Evercore Inc (EVR) 2016 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 2016 financial results conference call. (Operator Instructions). This conference call is being recorded today, Wednesday, February 1, 2017. 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. Good morning and thank you for joining us today for Evercore's fourth-quarter and full-year 2016 financial results conference call. I am Bob Walsh, Evercore's Chief Financial Officer. And joining me on the call today are Ralph Schlosstein, President and Chief Executive Officer; our new Executive Chairman, John Weinberg; and Roger Altman, our Founder and Senior 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 2016 financial results. The Company's discussion of our results today is complementary to that press release which is available on our website at Evercore.com. This conference call is being webcast live on the Investor Relations section of the website and an archive of it will be available beginning approximately 1 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 included 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 have noted previously, our results for any particular quarter are influenced by the timing of transaction closings. I will now turn the call over to Ralph.

Thanks very much, Bob. And good morning, everyone. Before we discuss the results for the quarter and the full-year, Roger and I would like to welcome John Weinberg, our new Executive Chairman, to this call. John's arrival at Evercore is a giant step forward for the Firm. His skill as a banker and his integrity exemplify the high-caliber senior banking professionals who we continue to attract to Evercore to elevate, evolve and grow our business.

All three of us will be on today's call. In the future you should expect in most cases to have John and me. Roger will be spending the vast majority of his Evercore time with clients, which, with all due respect to all of you, is his passion. Let me now talk about the year and the quarter.

2016 was a remarkably strong year for Evercore driven by industry-leading growth in every part of our Advisory business. Advisory revenues grew 27% versus last year. Our equities business continued to grow modestly and was again very highly rated in the institutional investor rankings, number two on a weighted basis and number three on an unweighted basis. Our Investment Management business continued to perform as expected.

Our growth in Advisory was driven by market share gains, not by a particularly ebullient M&A environment. As you all are aware, we track our market share versus public firms which report their Advisory fees separately and all publicly traded independent firms -- versus all public firms including all the large universal banking firms, our market share of revenues was 4.8% at the end of 2015.

While all firms have not yet reported, we estimate that our market share for 2016 among all public firms will be 6% or perhaps a little higher. We estimate that our market share among all the publicly traded independent firms will exceed 18%, up from 16.3% in 2015. As a result of this performance our Advisory revenues are expected to be the sixth or seventh highest in the world and we estimate that we rank significantly higher in the US.

The competitive environment continues to be quite favorable to our independent Advisory model as clients increasingly are embracing our approach of providing independent, senior level trusted and confidential advice, three of the most -- of the actual and perceived conflicts that clients frequently encounter with our universal banking competitors. Clients also have embraced the breadth of capabilities and the globality that we offer. As we enter 2017 we are optimistic that both our relative and absolute strengths will continue to resonate with clients.

Let me turn to our financial results. Evercore's fourth-quarter and full-year results reflect our strong performance in our investment banking business globally. We delivered our eighth consecutive year of growth in both revenues and earnings and our margins exceeded 25% for the first time since the financial crisis. And we continue to deliver significant value to our shareholders.

Let me just turn very briefly to the numbers. For the full-year record revenues of $1.431 billion with net income of $223 million, up 18% and 30% respectively versus 2015. Earnings per share for 2016 increased 34% to $4.32, another record. Operating margins were 26.5% versus 24% in 2015 with a full-year compensation ratio of 57.3%, a modest improvement compared to the 57.8% of last year.

The year-over-year improvement in the compensation ratio occurred despite higher approvals for our long-term incentive plan and despite the addition of John to our management team. The increase in the long-term incentive plan was driven by higher SMD productivity, which quite honestly exceeded our expectations.

The average revenue for Advisory senior managing directors for the US and UK combined at the end of 2016 was the highest level since before the financial crisis. Our non-compensation expenses, the ratio of those to our revenue improved in 2016 to 16.3% versus 18.2%.

For the quarter net revenues were $442 million, a quarterly record up 9% versus the same period last year. Adjusted net income in the quarter was $74.4 million with earnings per share of $1.43, in each case the best quarter in our Firm's history. These results are up 15% and 17% respectively from the prior year.

