Morning, ladies and gentlemen. Thank you for standing by. Welcome to the Evercore second quarter and first half 2018 financial results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open 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 a selection. This conference call is being recorded today, Wednesday, July 25th, 2018. I would now like to turn the conference over to your host, Evercore's Head of Investor Relations, Jamie Easton. Please go ahead, ma'am.
Good morning, and thank you for joining us today for Evercore's second quarter and first half 2018 financial results conference call. I am Jamie Easton, 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 Robert Walsh, our CFO. After our prepared remarks, we will open the call for questions. Earlier today, we issued a press release announcing Evercore's second quarter and first half 2018 financial results. The company's discussion of our results today is complimentary 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, 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 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 reconciliation, you should refer to the financial data contained within our press release, which, as previously mentioned, is posted on our website. We continue to believe that it is important to evaluate Evercore's performance on an annual basis. As we have noted previously, our results for any particular quarter are influenced by the timing of transaction closings. I will now turn the call over to Ralph.
Thanks very much, Jamie, good morning, everyone. We are very pleased, obviously, with our performance in the second quarter and the first half of 2018. Second quarter and first half net revenues, net income, and earnings per share were all record levels. Our sustained growth in advisory fees continues to drive increases in Evercore's market share of advisory fees among all publicly reporting firms. In fact, over the last 12 months, ending June 30, three of the seven largest firms, in terms of advisory revenues globally, are independent firms. When one considers that the independent firms compete solely on the basis of our ideas, our intellectual capital, and our relationships, the large firms frequently get advisory fees in connection with balance sheet extension, this is quite an endorsement of the independent firm model.
If our two large independent firm competitors each report advisory fees that are around consensus, we actually could rank fourth among all firms and first among independent firms in advisory revenues. While our results for the quarter benefited modestly from a limited number of transactions that closed earlier than anticipated, we certainly are encouraged by the continued growth in the firm's advisory revenues and market share. This quarter, we experienced strong contributions from all of our more developed sectors, tech and telecom, healthcare, financial institutions, and energy. Our newly added industrials, consumer and retail, and real estate capital advisory teams are gaining traction, securing mandates on a number of important client assignments, our broad range of advisory capabilities continues to make an important contribution to our growth.
Our underwriting business continues to increase materially off a small base as we are playing a more significant role in transactions in which we participate. Healthcare remains our most active sector, with energy, transportation, and real estate also important. We are working hard to broaden our footprint in TMT, industrials, and consumer sectors. On a latest 12-month basis, we have generated $73.2 million in underwriting revenue, an increase of almost 90% year-over-year for the 12-month period. Commissions and related fees improved meaningfully from the first quarter, our wealth management team once again contributed as revenue and assets under management grew nicely. We continue to enhance our ability to serve our clients by further investing in talent. Far this year, we have announced the addition of seven new SMDs, five of whom already have joined the firm.
Our significant investments in talent, externally and internally, and across all levels of seniority, position us well for future gains in revenue and market share. We remain committed to our capital return strategy of repurchasing shares issued for year-end compensation and shares issued to attract talent. In each of the last five years, we've repurchased at least that many shares. During the first half, we repurchased 1.7 million shares through net settlements and open market purchases at an average price of $96.63 per share. We will also continue to return capital through dividends and through opportunistic share repurchases beyond our committed strategy. Let me briefly review our financial results. Second quarter net revenues were $443.6 million, up 19% versus the same period last year. Advisory fees and underwriting fees were very strong again this quarter, both showing meaningful year-over-year growth.
John will comment on this in more detail in his remarks. Commissions and related fees were $51.1 million, down 5% versus the second quarter of 2017, but up 19% sequentially. In Investment Management, Asset Management and Administration fees and assets under management from our consolidated businesses increased 14% and 10%, respectively, versus the prior year period, when revenues related to the divested institutional trust and independent fiduciary business are excluded. Net income was $83.2 million for the quarter, and earnings per share was $1.65, up 55% and 56%, respectively, year-over-year. The operating margin for the quarter was 26%, an improvement from the 24.7% last year. Our results reflect a 25% effective tax rate in the second quarter, lower versus a year ago, due to the lower corporate tax rates in the U.S. Our compensation ratio was 59% for the quarter, which reflects our current full-year expectations.
