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Welcome to the Evercore Second Quarter 2020 Financial Results Conference Call. [Operator Instructions] This conference call is being recorded today, Wednesday, July 22, 2020. I would now like to turn the conference call over to your host, Evercore's Head of Investor Relations, Hallie Miller. Please go ahead, ma'am.
Thank you, Jennifer. Good morning, and thank you for joining us today for Evercore's Second Quarter 2020 Financial Results Conference Call. I'm Hallie Miller, Evercore's Head of Investor Relations. Joining me today on the call today are Ralph Schlosstein, and John Weinberg, our Co-Chairman and Co-CEOs; 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 second quarter 2020 financial results. The company's discussion of our results today is complementary to the press release, which is available on the 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 one 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, including with respect to COVID-19. As discussed in our earnings release this morning, filed on Form 8-K, the worldwide COVID-19 pandemic has negatively affected our business and is expected to continue to negatively and significantly affect our business. At this time, it is uncertain how long our business will be negatively affected by COVID-19 and the associated economic and market downturn. Any forward-looking statements that we make, including those about COVID-19 and its effect on our business, 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, Hallie. And good morning to everyone. Let me start by saying that it is a pleasure to be doing my first call with John as Co-Chairman and Co-CEOs of Evercore. As we said in our press release last week, we have built a great partnership in the almost four years that John has been here, collaborating on all important decisions for turning to the management of the firm and the strategic direction of our business. Our new titles formalize what we have been doing for several years already. And along with Roger, whose roles has not changed at all, contrary to some reports in the press, we greatly look forward to a very successful future for Evercore. I am sure you will agree that the challenges of the past quarter have been myriad and significant. First, the rapid spread of COVID-19 pandemic drove lockdowns around the world and has inspired a race to develop diagnostics, treatments and vaccines. The pandemic and lockdown then gave rise to an unprecedented global economic downturn, record levels of unemployment and in response, fiscal and monetary stimulus that has been applied with unprecedented size and rapidity. Financial markets became predictably volatile, first down and then up, but they currently are reasonably healthy in stark contrast to the health of the real economy. And in the midst of all this, a much needed call for a higher level of equality and social justice in our society and a significantly greater commitment to diversity and inclusion in the workplace. My partnership with John and Roger, and more broadly the culture within our firm has helped us navigate this challenging environment and to stay focused on both our clients and our people. Before I comment on our results, I want to provide an update on how, we as a firm have responded to these events in the first half from both an operational and a business standpoint. The vast majority of our team continues to work remotely, that we are beginning to return to working in some of our offices. This transition, back to the office, in contrast to our move to working remotely is happening at a measured pace, consistent with local government directors, directives designed to protect the communities in which we work and our own policies to protect our people and their families. We have embraced new technologies that allow us to communicate with our clients and our colleagues, despite our physical distance. And we remain focused on the needs of our clients, helping them by leveraging our broad and diverse capabilities. This focus has resulted in a number of things. First, M&A assignments that made strategic sense before the downturn have continued to be announced, or if announced have been completed. Capital raising assignments, both in the equity and debt markets have been occurring at levels dramatically higher than at any time in our history. And we have seen an unprecedented surge of restructuring and refinancing transactions, often on a highly expedited basis; and finally, on our research and in our Wealth Management business, a greater engagement with investing clients than at any time in our history. John will cover our performance in greater detail in his remarks. Following the tragic events in Minnesota, we also saw a much needed call for a higher level of social justice and more extensive commitment to diversity and inclusion in the workplace in the U.S. and elsewhere, a call that we strongly embrace. We have taken the time to reflect on calls for social justice and have thought hard about racism and prejudice that still persist in our society today. We have come away with the awareness and commitment that we need to strengthen our own diversity and inclusion efforts here at Evercore. We are a market leader for our business accomplishments, and we will extend the same energy and focus on our diversity and inclusion initiatives, not just to make ourselves better, but to try and have a more positive impact on our communities and the world in which we live. As we look to the second half of the year, we are following a set of operating principles that are very similar to those that we discussed with you three months ago. First, we remained committed to ensuring the health, wellness, and safety of our team and their families, and to achieving our diversity and inclusion goals. Second, our teams are focused on addressing the immediate needs of our corporate institutional investor and Wealth Management clients, while helping them be better positioned for the eventual economic recovery. Third, we are sustaining our operating infrastructure to support flexible and efficient working arrangements as we plan and implement our return to office on a thoughtful and disciplined basis. And finally, we remain committed to maintaining our strong and liquid balance sheet. Our results for the second quarter and the first half reflect both the momentum that we had in M&A before the onset of the pandemic and our ability to pivot to meet our clients' changing needs in currently challenging economic and financial markets. As a general matter, previously announced M&A transactions continued towards completion, and the broader advisory capabilities that we have built and strengthened over the last