Evercore Inc (EVR) 2019 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Evercore Fourth Quarter Full Year 2019 Financial Results Conference Call. (Operator Instructions) This conference call is being recorded today, Wednesday, January 29, 2020.

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

Thank you, Sonia. Good morning, and thank you for joining us today for Evercore's Fourth Quarter and Full Year 2019 Financial Results Conference Call. I'm Hallie Miller, Evercore's Head of Investor Relations. Joining me on the call today are Ralph Schlosstein, our President and CEO; John Weinberg, our Executive Chairman; and Bob Walsh, our CFO. After our prepared remarks, we will open up the call for questions.

Earlier today, we issued a press release announcing Evercore's fourth quarter and full year 2019 financial results. The company's discussion of our results today is complementary to the press release, which is available on our website at evercore.com. This conference call is being webcast live in the For Investors section of our website, and an archive of it will be available for 30 days beginning approximately 1 hour after the conclusion of this call.

I want to point out that during the course of this conference call, we may make a number of forward-looking statements. 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 SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. I want to remind you that the company assumes no duty to update any forward-looking statements.

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

We continue to believe that it 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.

Thank you very much, Hallie, and good morning. 2019 was a successful year for Evercore in many important strategic respects. We served our clients with distinction in all of our businesses and generated revenues in excess of $2 billion for the second consecutive year, the second best year in our firm's history.

As John will describe in his remarks, our position in the M&A league tables has never been stronger both versus our independent firm competitors and among all firms. We maintained our position of #4 in global Advisory revenues, and we believe that we again gained market share among all publicly traded investment banking firms. Not all firms have reported yet, but based on consensus estimates, we project that our market share of Advisory revenues increased from 8.2% in 2018 to 8.4% in 2019.

Our underwriting revenues grew by 25% to a record $89.7 million, and we were a book runner on a much higher percentage of our underwriting assignments.

While our secondary revenues were down about 5%, we anticipate again that our market share grew in this business as well, and we maintained our top rank among independent firms in the institutional investor annual survey, placing second on a weighted basis among all firms. And we increased assets under management at Evercore Wealth Management by approximately 20% to a little over $9 billion.

We continue to invest in our future growth, adding more senior talent to our team than at any point in our history. In 2019, in Advisory, we recruited 7 Senior Managing Directors -- promoted 7 Managing Directors to Senior Managing Director. We also added significantly at the Managing Director level, providing essential operating leverage for our Senior Managing Directors and broadening the pool of talent that can be promoted to SMD in our Advisory business in future years. Our Equities team added research coverage in consumer, food, information technology and the public policy sector, and we built our future leadership team in this business. And in Wealth Management, we began the transition to the next generation of leadership with the announcement of a new CEO for that business.

Our investments were not limited to investing in people. We also expanded our facilities and added materially to the technology required to sustain our operations at a larger scale. We raised approximately $206 million in the third quarter in the private debt markets to finance these and other investments.

In summary, our brand and our market position in Advisory, Equities and Wealth Management has never been stronger. However, while our brand and market position have never been stronger, our revenues were down 2%, which while better than many of our larger competitors was nonetheless disappointing to us. As we said on our last earnings call, we experienced delays in the closing of advisory transactions in the third quarter, and this trend continued into the fourth quarter, affecting our fourth quarter and full year financial performance.

Let me now briefly talk about our financial performance. On a full year basis, adjusted net revenues of $2.03 billion declined 2% versus 2018. Advisory fees of $1.65 billion for the full year declined 5% compared to 2018. While the M&A market remains active, the number of deals declined globally by 7% last year and transactions generally took longer to close, both of which contributed to our modestly lower advisory fees.

ECM continued its momentum with an $89.7 million of underwriting fees for the full year, an increase of 25% compared to 2018 and another record for the firm. Commissions and related fees of $189.5 million for the full year declined 5% versus 2018, although we anticipate we again gained market share in this business. Asset management and administration fees from our consolidated businesses were $60.7 million in 2019, an increase of 6% versus 2018.

