Evercore's CEO Discusses Q1 2014 Results - Earnings Call Transcript

| About: Evercore Partners (EVR)

Evercore Partners Inc. (NYSE:EVR)

Q1 2014 Results Earnings Conference Call

April 23, 2014 8:00 AM ET

Executives

Bob Walsh - Chief Financial Officer

Ralph Schlosstein - President and CEO

Roger Altman - Chairman

Analysts

Devin Ryan - JMP Securities

Douglas Sipkin - Susquehanna

Steven Chubak - Nomura

Alex Blostein - Goldman Sachs

Brennan Hawken - UBS

Michael Needham - KBW

Jeff Harte - Sandler O’Neill

Hugh Miller - Sidoti

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Evercore First Quarter 2014 Financial Results Conference Call. During today’s presentation, all parties will be in listen-only mode. Following the presentation, the conference call will be opened for questions. (Operator Instructions)

This conference call is being recorded today, Wednesday, April 23, 2014. I would now like to turn the conference call over to your host, Evercore’s Chief Financial Officer, Bob Walsh. Please go ahead, sir.

Bob Walsh

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

Earlier today, we issued a press release announcing Evercore's first quarter 2014 financial results. The company's presentation is complementary to that press release, which is available on our website at www.evercore.com.

This conference call is being webcast live on the Investor Relations section of the website and an archive of it will be available beginning approximately one hour after the conclusion of this call for 30 days.

I want to point out that during the course of this conference call, we may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties, and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements.

These factors include, but are not limited to those discussed in Evercore's filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. I want to remind you that the company assumes no duty to update any forward-looking statements.

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

We will refrain from repeating the information included in the press release and focus instead on the key opportunities, challenges and changes in our business. We continue to believe that it is important to evaluate Evercore's performance on 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.

Ralph Schlosstein

Thank you, Bob, and good morning, everyone. Our results for the quarter were mixed as revenues from our core advisory business grew modestly in comparison with the first quarter of last year. The level of underwriting revenues decline modestly and our investment management businesses continued to deliver improved operating results.

Slow start in advisory and in underwriting reflects the delay in the closings of several meaningful transactions and the seasonality that we've experienced in the recent first quarters. We experienced particular weakness in Mexico where our results were impacted by the slowdown in the economy there.

The slight, despite the slow start to the year, we remain confident that the fundamental goals of our business are strong. Revenue per advisory senior managing director was $9.7 million for the last 12 months. Our backlogs on both a risked and unrisked basis are at record levels and those backlogs grew throughout the first quarter.

Our early-stage businesses continued to contribute to the bottom line as our wealth management and private funds businesses each had record quarterly revenues and earnings, and delivered our operating margins consistent with our targets.

Assets under management for the investment management business increased to $13.9 billion, six consecutive quarter of growth and we achieved above benchmark performance for most of our investment management products and strategies.

We remain an attractive destination for some of the best talent in the business. We have successfully recruited one new SMD and are in active dialogue with several others and remain confident that we will be able to attract four to seven new SMDs that we have attracted in each of the last few years.

Let me just read -- briefly review the numbers. First quarter net revenues of $149 million were down 3% from the same period last year and down 31% from last quarter's record. Net income was $14.7 million for the quarter with earnings per share of $0.31. These results are down 12% from the prior year and 55% in comparison to the record fourth quarter in 2013. Operating margins were 17.7% for the quarter.

Our compensation ratio was 59.2% for the quarter in line with the past year. Non-compensation costs were $34.8 million, up from the first quarter of last year but down in comparison with the fourth quarter of 2013.

Our cost per employee which is a key metric that we manage declined 2% in comparison with the prior year. We return more than $70 million to our shareholders, including repurchasing 1.1 million shares and paying a dividend of $0.25 per share.

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

Roger Altman

Good morning, everyone. Those of you who follow us regularly know that ours is a lumpy business, where we don't have any control over the timing of closings and the related payment of fees and our first quarter reflected that as Ralph just alluded.

