Welcome to the Evercore First Quarter 2019 Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference call will be opened for questions. If you have a question, please press the star followed by the one on your touch-tone telephone. Please press star zero for operator assistance at any time. For participants using speaker equipment, it may be necessary to pick up your handset before making your selection. This conference call is being recorded today, Wednesday, April 24th, 2019. I would now like to turn the conference call over to your host, Evercore Head of Investor Relations, Hallie Elsner. Please go ahead, ma'am.
Good morning. Thank you for joining us today for Evercore's First Quarter 2019 Financial Results Conference Call. I'm Hallie Elsner, Evercore's Head of Investor Relations. Joining me on the call today are Ralph Schlosstein, our President and Chief Executive Officer, John Weinberg, our Executive Chairman, and Bob Walsh, our CFO. After our prepared remarks, we will open the call for questions. Earlier today, we issued a press release announcing Evercore's first quarter 2019 financial results. The company's discussion of our results today is complementary to that press release, which is available on our website at evercore.com. This conference call is being webcast live on the For Investors section of the 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. These forward-looking statements are subject to various risks and uncertainties. There are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors include, but are not limited to, those discussed in Evercore's filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. I want to remind you that the company assumes no duty to update any forward-looking statements. In our presentation today, unless otherwise indicated, we will be discussing adjusted financial measures, which are non-GAAP measures that we believe are meaningful when evaluating the company's performance.
For detailed disclosures on these measures and the GAAP reconciliations, you should refer to the financial data contained within our press release, which, as previously mentioned, is posted on our website. We continue to believe that it is important to evaluate Evercore's performance on an annual basis. As we've noted previously, our results for any particular quarter are influenced by the timing of transaction closings. I'll now turn the call over to Ralph.
Thanks, Hallie, and good morning, everyone. John, Bob, and I are joining you from London today. We hosted our board meeting here yesterday focusing in part on the changing political and regulatory landscape here in Europe, and also on our strategies to continue to grow our European business profitably. Before we review the quarter in greater detail, let me broadly comment on Evercore and the competitive environment in which we currently are operating. We ended 2018 in an extraordinarily strong position, with the fourth highest global advisory revenues among all firms behind Goldman Sachs, JP Morgan, and Morgan Stanley. Number one among all independent firms, both in advisory revenues globally and in the league tables, which of course measure the dollar value of announced transactions. We were number one both in the U.S., and globally in 2018.
As all of you know, we have consistently observed that we believe the best way to judge our business is not on a quarterly basis, but on a trailing 12-month basis. While our large and independent competitors have not all reported, we fully expect to maintain our same position in advisory revenues on a trailing 12-month basis at the end of the first quarter. Among independent firms, to maintain our number one position in the league tables, both globally and in the U.S., both on a trailing 12-month basis and on a year-to-date basis. The first quarter of 2019, while below last year's exceptional results, is the second-best first quarter in our firm's history in terms of adjusted revenues and earnings per share. As you may have seen from the publicly available information, April has been a quite active month for Evercore for both completions and announcements.
This activity and our current backlogs suggest to me that our positive momentum coming out of 2018 will continue. In the first quarter, we had balanced contributions from all of our businesses, and we continued to build our backlog of strategic advisory, underwriting, and capital markets advisory assignments. So far this year, we are fortunate to have advised on some of the largest and most complex assignments globally, including three of the largest transactions announced in the first quarter and four of the six largest transactions announced year to date. In addition, our ongoing focus on adding to and developing our exceptional talent, coupled with the steady broadening of our product and geographic capabilities, continues to position us well for long-term growth and success. Earlier this year, we promoted seven very talented professionals to senior managing director in our advisory business, the largest class of internal promotions in our history.