Our full year compensation ratio was 58.2% as delays in anticipated advisory fees and our significant investment in talent constrained the compensation leverage that we typically have realized in previous fourth quarters. Non-compensation costs were $351.3 million, up 13%. This increase reflects continued investments to support growth over the long term, particularly in additional space and technology and higher expenses associated with increased head count.

Adjusted operating income and adjusted net income of $498.5 million and $373.3 million declined 16% and 18%, respectively, and adjusted earnings per share were $7.70, down 15% versus 2018. Despite these declines, 2019 was our second best year in our history in virtually all of these firm-wide financial metrics. Our 2019 adjusted operating margin was 24.5%, and Bob will speak more about that.

We remain focused on returning capital to our shareholders and returned $391.6 million to shareholders through dividends and repurchases of 3.4 million shares at an average price of $83.28. Our adjusted weighted average share count for the year declined 4% relative to 2018, the result of our ongoing buyback activity. It was our fourth straight year of reducing our share count.

And also, I would point out that again we delivered return to shareholders more than our reported net income. For the quarter, adjusted net income was $130.1 million and adjusted earnings per share were $2.72, in each case, the second strongest quarter in our history.

In response to these financial results, we have undertaken an initiative to ensure that our resources are focused on our greatest growth opportunities and that our entire team is performing at the high standards that we and our clients expect. We began this initiative at the end of 2019 by identifying markets, sectors and people that exhibited productivity below our expectations. We are reducing our commitment to those areas, redeploying personnel where feasible and realigning certain operations to better position the firm for future growth. We anticipate that this realignment will affect our 2019 head count by approximately 6%.

We also continue to manage our non-compensation expenses aggressively as it is our objective to achieve operating margins of 25% or greater in markets like these, a goal of which we fell modestly short in 2019. Bob will have more of this in his remarks.

After this realignment, we believe that our firm is well positioned to capitalize on whatever opportunities the markets offer in the future. After the completion of our realignment initiative, we will have 112 advisory SMDs, including 7 SMDs who were just promoted in our Advisory business this month and Joe Todd who joined us from Goldman Sachs in early January. We have a total of 14 advisory SMDs who have been promoted in 2019 and 2020 and 16 advisory SMD recruits who have been with us for less than 2 years, a record number of 30 advisory SMDs who are still in their ramp-up phase. We believe this augurs well for our future growth.

We also have a deeper bench of MDs who will be considered for promotion in the coming years, and we are still seeing opportunities to add additional advisory SMDs in sectors, geographies and capabilities in which we still have growth opportunities. In Advisory, we now have the right team on the field, which we believe will facilitate continued growth in market share in coming years. Our strong backlog at year-end support this view. And finally, we also have the right team in place in our Equities business, and we believe that selective additions to our research platform can support future market share gains in our equity underwriting business and in equity commissions and related fees at Evercore ISI.

Let me now turn the call over to John to discuss the current market environment and to comment further on our Investment Banking business.

Thanks, Ralph. The market environment in 2019 was broadly constructive for our business. While global M&A volumes and transaction count declined, a longer view shows a fairly stable market as the fundamental drivers of M&A activity, strong equity valuations, readily available credit, substantial activist engagement with corporates and disruption of traditional industries remain in place. Demand for restructuring and, more broadly, debt advisory advice remains elevated as accommodative credit markets are driving higher levels of financial leverage. Growing companies and investment funds continue to need capital raised both in the public and private markets.

The cash equities business remained challenged as clients continued to consolidate their research providers, reduce the volume of research they consume and refine both their method and level of payment. Volatility was lower than we experienced in 2018, further constraining our clients' capacity to pay for research. As we begin 2020, we see these trends continuing, and there is room for some improvement as dialogue regarding strategic matters remains high, activism continues to be a catalyst for change, financial leverage continues to increase while default rates remain low and the need for capital to drive growth companies.

As I prepared my remarks for this morning, I reflected on our Investment Banking performance for 2019. In summary, I'd say our performance was good in many respects and, in some cases, very good. But we're never satisfied, and we continue to have high expectations for our performance. Among the independent firms, for the first time, we were #1 both globally and in the United States by volume of announced transactions. In fact, the dollar volume of our announced M&A transactions is more than the total volume of the next 3 independent firms combined both globally and in the U.S. Among all firms, we were #6 globally and #4 in the U.S., our highest position ever. We advised on a large number of the most prominent M&A, spin-offs and restructuring and activist assignments of the year, including 7 of the 10 largest global M&A transactions and all of the 5 largest U.S. transactions.