Non-compensation costs were $66.3 million, or 14.9% of revenues, versus 16.3% of revenues in the second quarter of last year. As you may have seen, we are expanding our headquarters in New York, adding additional floors over the next five years to accommodate our continued growth. Bob will discuss this further in his remarks. For the first half, revenues were $904 million, up 19% from last year. Net income for the first half was $197 million, and earnings per share was $3.90, up 43% and 46%, respectively. Our operating margins for the first half were 26.6%, the first half was a record in every respect financially. Let me now turn the call over to John to discuss the current market environment and comment on our Investment Banking business.
Thank you, Ralph. Good morning. The market environment remains broadly favorable. The elements of that drive a healthy M&A market are still in place in support of strategic M&A and capital-raising transactions. Looking at the first half of 2018, the dollar volume of announced transactions increased 55% globally versus last year and 60% in the U.S., driven almost exclusively by the number of deals greater than $1 billion, which increased 31% globally and 25% in the U.S. in the first six months of 2018. While North America continues to lead in M&A activity, European announced volumes continue to improve. Equity issuance was strong in the first half of the year, with the highest level of IPO activity since 2014. Capital raising for the private investment funds continues to be robust, with the average fund size increasing 5% for the first half of the year.
Board and CEO confidence remain high in most geographies and sectors. Equity markets remain very supportive. Credit markets remain broadly accommodative. Let me briefly review the results of our Investment Banking business in greater detail. Second quarter advisory fees were $355.3 million, 25% higher than a year ago, and our highest second quarter in our history for advisory revenues. Underwriting fees were $19.4 million, up 112% from the same quarter a year ago. The composition of advisory revenues for the quarter reflected strong contributions from multiple sectors and capabilities. Our productivity continues to be market leading, and our backlog remains strong. Our industrials and consumer retail teams are continuing to build out around the 5 SMDs added over the last year or so and have already been mandated on several important engagements with prominent companies in their sectors.
Further, our real estate capital advisory team, who joined in April, is off to a strong start, securing a number of new assignments. We were particularly pleased with the performance of our team in underwriting, participating in 11 transactions this quarter with eight of nine equity deals as a book runner. We continue to make progress in improving our relative financial participation in each of the transactions in which we participate. We served as lead underwriter on our first IPO this quarter, and our work on the CFE privatization in Mexico, both as an advisor and an underwriter, was highlighted when that transaction was recognized as a 2018 Deals of the Year by The Banker magazine. Despite strong capital market conditions and low default rates. Our restructuring team remains productive.
Restructuring and debt advisory deals span a broad range of industries with no particular industry concentration and a balanced mix of company and creditor assignments. Importantly, our restructuring team serves clients beyond classic Chapter 11 advice, focusing broadly on financing, liability management, and debt capital advisory situations globally. Before I turn the call back to Ralph, I want to provide an update on our recruiting efforts and plans. We continue to have success in attracting talented Senior Managing Directors to our platform. To date, seven SMDs have committed to join our advisory business this year. Five of whom have already joined, and two are planning to join in the third quarter. With the addition of these two SMDs, we will have 97 advisory Senior Managing Directors.
Any additional additions will either round out our success for 2018 recruiting or begin our efforts for 2019. Let me turn it back to Ralph.
Thanks, John. Let me just comment briefly on the performance of our Evercore ISI business for the quarter and the first half. Commission and related fees were down 9% in the first half, although the year-to-year decline was 13% in the first quarter and only 5% in the second quarter. The improved year-over-year performance in this quarter produced nearly 19% sequential growth in these revenues from the first quarter to the second quarter. As I noted on our call last quarter, we are deeply committed to having a world-class research capability. I believe that the intellectual capital provided by that research significantly differentiates Evercore in our ability to serve our clients. Our first priority in this business will continue to be producing and delivering to clients the highest quality independent research, both fundamental and macro.
We continue to believe that the impact of MiFID II and the realignment of the research wallet will take some time to resolve itself. We believe it will not be fully revealed for up to a year or two. Broadly, as we said at the end of the first quarter, we expect the research wallet to shrink relative to 2017. This appears to be happening. That the market share of that wallet paid for the highest quality research will grow, a trend from which we expect to benefit. We continue to have constructive discussions with all of our institutional investor clients globally to determine the appropriate level, timing, and form of payment for our research services. We are constantly adjusting the level and priority of service delivery with the goal of providing value-added and insightful research for each client and being fairly compensated for that research.