Furthermore, this does remain a seasonal business in numerous ways and our first quarter historically has been our slowest that was true last year that was true the year before. In fact last year, we have the best first quarter we’ve ever had, but it was 32% below the fourth quarter of 2012 in terms of revenue comparison, first quarter is just always slow.

So for this quarter just ended, our investment banking revenue was off 2.5% versus quarter one ‘13 and in terms of the mix, U.S. banking revenue was up but non-U.S. was down and the net of it was as you see finally down. This first quarter was the second best the firm has ever had in terms of banking. As I said, last year's first quarter was the very best we ever had.

Our first quarter banking revenues specifically were $126 million versus $130 million a year ago. I don’t think the comparison as I just said in a different way between any first quarter and the previous fourth quarter is ever very meaningful because first quarter is tend to be slow, fourth quarter is tend to be strong. So the right way to look at the firm I think is first quarter ‘14 versus first quarter ’13 or first quarter ‘13 versus ‘12 and so forth. And this quarter -- this year's first quarter was in the same relationship to our fourth quarter as the year goes first quarter again our best was in the relationship with the prior -- previous fourth quarter.

Most of the metrics that we follow closely that apply to our banking business were sound. We have 32 fees in the quarter that were greater than a million that was up from 26 in the year earlier quarter. The total number of fee paying clients was 116 this past quarter that was up from 115 a year ago, very little change. Revenue from all capital markets activities, both underwriting and capital markets advisory was down a bit in the first quarter and breaking that down, it was the underwriting side which was down. We handled six transactions this past quarter versus 12 a year ago.

The secondary market side, cash equities was up. Our backlog gives us confidence for the rest of the year by any objective in this fashion of measure, it’s strong. We feel good about it. On productivity, our productivity partner which is a metric we look at quite closely also remains strong over 10 million in the U.S. and the U.K. for the fifth consecutive quarter on a rolling 12-month basis, the way we always look at it. That is a measure by which Evercore historically and continues to perform very well. That’s a very important one.

Internationally again, over 30% of our banking revenue came from non-U.S. sources as a healthy figure. On headcount, as Ralph alluded, we continue to steadily expand, as we have done for so many years. Total bankers were 560 at the end of the first quarter, up from 480 for the first quarter a year ago.

Number of senior managing directors is flat from the last time we reported it because we had two internal promotions in the fourth quarter and two SMDs who moved up to Senior Advisor. We’re not in our usual spot at or towards the very top of the league standings among independent firms in total dollar volume so far this year but we are, when you measure it on the number of transaction.

In the former, in a period so far, in 2012, it’s always going to be the function of two or three deals which you are in or you aren’t and this will in my view even out as it always seems to do in Evercore, which is still number one over the past three years or the past five years. Our mission that way we’ll be back toward the top.

A few comments on the environment. It's important to break the environment down a little bit. Yes it is improving and I’ll talk about that in a minute. But we can see that from the headlines including the headlines over the past 24 hours. But it hasn’t yet improved as much as you might think because while announced volume in dollar term globally was up in the first quarter, 3% over the fourth quarter and in the U.S. 30% versus the fourth quarter.

The number of deals, which were announced rather than the dollar volume was actually down a lot. It was down on a global basis, 20% from the fourth quarter and 11% from the quarter a year ago. And on the U.S. side, it was down 14% from the fourth quarter and essentially flat versus a year ago.

It's an important distinction because the correlation between fees and number of transactions is probably a better measure than the correlation between fees and dollar volume. I think most of you know that size of fee is not particularly correlated to size of transaction.

Having said that I do think the environment is improving and that it will continue to be somewhat better. And that’s a function of a whole series of measures we’re all familiar with, which include at least in the U.S., improving business conditions, albeit slowly improving, very robust credit availability in terms of credit as we all can see high levels of equity values. And these factors in turn are breeding somewhat better level of senior management confidence.

And in terms of larger transactions, we've seen a few in the past few days. I think that part of the market will recover as a result of these factors. And I'm hopeful that the number of transactions will start to recover too although it remains to be seen exactly what will happen there. So environment is getting better but it's tempting to be distracted by the headlines on a few very large deals and it's probably more useful to look at the same time at the number of transactions not just the dollars.