This year, we expect to have another strong external recruiting year, having already announced that three new advisory, senior managing directors are joining the firm. We have added significant senior talent in our equity research business as well. We continue to invest materially in our future growth. Let me turn now to the quarterly financial results. The first quarter net revenues were $419.8 million, down 10% versus the year ago period. In investment banking, advisory fees were $326.1 million, down 14% versus the first quarter of last year. Underwriting fees were $26.9 million, down 11% versus the year ago period. Commissions and related fees were $41.9 million, down 3% versus the first quarter of last year. In investment management, asset management, and administration fees were $14.3 million, up 3% versus the year ago.
Net income was $81.7 million for the quarter, down 28% versus the year-ago period. Earnings per share were $1.66, down 26% versus the year-ago period. The operating margin for the quarter was 22.8% versus 26.7% in the record first quarter that we had last year. Our compensation ratio was 58% for the quarter, consistent with last year, after adjusting for the reclassification of certain transaction-related expenses. Recall, we changed our presentation with respect to these issues in the fourth quarter. Non-compensation costs for the quarter were $80.6 million, up 12.8% versus the year-ago period, primarily due to the increased headcount, also due to increased occupancy costs and higher professional fees and client-related transaction expenses. The increase on a per-employee basis was nominal, validating what I just said, that headcount growth was primarily responsible for the increase in non-comp expenses.
As I said earlier, our advisory backlogs are strong. We remain very confident in the positive momentum of our investment banking and investment management businesses. Let me now turn the call over to John to discuss the current market environment and comment further on our investment banking business.
Thank you, Ralph. Good morning. The overall market environment for our services remains strong. Our levels of engagement and activity continue at a high level. In most sectors, activity levels are high, focusing on both M&A and strategic and capital advisory assignments more broadly. There remain a few markets where companies are facing financial headwinds. These are largely unchanged from 2018. Here, restructuring, debt advisory, and other strategic advisory assignments are more prevalent for us. This environment favors the diversity of our business model. We continue to have strong dialogues across most sectors and disciplines. For example, we are seeing opportunities for strategic consolidation in sectors like healthcare and consumer, for restructuring in retail and energy, for capital raising in both the public and private markets. In addition, we continue to see healthy levels of sponsor activity.
The equities environment continues the trend that began in 2017 as clients reduce the volume of research they receive and refine how they both pay for research and the level of payments. Quality continues to be an important differentiator. Now let me briefly comment on our investment banking results. Our momentum from 2018 has carried over to 2019. We are pleased that we advised in three of the top five deals in the first quarter, including the largest deal to date, Bristol-Myers Squibb's $90 billion acquisition of Celgene. We also advised on the largest U.K. deal out of the quarter, which is RPC's sale to Berry Global Group. Our ECM momentum continues. While activity is strongest in healthcare, our pipeline is broadening in terms of sector reach. In Q1 2019, we participated in 18 equity underwriting transactions, 16 of which our role was as book runner.
Advisory revenues for the quarter remained diverse and reflected contributions from multiple sectors and capabilities, including financial, healthcare, technology, media, telecommunications, activism, and capital advisory. We earned 69 fees greater than $1 million in the quarter in comparison with 63 in the year-ago period. In short, our momentum remains strong, but the distribution of fees by size was different this quarter. Ralph noted that we have very little influence over the timing of fees being earned. Our debt advisory and restructuring teams remain very productive as they continue to focus on refinancings, liability management, and debt capital advisory globally. We also continue to expand the breadth of capabilities we offer to the financial sponsor community. Our recruiting efforts are off to a solid start in investment banking. We ended the quarter with 105 active senior advisory managing directors.
As Ralph mentioned, we announced three advisory SMD hires so far in 2019. Zaheed Kajani, who joined our technology practice in January, John Startin, who will join later in April to lead our metals and mining group, and Andy Richard, who will join in July to focus on real estate. We also have one additional SMD committed to join the firm later in the year. We are in active discussions with additional talented candidates who we hope will come and build our franchise further and make up the 2019 recruiting class. Evercore ISI is also busy building and enhancing teams. The senior research team is growing with the additions of Amit Daryanani in high-tech hardware and David Palmer in consumer food and restaurants, who will both join this spring. Greg Melich also rejoined us at the start of the year to cover retailers.
