This is one of those unusual environments -- in fact I can't remember another one -- when M&A volume broadly at Evercore is good, and restructuring activity also is good, because historically they've been almost perfectly counter-cyclical: when one is up, the other is down, and vice versa. But our message is not that restructuring levels are at all-time highs, because in the broad market -- all restructuring, in other words -- they aren't. It's just that they are healthy at a time in the M&A cycle when you would expect them to be very weak.

All right. Fair enough, and Bob, thanks for giving us the number of bankers, if we can get everyone else to do it, that will be great.

Brennan Hawken, UBS.

Thanks for taking the question. Good morning. Just a quick follow-up there on Jim's question. We had cash spike on the balance sheet, and also buybacks down a pretty -- a pretty low level for buybacks here. Can you tell us, or give us some specific logic, is there a reason why capital seems to be building on the balance sheet here?

Yes, Brennan, and as you know we were extremely aggressive in buybacks in the first half of the year, sort of covering, offsetting all of the dilution caused by bonus awards as well as new hires to date. So when you balance that sort of aggressive buyback in the first half of the year, where we thought it was a good opportunity to do that against the need to just build up some in cash as you approach the end of the year, being in a position to fund bonuses et cetera. It was a light quarter, but our strategy for buybacks and returning capital is unchanged.

Bob, correct me if I'm wrong, but this is pretty simple. If we pay cash bonuses in the first quarter of next year, you can build up that cash linearly over the four quarters, or you can try to be a little bit more opportunistic about when you purchase shares. We used cash in the first half the year to purchase shares, and in the second half of the year we have to make up for that to have enough cash to pay bonuses. That's a pretty simple concept, right?

Yes.

Okay, and then appreciate the margin in the equities business in the first half, but could we get it to the 10th percentile there, just so we can make it comparable to your prior disclosures. And is it possible to get margin in the third quarter as well? Seems like margin is dipping in that business; obviously there is some environmental pressures. But can you tell us why that wouldn't make you want to rethink and adjust maybe your expectation for dilution on that deal?

So we actually did give it to you to that percentile. It is 14.0%. And as I noted --

That's for the deal, not the reported margin.

Brennan always focuses on the deal. And you know, Brennan, and in my comments in the third quarter, as Ralph mentioned, revenues were a bit softer. For us, in the quarter, expenses were flat. And that's going to have the effect on the margins that you have observed. For purposes of the deal, it's an annual measure, so in our view, giving you the year-to-date results as we sort of move to measuring the Gs the end of this year again, that's the right measurement -- the math, as you observed, the margins were weaker in the third quarter.

Yes, okay, terrific. And just last one obviously a personal issue here, somewhat. But given the importance -- is there any color you can provide on how Schoenebaum is doing and any potential expected timing for him to return from medical leave?

Obviously, medical leave is a private matter. We are going to discuss that, and he is told us that his expectation is that he will be back by the end of the year.

Okay, terrific. Hopefully, that is the case; hopefully he's doing well. Thanks a lot.

Thanks.

Conor Fitzgerald, Goldman Sachs.

Good morning. I just wanted to follow up on some of your comments about the recent strength in the M&A market. I don't want to ask about any particular deals, but just given the chilling effect we saw in the market when some large deals broke at the beginning of this year. I wanted to get your thoughts on whether it was important to see some of the larger transactions that are still pending close to get renewed CEO confidence about pursuing M&A.

Well, I'm not seeing, myself, any diminished confidence in the totals. Again, look at on a medium or longer-term historical basis, don't suggest any lack of confidence, either. You have to appreciate, or you might appreciate, that a very small percentage of deals face heightened regulatory scrutiny, and on an average day, the type of things that anybody at Evercore is working on generally aren't in that category.

I can't use a percentage in terms of what percentage of deals are chancy from a regulatory approval point of view, but in terms of number of deals, it's is got to be well less than 10%. And so the totals don't reflect a diminished lack of confidence; I'm personally not seeing it. I just don't think it's there.