With respect to the investment management business, pro forma for the sale of our institutional trust and independent fiduciary business last year, revenues continue to show steady growth. Fees attributable to EWM, Evercore Wealth Management, are driving this performance with a 15% growth in the second quarter compared to the prior year period. EWM assets under management increased 13% compared to the prior year as well. I will now turn the call over to Bob to discuss various financial matters and to wrap up our comments.
Thank you, Ralph. Net revenues, net income, and earnings per share on a GAAP basis of $448.5 million, $68.9 million and $1.52 respectively, were a record for a second quarter, just as they were a record on an adjusted basis. Consistent with prior periods, our adjusted results for the quarter exclude certain items that are directly related to our acquisitions and dispositions and 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 $3.7 million related to the Class J LP units. Turning to taxes, our GAAP tax rate for the quarter was 23.8% as compared to 4.3% in the prior quarter and 46.5% in the same period last year.
The rate for the second quarter of 2018, as well as the rate for the prior quarter, was impacted by the enactment of the Tax Cuts and Jobs Act. Moving to non-compensation costs. Firmwide non-compensation costs per employee were $38,600 for the quarter. Slightly up sequentially and on a year-over-year basis. As Ralph mentioned, we committed to expand our footprint at our Park Avenue Plaza headquarters in New York. In the near term, we will be adding three floors focused on advisory growth, with additional space to be added over the next five years. This expansion will enable us to eventually consolidate our advisory and equities businesses into a single building in New York City. We do not anticipate that this will significantly impact non-compensation costs per professional over time as the growth in capacity tracks expected increases in personnel.
In the near term, this increased commitment may increase non-compensation costs per professional. For example, had the lease commenced on April 1st of 2018, non-compensation costs per professional would have increased by approximately 3% this quarter.
Our Q2 share count for adjusted earnings per share was 50.4 million shares, lower in comparison with the prior quarter, driven principally by the impact of share repurchases. On a GAAP basis, the share count was 45.3 million shares for the quarter. Year to date, we've returned $202.1 million to shareholders through dividends and share repurchases, including a quarterly dividend of $0.50 per share. Finally, our cash position remains strong. We hold $653.9 million of cash in marketable securities at June 30th, with current assets exceeding current liabilities by $567.5 million. We'll now open the line for questions.
Thank you, sir. We will now begin the question and answer session. As a reminder, if you have a question, please press the star followed by the one on your touchtone telephone. If you would like to withdraw your question, please press the pound key. If you are using speaker equipment, you may need to lift the handset before making your selection. Our first question comes from the line of Michael Needham of Bank of America. Your line is open.
Hey, good morning, everyone.
Good morning.
The first question I have is just Europe. It seems like an area where you could capture more market share, but historically, the independent share has really been dominated by two firms there. What are your plans for that part of your advisory business, and how measured are you going to be in growing Europe?
Well, I think you should expect that our approach to Europe will be exactly the same approach that we've taken to building the rest of our business. I think you're absolutely correct, that if you look at the proportion of our advisory revenues that come from Europe versus our two largest competitors, who happen both to have been born in Europe, we're lower. That presents a meaningful opportunity for us. As we've always said on these calls, excuse me, I have a little frog this morning. As we've always said on these calls, we identify openings or holes in our coverage effort, but we only fill them when we find an A+ or an A. Sometimes that takes multiple years to do. I've been here nine years, and when I joined, we identified industrials and consumer as two areas that we needed to have significant coverage.
If you've followed us carefully, you'll note that last year we added three new partners in the industrial sector, two of whom have substantial and long-standing seniority at larger firms. This year we added two partners in consumer. While we identified each year those two sectors as a priority, it took us quite a long time to find talent that we thought could produce at the levels that we expect of our senior managing directors. The answer is, clearly that is an area of high focus. We want to make sure that we get absolutely the right people so that our business in Europe over time looks a lot more like our business in the U.S. Sorry about the long answer.