several years have allowed us to continue to serve our clients on their most pressing financial and strategic issues. Let me turn specifically to the numbers. Second quarter adjusted net revenues of $513.9 million decreased 4% versus the second quarter of 2019. For the first six months of 2020 adjusted net revenues of $948.9 million decreased 1% versus the prior year. Although our revenues from Investment Banking that is advisory fees, underwriting fees and commissions increased by 2% versus the prior period. Second quarter advisory fees of $336.5 million declined 24% compared to the second quarter of 2019, which was an unusually strong quarter. In fact, our third best for advisory fees in our history. Advisory fees for the six months of 2020 were $695.6 million, a decline of 10% compared to the prior year period. We expect our market advisory share – our market share and advisory fees among all publicly reported firms on a trailing 12 month basis, to be 8.2% compared to 8.3% at year end 2019. Second quarter underwriting fees of $93.6 million increased more than 450% compared to the second quarter of 2019. Underwriting fees in the second quarter were higher than our underwriting fees for all of 2019, which was a record year in underwriting fees for us. For the first six months of the year underwriting fees were $114.7 million, an increase of more than 160% versus the prior year period. Third quarter underwriting fees are already off to a strong start and we are working hard to sustain this momentum. Commissions and related fees of $54.1 million increased 11% versus the second quarter of 2019. For the first six months of 2020 commissions and related fees of $109.5 billion, increased 21% versus the prior year period. Asset management and administration fees from our consolidated businesses were $15.2 million, an increase of 4% compared to the second quarter of 2019. For the first six months of 2020 asset management and administration fees from our consolidated businesses were at $30.5 million, an increase of 5% from the prior year period. Turning to expenses, our compensation ratio for the second quarter is 65%. And our compensation ratio for the first six months of 2020 is 63.6%. A word of explanation about the compensation ratio, the 63.6% accrual in the first half reflects as it has in past years, an estimate for the full year compensation ratio, which includes an estimate for 2020 incentive compensation. Given the uncertainty about revenues for the remainder of the year and the uncertainty about the level of market compensation for our younger employees in 2020, we have significantly more uncertainty about the full year compensation ratio than at this time in prior years. Our intention is to pay our younger employees at market rates, as we always have, and to pay our more senior employees in a way that fairly balances the short-term and longer-term interest of our shareholders, the short-term interest being higher earnings this year and the longer-term interest in keeping the team together that has reduced more than $2 billion of revenue in 2018 and 2019 and investing in new talent for our future growth. So we are doing our best to have our six-month compensation ratio to be within the range of possible outcomes for the full year although the uncertainty about both revenues and market compensation for our employees is considerably higher than in prior years. Non-compensation costs of $77.1 million in the second quarter declined 11% from the second quarter of 2019. For the first six months non-compensation costs of $159.9 million declined 4%. Bob will comment on this further in his remarks. Adjusted operating income and adjusted net income of $102.7 million $71.8 million, declined 26% and 29%, respectively, and adjusted earnings per share of $1.53 declined 26% all versus the second quarter of 2019. For the first six months of 2020 adjusted operating income and adjusted net income of $185.3 million and $129.6 million declined 21% and 29% respectively. And adjusted earnings per share of $2.74 declined 27% versus the prior six-month period. We remain focused on our capital return and management strategy. Year-to-date, we returned $206 million to shareholders through dividends and repurchase of 1.9 million shares at an average price of $76.22. We have offset the dilution associated with equity grants for the year. So any additional share repurchase in 2020 will be dependent on our second half revenues and earnings balanced by our intention to maintain our strong liquidity position. Our Board declared a dividend of $0.58 consistent with prior quarters and reflective of our results for the quarter. Our Board and management will continue to evaluate the dividend on a quarterly basis as the effect of the pandemic on revenues become more clear, although the current expectation, absent any extraordinary steep decline in revenues and a significant reduction in our cash position is that our current dividend will be maintained. Let me now turn the call over to John to discuss the current market environment and to comment further on our Investment Banking business. John?
Thank you, Ralph. The volatile market environment has created opportunities across products, geographic regions and industry sectors. As the quarter began, merger activity was muted as clients managed through the dislocation of the sudden impact of the COVID-19 pandemic. We are fortunate to have had the opportunity to assist our clients with broad-based debt advisory assignments, equity issuance, as well as advising them on restructuring challenges. Our restructuring group has been especially busy. We believe opportunities to assist our clients will continue as accommodative credit markets are giving companies time to address their liquidity needs and recover. We believe there is significant opportunity in several sectors, including energy, consumer, retail and industrials. In the capital markets, there has been extensive opportunity to assist clients in raising capital in both the debt and equity markets in both the private and public arenas. We had our strongest period ever in equity underwriting. And while we do not participate materially in public debt capital raises, we had the opportunity to assist clients on a number of innovative liability management assignments. The momentum in our debt advisory and equity capital markets businesses has continued into the third quarter. Private capital transactions for sponsors slowed considerably in the beginning of the quarter, but it's picked up more recently, as issuers have become comfortable conducting diligence virtually. Activism assignments similarly slowed early in the quarter, but the pace of business has started to recover more recently. Investor