I’ll hand it back to Ralph.

Ralph Schlosstein

Thanks Roger. Let me just comment briefly on our Institutional Equities business and Investment Management business. Institutional Equities continues to add clients and grow revenues. We now have research coverage of 344 companies and serve more than 400 clients.

As Roger indicated, the business generated $9.9 million in revenues, a decrease in comparison to last quarter, driven principally by lower underwriting activity. Secondary revenues in the business were the second highest we have experienced in this business after our record in the fourth quarter of last year.

Expenses were $11.2 million for the quarter, down 8% versus the prior quarter. We remain confident that we will achieve our goal for this business, which is to contribute increasingly to our operating profits this year versus last year.

Investment Management, operating income for this business for the quarter was $3.2 million on net revenues of $22.8 million. Operating margins were 14%. Assets under management increased 2% to $13.9 billion.

Our Wealth Management business experienced quite strong net inflows in the quarter while the institutional business has experienced modest outflows. Our Wealth Management also benefited from the appreciation in the markets. Our Wealth Management business continues to perform well, increasing assets under management 6% for the quarter to nearly $5.2 billion and we committed in the quarter to increase our ownership position in this business to 61.5%.

Let me conclude by stating as I have in the past most particularly when we have had extremely strong quarters that our quarterly results sometimes are affected and they certainly were this quarter, both positively and negatively by the timing of the closing of larger fee transactions.

This quarter of course was adversely affected by such delays. We continue to believe that our business is best judged on a trailing 12 months basis. And on that basis, revenues in our advisory business were at record levels despite the significant weakness in our business in Mexico in the first quarter.

More importantly as Roger indicated, while it is still early days in terms of the year, M&A activity does seem to be picking up a little and most importantly, Evercore’s backlogs and our level of dialog with our clients makes us confident that a positive momentum of our business will continue in the upcoming quarters.

Bob will now provide a few comments on our non-compensation expenses and several other financial matters.

Bob Walsh

Thanks, Ralph. Our non-compensations costs as you have seen are essentially flat to Q1 from last year. The 8% increase in comparison with the prior year quarter reflects the approximate 10% increase in headcount. Our cost per person in Q1, which is the key measure that we manage to, was approximately $31,000 comparable to prior quarters.

The adjusted pro forma tax rate for the quarter was 37%. This compares to 37.8% for 2013 on a full year basis. As we've indicated before, the changes in the effective tax rate are principally driven by the level of earnings of businesses with minority owners as well as earnings generated outside of the United States.

Our Board declared the dividend of $0.25 for the quarter consistent with prior periods and as Ralph noted, we repurchased more than 1 million shares for the quarter. The share count on an adjusted basis was 47.2 million shares, an increase of approximately 0.5 million shares.

The increase reflects the effect that a rising share price has on both the Mizuho warrants and unvested RSUs. The average share price for the quarter increased by nearly, 8% to $57.20. The increase also reflects an estimate of the shares that will be used in Q2 to settle the increase in our ownership of our Wealth Management business that Ralph mentioned earlier.

Finally, our cash position remains strong as we hold $167 million in cash and marketable securities and our current assets exceed our current liabilities by approximately $250 million.

So with that, operator, if we could open the call for questions?

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Our first question is from the line of Devin Ryan with JMP Securities. You may begin.

Devin Ryan - JMP Securities

Hi. Good morning. Thank you. Just with respect to, I guess fourth quarter earnings and the comment was that if for 2014, your expectation would be that there'll be further improvement in the U.S. But I think you guys said relative weakness around the rest of the world. So, I'm just curious to know, has there been any change to the view around through rest of the world here as we are few months into the year, are any regions feeling better or you are still feeling like, U.S. has kind of significantly outperformed the rest the world from an advisory perspective?

Ralph Schlosstein

Well, it looks that way. If you properly know from the data for 2014, not Evercore data just global data, rest of the world was considerably weaker than the U.S. and you see that, especially on the dollar volume, again, very recently here. So it would appear that the U.S. is going to be stronger than the rest of the world although we don’t have any special crystal ball and, but the margin that assist us because while we've been globalizing the firm relentlessly since we went public in 2006, nevertheless, we remain a relatively U.S. centric firm.