In addition to the research team, we continue to develop Evercore ISI's leadership team. We look forward to welcoming a new head of sales, Larry Sibley, in June, as Bill Foley transitions into a role of Vice Chairman of Evercore ISI. We remain committed to providing our clients with world-class independent research and investing in and enhancing our intellectual capital, which strengthens our ability to best serve our clients globally. Let me turn the call over to Bob to discuss our GAAP results and other financial matters.
Good morning. Beginning with GAAP results, net revenues, net income, and earnings per share on a GAAP basis were $415.3 million, $67.2 million, and $1.52 respectively for the quarter. Consistent with prior periods, our adjusted results for the quarter 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 quarter, we expensed $4.1 million related to the Class J LP units. Our adjusted results for the quarter also exclude special charges of $1 million related to accelerated depreciation for leasehold improvements in our New York headquarters. Other revenues are up significantly from the first quarter of 2018.
This increase primarily reflects gains on the exchange-traded funds we use as a hedge for our deferred cash compensation program obligations. This amount will move around a bit in volatile markets. Turning to non-compensation costs. Our firm-wide non-compensation costs per employee were $46,700 for the quarter, down 7% from the prior quarter and 2% higher on a year-over-year basis, principally reflecting elevated occupancy costs as we have been discussing on prior calls. Just to note again, in the fourth quarter, we revised our adjusted presentation to eliminate the netting of revenue and non-compensation expenses related to client-related expenses associated with revenue-sharing engagements with third parties, and provisions for uncollected receivables. This adjustment brought our results more in line with our U.S. GAAP presentation and the presentation of our peers and had no impact on operating income, net income, or earnings per share.
With regard to taxes, our GAAP tax rate for the quarter was 9.1%, as compared to 23.9% in the prior quarter and 4.3% in the same period last year. The rate for the quarter was impacted by the accounting treatment for stock compensation, which resulted in a decrease in each of the U.S. GAAP and adjusted effective tax rates of 14.1 percentage points. Similarly, the impact on the first quarter of 2018 resulted in a decrease in the U.S. GAAP and adjusted effective tax rates of 19.1 and 18.6 percentage points, respectively. Our Q1 share count for adjusted earnings per share was 49.3 million shares, lower in comparison with the prior quarter, driven principally by share repurchases. On a GAAP basis, the share count was 44.2 million shares for the quarter.
Our cash position remains strong, with $552 million of cash and marketable securities at March 31, 2019, with current assets exceeding current liabilities by approximately $691 million. We did adopt the new accounting guidance on leases during the quarter, which replaced the existing lease guidance. This resulted in the recognition of approximately $219 million of lease liabilities on the balance sheet at the end of the quarter, along with associated right-of-use assets. There was no meaningful impact to our income statement as a result of this adoption of this accounting standard. Let me now turn the call back to Ralph for closing remarks.
Thank you, Bob. I wanted to close the call with a few comments on capital management and balance sheet management more broadly. Let's start with the new news. Yesterday, our board increased our dividend to $0.58 per quarter, a 16% increase, in line with the average increase in the dividend since we went public and very consistent with the increased earnings power of our business. While our board has voted for steady double-digit annual dividend increases, we will continue to focus on share repurchase transactions, both for net settlement and in the open market as the principal means of returning capital to our shareholders.
We remain committed at a minimum to offsetting the dilution associated with both annual bonus equity and new hire grants, and we'll also use repurchase transactions to return to our shareholders earnings that are not distributed through dividends or invested in the future growth of our business. A couple of you have observed that the aggregate level of share repurchases declined in 2018.
I want to assure you that this does not in any way reflect a change in our capital return strategy. Rather, a couple of things were at work last year and early this year. First, we put aside cash for a one-time cash need to purchase additional interest in our wealth management business and our private capital advisory business, and to expand our main office in New York City. Second, we reduced our reliance on RSUs or restricted equity awards in both our annual deferred compensation and new hire programs. Instead, we are relying on deferred cash awards to a greater extent. These deferred cash programs effectively require that cash be set aside and invested in accounts selected by our employees.