clients remained focused on financial markets throughout the quarter, both Institutional and Wealth Management, and trading activity remained high. Significantly, during the quarter, the level of announced M&A activity slowed dramatically as clients appropriately turned inward, driving many of the activities I just summarized. Announced M&A volumes were down 41% in the first six months of 2020, and the number of announced transactions is down 15%. The second quarter was particularly weak. Announced global M&A volumes were down more than 50% compared to last year's second quarter, and the number of announced transactions declined 29%. Several of the key conditions necessary for a healthy M&A market were absent in most sectors of the economy during the quarter and remain generally absent today. However, the basis of a recovery may be forming. The equity markets are currently strong for many sectors. Access to financing and readily available capital and credit began to improve throughout the quarter, and CEO confidence began to slightly improve as the quarter closed, but granted from a low base. Dialogues and discussions with clients around strategic opportunities have begun to slowly pick up during the last few weeks and processes involving financial sponsors are beginning a new. I am for the moment guardedly optimistic about the merger market overall. When the markets begin to show sustained stability, CEO confidence will grow, which will drive an increase in strategic activity. Until then, we will continue to actively communicate and engage with our clients to help them navigate the current challenges and to be there with them during the eventual recovery. Let me now turn to our performance in Investment Banking. Our revenues during the second quarter and first six months of 2020 held-up well, despite increasingly challenging conditions. We sustained our Number 1 ranking for volume of announced M&A transactions over the last 12 months, both globally and in the U.S. among independent firms. Among all firms we are once again Number 4 in the U.S. and announced volume over the last 12 months. And we ranked Number 3 among all firms in the U.S. based on number of transactions for the first six months of 2020. We continue to work hard to increase our share of the market. We were pleased to continue to advise on some of the most important M&A assignments of the first half, including three of the 10 largest global M&A transactions and four of the five largest M&A transactions in the United States. Our restructuring and debt advisory teams are extremely busy. Our U.S. restructuring team has worked on the same number of assignments in the first half as it did for the entire year of 2019. We are pleased that we ranked Number 1 among all firms in number of announced restructuring deals and number of completed restructuring deals in the U.S. in the league tables for the first half of the year, and we've been involved in seven of the 10 largest bankruptcies by total actual liabilities year-to-date. These accomplishments stem from our model of integrating our restructuring and debt experts and our industry-focused bankers. Our deep expertise in restructuring and debt matters was central to our ability to work with a number of large new clients. Two recent examples include, we were an adviser to Boeing on a $25 billion offering of senior notes, and an adviser to Ford on its $8 billion debt financing. Deep expertise was also a catalyst for our work in specialized markets, for example, pipes, where we advised on four of five announced pipe deals before the financing markets reopened. Our underwriting business has performed extremely well in the market. We served as an active book runner or co-manager on six of the 10 largest IPOs in the first half of 2020. We completed our largest ever active book run transaction when we advised PNC on the secondary offering of its 22% stake in BlackRock. At the time of the announcement, this deal was the largest deal year-to-date. We advised Danaher on its upsized $3.1 billion offering, which was split between common stock and convertible preferred stock. And we were an active book runner on SelectQuote, the first non-health care IPO in the COVID environment. While these large assignments contributed meaningfully to our quarterly results we also participated in many more transactions across a broad range of sectors, demonstrating our ability to work in diverse areas and markets. And while issuance is up across the board, we also more than doubled our overall share in the first six months compared to the same period last year. Our shareholder advisory and activism defense, and our private capital advisory businesses and assignments are already in progress, and we move towards completion in many. We are proud to have advised on the first ever proxy contest to have decided in a virtual annual meeting. It was a successful outcome for our client. In our private funds, we've completed the first fully virtual fundraise, which was oversubscribed and attracted both current and new investors. In our Equities business, our connectivity with investor and advisory assignment remains elevated as they have become to rely on us for valuable insights during a period of significant market dislocation, and our traders continue to help our clients execute in volatile markets. Before I wrap up my remarks, I would like to take a moment to acknowledge our exceptional team. Our people have responded to the challenges of the current environment and have served our clients with distinction. The results I just summarized are testament to their teamwork and their commitment to our clients and to one another. I would be remiss if I did not welcome John Scuorzo to the firm as an Advisory Senior Managing Director, enhancing our Capital Markets Advisory practice and strengthening our coverage of the Technology sector. We will remain open to opportunistically adding other high-quality individuals who can bring value to our clients. Finally, as we look towards the second half of the year, we are aware of the many headwinds and uncertainties ahead. Despite the challenges of working apart, our results so far in 2020 demonstrate the power of a team working extremely well together with a consistent focus on clients. It is this kind of collaboration that defines us and is a key ingredient to our ongoing success. I very much am looking forward to continuing to lead Evercore through this downturn and eventual recovery in partnership with Ralph and of course, Roger. I truly believe that our best opportunities are ahead of us and I'm excited by the prospects and direction of our firm. Let me now turn it over to Bob to discuss our GAAP results and other financial matters. Bob?