Demand for our activism and our capital advisory businesses remained strong. We advised clients on 5 of the 8 largest U.S. activism and hostile campaigns in 2019. Our capital advisory business had a very strong year, working with several of our top-tier GPs, and it was a meaningful year from a volume perspective.

Our debt advisory and restructuring teams continued to engage with companies looking to address their capital structure challenges. We've expanded the scope of our capabilities as the market has evolved. Today, our platform has a broad array of debtor and increasingly more creditor advisory services that can serve our clients both in court and, more frequently, out of court.

Our underwriting business achieved another record revenue year. We are pleased with the breadth and diversity of the business. Of the 9 sectors we cover, 8 of them experienced growth in revenues in 2019. Also in 2019, we were an underwriter on 71 transactions, an increase of more than 40% from 2018. We were the book runner on 53 of those transactions.

Ralph mentioned our 2019 Advisory recruits and promotes earlier. These talented individuals improve our coverage in technology, metals and mining, real estate, financial sponsors and retail and expand our global presence, including a new office in Israel. With our recent 2020 promotions in Advisory, we are continuing to position the firm to best address markets with strong growth opportunities. These additional promotions strengthen our coverage of technology, financial sponsors and FIG and our capabilities in restructuring and capital advisory. We remain enthusiastic about our ability to continue to take market share and our strategy to deliberately invest in sectors, geographies and capabilities with the most attractive growth opportunities.

Let me now turn the call over to Bob to discuss our GAAP results and other financial matters.

Thank you, John. As Ralph commented earlier, we expect to generate reductions of approximately 6% of our 2019 year-end head count, principally in the first quarter of this year. We anticipate that these actions will result in charges on a GAAP basis of approximately $38 million, a portion of which has been recognized in the fourth quarter of 2019. The timing of these charges will ultimately depend on the final dates of departure. We plan to exclude these costs from our adjusted results.

In addition, we are exploring restructuring our operations in certain smaller markets. These restructurings could result in additional charges in 2020 if pursued to completion. Finally, the above estimate is, of course, based on a number of assumptions. Actual results may differ materially, and as I noted, additional charges may occur.

Turning to our GAAP results. For 2019, net revenues, net income and EPS on a GAAP basis were $2 billion, $297 million and $6.89, respectively. For the fourth quarter, net revenues, net income and earnings per share on a GAAP basis were $660 million, $105 million and $2.48, respectively. Net revenues of approximately $34 million were recognized in the fourth quarter for transactions that ultimately closed in the first quarter of 2020.

Our adjusted results exclude certain items that relate to our acquisitions and dispositions, including the full share count associated with those acquisitions, as well as costs resulting from the execution of our realignment plan during the quarter. Specifically, we adjusted for costs associated with the vesting of the Class J LP units granted in conjunction with the ISI acquisition. For the quarter, we expensed $5.8 million related to these units, bringing the full year charge to approximately $18 million.

Our adjusted results for the quarter also exclude special charges of $1.3 million related to accelerated depreciation for leasehold improvements and $2.9 million related to the impairment of goodwill in the Institutional Asset Management reporting unit. Additionally, in conjunction with the plan, the company recorded a special charge of $2.9 million in the fourth quarter related to separation benefits and the acceleration of deferred compensation. For the full year, special charges were approximately $10 million.

Looking at other income. Full year and fourth quarter other revenues increased significantly compared to 2018. The increase primarily reflects gains on the investment fund portfolio, which is used as a hedge for our deferred cash compensation program obligations. As we've mentioned before, this amount fluctuates as the market values change.