Very simply, for a portion of our deferred incentive compensation, instead of issuing shares in the form of RSUs and then repurchasing them, we are investing a similar amount of cash in deferred investment programs. This change to this mix of deferred compensation is changing how we use cash. At year-end, you saw a large cash balance. That balance declined in the first quarter, as it has always, as bonuses have been paid and as we have hedged the market exposure associated with our deferred cash compensation plans and includes cash set aside for future settlement of these plans. Importantly, this change has not resulted in any material change in the ownership of Evercore on a fully diluted basis by our senior professionals, as we hold meaningful positions in the company, all consistent with our share ownership requirement for senior managing directors.
As I noted a moment ago, we continue to invest in growing our business by recruiting new talent for our team. This investment is now expanding beyond people to include both facilities in which our growing team can work, and more recently, in technology. These investments to date have been funded almost exclusively through our earnings. As I think is fair to note, our current scale clearly supports funding some of these investments more efficiently through a more balanced mix of debt and our cash earnings, and we expect to look into this further as the year progresses. In summary, we have not changed our core principles at all regarding capital return. However, as we have grown, we have experienced some one-time uses of cash and are adapting both how we invest in our business to drive future growth and how we manage our balance sheet and cash flow.
Thanks very much. Sorry about that long explanation. Now we're prepared to take any questions you may have.
Thank you, sir. We will now open for our question and answer session. As a reminder, if you have a question, please press the star and then the 1 key on your touch-tone telephone. If you would like to withdraw your question, please press the pound key. If you're using speaker equipment, you may need to lift the handset before making your selection. Our first question comes from Devin Ryan with JMP Securities. You may proceed.
Bob. How are you guys?
We're great, thank you. Good morning.
Great. Morning. Maybe just starting with Europe, since you're over there, would just love to get a little bit of perspective around the current environment. It's been a slow start to the year in terms of announcements. I'm curious kind of what you're seeing today, what could change the backdrop or what your expectations are there over the intermediate term, just how the backdrop or maybe slower backdrop is helpful, if at all, to recruiting.
Sure. I think if you look at the M&A environment, generally, the dollar volume of announced transactions in the first quarter was down mid-teens, and the number of announced transactions globally was down in the high 20s. In Europe, it was actually a little bit more pronounced. The interesting thing is, if one looks at our backlogs, they're not really consistent with the announced activity in the first quarter. To be completely blunt about it, we expect this year could be a pretty good year. We certainly don't see anything in our dialogues with clients that suggests that it won't be. We would expect to see that our market share would continue to progress positively. The phenomenon we're seeing is that activity for the first quarter was slower. It seems to have picked up in the second quarter.
Our dialogues with clients and our backlog don't suggest anything that would remotely suggest a slowdown. Even if there is a modest decline in activity, it's a little bit like the discussion we had last year about the effect of MiFID on our equities business. It clearly shrank the pool of dollars available for research, but our market share gained. How those two factor out, it's hard to predict at this point.
I would just add to that by just saying that our dialogue levels and our interactions with clients are remaining at a very high level, and our backlogs remain strong. Really, across the board in Europe and more broadly, we feel quite constructive about where we are right now. Second part of your question was about recruiting, and we have a very consistent approach to recruiting, which is we look around the world for the people who we think are going to add to our business. We look for opportunities to bring in people who are A-level players, and we keep those dialogues going. Often, those dialogues start years before, and we continue those, and we're very much on a consistent frame from our standpoint.
Recruiting continues to be a very high emphasis for us. We feel like it continues to be a constructive environment for us in Europe and more broadly.
Okay. Thank you guys for all that color. Maybe a follow-up here, just looking at the equity commissions line, another relatively slow start. I'm curious if it just feels like normal seasonality in the business, or does it still feel like there's some pressure lingering in the business as MiFID II effects continue to evolve? The other side of that, you're seeing some really strong equity underwriting contribution. I know that's an important part of the plan there as well. Just as you think about the equities footprint overall, even if commissions were to recover, would you still look to expand that business, just given all the other benefits to Evercore and a lot of the success that it seems like you're having in equity underwriting.