Our operating margins in the fourth quarter were 28.7% versus 27.2% a year ago. The fourth-quarter compensation ratio was 57.2%, down from 58.6% in the same period last year. The non-compensation ratio was 14%, slightly down versus the same period last year.

Our strong results enabled us to continue our record of significant capital return to our shareholders, returning $225.8 million, increasing our dividend for the ninth consecutive year, and offsetting the dilutive effect of all shares issued for bonuses and new hires and a portion of the share issuance in connection with the ISI transaction.

Let me now turn the call over to Roger and then John to discuss our investment banking business.

Good morning, everybody. I will try to be quick here because I don't want to duplicate what Ralph just said. For the banking side of the Firm 2016 was the eighth consecutive record year. And I'm going to focus first on the year and then on the quarter, so this is covering the year.

Total revenue hit $1.35 billion, that was up 21% from the 2015 level. Pretax income $345 million, up 32% from the 2015 figure. To break down that revenue, Advisory fees totaled $1.07 billion, up 27%. Commission and related income was $231 million, up 1.5%, underwriting revenue $36 million, down 9.6%.

Breaking down the Advisory fee portion of that further, we saw 246 fees equal to or greater than $1 million each. That is up from 180 for 2015, which represents a 37% increase. And we advised on 86 capital raising transactions last year generating fees of $73 million in comparison to 63 transactions in 2015. The total number of fee paying clients for 2016 was 568, another record, up from 484 the year earlier.

On productivity, revenues per senior managing director on the same rolling 12-month basis we always use, was $13.8 million globally at the end of 2016, up 9% versus the end of year 2015 figure. The 2016 number I just gave you reflects 79 senior managing directors; the 2015 figure reflected 68.

Now we pay a lot of attention to productivity because we think it is really an important measure of how we are doing. And by any normal standard in this business $13.8 million per senior managing director is a very strong figure.

Our comp ratio, 57.8% for 2016 versus 58.2%, improved obviously. And our operating margin, 26.3% up from 24.1%. We realized 33% of our Advisory fees from non-US sources in 2016, which represents good balance.

For the quarter it was a record quarter for the Firm in banking let alone a record fourth-quarter by itself. In other words a record overall quarter in the Firm's history -- best quarter in the Firm's history. Net revenue $423 million, up 16% from the fourth quarter of 2015. I must say that if you think back to the beginning of the Firm, if someone said to me that you would be reporting $423 million of banking revenue in one quarter I probably would have called for some psychiatric assistance.

We had 256 fee paying clients in the quarter up from 222 a year ago; 82 fees greater than $1 million up from 68 a year ago, 21% increase. $38.5 million in fees for advice relating to 35 completed capital raising transactions, that is up from $26.7 million of such revenue on 32 transactions the year before. We completed 14 underwriting transactions raising $7.6 million, up from 12 transactions the prior quarter. Comp ratio for the quarter 58.3%, improved from 59.2%. Operating margin 28.1%, improved from 27.2%.

Ralph spoke about our market share, I won't repeat that. Evercore's market share has been going up every year for the past quite a few. I don't see that changing myself. We were the number one ranked independent firm in the US M&A market, keeping in mind that is the world's largest market, based on announced transactions in dollars for 2016 and we were second among independent firms globally.

We aren't number one in the US market every year, but we do rank at that pinnacle in most years and we did again obviously in 2016. Ralph talked about our share of the global fee pool, an all-time high as we see it, and also our share of fees paid to publicly reported independent firms also an all-time high. And I'm going to stop there and turn it over to John.

This is my first call and, first, let me say that it is a real privilege to be here with you. Consistent with the view at Evercore since the very beginning, managing, retaining and recruiting talent, it is foremost. And so I'm going to spend just a couple minutes talking about talent and then I'm going to move on and spend a couple minutes on the M&A markets and our view going forward.

Consistent with our long-standing commitment to steady growth in adding talent, we have added five Advisory senior managing directors in 2016, adding to our industry expertise in energy and industrials and expanding our capabilities in activism and defense and broadening our geographic reach in Europe. We ended 2016 with 81 Advisory senior managing directors.