Yeah. Thank you. The second on the labor market, more broadly, there are a number of firms looking to grow their advisory businesses, and some of the big banks appear to be doing more to retain talent. Yet you're still able to add a number of quality bankers in this environment. I'm wondering, have you seen labor costs increase? Have you driven any of that? In the case where you might make a guarantee to a new banker, how do you think about any potential cultural risks to your existing franchise or cost inflation to the existing franchise? Thank you.
Well, the discussion that we have with new bankers, is the same discussion we've had for a long time. That discussion really centers around the following. It affects the offers that we make. We want people to come here, not because we've given them a guarantee, but because they genuinely buy into the independent business model and the Evercore culture. When we extend offers to people, they are generally in the ZIP code of what they've been making historically. In other words, we don't buy people. We give people comfort that they will be treated fairly once they have bought into our business model. I think that our turnover statistics validate that that's what we've been doing because we have had literally or virtually no turnover at the senior levels that was regretted by us.
As you can imagine, the senior management of the firm spend a tremendous amount of time thinking about how we bring in new people, which new people we bring in, and contribution. I agree 100% with Ralph that the way we talk to people is really that we want them to come if they can really buy into the culture and the way we do things. I would say that we're not, at this point, stretching to pay for people to come in as much as we're offering an opportunity to be a part of the firm and the momentum of the firm. We're finding that on the contrary of what you were asking, which is, are we increasing labor costs by stretching?
I feel like what we're doing is we're really telling people what we do, and I think people really are actually, it resonates with people, and people are excited to join. We have a lot of conversations that are ongoing, I would say that for the most part, it's a two-way thing, I think people are actually very interested in what we're doing, We are finding a really good fit.
Understand. Thank you.
Thank you. Our next question is from the line of Devin Ryan of JMP Securities. Your line is open.
Hey, thanks. Morning, Ralph, John, and Bob. I guess first question here, if you annualize the first half advisor revenues, you're approaching $1.5 billion of fees. It's obviously a great level there. Productivity of bankers is also at high levels. The backdrop's favorable right now. When you look at the various fee pools of the businesses and you look at your market shares in Evercore today, where do you feel like productivity is not hitting as high as it could be over time? There's still a fair amount of upside because we just see the blended number. Where do you also feel like given the firm's success, market share is more mature today, just further gains become more challenging just given your scale in a certain business or a certain geography. Just would love some color there.
Well, we're not very good at predicting any of those things, so I'm not sure how much color I can give you. I think if I had been asked five years ago how high did I think productivity could go, I would've said $12 to $13 million per SMD. I might even have said that on one of our calls. Our productivity globally is really high today. I don't know how that gets a lot higher from where it is, but I would've said that at 12 or 13 too. All that shows is that we're woefully unprepared to predict where it goes. I do think that both here in the U.S. we have many sub-sector holes and industry practices where we have fewer partners than optimal to cover the opportunity in those sectors.
As we discussed earlier, we are definitely lighter from a revenue point of view in Europe and Asia than our two roughly the same size competitors that are independent firms. We definitely feel that we have some significant opportunities for growth, although my suspicion is that growth will occur more by adding talent than by growing productivity from these levels. The second thing I guess I would add is that we are building some pretty material capital markets advisory capabilities. Those have grown nicely. You see the underwriting revenues because we break those out. They represent two things for us. One, a source of additional revenue. And two, and very importantly, they allow us to be the sole or lead advisor to our clients for a longer period of time than would've been the case five years ago.
I would add that in looking at each of our sectors and our market share in those sectors and our share of the deals that are done, and really getting into a more granular level of our dialogues along the leading companies in those sectors, I think we've got a lot of room to run. I would not say that we have reached a maturity or saturation point in any of our businesses, sector by sector, or in some of the capabilities that Ralph mentioned, the ECM, debt capital markets, or capital advisory. I really feel like we've got open running room across the board. It's not going to happen all at once, and each sector is challenging in and of itself. The competition is always stiff, but I feel like we've got real opportunity across the board.
That's great. I appreciate all that color, and I know these are kind of difficult things to predict. Maybe just even following up on that. You guys have all seen a few cycles, in the cycle, there tends to be kind of bad behavior, or call it risk in the system towards the end that maybe sometimes isn't realized until after the fact. I'm just curious, just given that you do speak with so many companies that are leading in the various industries that they are and are kind of a global barometer. Are you seeing any pockets of that overextension at the corporate level that we've seen at prior cycle kind of peaks? Or would that, I guess not seeing it maybe suggest that there's still plenty of room in this cycle?