Good morning. Starting with our GAAP results. For the second quarter of 2020, net revenues, net income and earnings per share on a GAAP basis were $507.1 million, $56.4 million and $1.35 respectively. For the first half of 2020, net revenues, net income and earnings per share on a GAAP basis were $934 million, $87.6 million and $2.08 respectively. Consistent with prior periods, our adjusted results exclude certain items that principally relate to our acquisitions and dispositions and also include the full share count associated with those acquisitions. Specifically, we adjusted for costs associated with the vesting of Class J LP units granted in conjunction with the ISI acquisition. For the first half, we expensed $1.1 million related to the Class J LP units. The Class J LP units have been fully expensed. Our adjusted results for the quarter also exclude certain items related to the realignment strategy that began in the fourth quarter of 2019. As we noted last quarter, we expect to incur separation and transition benefits and related costs of approximately $38 million, $8.2 million of which was recorded as special charges in the second quarter of 2020. These charges are excluded from our adjusted results. Year-to-date, we have recorded $30.3 million as special charges related to the realignment initiative. As we mentioned on our last call, we have entered into an agreement with the leaders of our business in Mexico to purchase our broker-dealer there, which principally provides investment management services. Completion of this sale is subject to regulatory approval. We've requested that approval in June and closing is expected to occur shortly after approval is granted. We continue to review additional opportunities in smaller markets. These opportunities could result in further charges in 2020, if pursued to completion. And separately, we completed the sale of a trust business which was part of ECB during the second quarter. Our adjusted results for the quarter and first six months also excluded special charges of $0.4 million and $1.9 million, respectively, related to accelerated depreciation expenses. Turning to other revenues. Second quarter other revenue increased compared to the prior year period primarily as a result of gains of $15.5 million in the investment funding portfolio, which is used as an economic hedge against a portion of our deferred cash compensation program. Other revenues for the first six months of 2020 decreased versus the prior year, primarily reflecting a net loss of $6.8 million on this investment funds portfolio. This amount will, of course, fluctuate and a significant market rebound during the quarter drove the quarterly gains. While the quarter gains – though the quarter gains were not enough to more than offset the first quarter market decline. With regard to non-compensation costs. Firm-wide non-compensation costs per employee were approximately $43,000 for the second quarter, down 13% on a year-over-year basis. The decrease in non-compensation cost per employee versus last year primarily reflects lower travel and related expenses and professional fees. As we mentioned on our last call, we began a thorough review of our non-compensation costs before the COVID-19 pandemic. We continue to adapt our operations in response to the current downturn and remain focused on reducing our non-compensation costs, including cutting non-essential cost related to travel, research and subscriptions and deferring certain capital projects. So we are well positioned throughout the downturn, as well as into the inevitable recovery. Our GAAP tax rate for the second quarter was 24.5% compared to 24.8% in the prior year period. On a GAAP basis, the share count was 41.9 million for the second quarter. Our share count for our adjusted earnings per share was 47 million shares, down versus the prior year period, driven by share repurchases and a lower average share price. Finally, with regard to our financial position, we hold $1 billion of cash and cash equivalents and approximately $100 million in investment securities as of the end of the quarter, as we have transitioned nearly all liquid assets to cash and cash equivalents in the first half. Our current assets exceed current liabilities by approximately $950 million. As Ralph noted, we continue to monitor our cash levels, liquidity, regulatory capital requirements, debt covenants, and all of our other contractual obligations regularly and carefully. We'd now be pleased to answer any questions.
Thank you. We will now begin question-and-answer session. [Operator Instructions] Our first question comes from the line of Devin Ryan with JMP Securities. You may proceed.
Okay, great. Good morning, everyone. So first question here, I guess a little bit of a crystal ball question, but I appreciate all the commentary on the moving parts of the backdrop. With respect to restructuring and the capital advisory business, I guess specifically, how should we think about those businesses' ability to offset the slower M&A environment? And really, I get the back half of this year will likely be soft as M&A has slowed, and those restructuring revenues takes some time to come into the model. But as we start to look into 2021, perhaps M&A is starting to recover at that point. How can we think about the base level of some of these other, call it, non-M&A businesses and what that can mean for the model as we look out a bit?
Let me start with that, and I'm sure John will have something to add. First of all, as we pointed out on our previous call, M&A is our largest revenue business, historically, and so even though these businesses are doing – are extremely active right now, we hadn't anticipated that they – the activity would be sufficient to offset a decline in M&A activity. In the first half of the year, they did. But there's an element of – sort of previously announced or near announced transactions that we're working their way through the system, which affected M&A activity in the first half of the year which given the pretty sharp decline in announced M&A in the first half of this year and most specifically in the second quarter. We would expect M&A activity revenues in the second half would be affected by what happened in the first half of the year. I think it's pretty clear that we have very strong businesses in all of these areas. And I think one of the biggest questions, Devin is the – how quickly does the recovery in M&A occur. And this is going to be a long answer, but if you go back to the financial crisis and prior to that, M&A had been characterized by two to three year down cycles and five to eight year ups cycles. And I said back in like 2010 and 2011 and 2012, there was this book written about the economy by Carmen Reinhart and I forget the other guy's name, but it was called This Time Is Different, and it basically talked about that in recoveries from financially induced recessions are slower and longer. And I hypothesized back then that it's quite possible that the recovery in M&A would be slower and longer. And we did have a, literally a 10-year period of improving M&A activity until it came to a screeching halt early this year. The interesting question this time is that we've had the sharpest downturn and seem to be in the middle, certainly in the markets if not the real economy in the sharpest upturn that we've ever experienced. Obviously significantly affected by unprecedented monetary stimulus and unprecedented fiscal stimulus that is both huge already 3 times what was applied after the financial crisis and was applied with incredible rapidity. The first two stimulus legislation – pieces of legislation were passed before we even had our first report of a decline in GDP, whereas, in the financial crisis, the stimulus legislation was passed in the third quarter of GDP. I think it's quite possible that because of the fiscal and monetary stimulus and the obvious effects it's already had on the equity market and the effect of the Fed action and stimulus on the debt markets that this could be the shortest cyclical downturn in M&A activity. But we really don't know at this point. I think we're certainly starting to see green shoots, maybe even a little bit – green shoots two, three, four weeks ago that are starting to actually top-up even little bit more out of the ground in the M&A dialogue that we're having with our clients, but we're still going to need some greater visibility about the future direction of the economy before we can say that, we're confident that we're going to see a recovery, and before CEOs have the confidence to make larger strategic decisions. John, you want to add to that?