To date in 2017 we have announced the addition of Masuo Fukuda in Tokyo strengthening our position in Japan where we continue to work with our long-standing partner Mizuho. And also we have added Ira Wolfson, further solidifying our capabilities in the industrial sector.

Importantly we continue to be focused on growing and developing our internal talent. With that we are pleased to announce that at the beginning of this year we promoted four Advisory managing directors to senior managing director, adding to our leadership teams in healthcare, media, technology and in capital Advisory for alternative investment funds.

We have a number of active discussions in the process currently and it is really too early to tell the [ultimate] number of SMDs that we will be adding in 2017, but we are optimistic that this could be a strong year.

Now let me turn for a few minutes to the M&A market. The M&A market remains healthy. While aggregate dollar volume of announced M&A transactions was down from record levels seen in 2017, in 2016 the number of announced M&A transactions was up 2% year over year. Dollar volume of announced transactions was down 15% year on year globally as 2015 was skewed by large strategic transactions over $5 [billion].

Interestingly when you look at the market below the megadeals, which we know is quite lumpy, and you look at announced transactions below $5 billion, which is the vast majority of activity, the dollar volume is up 16% in the US and 2% globally. And the average transaction size in the US has increased modestly.

In terms of going forward -- prospect for 2017, the core elements that drive healthy models for M&A remain in place, namely historically low interest rates, high equity prices, abundant credit availability and strong business confidence. And we've started 2017 with a healthy number of announcements for the month of January adding to our backlog.

We all know that one month does not make a year and there is clearly uncertainty and headwinds. Whether it be tax policy in the US, Brexit, elections in France and Germany, recent policy decisions in the US, we definitely understand that things are not going to be a straight line to success. Having said that, we feel quite good and we feel like the dialogues that we are having with clients has been quite robust. And we feel good about those -- in the activities going forward. Ralph?

Okay, let me just talk -- thanks, John -- briefly about our equities business. Equities performed well again this year with modest growth in secondary revenues offsetting a modest increase -- or decrease, excuse me, in equity capital markets activity. As all of you most certainly know, it was a challenging year in the ECM markets and we were not excluded from that. Our ECM revenues were down approximately 10% year over year in comparison, however, to our large firm competitors who generally were down 20% to 35%.

We continue to execute our strategy participating as a book runner in the two largest IPOs in the US in 2016 and as an independent advisor on the largest IPO in the UK last year. We remain confident in our ECM strategy and look forward to stronger results in 2017.

Evercore ISI contributed net revenues of $68.7 million in the quarter, including $5.7 million attributable to ECM activity. For the year the business reported net revenues of $246.2 million including $15.7 million attributed to underwriting. Full-year secondary revenues were up 2% versus last year driven by a 12% increase in trading volumes demonstrating the success of our low touch trading platform.

Overall the business produced operating margins of 24% in the quarter and 22% for the full year. The business continues to perform well in a challenging market and we remain confident that we can grow this business as we steadily add high-quality talent.

In Investment Management we reported net revenues and operating income of $18.8 million and $8 million for the quarter. For the full year net revenues were $80.8 million and operating income was $24.3 million. The full-year operating margin was 30% compared to 24% last year. These results predominantly reflect the contribution from our Wealth Management and Trust businesses in the US and the Money Market Investment Management business in Mexico, each of which continue to perform well.

During the year we also continued to make progress in rationalizing our Investment Management portfolio of businesses, selling our Mexican Private Equity business to the professionals who manage that business.

Bob will now provide further comments on our GAAP results as well as on our non-compensation costs and several other financial matters. Bob.

Thanks, Ralph. Starting with our GAAP results, net revenues on a GAAP basis of $445 million and $1.44 billion were a record for a fourth quarter and full year respectively just as they were a record on an adjusted basis. Net income attributable to Evercore Partners Inc. was $43.4 million for the quarter and $107.5 million for the year, records for each period on a GAAP basis.