Of course, if you're working on one of those deals within give or take the10%, everybody spends a tremendous amount of time on it. But fundamentally, if you just laid out, for example, every one of the deals that Evercore worked on in the third quarter, and I mentioned I think we had 65 involving fees of $1 million or more, I don't think there's either more than one or two -- maybe even none -- but not more than one or two that are even involving any serious regulatory scrutiny. The press is naturally focused on a couple of great big ones that do, but that's not the day in, day out flow at all.

That's helpful. Thanks. And then I know is going to depend on how Q4 shakes out, but at least if I look at your backlog numbers, it looks like for Q4 could be another strong revenue quarter, so I wanted to follow up and just get your kind of thoughts around the compensation ratio, assuming that the revenue strength flows through as expected. Should we interpret the lower compensation ratio you saw in Q3 as a sign that if the revenue strength continues, there might be some additional leverage there?

Think you should interpret that we will look at it again in the fourth quarter, and we are not want to give you any forward-looking comments.

That was an elite answer to an elite question at an elite firm in an elite environment.

We try anyway.

Roger is making fun of me because he was impressed with my comment that eliteness requires eliteness.

To have an elite firm you have to have an elite mentality, in an elite location, with elite people, and elite clothes, and so forth.

Our offices could use a little sprucing up. They don't look so elite.

That completes my elite bingo board, so thank you.

We do have a little fun here, too.

Steven Chubak, Nomura Securities Company, Ltd.

Hello, good morning.

Good morning.

So, one of the questions I wanted to ask, and Roger maybe you are best to opine here, is really the disconnect that we've seen in terms of the strong momentum you've had across the business, and maybe continued subdued outlook that we've heard, not just from investors but maybe even what's implied in consensus, where the earnings momentum continues to be quite strong. Both you and the independent peer group have yet -- despite that experience, pretty significant multiple compression.

And looking at the outlook for consensus, it does imply declining productivity over the next couple of years. But given the constructive outlook that you outlined on your prepared remarks, do you believe that more cautious revenue earnings outlook is misguided, and would you expect to grow revenues and earnings next year?

I can't answer that, honestly speaking. I can't, because we're not going to talk about earnings next year, and I'm not going to comment on what other people think of the outlook. Everyone is entitled to their own opinion, and I'm just not going to take that one on.

Okay. Fair enough. I had to give it a shot.

It was a manful effort.

I would comment, as I have a number of times, in our business you basically have decent visibility for three months, and a little bit less than decent visibility for six months. So to ask us what earnings will be next year is -- or even if you were sitting here in the second quarter and asking us what they're going to be for the remainder of the year. I will say, as I did in my concluding remarks, there are two ways that one can grow in this business.

One is to have the rising tide lift all ships, a strong M&A environment, and the other is to take market share. To take market share both in the M&A environment and to take market share by virtue of broadening the things that you are doing with your clients. And obviously there is no way that we can look at the past and use that as a prologue for the future. But some of the ingredients that would suggest that market share gains might still be possible for us are certainly in place.

Thanks, Ralph. That is extremely helpful color. And just switching gears for a moment, maybe just a follow-up to one of Conor's earlier remarks, on the question of seasonality, if we look at the seasonal pattern you have seen historically, it's pretty consistent with the broader industry pattern: second half stronger than first half, in terms of revenue, and Q4 is typically the strongest quarter of the year. And since, Ralph, you did note in your last response that you at least have visibility on the next three months, is it reasonable to expect that the fourth quarter this year is going to be the strongest one over the last four?

This is Roger. I'm older than Ralph, and I guess to say this, and Ralph, just for once a while has to kind of bite his tongue, and we're not want to comment on that, honestly. That's not what we do on these calls, as you well know. Good try, but no.

That was me biting my tongue. (Laughter)

Fair enough. I guess we'll leave it at that. Thank you for taking my questions.

I don't know how the transcript is going to reflect that, but. \

Devin Ryan, JMP Securities.