Sure, Ralph. I'd say anecdotally, we clearly are seeing activity in terms of strategic dialogue, but it is really hard to estimate when those will really turn into larger strategic initiatives. Right now, I think that a lot of the dialogues going on are things are opportunistic and I believe that when we start to see mergers start to come in, it'll start smaller. In terms of our existing businesses like restructuring and financing, those are going very well for us. And those will continue, and as you said very aptly, the restructuring businesses often are back-loaded, so the fees will be coming in, in the back. But really, the merger engine is going to be what powers our 2021. We just don't know exactly when that kicks in. Clearly, right now, we're seeing dialogues but no big activity, and we just don't know. The other thing about the merger business, which you probably know is once it starts, it takes some time to gather momentum in that when you start talking about a deal, it often takes some time before that deal ends up being a revenue source for the firm. And so we'll see, and it will take time. It's certainly not in the next three or four weeks, but we'll see how it goes. I think it's going to be, as you said crystal ball. The good news for us is, we feel like we've got very strong dialogues going, and we've stayed very much in touch with our clients. So we feel like we're very much at the fore in terms of talking about the strategy and the go forward.
Okay, terrific. I appreciate all that color. And just, maybe a quicker follow-up for Bob on non-compensation costs. You know, I heard your comment around looking at areas to potentially maybe tighten the belt a bit. And on the other hand you have kind of a pretty unique environment for the second quarter; so some unusual items here. So just trying to think about, kind of what that non-compensation expense base kind of could look like off of this quarter's trajectory, kind of appreciating that there's some unusual items around travel and T&E, specifically. But any of the items that you think maybe could have more permanent implications to the positive or negative?
Devin, there's a lot of puts and takes in this set of numbers. The higher level of commissions and the exceptionally higher level of underwriting obviously drives costs. We're happy for those expenses of course. We're spending a lot of time now thinking about how travel may change given technology, how professional fees may change, and how we continue to use subscriptions and data. It's too soon to annualize them, but we're going to push hard for 90 days and then 90 days after that to make sure we're kind of in the zip code of the second quarter, which is our first quarter, fully working remotely.
Okay. Great. Thanks everyone.
And our next question comes from Manan Gosalia with Morgan Stanley. You may proceed.
You mentioned anecdotally that you're starting to see a strategic dialogue, but it's hard to see when it comes through. But can you talk about deal activity coming through as a result of its stressed environment. So is there more activity coming from companies that might want to shore up their balance sheets by selling any businesses or companies that are more willing to sell as a result of the uncertainty in the environment, especially given that asset managers and PE funds have a lot of dry powder here?
Let me start with that, and I'm sure Ralph will fill in. We see a lot of activity as the financial sponsors right now. Clearly they have a lot of dry powder. Initially, in the beginning of this downturn period, I think sponsors were very much internally focused, looking at their portfolios and making sure that they protected those portfolio companies. Now, I think there's a lot more activity in terms of looking at opportunities and our observations would be that there are some pretty material dialogue going on and people are thinking about doing those types of things. The stress related deals are out there, and I think that there are clearly companies who are looking – the ones who are very strong and have come through this period are looking at themselves and saying, this is a time when we have relative strengths and therefore we should be looking. And so some of the dialogues that we're having with very strong companies whose balance sheet is intact and who really believes that they have an opportunity, and so there is definitely activity there. As you implied, there are companies that are under stress and they're looking at those kinds of opportunities to sell-off assets and, and stabilize themselves. And those activities are on also. And I say that, that we're seeing a mix of both. And I'd say that probably the merger market will begin with smaller deals. Initially, I don't think you'll see some of the very big strategic things in the very beginning and those will be some of the transactions that you implied, which are the smaller deals where companies are trying to create some liquidity for themselves, and also looking at opportunities to strengthen and bigger companies that are looking at those kinds of opportunities and trying to buy them. The other thing that that you didn't mention that, that I think is worth noting is that technology and healthcare continue to be very healthy sectors. They're accessing public markets easily, and clearly they are being valued in the public markets at quite high rates and levels. And so there is definitely opportunity on those different sectors, in those sectors to be looking at activity and I think there are a lot of companies looking at those – in those sectors for opportunities, because those are ones that are being welcomed and are being well received.