Looking at non-compensation costs. Firm-wide non-compensation costs per employee were approximately $194,000 for 2019, up 2% compared with 2018, and for the fourth quarter, these costs per employee were approximately $51,000, which would be up 1% on a year-over-year basis. The fourth quarter results were impacted by reserves for prior year receivables of approximately $8 million, an unprecedented amount. When these reserves are excluded, the fourth quarter non-compensation costs per employee were approximately $47,000. As Ralph indicated, we are looking carefully and aggressively at non-compensation expenses with the goal of achieving improved operating leverage.

Taxes on a GAAP basis for the full year was 21.2% compared with a tax rate of 19.7% in 2018. Our fourth quarter 2019 GAAP tax rate was 21.7% compared to 23.9% 1 year ago.

The share count on a GAAP basis was 43.2 million shares for the full year and 42.5 million shares for the fourth quarter. Our full year share count for adjusted earnings per share was 48.5 million and for the fourth quarter was 47.8 million, down versus both comparable periods, as Ralph mentioned.

Finally, with regard to our financial position, we hold approximately $634 million of cash and $624 million of investment securities at the end of the year, with current assets exceeding current liabilities by approximately $1 billion. Investment securities include funds from our third quarter debt raise as well as holding a portion of our minimum cash requirements and funds for our upcoming bonus obligations.

With those remarks done, we'll now open the call for questions.

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

Could you give us some more color on any of the soft and hard indicators for M&A activity that you've spoken about before? You've spoken about like the frequency of dialogue with clients, the risked and unrisked backlog, the new engagement letters, et cetera, so maybe you can provide a little color on that. And also, if you can provide color on whether these metrics differ for large deals versus midsize deals.

They're all strong. We obviously would tell you if they weren't. And there's really no bias in them, large deals, small deals. But as I said in my opening remarks, we think we're very well positioned to take advantage of what has generally, certainly historically, been a good M&A environment. And certainly, our unrisked backlog, our risked backlog, our new engagement letters signed and new conflicts clearances would all support that view.

I would just say that, as Ralph said, our backlog remains strong. And as we look at the quality of the dialogues that we're seeing with our clients, both geographically and also sector by sector, we really don't see any impairment at all with respect to those dialogues in the market. And so what we are looking at right now is a strong level of activity and dialogues that would truly support that. So we're feeling like this is going along as one would want.

Got it. And also, just the areas where you're restructuring, in the markets or industries where you're doing your own internal restructuring, how is that spread between advisory, underwriting and trading? And would you be able to provide us with maybe the revenues and expenses associated with that restructuring activity?

Well, let me talk about the restructuring activity. And it was basically focused, as I said in my opening remarks, on areas where we were getting a subpar contribution to our margins or where we felt that the future growth opportunities were less than what we would hope for. And then, of course, as we always do, we also focus on individuals who were not performing up to our expectations. The adjustments occurred in all of our major businesses. They certainly were not concentrated in one or the other of those. And I'll let first John add anything if he wants and let Bob talk about the money.

Yes. What I would just like to add is this was really an opportunity to realign our focus and our resources on the places where we think there is real growth going forward and we see great growth. And really, because of that, we decided we really needed to make sure that we were actually putting our full intellectual focus as well as our capital side by side with those opportunities. And so that was really what this was about in a very real way. So it was about making sure that we're investing in the areas and the sectors that really have that growth and also that where there were places where employees were not as strong, where we could actually pull back from those people and then reinvest in others and grow in the areas where we think we'd go forward. So it was really a realignment and a reinvestment in the really strong growth areas.

As Ralph and John have both emphasized, a key factor in the thought process here was looking at productivity, both current and future prospects. So while there isn't any meaningful way to say what a revenue number would be implicitly, we're not -- this was not the place where the significant revenue generation is occurring. It's the opposite. And in terms of the costs, we think -- we currently estimate the costs of separating are about $38 million.

Got it. I was thinking more about the ongoing cost that would be in your adjusted earnings.

Well, we -- with the cost here heavily influenced by compensation, I won't say exclusively because we've always had hedge-derived non-comps, this is going to give us the flexibility we need to run the business and get the margins we're looking for in 2020. We don't set what our expectations are for a comp ratio for 2020 in January. That's something we work hard on over the next couple of months, but it's designed to get us back to the operating margins, as Ralph said, of 25% or better in a market like this. So we're going to -- a key piece of that has to be the comp ratio for next year.