Consistent with prior periods, our adjusted results exclude certain items that are directly related to our acquisitions and dispositions, particularly costs related to our equities business. Most significantly we adjust for costs associated with divesting of LP units and interests granted in conjunction with the ISI acquisition. For the year we expensed $80.4 million related to this equity in comparison with $82.5 million in 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 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 were $152,000 for the year, a 3% decline versus 2015 as growth in non-compensation costs were lower than the overall growth in headcount. For the quarter such costs were $39,500, up slightly on a sequential basis.

The adjusted operating margins which govern the ultimate payout of G and H units for the equities business are 14.3% for the year, above the threshold for the current year tranche of the G units.

Moving to Atalanta Sosnoff, at the end of 2016 Martin Sosnoff retired from that business. Concurrently we performed an assessment of the carrying value of our investment for impairment and recognized a pretax impairment charge of $8.1 million, $3.8 million after tax in our US GAAP results for the fourth quarter.

Moving to taxes, the adjusted tax rate for the year was 38% as we continued to generate a higher percentage of our earnings in the United States. Our GAAP results reflect an effective tax rate of 44.5% for the year. Again, our GAAP effective tax rate is impacted by the nondeductible treatment of compensation associated with Evercore LP units and interests.

The share count for Q4 on an adjusted basis was 52.1 million shares, slightly higher in comparison with prior quarters due in part to the rising share price of shares associated with John joining senior management and the more limited buybacks for the quarter. On a GAAP basis the share count was 44.5 million shares.

As Ralph had mentioned previously, we repurchased 3.5 million shares and units at an average price of $48.03 for the year, offsetting the dilution of shares granted to employees and new hires in the year and reducing the shares associated with the ISI acquisition, consistent with our planning. At December 31 we had a remaining authority to repurchase 6.5 million shares.

Finally turning to our financial position, our cash position remains strong as we hold $625 million of cash and marketable securities at December 31. It would be reduced to $290.5 million when factoring in accrued compensation and benefits. Current assets exceed current liabilities by approximately $463 billion. I will turn it back to Ralph for closing comments.

That completes our presentation. Let's just take questions.

(Operator Instructions). Steven Chubak, Nomura.

Ralph, you recently announced the decision to open up an office in Tokyo and the hiring of Masuo Fukuda. In recent years we have actually seen a number of your bulge bracket competitors choose to retrench from some of those markets just given very intense competition, really struggles competing with some of the local players.

And wanted to get a better sense as to what is driving your decision to expand to Tokyo. Whether you believe that the retrenchment of some of the more global players has provided a better opportunity? And are there other markets where you might look to expand in the coming year?

Well, first of all this is not a major material event from a financial point of view. We've had a partnership with Mizuho, we do feel that particularly outbound M&A from Japan will continue; you have a lot of cash rich companies with life locked into essentially no growth local economy. So the impetus for them diversifying outside of their home country is very real.

So we felt that having a very modest -- this is probably going to be three people or so -- Evercore branded effort on the ground would help us in two ways: first to be more involved in some of that outbound flow; and second, because of the acquisition appetite of Japanese companies, very often sell sides in the US or Europe have one or more potential buyers in Japan. And so we felt our ability to access those not only through Mizuho but through an Evercore branded effort would be useful.

No, thanks for that helpful color.

Geographies, you know, we do that more in response to the availability of great talent than a strategy of we have to be here or there or anywhere. We have never said that and we never will.

Got it. And first off, John, welcome. And appreciated your helpful commentary as it relates to the outlook for 2017. In the prepared remarks you did note that the ingredients for a constructive backdrop were still very much in place. And as I think over the last couple of years, the message from a lot of C level management at the various M&A shops has broadly been that low rates and a slower pace of growth actually provided a pretty favorable backdrop.

And now, as we look ahead under the new presidency, you have expectations for more inflationary policies that could spur accelerated growth but also drive rates and ultimately financing costs higher. And yet the messaging continues to be quite constructive. And I am just curious to hear what, in your view, actually makes for a better backdrop in terms of industry activity?

Well, my own point of view is that so much of the M&A activity is driven by CEO confidence. And what we are seeing and hearing is that CEOs have confidence. They have confidence in a rising economy whether it is a slow rising economy or more accelerated, but they really feel that. They see that there are opportunities and financing and access to capital remains high and I think people perceive that it will remain high.