I think the only thing I would add is that we certainly saw in the second quarter, the most immediate form of liquidity provision and balance sheet. Restoration was in the form of record levels of debt issuance and record levels of equity and equity linked security issuance. And obviously for the most depressed company is that was often in the form of convertible offerings or pipes or whatever. And the reason that happened is that if somebody wanted to sell a division in April in order to shore up their balance sheet, there was not a real long line of buyers for anything. So the public markets became the initial means of balance sheet restoration. And now companies are starting to look more seriously at what I would consider to be – they would consider to be less dilutive forms of strengthening their balance sheets.
Got it. And maybe on that point, I mean, you clearly had a great first half in the underwriting business, and you mentioned that 3Q is off to a strong start, but I was wondering if you can give more color on your pipeline there. I'm assuming that the times from announcement to completion was lower than what you've previously seen. So maybe there was a little bit of a pull forward there, but I was wondering how we should think about revenues for the rest of the. Should we think about them coming more ratably over 3Q and 4Q or should we still expect a stronger 3Q than 4Q?
Well, the pipelines – our pipelines generally are strong and that's true of our underwriting pipeline as well. The underwriting pipeline is of somewhat – they're both of lesser utility at the moment for different reasons. The M&A pipeline is of lesser utility, because there are things in there that have been put on pause, which are – that are still – are just starting to get picked up again. And so we just don't know the probability of getting actually to announcement in the M&A pipeline because of the uncertainty. The pipeline in underwriting is less useful for a different reason, and that is that transactions pop-up very quickly and they are not in the pipeline and they can come to revenue realization in a couple of weeks. I mean, for example, the disposition by P&C of their BlackRock stake, which we were an active book runner in, it literally was two weeks from the time that we received the first call until the transaction was priced, and it wouldn't have been in any backlog. So the backlogs are strong, but they're not as useful as they would be in a more stable environment and obviously, in equity underwriting, continued stability/strength in the equity markets is pretty important to the sustenance of that activity. And I think the only comment we made is that in the first three weeks of July, and you guys can figure this out because it's all public information, our activity continued to be strong.
Great. Thank you.
And our next question comes from Michael Brown with KBW. You may proceed.
Good morning, guys. So wanted to ask about restructuring; Ralph, you brought up that the fiscal and monetary stimulus. You guys had a profound impact on markets. But it sounds like the restructuring business is busier than ever. So relative to a few months ago, has your outlook for the opportunity set facing restructuring changed at all? Or is there still more than enough work out there to really support a very strong restructuring result as we look out to 2021?
John, you want to start with that.
Sure, I’ll start. We believe that our restructuring business is continuing to go along in a very powerful way. We are in more dialogues, looking at more situations than we ever have before. And because we have built our capability over several years, we have very strong – very strong leading partners in that area. In addition, in the firm we've actually trained our industry bankers to work seamlessly with the restructuring. So we have a lot of capacity, and frankly what we've done is we've looked at our volumes and we've tried to upgrade some of the quality of our business and been even more selective about the assignments we take. So the short answer to your question is we see real opportunity going forward over the next number of quarters in our restructuring business. We see that it continues to be a real revenue source, and we're very, very optimistic that that will continue because I think we're able to provide real quality, not only in terms of, in bankruptcy and out of bankruptcy advisory assignments, but also in terms of applying some of the restructuring and liability management skills to larger clients, which generate revenue also. So the short answer to your question is, we see this moving forward, and it's being – and we're quite optimistic about the revenue from that business.
I would just add that there's a certain level of restructuring activity that occurs even in very strong equity debt and economic environments. For example, last year was our highest year of restructuring and restructuring-related revenues, and that was obviously not a year of economic distress. But it would be a reasonable assumption if the real economy recovers in a way consistent with the equity market and the debt market that the pace of new assignments and restructuring will slow down somewhat. But as John pointed out, I think in his opening remarks, it takes more than one quarter, multiple quarters, for an assignment to recognize all of the revenue potential in it.
Thanks for that. And just to shift gears, I appreciate all the color you guys gave on the comp ratio outlook. It's helpful to have that guidepost for the second half. It looks like the comp ratio is closer to 67% this quarter, if we were to exclude other revenue. So did this quarter represent a bit of a higher bonus accrual than your typical quarter, just to help kind of make the full year target? I mean, obviously, the uncertainty for the second half makes it harder to manage through. So just any color you have there as to how this quarter kind of played into the full year. Thanks.
Bob do you want to start with that and then we'll chime in.
Sure. As you would know, there are many elements that drive comp expense. Our costs for the amortization expense of awards granted in prior years, is obviously up year-over-year. Many of our fixed costs, which really reflect the overall shape of our team and seniority, those are up as well. And I think net-net, if you take all of our incentive comp programs and there's puts and takes in there, net-net, they're probably up a bit in the first half. But at the end of the day, we're focused on the whole end of the parts. But we had a very strong revenue result in the first half, so the incentive comp would be aligned with that as well. Ralph, anything else?