You should certainly assume that the actions that we've taken were on low, no or negative margin businesses.

And our next question comes from Devin Ryan of JMP Securities.

This is Brian Mckenna for Devin. So you highlighted that some deal completions got pushed to 2020, and you also flagged a similar dynamic last quarter. So I'm curious if there are any underlying themes going on here. Is it more of a broader industry dynamic? Or is it just a couple of larger one-off deals that got pushed?

I think if you talk to a good number of our bankers or their counterparts in both our independent firm competitors and large firm competitors, they would generally say to you that things are just a little bit harder to get done or to get finished in a short period of time than they were before. And there's all sorts of factors that contribute to that. In some cases, it's regulatory. In some cases, the financing is a little more challenging. In some cases, the performance of the business drifts a little bit, which causes a discussion about pricing and risk.

So as we said on the third quarter, so far, the very good news is that none of these are, "Okay, we give up. Let's throw it in the trash can." They're just taking longer. And we saw that phenomenon continue in the fourth quarter, and certainly, we haven't seen a reversal of that as we sit here today.

My observation would be that there actually is no real underlying theme other than, as we go to close every one of these things, it just seems to take longer. And there is no real reason other than things just are strung out more. And maybe that has to do with when markets are really flying, people move faster at the end, but we don't see any underlying themes.

And I think also, if you look at some of the larger transactions, they often require regulatory approval in 25, 30, 35, 40 markets, and that just takes a little longer.

Got it. Helpful. And then I believe you said advisory SMD head count stands at 112, which is up from, I believe, 98 at the end of 2018. I know hiring and internal promotions are more idiosyncratic, but what are your expectations for SMD growth over the intermediate term? And actually, could you just give us an update on where you still see white space to expand into?

Well, we have lots of white space. We have white space in Europe, particularly on the continent and in some important industries. We have, I guess I'm not sure I'd call it white space but gray space. We have sectors where the opportunity is very high, and if we could find them, we would add an SMD or 2. Software is a good example of that. We now have 2 software SMDs. There are 750 companies with market caps in excess of $0.5 billion in the software industry. That's just the public companies. So -- and obviously, with 2 folks who are not covering them with the intensity -- each of them with the intensity that we might like to have.

So there's plenty of opportunity for us. If you look back over the last few years, we've hired 4 to 7 SMDs externally. We've hired one already, Joe Todd. And the only thing I would say is we will continue to have a very high bar for our external hires because each year, as I described in my opening remarks, we have a more internally promoted talent and a stronger bench that is our candidates for promotions in future years.

As we've talked about before, one of the places that we really see growth and find growth is when we hire talented people who are ramping up. And we have 30 SMDs in various stages of ramping up right now, so we see real growth there.

In addition, with respect to white space, we see opportunity in restructuring where we can continue to grow. We certainly have opportunities to grow on how we cover sponsors and really how we leverage our franchise with respect to the sponsor business. And as you all know, there's a tremendous amount of dry powder with the sponsors, and we're continuing to intensify our coverage there and improve those relationships. Equity capital markets, as you've seen, has been a growth area for us. We think that we're just scratching the surface in terms of how we can grow that business.

Debt advisory, we continue to look at more content that we're bringing. Bringing on Joe Todd is really allowing us to continue to improve our corporate finance content as we give advice to clients. And we really feel like they're -- across the board with all the different new industry sectors that we've built, whether it's industrial or whether it's consumer, we're just getting into covering the bigger and more active companies. And so we feel like our client franchise is also creating some real growth and lift for us.

And our next question comes from Matt Coad of Autonomous Research.

I just had one more on the M&A outlook. So recently, we haven't seen the same level of big-ticket M&A activity in the U.S. And I'm just curious, based on your conversations with clients, whether it's late-cycle fears, election risk or maybe a lack of willingness to increase leverage that might be halting this type of activity.