Yeah
given banking more broadly?
Yeah. As you saw and as John detailed, we've made some pretty consequential senior additions to the talent pool in that business. As you noted, the equity underwriting got off to a good start in the first quarter, and in a way, it's a little bit better than it looks on a first quarter to first quarter comparative basis because last year we participated in a quite significant transaction in Mexico. Given the economy there, we had no underwriting revenues from Mexico this year. Our underwriting revenues in the U.S. are actually up nicely, and our backlogs in that business are up nicely as well. When we did the Evercore ISI transaction, I think I cited as one of the reasons that we were doing it is that we thought we could build a very healthy equity underwriting business.
I said, without defining a year in which that would occur, I thought that would be a $75 million-$100 million a year business for us. Given the success that we are now having, I would set a much higher goal for us.
Great. Thanks very much. Appreciate it, guys.
Our next question comes from Michael Needham with Bank of America. (Marilyn), you may proceed.
Hey, good morning. My first question is on other ways to get paid in advisory. Over the last year or so, what have been the biggest contributors to revenue outside of traditional M&A advice, and what contributor has been growing the fastest?
Last year, as I think everyone noted, our advisory revenues were up 32%, which I think, if I'm not wrong, was the largest increase of any large firm or independent firm in the entire industry. That increase reflects, interestingly, strength across the board. We had significant increases in the U.S. and Europe and in Asia. We had significant increases in M&A restructuring, capital markets advisory, and our capital raising businesses. We've, I think, been 1,000% consistent in terms of never identifying precisely how much revenue was in the various forms of advisory services that we provide. Part of the reason we don't do that is the lines are pretty blurry. How do you distinguish restructuring from capital markets advisory from a strategic advisory when all of those options may be considered when you're working with a company?
The reality is we're really experiencing strength and growth in all of our practices, including the strategic shareholder and activist defense.
As we've really built out our capabilities with respect to things that we can provide clients, what we've really been able to do is grow a multiple of areas. As Ralph said, we don't specifically break things out. Areas like debt advisory and activism and defense and capital raising are all elements that we've been able to bring to existing client relationships and new client relationships to really build the revenue base and the possibility for revenue-based growth for the firm. We have any number of ways that we can assist and work with clients now increasingly, and that's really been the strategy, which is to be able to bring more important advisory elements to our clients.
We apologize that that makes your job harder, because the links between Dealogic and our revenues aren't as tight as they have been in prior periods.
I'd probably say we acknowledge.
Okay, fair enough. Second one on talent and hiring. Has competition from the large investment banks changed at all? Some of the management teams have commented recently that they're focused on growing or retaining their investment banking businesses. I've heard that in certain cases, some areas, competition just for comp levels is increasing a little bit. Just curious to get your view on it. Thanks.
I would say, I think I've said this in the past, that almost everyone who joins us, there's some combination of pull and push. The pull, I would argue, has gotten stronger in each of the last three or four years, and that's certainly reflected in the number of dialogues and the intensity of dialogues and the willingness of people to talk to us about Evercore and our business model. That pull is really centered around a desire to spend 100% of your time working with clients on the matters that they consider most important, their strategy, the M&A they may undertake to execute their strategy, activism, capital markets structure, and of course, equity. If you're a CEO, the two things you focus on are your strategy and the M&A you might execute to implement that strategy and your equity.
That pull and the culture and the collegial work environment we have here is pretty sustained, and I would say in each of the last three or four years, it's intensified rather than going in the other direction. That's a good thing for us. I would say that the larger firms, as a general matter, have gotten better at identifying the bankers who would be most of interest to us, who are the ones who do focus on these high value-added activities. From what we've seen, comp hasn't really changed materially at the large firms, and certainly not in a way that would make people less accessible to us.