But that would appear to be the way the pattern as best one can see it now. And of course that reflects a little bit basic economics because the U.S. economy, while not powerful is improving and will probably have about a 3% growth rate in this country at least for the second half. And with the exception of China, that's really the best performance of any economy among the advanced countries around the world. So it fits in that sense.

And Devin, just as specifically compared to our comments last quarter in terms of what's changed if at all, not a lot. U.S., as Roger said continues to be on track. Maybe Europe is ever so slightly a little bit more positive or optimistic, although that doesn’t show up in the data yet. And I would say the emerging markets witnessed our experience in Mexico last quarter, have obviously been experiencing some bumpiness.

Devin Ryan - JMP Securities

Good. Thanks. Thanks for the color. And just with respect to Mexico, you highlighted the softer first quarter and I appreciate the detail there. But can you just speak a little bit about maybe your longer term expectations for that country and where do you see that fitting into the growth profile of the firm? I know that we’ve spoken about some opportunities within certain verticals like energy where you can grow a leverage, you are a leading North American or you are a leading U.S. energy franchise and as Mexico opens UP, there could be some more opportunities. So, I’m just trying to think about that more from a longer term perspective and what you are seeing in the country.

Bob Walsh

We are positive on Mexico and we have a very substantial business there by any comparison to most other firms, which was the result of course of our combination with Protego back in 2006. And between the constitutional amendment which opened up the Mexican energy sector, and we think is going to result in quite a big upsurge in incoming investment to Mexico and transactions, as well as just the overall health of the country. While the economy is slow right now in Mexico as Ralph said, the medium and longer-term outlook for Mexico would seem to be good.

If you look at the fiscal position of the country, if you look at the demographics, obviously its trade relationships, we think the medium and longer-term outlook is good. Right now, economic growth is slow and we’ve been affected by that. But we have a positive outlook on Mexico and we have a very good team of people there.

Devin Ryan - JMP Securities

Okay. Great. Thank you.

Operator

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

Douglas Sipkin - Susquehanna

Yeah. Thank you. Good morning, guys.

Ralph Schlosstein

Good morning.

Douglas Sipkin - Susquehanna

Bob, just wanted to follow-up on -- I only had two questions. First, I guess obviously, I’m just looking for maybe any additional color you guys could provide on sort of the slippages stuff into Q2. I obviously appreciate, it’s a four year business and first quarter can be lumpy. But any sort of number of transactions that slipped or I don’t know if you want to provide the deal values or anything like that. Just trying to gage thinking through sort of modeling for the full year, that would be helpful?

Bob Walsh

We won’t go into the specifics, but there -- as I said in my opening comments, there were couple transactions. And the reality is, if those had closed when expected our quarter in terms of all of the metrics that you focus on operating margins, non-compensation ratios, and compensation ratios, would have been in line with our expectations.

Douglas Sipkin - Susquehanna

Okay, great. That’s very helpful. And then the second question, just sort of checking the news wires, I mean it does kind of feel like everyone is noticing that the business is showing some more encouraging signs, not quite out of control, robust, but certainly some improvement. It does just from my advantage point look like, the demand for talent is maybe picking up and we’re seeing some headlines of people moving around a little bit. I mean, how would you guys frame the competitive environment for hire? I know the structural advantages of the independents are still firmly in place, but it does feel like maybe it’s getting a little tighter in the markets because demand for bankers is picking up, curious for your view point?

Bob Walsh

Well, I think I have two cross [occurrence] (ph), one is, it continues to be a pretty meaningful migration of talent from the large platforms to independent platforms, reflecting some of the continued transitional factors that are affecting the biggest firms, regulatory pressures and things like that. At the same time, you are right that, what am I call marginal demand for bankers is strengthening. So you have the two factors and they battle out everyday in the marketplace in terms of efforts to hire people, but we have a very steady record, as Ralph said, of adding to your, we have done that for many, many years in the row and one year could be four, one year could be six, but fundamentally we don’t see any compromising of our ability to continue to do that.