And so, those things together I think really do provide a very positive backdrop for people who are looking at strategies to be able to execute on them. And that is why I think we believe that there is very solid basis to believe that things will continue to be quite strong. Roger, I don't know if you have a point of view on this?

No, I share that. I have said many times on this call or referred many times to the basic elements of the framework that typically translates into healthy M&A activity. And John referred to them in his own comments; I won't go over them again. I just think they are in place and I expect 2017 to be a healthy year. And with our continuing to gain market share, a year in which we again do well.

Got it. And maybe more specifically in terms of cross-border activity. How you are thinking about the potential impact of -- given some of the protectionist rhetoric that has come out recently, but at the same time we have also seen quite a bit of US dollar strengthening which could clearly give more purchasing power to US corporates?

I think we have to just wait and see on that. There are going to be a lot of cross currents this year given the arrival of a lot of new policies both -- or at least potentially in the United States and reactions to those policies elsewhere. Very hard to tell at the moment; I don't have a particular view on that. I have learned over many years that trying to forecast exchange rates is harder than forecasting the weather. So we just don't know.

Fair enough, well -- all right, that is it for me. Thank you for taking my questions.

Mike Needham, Bank of America Merrill Lynch.

So first just a bigger picture question for John. What are your aspirations for Evercore and what are you going to be focused on in your first couple of years?

When I came to Evercore, in making the decision I was really impressed by, number one, the level of talent here and also as (technical difficulty) the values and the principles. And my own expectation and my desire is to really take a strategy which has been very successful and to help to drive it forward.

There are definitely places where we can continue the strategy that we have had, which is acquiring great talent, developing great talent, retaining great talent. And then focusing on clients and trying to really take a very disciplined approach at really understand their needs and trying to fulfill those needs. Whether those lead to transactions (technical difficulty) they lead to great relationships and a franchise value that goes forward.

And that really is what my focus will be, which is to continue those great values and principles, to keep the strategy, which is this intense relentless focus on clients, and to try and build it out further. What Roger and Ralph have done is really to take a firm and really take it step by step to even -- more relevance and larger size and really just more activity. And I think that is really what our goals are going to be is just to keep building that out.

Okay, thanks. And then I was just hoping that you guys could drill down on the impact from the election. It sounds like the level of conversations with clients is healthy. I don't know if maybe you can comment on like pre- versus post-election, whether that level is higher or lower. Any near-term risk to like your pipeline and deals getting completed on time? And then eventually would you expect the healthy level of conversations to convert to mandates?

Well, first of all we are two weeks or so into the administration and it is pretty hard to generalize as to what it means for our business over the medium- and longer-term. I would say so far the level of discussions or conversations or evaluations is up from the pre-election period, not down. There is obviously some anticipation, we can all read it in the press, of lesser regulation including on competition policy. Whether that continues, who knows? But for the moment I would say it is up. And we will just have to see how that evolves.

Okay, thank you.

Brennan Hawken, UBS.

You all made a comment in your opening remarks about being optimistic in the recruiting environment. Do you think that your traditional target for recruiting would hold based upon what you see in 2017? And how should we balance the potential for a less hostile regulatory environment amongst some of your larger competitors playing into the mix? And do you think that might impact the recruiting outlook in any way or maybe the cost of recruiting? Thank you.

First of all, let me take the second question first. While there is -- as you have heard me say in the past, there is always some combination of push and pull that causes someone to leave another firm, and most often a large firm but not always, and come to Evercore. The push factors -- the regulatory environment in which bankers have to work is pretty far down the list of things that cause people to leave.

So I would not expect a more benign financial regulatory environment -- if one is forthcoming, by the way -- to have much, if any, effect on the open-mindedness of bankers to consider departing where they are and joining us.

With respect to the first question, we are really, as John said, a little early in the year to tell. We have had the two announcements that John alluded to; we have a third person that we are quite far along in discussions. And then there is a number of other discussions.

But these are a little bit like the transactions that we work on -- until there's an announcement you don't really know that you are going to get something done with these people because the people who we are recruiting generally are the most valued and the most treasured at the places that they are. So there is always an aggressive effort on the part of their current employer to keep them.