Yes the only thing I would add is I would just repeat what I said in my opening remarks, which is that sitting here today on July 23, our visibility with respect to two critically important elements of the full year comp ratio is not as clear as it normally would be. The first is obviously total revenue. And the second is what is going to be market rate compensation for our non-SMB populous. And we're very focused on balancing the short-term and longer-term interest of our shareholders. We've got a business here that business here that in decent markets in 2018 and 2019, produced over $2 billion of revenue. We see no reason why running through part markets become somewhat more normal that we won't be able to do that again. And so in the longer-term – intermediate to longer-term interest of our shareholders, particularly when you consider the that possibility that this could be a relatively short "downturn in M&A", it does not, from our point of view, makes sense to cut muscle and bone, or to risk that we become less than one of if not the best place to work in our business. And we also are conscious of the fact that for us to continue to grow beyond $2 billion-plus of revenue, we need to continue to invest in talent, which, of course, if we did that this year, would also have an effect on the reported comp ratio for the year. So there are just a lot of moving parts right now. We're very focused on making sure that we have a more valuable company when we come out of this. And at the same time, we also recognize our obligations to all of our shareholders to be absolutely as tight as we possibly can in terms of sharing what will almost inevitably be a weaker revenue year, this year, fairly between the people who work in the business and the people who own the business. One third of them, by the way, work in the business.
Got it. Thanks for all the color.
And our next question comes from Brennan Hawken from UBS. Your may proceed.
Thanks for taking my question. I just wanted to try to understand the comments around comp. I know that this is a very unusual year, but just to put a finer point to it. First half, 63.6%. So on the ratio side, are you saying that that is your best guess for the comp ratio for the year, given all of the caveats around an uncertain revenue environment?
I think what we're saying is that it's exactly what I said, and we thought very carefully about what we said it's within the range of possible outcomes.
Okay. And then, I guess, so follow-up, a little bit controversial here. But why not give it a try. It seems as though this cycle is working out rather different than last cycle. You had both bracket firms that were on their heels, you had trading that was a huge source of pain for some of your most bracket competitors, which weighed on comp. And so far, we've seen the inverse. We've seen trading actually quite strong. We've seen some of these other revenue sources for some of your main competitors deliver in a pretty strong way. Does this mean that we could end up seeing elevated comp at Evercore through this cyclical downturn that's actually defensive instead of offensive, whereas last cycle, you were able to lean in and hire and we saw investments made via the comp line. But this time, it's done to retain and to ensure that you can keep the strong squad that you guys have on the field?
I think that, that – there's certainly – the answer is, Brennan, we don't know. But there certainly is a chance that the large firms who are in a quite different position financially in this downturn versus the last downturn, choose to share the windfall profits that they've gotten from volatility and from very large underwriting issuance in the second quarter, those windfalls don't go predominantly or exclusively to the shareholders and they get shared somewhat with the employees. We just don't know the answer to that. If you – you might know better if you've been on calls with those executives. Our impression so far is that they haven't chosen to do that. They focus more on their shareholders. And also in many cases the pickup in trading profit and underwriting activity has been offset by credit reserves and impairments in direct investments that they've made. So John and I both speak periodically to senior executives of these companies, and I would tell you that at least the ones with which – with whom I've spoken, they really don't have a view yet either as to what they are going to do with year-end. So it's just that we have a great deal more uncertainty, and it's possible Brennan that comp for the typical M&A VP or Director, it's possible it will be affected materially by the decline in M&A, and it's possible that they'll choose to make it to affect their comp less materially. But we have to be prepared to respond to whatever they do, because obviously, we are pretty – we have virtually no turnover. It's not because of comp, I might add. It's really comp not because of comp, I because of culture, and we do pay fairly. And we're going to have to continue to do that.
Okay, thanks for humoring the fairly controversial question. Just one final…
Brennan I thought your controversial question was going to be, why the hell did you do the ISI acquisition?
I just asked those types of questions from the shores of the ECAs Ralph. How should we think about salaries and benefits? Are the restructuring efforts that you're doing, can that lead those expenses to be actually down this quarter – or sorry, this year? Or should we think about them as a little bit higher just given raises and such?
Brennan they are a little bit higher given raises and such and the shape of the team. At the moment, the headcount is a little bit down, not a lot down. So shape of the team, it's a little heavier, so it's been higher.
Okay, thank you. Thanks for that, I appreciate it. And I’m sure Ralph, you were pretty excited to see the ECM come through given the ISI deal and the like. So that was a solid tip of the cap there.
Okay, thank you.
And our next question comes from Matt Coad with Autonomous Research. Your may proceed.
Hey guys, thank you for taking my question and good morning. And thanks for all of the information so far. So I'll be precise with my question. I think, the over generalized conclusions from last quarter's earnings calls, was that no one knows when a recovery in M&A announcements might begin. So based on your commentary earlier, is it fair to say that on the margin, do you have a bit more clarity now?
John do you want to start with that or…
Sure. I'd say we don't have a lot more clarity because whereas we see real dialogue, and it's absolutely true to say that the types of dialogues we're having are much more specific and much more and much more targeted and much more actionable, it's really hard to know when this will really kick in and become tangible and begin to be execution-oriented rather than strategic and thinking. So I guess the best way to say it is we see that we're closer to that really kicking in and really beginning momentum with respect to the strategic initiatives, but it's really hard to say that we have real clarity at this point because I think it's going to take a little bit more time before we do.