Douglas Sipkin - Susquehanna

Okay, great. Thanks for answering my questions.

Operator

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

Steven Chubak - Nomura

You noted your plans to actively recruit new talent both in the U.S. and globally. And based on what you’re seeing in most compelling growth opportunities, do you plan on expanding to other new geographies or your current hiring plans targeted in those geographies, where Evercore already has in on the ground presence?

Ralph Schlosstein

Right now we have no plans to expand in any new geographies. It’s much more filling in either gaps in some of the other larger industries that we have in our current geographies. We are filling gaps in industries that we don’t cover at all.

Steven Chubak - Nomura

Okay, thanks. And we’re certainly pleased to see the comments surrounding the record backlog levels. And while I know there can be discrepancies between the activity levels reported by the public databases and what’s implied by your own commentary, the gap just appears very pronounced at the moment. And I was hoping you can at least clarify whether your record backlog commentary contemplates deals which were not yet in the public domain, but yet you’re already quite active and which might be accounting for some of this discrepancy?

Ralph Schlosstein

Well, the definition is that things were working on that haven’t yet been consummated.

Steven Chubak - Nomura

I mean in the unannounced backlog which -- I realized that hasn’t been consummated yet, but whether it hasn’t been revealed those yet in the public domain, are you already actively working on the engagement?

Ralph Schlosstein

Let’s just say that in any quarter at any time the unannounced backlog is much bigger than the announced backlog and that remains the case.

Steven Chubak - Nomura

Okay. Fair enough. And last one for me, you highlighted in the prepared remarks Ralph that some of your early stage businesses including wealth management and capital advisory reported record results. And I was hoping you could provide some additional color on the margin outlook, specifically when you think these businesses can reach profitability levels more consistent with the reported firm-wide margin?

Ralph Schlosstein

Well, I would say in terms of the private funds business, wealth management business we expect them to be normal margins compared to our business as a whole this year. The equities business, we still do not expect the margins to be on par with the rest of our business but better than last year.

Steven Chubak - Nomura

Okay. Thanks. I appreciate you taking my questions.

Ralph Schlosstein

And as a general matter, the newer businesses this year as they have been for the last couple years will be decreasing and in the case of this year probably a relatively modest drag on our overall margins.

Steven Chubak - Nomura

All right. I understood. Again, thank you for taking my questions.

Operator

Our next question is from the line of Alex Blostein with Goldman Sachs.

Alex Blostein - Goldman Sachs

Great, thanks. Good morning, everybody. Just following up on last question, you know understanding and the business is very lumpy. And I think even from the public domain, we could see that there is significant amount of deals that are expected to close in the second quarter. The question that I have for you guys is to give us maybe some sense on the second half of 2014 relative to the second half of 2013, again kind of keeping seasonality in mind. But does it feel like given the comments around record backlogs that we should expect to see some growth in the back half of this year relative to the strong back half that you saw last year?

Ralph Schlosstein

I don’t think you can ever project confidently from a backlog to a performance, which is why we don’t -- which is why we never give guidance. We thought we could we would.

Alex Blostein - Goldman Sachs

All right. And I guess my point is like, based on the amount of advisory activity that you have in your pipelines today relative to where it was this time last year, those just end, and assuming if those deals close, does that feel like the second half of the year would look just as good or better or worse than last year’s?

Ralph Schlosstein

I think we should leave it at saying look we expect to have a good year.

Alex Blostein - Goldman Sachs

Got it.

Ralph Schlosstein

We can’t project more than that both because the business isn’t that foreseeable, I mean when you slippage of the type we had in the first quarter, you find it out at the very, very end of the quarter the last two, three days. So the visibility that one has for example into the fourth quarter of 2014 versus the third quarter is limited to the point of very limited. So all we can say is we -- and really all we can say by way of being helpful and also protecting everybody’s interest appropriately, as we think we are going to have a good year. That’s all we can say.