In terms of our dialogue and our discussions with clients, I don't really see that there is anything other than people are watching and looking and trying to decide what the right strategic moves are. Clearly, the environment ahead is somewhat more uncertain than it's been in the past. We have a presidential election coming up, which clearly does create uncertainty. And also, there's trade uncertainty, and there are many other aspects that you would look at. I would say that that's not stopping the quality dialogues and even the size of the transactions that are being discussed. So from our perspective, we just see those kinds of transactions as a matter of time.

I'm not -- your observation is certainly right in that there aren't any really large transactions that have happened very recently, although we definitely see that there are discussions that are taking place that are those kinds of transactions and those kinds of dialogues. So from our perspective, there may be some more uncertainty as you look at the way this year plays out because of some of the exogenous factors, but we don't see that really getting in the way of the strategic dialogues that are -- that companies are looking at in terms of consolidating and growing.

Awesome. And then one more just on the recruiting outlook as you guys kind of shuffle your talent base here. So we've seen a good amount of press regarding the depressed bonus pools at the IB divisions of the European bulge brackets. And I'm just curious, as you look to fill that white space that you've mentioned, if you see any specific opportunities that you want to highlight.

I'm not sure we would ever do that on this call as much as the next people.

We're constantly in dialogue, and we're always looking for A-plus talent. So to the extent that people meet our standards for productivity and quality and values, we're -- we talk to them. And I think we're really -- as we always have been and continue to be, our strategy is to be open and able to recruit high talent when and if they become available.

And our next question comes from Michael Brown of KBW.

So I just wanted to start on the advisory revenues. So clearly, a good result this quarter. Just wanted to check, was there really any impacts from revenue recognition this quarter? And also, is there kind of a greater contribution from the nontraditional M&A advisory mandates? You guys had kind of talked about the strength in debt advisory, restructuring and capital advisory. So has the contribution from those areas been increasing in recent quarters? And kind of can you just kind of remind us what the contribution is from that nontraditional M&A part of the business?

So the accounting-driven pull forward was approximately $34 million for the quarter. We've never disclosed a mix of the different -- of revenue contributed by the different capabilities because much of our philosophy is about bringing teams together and serving the client as best as the client needs. Clearly, over time, as we have invested in these capabilities, whether it's underwriting or restructuring, debt advisory, they have made a greater contribution. But in the quarter, there's nothing I would highlight. Really, all of the businesses contributed quite strongly. As Ralph noted, it's the second best quarter. You sort of need everything working.

Yes. And just to be clear, our goal here is not to obfuscate. It's just the fact that in any given quarter or even any given year, certain types of product capabilities might either tick up or tick down. And also, the lines between some of the things that we do with clients are not clearly delineated. For example, we have clients that may be a reasonably levered company for whom we might be doing M&A, debt advisory, EC -- equity capital markets advisory, maybe doing underwriting and perhaps doing some restructuring. And so we look at that as a client with a bunch of different revenue -- advisory revenues. We don't disaggregate those into 5 different product buckets. So it's not that we're trying to be obfuscating. It's just that it doesn't really work.

Great. I appreciate the color on that. In Europe, obviously, we've seen kind of the activity improving over the last couple of months and more certainty following. Brexit certainly seems to be helping the region. Would appreciate any color on kind of what you're seeing, kind of your outlook for 2020 there. And you mentioned some white space potential to add in your European franchise. Can you just kind of remind us of what your recent expansionary investments have been in the region maybe over the past couple of years and how that translates into potential growth going forward?

So first of all, this is just a fact-based statement. If you look at the 3 larger global independent firms, Evercore, Lazard, Rothschild, Evercore was born in the U.S., Lazard and Rothschild were born in Europe. And I think it's safe to say that my strong suspicion would be, although none of us report advisory revenues by region, that our advisory revenues relative to the 2 of them would be stronger in the United States and in North America and their advisory revenues would be stronger than ours in Europe. I think that's a tautology. We've been -- among the independent U.S. firms or those that were born in the U.S., we're virtually certain that we have, by far, the largest advisory business in Europe. And -- but still, it is, my guess would be, considerably smaller than Lazard and Rothschild. We have offices in London and in Frankfurt. We have a small office in Madrid, which is really an extension of our utilities and infrastructure team.