My own personal experience in talking to many of the candidates that we are looking at and talking to and recruiting is that there's generally a very positive view of the firm. I think that what we have found is that more than anything, what people are looking at is the quality of the experience that they're going to have when they come. I think what we've been able to demonstrate for people is that coming to work at Evercore is a highly favorable and a really good place to be and to practice your craft. I think that when we talk to people, that is evident. Our conversations have been very constructive, and the environment feels very constructive. In terms of the big firms, it's really hard to know. There are some big firms out there who are also hiring good people.
We have found that very good people want to come, and our conversations in the past and currently seem to be going quite well.
Okay, thanks. If I could just ask one more modeling question. Was there any material deal pull forward for deals that closed in April under the first quarter? Thanks.
No, it was inconsequential.
Okay.
A little bit more than $2 million.
All right, thank you.
Our next question comes from Brennan Hawken with UBS. You may proceed.
Hey, good morning. This is Brent Dilts on for Brennan.
Hi.
Hi. Just understanding that M&A is a lumpy business, could you talk a little bit about just where we are with comps? Last year was a good year. How should we be thinking about comps? It seems like you're still pretty optimistic given the backlog. Just anything around the comps, just if you think expectations are level set from here.
Well, we commented that our backlogs are strong and that they are not consistent with the dollar volume or number of announced transactions in the first quarter. As I commented in my opening remarks, from everything we can see, the strong momentum with which we exited 2018 will continue. Do I expect our advisory revenues to go up 32%? No. We certainly see a continued strong momentum in our business. I can't end without saying, make sure that Brennan knows how much we missed him on the call.
Will do.
The other point I would add is, as both Ralph and John indicated, in addition to a constructive view in terms of the business opportunity, they have an equally constructive view in terms of the recruiting opportunity. As we sit here at the beginning of the year with some degree of uncertainty as to what the revenue picture will ultimately be, and some degree of uncertainty as to exactly how many candidates we'll successfully recruit, we've begun the year with our best judgment, which happens to be effectively the same judgment we had at the beginning of last year, and we'll see.
Yeah. I would point out as we have, as John and Bob and I all have in the past, at the beginning of the year, we're giving you our best judgment of what the comp ratio will be for the full year. We obviously, when we have more information, we modify it as we did last year and the year before, as we got toward the end of the year. I would also say that, I've said a number of times in the past, that we are going to continue to invest to create intermediate to long-term value in our business. We still see significant opportunities to grow, whether those are geographic, filling in more in certain industries or deepening our capabilities in certain product areas.
If we do at some point enter a downturn, which I'm absolutely confident will happen at some point in the next two decades. If we do have to enter that period of time at some point, we will likely be talking to you about investing through that cycle to have an even stronger market share when we come out.
Okay. Appreciate that. On similar topic, if there is a downturn and given the dividend hike this quarter, does that reflect any change in how you're thinking about expenses in a downturn or just where you may be investing? I mean, it sounds like you still want to keep the hiring pedal down, especially if there's opportunities in a downturn. Just how should we think about the dividend versus expenses and hiring in a downturn?
I think our goal would always be to maintain or to grow modestly the dividend regardless of the environment. You can't make a categorical statement. There are a lot of people who made categorical statements in 2007 who ate their words in 2008. We don't want to do that.
We don't intend for dividend policy to restrict us from being able to recruit highly talented people when they're available in the cycle. So we will continue to make sure that we have the provision of firepower, the balance sheet room, the cash flow to be able to recruit good people whenever they become available, because our strategy is to continue to grow the talent level of the firm.
Okay, thanks, guys.
Thank you.
Our next question comes from Jim Mitchell with Buckingham Research. You may proceed.
Hey, good morning. Maybe just talk a little bit about SMD headcount growth. It's really accelerated both gross and net basis the last three years. It seems like internal promotes are becoming a bigger part of that. Last year, close to 50%, this year could be close to that. Is the internal pipeline of SMDs, given this, sustainable at this pace? I guess how confident are you in generating the same level of productivity from all these new hires that you've been generating over the last few years?