Alex Blostein - Goldman Sachs

Got it. Fair enough. Question, a little bit of bigger question when you guys think about productivity of your SMDs, you mentioned that you are around 10 right now, or maybe little bit above 10. But given the comments around a fairly optimistic posture on the M&A backdrop, can you help us kind of get us a sense of what the upside case for [MD] (ph) productivity that you guys currently have. So I know you are targeting 10, you are roughly there. In the better cycle, is it ’11, ’12, ’13, how should we think about the upside case?

Ralph Schlosstein

We don’t know the answer to that ourselves, we really don’t. So we really can’t answer that question. If we knew, we probably wouldn't tell you, but for better or worse, we don't know either.

Alex Blostein - Goldman Sachs

Okay, all right. Thanks, guys.

Operator

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

Brennan Hawken - UBS

Hi, good morning. Thanks for taking the questions. I'd like to follow up on Alex's question on productivity. You guys are way above a lot of your peers or well above I should say, and I think that's terrific. Can you maybe help us parse a little bit and understand if there is a difference in your productivity levels between verticals? And we hear a lot about how well your energy vertical is doing for example, is that way above the average and maybe could you give us an idea of the revenue per SMD in that vertical and some of the other high earning verticals currently?

Bob Walsh

First of all, the fundamental premise of our business is that we have a diversified portfolio of exposures in the advisory business. It's diversified by industry, it's diversified by geography, and it has some diversification by product activity as well. And over time, that's a big benefit to our shareholders because there is no industry that is consistently active or productive. And so while in any given year one group might be a little more productive than other to kind of provide that information, it has no utility and is really inconsistent with the basic premise of what we offer to our shareholders.

Brennan Hawken - UBS

Okay.

Ralph Schlosstein

It’s Ralph. We are saying no.

Brennan Hawken - UBS

Yes, fair enough. I guess, when you look at your announced deal volume back to 2011, so this isn’t a one year thing, energy is 40% of the deal volume for Evercore and is 17% for the total market. So I think the reason I asked the question is to try to get a handle on a business that's doing remarkably well and that might help investors frame or get at. Also what Alex was currently talking about which was maybe how can we think about productivity and the upside for productivity at least in the current environment for a business, it’s going with all guns blazing?

Ralph Schlosstein

Let me caution you in two respects. First of all, what use have as visible to you in the statistics that are publicly announced is a fraction of the activity that we actually see in our business. Second of all, and very importantly, the correlation between dollar volume of announced activity and revenues as Roger indicated earlier is certainly not one-to-one. So sadly for you the information that you have available to you is not necessarily particularly useful in trying to predict particularly our revenues by industry group.

Bob Walsh

But most basically, we don't know either. I mean, it's not a -- we’re playing cat and mouse with you, we don't know.

Brennan Hawken - UBS

Okay. Taking a different tack here, so the institutional securities business, you guys, we saw revenue dropped this quarter and it's coming in sort of your below average run rate from last year on a quarterly basis, but yet expenses were higher than the average run rate and was something specific going on there? Is there something structural happening?

Ralph Schlosstein

Very simply, very low underwriting activity in the first quarter, well below what we expect for the full year.

Brennan Hawken - UBS

Okay. So is the idea that the cash revenues -- the revenues from the cash business should be sufficient to offset the expenses for that business and then the underwriting it comes as gravy, is that actually just you sort of not playing out or is it that you guys have had more success on the underwriting side and so you have re-jiggered model to have more expenses on that front and therefore a bigger reliance on underwriting?

Ralph Schlosstein

We have revenues that come from secondary activity and underwriting activity. Secondary activity tends to be more consist, underwriting activity tends to be more lumpy and as I said in my opening comments, the lumpiness in the first quarter, this particular year compared to the first quarter of last year and the fourth quarter of last year was down rather than up, already in the second quarter of this year we are doing much better and there are again our backlogs are quite strong.

Brennan Hawken - UBS

Okay. Thanks for the color.

Ralph Schlosstein

All right.

Operator

Our next question is from the line of Michael Needham with KBW.

Michael Needham - KBW

Good morning. I’m curious when you guys referred to your record backlog? Are you referring to a record number of deals in your backlog or record value deals in your backlog?

Ralph Schlosstein

We are not going to disclose that today.