We obviously are speaking with lots of companies, Ralph and I, along with Roger, spend a lot of time with our teams as they advise companies. I would say that we're not seeing any, what you refer to as bad behavior. Clearly, people are still trying to drive their growth. There still is growth there. You've seen that in terms of the earnings announcements. I think that companies really are assessing the world around them, whether it's the challenges of the geopolitical landscape, as well as really how do they create value for their shareholders. I wouldn't say that we've seen any behavior that we think is questionable. We think that companies right now feel like they can continue to grow, and they're looking at their strategic options to do so.
Okay, great. Thanks for tackling that. Just a quick follow-up here. A lot of companies are talking about the opportunity in capital advisory, and there's a lot of sub-areas within that. Some firms have partnered with other, call it balance sheet providers that can provide firm commitments. I'm just curious how you think about that model strategically. Is that something that would make sense for Evercore, or does that kind of remove the perception of independence? I'm just curious your view there.
Yeah, I think you just hit on the crux of the issue. You never want to say never, but if you ask how do we rank certain cultural and values of the firm, our independence is way up there. It's way up there because it's way up there in our clients' perception of us. The fact that we don't have any financial conflicts with our clients, and we're extraordinarily cautious about conflicts among clients. We've looked at these things from time to time. We haven't found one that, in our view, doesn't paint or tinge our independence, or the perception of our independence. That's why we haven't pursued them up to this point. We never say never.
The only thing that I'd add to that, and I think Ralph said it well, but the only thing I'd add to that is right now we look at our opportunity set, and with what we actually do and our capabilities, we feel like we've got real running room to continue to build. We don't feel like we need to actually expand or get out of our comfort zone. We just feel like we can stay right where we are, and if we execute well, we're going to continue to drive value for shareholders.
Per that point, we actually have, not by a little, but by a fair amount, the broadest array of skills in this firm among any of the independents by virtue of the fact that we have a real equities business, we have real underwriting, and we have real connectivity with the institutional shareholders who are increasingly important to our clients.
Great. Thank you, guys. Appreciate the color.
Thank you. Our next question comes from the line of Brennan Hawken of UBS. Your line is open.
Good morning, guys. Thanks for taking the question. First one, Bob, for you. A competitor, another advisory firm, just a couple of nights ago, highlighted that they had to pull forward of revenue due to a new accounting policy change on deal closing timing. Was there any impact on Evercore's results for this quarter, and could you maybe quantify that for us?
We have not had any impact from the new accounting standard this year.
Okay, great. Thinking on a more broad basis here, pulling back the lens. There's been increasing focus on some of the trade tensions and tariff headlines, whether that be actual headlines or Twitter or what have you. It doesn't seem to have impacted the velocity of deal announcements, but do you guys sense any concern or apprehension happening in the C-suites or on the board level around the impact of this if this continues to escalate and it's not just a negotiating tactic, or it's not just noise, and it actually turns into reality?
I think that there's not a single company that isn't aware of what's going on and isn't focused on it. We don't see any impact right now, nor do we feel like there's going to be any kind of imminent impact going forward. I would just say that in conversations and advisory assignments that we have, we talk about it, but right now, we don't see any particular impact from those conversations. Having said that, we're all watching carefully.
I would add to that if you look back over the last five, six years, which have been generally positive years for activity. The things that have caused temporary periods of pauses have generally been exogenous events. The taper tantrum, Brexit, the budget issues at the end of 2012. They caused volatility in the capital markets, and they caused a temporary pause, which was not very long, in the part of confidence on the part of executives, which is an important ingredient to activity. Clearly, trade is one of those exogenous events that if it was carried to its illogical extreme, could have a similar effect on activity. As John said, though, so far, we haven't seen any of it.
Terrific. Thanks for that. One last small cleanup one. I know the employee portion of the repurchase was small. Was there any reason, aside from maybe timing or luck, why there was such a large price per share delta between open market purchases throughout the quarter and the settlement of stock-based comp? I want to say that it was somewhere around $15 a share. Just seemed a bit big.