Well, internal promotes are always going to be a little lumpy, just like external hires are. I think as a general matter, if you look at the stock of our advisory SMDs now, it's roughly a third internally promoted. That's up from 10, 11% eight or nine years ago. If you look at the flow last year, it was almost 50% internal promotion. I happen to feel, and I know John agrees, that this is a very healthy thing. That is ultimately how we create a self-sustaining enterprise. We have a terrific backlog of talent that would be eligible for promotion over the next one, two, three years. I have no idea since we have a committee, not a group of two or three who decide promotions, and we won't know until late next year how many make it.
The one point I would also add, and I'm sure John'll have some observations as well, is that our productivity from our internal promotes is virtually identical to that of the people that we've hired externally. That's after we've sorted through those who weren't a perfect fit with our business model, which fortunately there have been fewer and fewer of those in more recent years. We have a very rigorous process, and that rigorous process has served us extraordinarily well.
My perspective on this is that if you think about what we've really tried to accomplish, is we've tried to have continued to increase the talent level of the firm and continue to build to increase our capabilities with respect to advising clients in more things that are relevant to them. If you think about it that way, you realize that we need to continue to add good people, and those good people can come through promotion, which is really a desirable way to do it, because as Ralph said, if we can continue to develop and promote great people, that's a tremendous way to actually drive SMD growth. Also looking outside for highly talented people who want to come and join the team. We continue to have real opportunities, and there's more white space for us to really fill with this talented group.
I think Ralph and I anticipate that we will continue to keep adding people as good people become available, and we don't really see a limitation to that at this time.
Jim, it's Bob. Just to put a point on Ralph's comments on productivity. Clearly, when we look back in time, as Ralph noted, the productivity for our internal promotes has matched that of those we've hired externally as they've ramped up and they've evolved over time. As your question noted, we've had a very large class this year and the year before, so we're watching the productivity ramp of those two classes carefully as we always do. It's too soon to articulate performance for them. As Ralph said, the standard and the expectation is the same.
Right. I would imagine the ROI on internal promotes is pretty good too. Okay, maybe just a follow-up. You guys laid out a lot of white space to grow with these hires. Is there any kind of priority? Is it, "Hey, Europe is kind of dead on its back." That's an opportunity set to take advantage of that to build for the next maybe rebound there? Is it, "Hey, we want to fill out restructuring." Is it just best athlete or is it there's some focus on where you are investing the most?
We have identified areas really across the board that we think have needs for investment from us. As we've said, we're only going to grow in places where we can put A-plus talent in to work on it. Specifically on Europe, we've been here, we've been talking about the business plan here. There are tremendous opportunities here for us. We really like our business model, and we very much like the people we have who are driving our business here. We think there is room to grow. Now we're going to grow responsibly. We're not going to crash in with a huge number of bodies and look at things that are uneconomic. We're going to actually do as we've done consistently, which is that we look for A talent. We bring the A talent into places where we think there's white space, and we match it.
There is definitely opportunity in Europe. We've been discussing that, and we're on the path to continue to grow here. Also in really virtually all of our businesses, we have opportunities. We're not that big and we're growing. I think our brand is continuing to have resonance with clients. I think there are increasing opportunities really across the board. We're going to continue to look at it that way. I don't think there is really a limit right now to us. The real constraint for us is we go slow because we're very careful. We hire one person at a time.
Okay. Thanks for the help.
Our next question comes from Michael Brown with KBW. You may proceed.
Hi. Good morning, guys.
Morning.
Just to approach the where you're investing question, just a slightly different angle. What we're kind of hearing from the largest banks is that they're actually looking to expand coverage into smaller cap companies. In the past, you've really kind of talked about focusing on deals that would generate a fee of about $1 million or more. As you kind of talk about broadening coverage, would that also include moving down cap and working on deals that could generate lower fees?