Michael Needham - KBW

Okay. That's fair. I think in the past, I am sorry, I had cold, I think in the past you’ve indicated that lot of your work in Europe is done on your structuring side? So, clearly this quarter Europe has been a little bit stronger on a relative basis for your guys, where do you see yourselves in the restructuring cycle there, I mean sort of how much runway is left?

Ralph Schlosstein

Okay. The premise of your question, I don’t think we have ever said that we had strong restructuring revenues in Europe. So we continue to have a restructuring business both here in the U.S. and in Europe, for obvious reasons the extreme strength in the global debt markets restructuring activity is down relative to two or three years ago and that's true in both U.S. and Europe. However, on a market share basis we continue to do quite well.

Michael Needham - KBW

Okay. And on cash equities, I mean, this is a follow-up question. In the third quarter this expense base you were profitable? Is it fair to assume that your current expense base and current revenue level you operated the loss going forward?

Ralph Schlosstein

No. Absolutely not accurate. We just had very low underwriting activity in the first quarter, is that simple.

Michael Needham - KBW

Okay. All right. Thanks.

Ralph Schlosstein

Thank you.

Operator

Our next question is from the line of Jeff Harte with Sandler O’Neill.

Jeff Harte - Sandler O’Neill

Hey. Good morning, guys.

Ralph Schlosstein

Good morning.

Jeff Harte - Sandler O’Neill

Few things, your commentary on the outlook is positive but maybe a little more cautious that's kind we have been hearing from a lot of the smaller players, whereas a lot of the commentary we have been hearing from some of the bulge bracket players seems to be lot more optimistic, their M&A is really turned and getting better. Do you have any idea kind of maybe why we are hearing different things from bigger players to smaller players or at least a little less positive atone for some of these smaller players?

Ralph Schlosstein

I really don’t have any idea because all we can really know is what we think. But fundamentally we agree that the environment is improving, it’s just that you have to look at both dollar volume in number of transactions not just dollar volume to really understand the implication of the environment for everybody’s P&L. And so the first quarter was not as robust globally and in the broad environment, not Evercore with broad environment, as it might have looked. When you look at the drop, the number of transactions both globally and the flatness in the U.S. So is the environment improving? Yes we think it is for the reasons I said. Is it equivalent of Vesuvius? I would say, not yet.

Jeff Harte - Sandler O’Neill

Okay. And then maybe somewhat related question, historically, deal count matters more fees than dollar amount of announcements. How does that change or is that changing as you grow? Because you guys have become a much better player of it, last three years. Does that change any as you get bigger?

Ralph Schlosstein

No, I mean, since the earliest days, the correlation between size of deal and size of fee has been put in mildly and perfect. And that’s not a new development.

Bob Walsh

I would add though that our business by virtue of it size and its diversification is 20 and this is a absolute numerical tautology. But a $20 million fee today has less impact than a $20 million fee three years ago. Just basic math.

Jeff Harte - Sandler O’Neill

Okay. It just seems like we’re over the year see you on more and more big deals. And I’m just kind of wondering if from a revenue perspective, I mean, certainly the fee will get smaller as deals get bigger. But some of your absolute fees maybe in the aggregate for Evercore could be better.

Bob Walsh

Listen, we expect to continue to be right towards the top on the league standing -- league tables when it comes to dollar volume, where we historically have been very well. We‘re not there at this very instant but historically we’ve done very well there and we expect to continue do very well. We’re not in any respect saying we disinterested, god knows if the opposite. We practically tell ourselves every single day to participate in those headline transaction.

Our pointing out is that when you look at the market, you have to look at both dollars and number of transactions, that’s all. Our interest in being in the largest deals had never been -- I mean, it always been as high as it could get but at least certainly the other day. And we not in any respect deemphasizing that quite the opposite.

Jeff Harte - Sandler O’Neill

Okay. And I think, did you finally -- you mentioned from advisory kind of closing delays as deals are getting push back and also some kind of the equity underwriting environment becoming little more unsettled late in the first quarter. You are just kind of taking those two comments together. Should we be thinking about some of these delays or is just idiosyncratic kind of deals specific-driven seasonality or is there any indication that maybe kind of the industry road from announcements to closing is getting longer, maybe it’s getting a little tougher to close deals?