Yes, I would just add and just sound like a cheeky comment, but it's chronologically true. We know we're three months closer to the recovery than we were three months ago, but we don't have a huge amount more clarity as to when that recovery will begin, other than the fact that there clearly, as John indicated, there's a little bit more robustness and seriousness to the discussions that are occurring today than those that we're occurring three months ago. So the right things are happening, but they could be derailed.
Awesome, thanks guys.
And our next question comes from Jeff Harte with Piper Sandler. Your may proceed.
Just a couple of factual ones, I guess, for Bob. What was the end-of-period SMD count? And were any revenues pulled into 3Q from – or into 2Q from 3Q closings?
$117 million, and approximately $9 million.
Okay. And secondly, I was a little surprised to hear earlier on the call, the M&A pipeline qualified as being strong. Given that closings continue and announcements have been so sluggish. Can you talk a little bit more to that, maybe remind us what exactly is in your pipeline, because that visible pipeline we could see is kind of heading the wrong way?
Yes, I think what I was – I said two things, number one, it continues to be strong, but it's not nearly as reliable as it was historically because it's built with a lot of things that have been in there for a while, which the parties who we're working with, having said, we're not interested in this anymore, but there aren't intense active discussions at the moment. So that's the quantity. Does that make sense?
You dropped off for the very end of that.
I’m sorry, I said – if you look at the pipeline, it still contains a lot of elements, which – or potential transactions that have not been abandoned by the parties with whom we're working, but the level of intensity of the dialogue is less than it might otherwise be if it was going to convert very quickly. So there are a lot of things that are in the pipeline or on the drawing boards, but the level of intensity of discussion, not in all of them, but in some of them, is well below what it would be. They're still in the pipeline because the client hasn't said we're abandoning this. They've said, we want to take care of this part of our balance sheet or take care of this issue in our existing businesses before we pick up this dialogue again. So that's how, I guess, I would reconcile the two statements, if that makes sense.
Okay, yes. And this is maybe a curiosity, but a year ago, we thought the U.S. election would be a big source of uncertainty. Does the U.S. election come up much in client dialogues? Or does really that kind of taking a back seat?
Right now…
Go ahead.
Go ahead Ralph.
No, no you go.
I was going to say right now the main focus of CEOs, management teams and boards is really trying to get a certainty with respect to the economy, the health crisis and how things play out. I am certain that as we get closer to the election, they'll be more focused on that. And they will be focus with respect to the tax regimes that would follow from something as people make projections. But right now, I'd say, front and center is the economy and the implications with respect to how this health crisis is going to play out.
I agree.
Okay, thank you.
And our next question comes from Richard Ramsden with Goldman Sachs. You may proceed. If you have your line on mute, please un-mute your line.
Hello, can you hear me?
Yes we can.
Sorry about that. Yes, this is Sal Saroni on for Richard today. Certainly, I understand your comments on investing through the cycle. But could you just spend a moment and elaborate on the recruiting environment as you see it today and your opportunity to actually invest in strong talent at this point?
Well, as we said on the last call, the recruiting environment hasn't changed dramatically. The pull of – the pull or the attraction of a firm like Evercore, which allows bankers who are so inclined to spend the vast majority of their time working with their clients as a trusted adviser, really hasn't changed that much over the last handful of years, other than the fact that, I think because of the breadth of things that we can do with clients here, John and I are able to sit in front of any recruit and say to them, if you want to – if you are interested in pursuing the independent firm business model, we can tautologically say to you that you can do more business with your client base at Evercore than you can at any other independent firm. And the reason we can say that is that we have the number one activist defense practice, we're the only independent firm with equity underwriting capability, which obviously was important this quarter. We have a top, absolutely top-tier restructuring practice. So we have, for example, I'm thinking of one banker, I'm not going to go into the sector who's generating almost all of his team's revenue this year in restructuring, and he joined us, I think it was last year, and he wouldn't have been able to do any of this business at his prior firm, and he could have done this in other independent firms, but then when those clients start to re-equify, he will also be able to do that here, which he couldn't do at any other independent firm. So the pull of Evercore, particularly, I think, is as strong as it's ever been. The push is really, I think, is uncertain because of the points that we discussed before, we just don't know what compensation in the – for the most senior people in the big firms is going to be this year. But we certainly have – we generally hired four to seven people every year. We've hired two so far. And I think it's John and my suspicion that we'll be in that range by the time we get to the end of the year, this year, as well. Maybe at the lower end rather than the higher end, but we definitely will be in that range.
Great, thank you. And then briefly on the dividend, should we remain in a down cycle for longer than anticipated? Can you discuss how you prioritize your use of cash, particularly between covering current dividend obligations and investing for the business? This is something that one of your public peers has previously indicated. So just getting a sense on how you're prioritizing your cash management in a tougher revenue backdrop?
Yes. It's hard to see a cash – a scenario where we would be choosing between investing in the business and the dividend because our – as you can see, our cash position is very strong.
Okay, thank you very much.
I would now like to turn the floor for any closing remarks.
No, we just thank you to all of you for being on, and John and I are extremely excited about the future and the opportunity to and continue to work together in our new titles. So see you in three months. Thank you.
This concludes today's Evercore second quarter 2020 financial results conference call. You may now disconnect.