No. I think if anything, a little bit more in the other direction. We welcome
The competition. We think we have a very good and balanced across market cap business model. Obviously, as John indicated, we're in four of the six largest deals announced so far this year, we obviously have a meaningful presence in large cap companies. I have no idea what it is this year-to-date, but if you look historically at our mean deal, or mean the average size of transactions we announced, it's $2 billion-$3 billion. If you look at the median, it's $600 million-$700 million typically in any given year. I think one of the things that's pretty unique about our franchise among the independent firms is that we have a strong presence in large cap transactions, but we also do a lot of transactions.
What I found when I came here was that this firm was more focused on quality rather than size. We were very willing to do business with high-quality companies that may not be as big. There's a very strong business in the middle market at Evercore. Having said that, we also have a strong business in the upper middle and in the large cap market. I think that if anything, what we're trying to do is just continue to build on all levels. I think we provide real service to middle-market companies because we know them well, and we've done that business for quite a while. But we also, as we've said, are building out services to serve the very large cap companies and get involved in some of their most important things.
That's the strategy to really maintain it on all of the different levels.
Great. Just for the M&A environment, you had touched on consumer and healthcare really being kind of strong verticals so far this year. Which verticals conversely have been kind of quieter this year for you guys? Also, we saw a large deal in the energy space last week. With oil kind of drifting closer to $70 a barrel, do you really expect a pickup in energy-related M&A? Are you kind of seeing a pickup in conversations in the energy space?
Our energy people are very busy right now. They are running very, very hard. With respect to the energy vertical, I think obviously the volume levels haven't been as high, but we seem to be in a lot of different situations right now, and the activity level in that area continues to be high. Maybe it's because our bankers are working really hard to provide value for clients. I would say in terms of our business, we pretty much see a pretty healthy set of discussions across the board. I couldn't say that in terms of the activity level, that there's any group that's really quiet right now for us.
Okay, great. Thank you for taking my questions.
Yep. Thank you.
Our next question comes from Steven Chuback with Wolfe Research. You may proceed.
Hi, this is actually Sharonjit Clare filling in for Steven. I just wanted to ask on the non-comps, just how did you think about the trajectory of non-comps going forward? You'd cited the non-comp per employee that was up a little bit year-on-year. Just looks like some of that uptick is related to fixed expenses. You'd also cited some of the investments in facilities. Just wanted to get a sense of how that should traject going forward, and if we should expect that kind of uptick to continue.
As I said in my remarks, the headcount growth remains the primary driver of non-compensation expenses for us. The fact that the average for the quarter per employee is up a little bit, is consistent with the discussion we've had for more than a year that we're investing rather significantly in facilities. We've added square footage at a rate faster than we've added people. That'll normalize, but probably over a couple of years. Heads are the driver. As I did mention, the change in presentation of client-related transaction expenses will introduce a little bit of variability, both from our underwriting and our advisory engagements. Certainly, it had a modest impact in the first quarter. The driver, as it has been, is going to be the growth of the business and adding heads.
Okay, great. Just a quick follow-up on the restructuring outlook. I know you had cited strength in the retail and energy sectors. Just wanted to get a sense of what your outlook is for that business going forward and what the backlog looks like at the moment.
Well as I said in answer to another question, our advisory revenues last year were up in every category, including restructuring, notwithstanding the fact that default levels are at almost all-time lows. I think we've added talent in the restructuring area. We think we're well-positioned to capitalize on a pickup of activity when that inevitably happens. Other than relatively isolated sector activity like retail or like we saw in energy two or three years ago, there certainly is no broad-scale pickup in distressed companies at this point in time.
The other thing I would add to that is that what we have done is to our traditionally strong debtor business. We've increasingly engaged with clients on the creditor side. We've really added an element to the way we cover clients, and that we think may lead over time to more velocity, more business in the restructuring business generally.
Okay, great. Thanks for taking my questions.
Thank you.
There appears to be no questions at this time. I would now like to turn the floor to Ralph Schlosstein for any closing remarks.
Thank you very much for your time, and we look forward to talking to you in three months. Take care.
Ladies and gentlemen, this concludes today's Evercore first quarter 2019 financial results conference call. You may now disconnect.