So there are obvious places that we could expand, but wholly dependent, 100% dependent, as John indicated earlier, on finding the right people. And our approach has always been to hiring, if we can't find an A-plus or an A, we wait. So if we've been on this call 5 years ago and you asked us what are the opportunities in Europe, we would have said some of the same things. And look, there are important sectors in Europe, the telecom sector, continental-based banking -- banks that we don't have deep expertise inside the firm at the moment. So there are clear opportunities there, but it's all tied to finding the right people. We've never been a firm that just says, "We need an office in Paris so we're going to open one, and let's find investors."

Great. I appreciate the color. Just one last one, if I could squeeze one in. So how is kind of the competition for hiring been? Are you kind of seeing that it's becoming a little bit more expensive to entice bankers to join given kind of the competitive landscape out there?

Not really. I mean I think that we have a -- if you look at compensation this year in the larger firms, which is where most of our external hires come from, it was generally down somewhat to maybe the best people were flat. So I wouldn't say that they've become more expensive. And John and I have a big advantage when we're talking to people who are considering the independent firm model. And that is because of the breadth of capabilities that we have, which we've talked about at various points on this call, we can inarguably sit in front of any recruit and say, "If you're interested in the independent firm model, you can do more business and more revenue with your clients at Evercore than you can at any other independent firm." And we won't go through the litany of things we can do again, but that gets no pushback from anyone with whom we speak.

I think also the fact that the firm has momentum and we continue to pick up ground in market share has an impact on people because I think a lot of very strong senior bankers, they are attracted to the independent model where there's a focus, there's an intensity and there is an opportunity that they may not have in other places. And so what we're seeing is people are actually very interested in talking to us and hearing the story and understanding what the opportunity might be for them. And so my observation would be that it's at least as easy and maybe easier to find people who are really interested in sitting down with us, and that often leads to discussion of getting more serious about coming together and working together.

And our last question comes from Richard Ramsden of Goldman Sachs.

This is Sal Saroni on for Richard today. You recently promoted a Senior Managing Director in your restructuring business. Could you just take a moment and characterize the restructuring environment as you see it today? And then in addition, how well positioned do you think you ought to take advantage of any growth in this restructuring opportunity set?

So that promotion was actually one of the 2 coheads of our business in -- restructuring business in Europe. We had a very good year last year in restructuring. I would say, quite honestly, surprisingly good given the low default environment. We think we have a really fantastic team on the field. And they were pretty much full out all year, and the results demonstrated that. There are -- even though it's a very low default environment, there clearly are sectors that have experienced consistent distress, energy, shipping, retail. And certainly, our backlogs would suggest that there's not going to be a diminution of that in 2020.

As we said, we've continued to grow our content and our capability. We do debtor and creditor now in and out of bankruptcy. And I think the momentum of that group is very high. And we really feel very good about the talent level we've got in there, both senior and junior. So we feel like there's real potential on that area for real growth, and we feel very well positioned. We've got good relationships. We're doing high-quality assignments. Those assignments are leading to other assignments. So I think we feel very optimistic about the growth there.

Okay. That is quite helpful. And then separately, on your non-comp ratio, it looks like you picked up around 250 basis points this year relative to 2018. As you kind of look at meeting or exceeding this 25% operating margin target going forward, could you just provide a bit more detail on how you intend to manage your non-comp expenses aggressively, really, in particular, just what levers you have at your disposal that you can pull?

So we -- as we've discussed really during the course of this past year and beyond, there's 2 areas where we've made some investments, and we've committed ourselves to slightly higher levels of cost. That's our facilities and related to technology. Technology will, over time -- we can lever that a number of different ways. One of which will be efficiency, which would be lower heads. Lower heads would, over time, drive down both comp and non-comps. But there's a number of other areas beyond that, our market data costs, our business development costs, costs of running the shop. And pretty much next week, with 2019 behind us, we're going after most of them to find ways to constrain growth if not reduce them.

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

Thank you very much for your thoughtful and constructive questions. And we look forward to talking to you at the end of the first quarter. Thank you.

This concludes today's Evercore Fourth Quarter and Full Year 2019 Financial Results Conference Call. You may now disconnect.