Bob Walsh

Yeah, I was saying idiosyncratic, yeah, idiosyncratic. I mean -- and keep in mind this has happened to us many times as we’ve been public, I mean, many time. Every now and then it benefits you by the way where something you didn’t expect to close until the next quarter falls into this quarter. Most of the time it slippages the other way but that type of slippages is the nature of the beast in our business as Ralph started up by saying that’s why you cannot look at us on a quarter-by-quarter basis, you just can’t. As you know, we have no control, zero, over when a client matter closes and a fee is paid, absolutely none for obvious reason.

Jeff Harte - Sandler O’Neill

Okay. Thank you.

Operator

Our next question is from the line of Hugh Miller with Sidoti.

Hugh Miller - Sidoti

Hey, good morning.

Ralph Schlosstein

Hey, good morning

Hugh Miller - Sidoti

I was wondering, you gave some great color on dollar volume and deal number and I was wondering if you could just talk to us about why you guys are seeing the larger deal market, that’s kind of outperforming this smaller deal market? Obviously, your focus is on participating those larger deals but why you think that that will probably continue for 2014? Its kind of particular I had from your earlier commentary.

Ralph Schlosstein

Our focus is on participating in as many client events as possible. So we’re just as focused on mid-cap and upper mid-cap market as we are in the large cap market. Those transactions as you know occur in the mid-cap and upper mid-cap market, probably 90 plus percent of them, so that’s the bread and butter for everybody.

Hugh Miller - Sidoti

Sure. I guess, when you look at your average deal size, it tends to be larger than others?

Ralph Schlosstein

As far as the larger deals are concerned, we’ve talked often on these calls about how over the past couple three years, those have been missing large strategic transactions. I know we’ve often been questioned about that. And they seem to be returning to a degree reflecting, I would say, those three basic factors that we talked about, very high equity values, which tend to inspire confidence, extraordinarily robust credit market conditions. But we were in an environment where the cost of borrowing is extraordinarily low. And therefore, almost every all cash transaction is accretive to a reported earnings and somewhat improving business conditions. And those are the three basic fundamentals and they have been generally improving over the past year or two or three.

Hugh Miller - Sidoti

Sure. I guess that’s been the case in the large caps space in addition to the mid and small-cap space. So is there any reason why now, I guess, you are just saying it’s been a lagging situation where the larger size market has just kind of hit now finally getting some tailwind to the electivity?

Ralph Schlosstein

I think it’s probably as simple as that. I mean, I don’t want to come across as having some sort of crystal ball here, that’s my best guess, our best guess. But these things aren’t -- don’t lend themselves to scientific analysis. It is just a guess.

Hugh Miller - Sidoti

Sure. That’s understood certainly. And as you’re talking with your clients outside of the energy sector, are there other sectors that you're seeing kind of a pick up in interest and engagement over the last quarter, so it seem like there are other areas that may have greater interest?

Ralph Schlosstein

These things change quite a bit quarter-to-quarter, year-to-year. Obviously, the last, the very recent period you’ve seen some big consolidation steps in pharma, I’m talking about the last week. You've also seen some further consolidation of course, in telecom. Sometimes a big step in the sector like that needs to sort of corresponding steps that others take in the same sector. But these things change a lot quarter-to-quarter. They just do.

Hugh Miller - Sidoti

Sure. Okay. And the last question, it was just more of a housekeeping one. You guys talked a little bit about some of the data for the asset management business in different areas for flows. I was wondering can you just give us the net flows versus the market appreciation for the segment in overall. I know you gave us the total A1 figure, but if you could just break those out between flows and market appreciation?

Bob Walsh

Sure. In the quarter, the net flows positive were $158 million and the appreciation was $90 million.

Hugh Miller - Sidoti

Great. Thank you so much.

Operator

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

Ralph Schlosstein

Thank you very much everyone and we’ll be back in three months. Thank you.

Operator

This concludes today's Evercore first quarter 2014 financial results conference call. You may now disconnect.

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