Okay, thanks for all of that, Ralph, appreciate it. And then on the ISI and equities business for you all, I don't think I heard it -- if I missed it, apologies. But where did the full-year margin in the equities business, ex underwriting, the calculation used for these shares tied to the deals, where did that shakeout? I believe the full-year 2015 for comparative purposes was 15.2%.

It was 14.3% for the year, Brennan, which exceeded the threshold for the current tranche of units.

Got it. And then while I get the environment for equities is certainly difficult, it seems like you guys think that it is going to improve or that the pressure is temporary. So would love to hear your thoughts on that.

And when you think about the margin opportunity using 2016 as a jumping off point, how much of it in that business would be tied to revenue opportunity versus further expense discipline and rationalization? Thank you.

I think our operating assumptions are not that we have a cyclical weakness in equities, it is more oriented toward that there are secular impacts on that business, some of which may modestly reverse. But the growth of passive investing, the leveling off or even shrinkage of active equity assets and hedge fund assets are all modest headwinds for that business. Obviously offsetting that on the other side is the growth in the equity capital markets generally.

I would also say that there are some pretty consequential regulatory changes initially in Europe in the MiFID II standards which both the clients and the providers of equity research services are starting to prepare themselves for. And those will also have an effect on the -- certainly in Europe on the wallet spend of equity managers.

We do think that our business approach, which interestingly enough is identical in our Advisory business and in our equities business, which is to have the most elite business, the top talent. We do think that that approach offers the opportunity for us to gain market share. But if you look at the equities business over the long cycle, it is not a secular growth business; unlike the Advisory business, which, even though it is cyclical, has for the last 35, 40 years been a secular growth business.

So, and then in terms of how do we expect to make money. We continue to look at our costs. I think our non-comp costs have -- will continue to make modest progress, but they are really not going to be a source of additional margin. But we do need to continue to attract and retain the best talent, upgrade talent where that is the appropriate thing to do. And also utilize our distribution resources as efficiently as possible and to make sure that they are matched up against where the revenue opportunities are as well.

Sorry about the long-winded answer, but it is a business that has -- that is really important strategically to what we are doing here. But it definitely doesn't have the same wind at the back that our Advisory business does.

No, that is really great color. And nice to see you could sneak in at least one use of the word elite on the back of last quarter. So, thanks a lot.

It may be a long day on that score (laughter).

We are going to miss Roger.

Well, I have to warn all of you, you know the show, so to speak, that Ralph and I have had here for the past few years has been one of balance between one theory, which is why use 20 words if four can do, which might be mine. And another theory which is why use 20 words with 80 might do, which might be somebody else's. So John Weinberg has a very heavy burden to carry (laughter).

James Mitchell, Buckingham Research.

Maybe one for John. Since you are new to the Firm and coming from a full-service shop, how do you -- when you look at the underwriting opportunity at Evercore, how would you kind of look at that and see what kind of upside there is in growing market share in underwriting?

Well, I think there is actually a great deal of opportunity in that Evercore has a very strong reputation with respect to advice, very strong financiers, people who really know how to give really objective thought to strategic decision makers who may be thinking about equity. And so, from that score there is in place a group of people who actually can really bring the kind of quality that issuers are looking for.

The capability of actually distributing and helping to structure securities and basically drive underwriting is there. And really what we are trying to work on now and really thinking through is how do we create the muscle memory. This has been a Firm that has really made its [bones] and really made kind of the majority of the fruits of its labors from giving advice on mergers and now we have this capability which we are integrating in.

And so, there are two aspects of it. One is the actual capability, which I think we have. And the second is making sure that we have all of our bankers who are out there having hundreds and hundreds of dialogues every day with people who are making decisions on capital raise and giving that advice and having ourselves be part of the group who are going to be put into those capital raises. And we are starting to make that progress.

It is all about, I think, muscle memory. Having been in a firm where that was really a big part of the suite of products you see how that takes place. And we are just starting to really work hard on developing that. And so, really to go back to your question, I think there is a lot of potential and it is all about us starting to learn how to do it in a very effective way.

And you don't think that comes at the expense of getting the M&A assignment that is maybe what some of the bankers are worried about?