Hello, thanks, morning.

Morning.

Maybe a question on senior banker capacity and kind of how you're thinking about that right now. How much more can people work? I know that is maybe that is a tough thing to answer, but I'm just trying to think about framing it. Because clearly productivity is quite high; during the summer it sounded like one of the biggest tasks of the firm was just thinking about resource allocation, and making sure people were going after the highest revenue opportunities. And so maybe that is another way of asking how much higher productivity can go, or whether productivity is structurally higher, but I am just trying to think about the capacity at the firm right now.

The answer to that is, we don't know. Like many of the forward-looking questions that you ask. If you look back, historically, if you go back to the period of time 2010 to 2013, M&A as I said in my comments, was completely flat during that period of time. During that period of time, our productivity grew from $7 million to roughly $10 million.

I can't give you a concrete answer on why that happened, but we have a view, and the view is, number one, the average quality of our senior managing directors drifted upward, both through joinings and leavings. Number two, and this is an anecdotal thing, is the brand of the firm grew a little bit during that period of time. We probably got one or two more at-bats per SMD per year, and maybe we had a slightly higher batting average.

And then number three, we have been, as Roger indicated in his remarks, broadened the things that we do with our clients. This morning we have -- we were the IPO advisor on the largest IPO in Britain this year, and the largest healthcare IPO ever in Europe. That's a capability that we had anecdotally at the firm, but now we have a focused effort on advising companies on their IPOs and equity offerings in Europe. So, there are a number of things that have happened.

I think the average quality has gone up, what we are doing with clients has gone up, and the brand has improved. I think that continues to be the case in the last couple of years, when you've had both an upward drift in M&A activity in 2014 and 2015, and a little bit of downward drift today. All we can do is keep doing what we're doing, which is to hire the very best people that we can and to interact with our clients on as many things as we can possibly do, at a very elite level to coin a word that Roger selected.

That's really helpful color, appreciate it. I know it's a tough one. Maybe another difficult one. Bigger picture, the advisory business has been a secular growth industry over time, just as economies develop and more companies are increasingly comfortable with M&A. So that leads to more deals, and then higher market caps drive deal volumes higher.

So I'm curious if you guys are seeing any indicators that would suggest that the M&A markets are maturing. You had a lot more activity out of some of the more nascent markets like China, and some other areas as well, so I'm just curious, your view of that secular trajectory. And then when you think about future growth opportunities in the advisory space, what areas do think have the best trajectory within that?

The short answer to question is no. And to give you a couple of illustrations as to why it is no, a few years ago, let's say 10, tech M&A was quiet, or low. Today, tech -- and I'm not talking about TMT, but tech -- would be one of the three or four biggest sectors, globally, up from maybe number 10 or 15 10 years ago. And I'm not trying to be precise there in terms of 10 years ago, but just giving you a metaphor.

And healthcare, a similar trajectory, maybe you would have to go back further, but take biotech. Biotech M&A is very active. Twelve or 14 years ago, there was no biotech M&A. And I could go on and on, so whether it's places around the world -- look at China-related volume, for example. We just advised on the Tilton transaction, vis-a-vis [H&A] Or whether it's sectors that were not active, but coming active. I don't see any secular slowdown or secular maturation.

Okay. That's very helpful. Just last one here, any thoughts on how much the election, if at all, is having an impact on activity in DC, activity improving on the M&A side, I guess particularly post- the election

I don't think the election is having any impact. And if it is not having any impact now, it probably won't have any impact after the election. I can't say that for sure, but I don't see any evidence that the election is having an impact on M&A volume. I haven't personally been in any transactions were it was even discussed, really.

Got it. Okay. Great. Thank you, guys, for taking the questions.

Thanks, Devin.

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

Normally, I would have extensive closing remarks, but I'm biting my tongue, so we look forward to talking to you in another quarter.

Thank you all.

Thank you, everybody.

This concludes today's Evercore third quarter and nine-month 2016 financial results conference call. You may now disconnect.