No, I don't think that at all. Actually on the contrary, I think the more important strategic discussions you are having with management teams the stronger the relationship is. So actually I think that they will feed on themselves and it will be somewhat synergistic. And that is kind of the way I have seen it. I mean I have actually seen it take place and I believe that is the way it will be.

Okay, great, thanks for that color. And then maybe one, Bob, on the -- as we think about buybacks, I mean the stocks -- obviously the whole group has had a pretty good run. Do you think a little differently about net buybacks versus maybe a special dividend or a debt buyback? How do we think about deploying capital, I mean your cash as cash balances were up I think 22%-23% year over year going into this year?

We don't really see anything that is going to change our principles, Jim, which is the dividend which the Board sets is reviewed annually and it has gone up every year, as we mentioned. And the remainder of the excess cash is going to be returned to shareholders through buybacks, making sure we cover the shares we use for new hires as part of our bonus awards and continuing to make progress reducing the shares we are using for the ISI acquisition.

Okay, fair enough. That is it for me, thanks.

Vincent Hung, Autonomous.

So I was impressed by the year-on-year increase in the number of client transactions. Can you give me any sense for how much of that is from new versus so called repeat clients?

We don't have data on that.

Okay. And is there anything you can say in regards to the ECM pipeline right now?

Entering this year, and I'd say this is pretty standard across the board, it looks stronger than it did entering last year. And that is an industry-wide commentary and Evercore is not an exception from that.

Great, thank you.

Devin Ryan, JMP Securities.

Maybe just starting here, just a couple follow-ups. European M&A announcements have been pretty much stagnant since 2009, a couple recessions over there, some disruptive events. So, appreciate the comments around kind of the broader M&A picture, and I get it that there is a lot of moving parts here as we look forward.

But when you look at Europe specifically, is that cautious optimism -- maybe that I would characterize as your outlook for this year -- the same over there? Or just how are you thinking about some of the scenarios in Europe in the year ahead?

I would say that we are cautiously optimistic there, but there is even more uncertainty there we believe than here. And so I guess that cautious optimism, I hate to -- (inaudible) but it's even more cautious. We just -- we really believe that people and strategic decision makers over there really are looking and want to be moving forward. We just think there are a lot of barriers and obstacles. Or maybe better said, headwinds, that they are confronting right now.

And as Roger said, there is a lot that is going to happen in the next two or three months that is really going to indicate what happens over the whole year. And I think a lot of people are sitting and watching right now. I hope that is helpful.

Yes, I appreciate that. And then just one on the restructuring business. How are you guys thinking about revenue momentum there? I am sure there is some spillover of mandates from last year, so maybe that kind of keeps revenues elevated. But it would seem the new mandates are slowing from the outside. So I am just curious how you guys would characterize what is going on in that business?

Well as you know -- and we have made this point many times -- restructuring business historically has been almost perfectly countercyclical vis-a-vis the M&A business. When one is up the other is down and vice versa for reasons that actually are very logical when you think them through.

Now this past year or two has been a bit different because the restructuring business was stronger than historically one would have thought, quote, despite, unquote, a strong M&A market. So we will see.

Evercore has a great restructuring business and, as you know, we are big believers in it. It is a great business, we think we are one of the three leaders in the world in that business. I say think because the data is not perfect -- a lot of situations you don't know about because they are resolved privately rather than publicly.

But we are big believers in the business, we have a great team. It has served us extremely well for many years and it will continue to do so. And whether this historical cyclicality has now been interrupted as the last couple of years say or whether it will reassert itself going forward, just too hard to tell.

Got it, okay. That is helpful. And then just last quick one here, the Luminis Partners interest, stake that was taken yesterday, I guess the 19% stake. I understand there was already a relationship there. Is there a timeline here for a full acquisition? I know you have done deals like this in the past. But just to remind us around the rationale of buying a interest in a company versus a full acquisition?

Sure, two years ago when we entered into the partnership with Luminis we made a loan to them which was convertible into a 19% interest in the Company. So this was essentially a mechanical conversion of our debt instrument into a 19% interest. Their business is off to a good start. We are thrilled to have them as partners. And we don't contemplate any change in that equity ownership position at this point.

Got it. Okay, terrific, thank you guys very much.

Jeff Harte, Sandler O'Neil.

A couple of wrap-ups from me. One, when we look at the comp ratio, and I guess I am trying to get at the potential for it to improve over time. I mean 2016 was near the higher end of kind of the long-term range you guys have talked about. Can you talk a little bit about the balance between what should be some positive operating leverage on the pretty impressive Advisory revenue growth you have had versus the cost of continued hiring and expanding?

I would say that, first of all, the comp ratio that we had this year was the lowest we've had in my memory. So, and I think we have consistently said that we expect to make progress toward a comp ratio that is 55% to 58%, 59% and we have done that.

And we have also said that if an opportunity presents itself to grow the value of the Firm by hiring a higher than normal number of senior managing directors, that we will take advantage of that and we will obviously at that point explain to you how we might affect the comp ratio -- the progress that we have consistently made to be affected.

Interestingly enough in 2015 we had a year where we hired 10 senior managing directors and I think at the beginning of that year, or mid that year we said we at least advise you that it is possible that that would have an impact on our steady progress with respect to the comp ratio. Unfortunately, we had a strong enough year from a top-line point of view that that did not happen.

But -- so the comp ratio will be a function of our revenue and our hiring. And we really can't provide any forward guidance at this point and at the end of the first quarter obviously we will have to have a comp ratio which will be our best guess of what it will be for the year. And I think we will be prepared to discuss it a little more robustly then (inaudible).

Okay. And on the non-comp side then as well, I guess I am a little more used to kind of looking at the dollar amount quarter to quarter as opposed to the ratio. I know the ratio keeps getting better. But the dollar amount stepped up quite a bit the back half of 2016. Dollar amount wise, how should we think of that going forward? Is it just a function of a higher headcount or were there some unusual items? Would we see it maybe go back to where it had been running?

I think, Jeff, you should continue to expect the dollar amount to grow with the number of people in the Firm. As you know, that is the metric that we pay the greatest attention to and we try to get some leverage there as we did this year reducing our cost per head.

In the fourth quarter there is a couple of lumpy items. If you look back over the past couple of years the fourth quarter seems to attract a couple of lumpy costs, drops back in the first quarter and then normalizes. So I wouldn't read too much into the quarter. Look for us to continue to grow the Firm, add people and that will be the real driver of our non-comp costs.

Okay, what was the employee count at the end of the year?

1,475.

All right, thank you. And I guess finally, this has been hit on already, but the concept -- I am looking at kind of use of excess cash. So returning excess cash to shareholders, can you help me balance that a bit against what looks like a pretty low payout ratio of what we think your operating cash flows would be for the year?

I mean you spent a lot of -- you returned a lot of capital to shareholders, but relative to what it looks like your operating cash flows were, it actually looks like a pretty historically low amount.

Well, I think our Board's policy with respect to the dividend -- the regular dividend has been to increase it steadily year over year. It is generally I think our third-quarter Board meeting where we consider the dividend for the next 12-month period of time. And if you look back historically the Board has been pretty regularly increasing it by 10% plus or minus.

And I don't want to speak for the Board, but I suspect there -- and the reason the payout ratio has drifted down a bit is that fortunately for all of us our earnings have grown at a faster pace than our dividend has. And so -- but this is a business that should be run carefully in our view. And I think that that historical policy represents the Board's view of what should happen to the regular dividend.

So, whatever excess cash flow we develop, and we have been very consistent about returning all of our cash flow to our shareholders, historically has all gone into buybacks. And I think it is way too early in the year to say at this point I think that is our anticipation again.

Okay, thank you.

There appear to be no further questions at this time. I would now like to turn the floor to Ralph Schlosstein for closing remarks.

Thanks very much, everyone, and we will speak to you next quarter.

Ladies and gentlemen, this does conclude the program --.

One other thing, Roger, I will miss your repartee (laughter).

I am not sure about that.

I will, it is true.

Thanks, operator.

Thanks.

You're welcome. Ladies and gentlemen, this does conclude the program, you may now disconnect. Everyone have a great day.