If we were cocky people, we would say that the net settlement occurs randomly based on the calendar, and the open market repurchases are driven a little bit more by when we think is the best time to do that. Since we're not cocky, we won't say that, and we'll just say it's a coincidence.
All right. Sounds good. Thanks.
Thank you. Our next question is in the line of Jim Mitchell of Buckingham Research. Your line is open.
Okay. Thanks. Good morning. Maybe just talk about getting back to headcount. You've had a good recruiting class, but also it seems like net headcount has been picking up. Is that just simply a function of the fact that the environment's getting better and you need all the bodies you can get, or is there some sort of retention is better, the quality of your bankers are getting better? How do we think about the acceleration of net headcount, and do you think that continues?
Yeah. I would say I'm not sure that the net headcount has grown percentage-wise a lot more rapidly than our. Over five years it probably has because we've tended to have a little bit more number of professionals relative to SMDs. That ratio has gone up a little bit. That's been a function of really a couple things, I would say. Number 1, that we've been attracting stronger people. The business has been strong. One thing that's probably not as visible is that we've, as part of our effort to move over time from growth in SMDs coming from internal promotions rather than external hires. Today, of our 97 SMDs that John identified, 26 have been promoted internally, which is up dramatically from what it was a few years ago.
In order to train and develop those people, what we are doing is the talent at the managing director level, which is our second highest title in the advisory business, are spending a greater portion of their time developing their own clients in addition to executing transactions for existing clients. That actually does cause a little bit more, a slightly higher ratio of non-partners to partners and could marginally affect the rate of growth of the whole population versus SMDs.
Jim, it's Bob. We've talked about this before. Our success rate with our promoted advisory SMDs is 100%, which I think everyone would expect. As the size of that group has increased over the years, our advisory SMD net growth has improved because we're getting that right 100% of the time.
Right. That's helpful. I think it seems like the quality of your bench over time is getting better. I guess that's kind of what I was trying to get from you guys, but that sounds to be what's happening. All right, Bob, maybe a question on just cash levels, up 60% year-over-year despite some stepped up capital return. Part of that's the Tax Cut. At what level, given your coverage of debt outstanding, it seems like you have quite a bit of cash. Is there a certain level we need to think about before you become a little more aggressive? How do you think about the amount of cash on the balance sheet and what to do with it going forward?
Our policies around capital return, as Ralph said, are the same. I do have to spend a little bit of it building those floors that I talked to you about.
Sure.
By and large, I wouldn't expect any change in our practice. We just bought back a few less shares this quarter than the past, but that's timing.
Okay. Thanks.
Thank you. Our next question is from the line of Ann Dai of KBW. Your line is open.
Hi. Thanks. Good morning. I was hoping to follow up on the discussion of expanding in Europe. Just given the ins and outs of local markets there, I guess I'm just curious whether you guys have an inclination to do acquisitions for talent in order to ramp that growth more quickly instead of bringing on the individual headcount and building up organically.
I think that if you look, the simple answer is no. Let's just leave it at that.
Yeah. I guess what I'd like to just enter here is that what Ralph said before, which is the way we're looking at expansion, which is we're doing it one by one. We did that in the United States, and we did that over a period of time and built a quality business by bringing good people. That's really what we're doing in Europe now. We're doing it one by one. It may go slower than you would like or we would like, but hopefully, as we build it's going to be quality each step of the way. Our bias is always going to be finding the right person, the A player, and bringing them in. I don't think you'll see us doing an acquisition. I think those are hard to do.
Okay. Appreciate the color. My second is on restructuring and appreciate that you're continuing to invest in the team. I guess I'm kind of curious where you stand on headcount today, and if we think about growth in that segment going forward, where might we be expecting to see more expansion? Is it in kind of sector-specific coverage, or where might we be seeing that?
Well, our restructuring team hasn't changed in size a lot. We've added some, what we believe are really terrific partners over the last couple of years. Our revenues continue to do well there. We certainly believe that when the inevitable next restructuring phase or higher level of activity occurs, that we're well-positioned for it.
Yeah, our concept is to have a very high talent base, in the sector, in the area, and to really be opportunistic about where we're needed and then to enter into that sector in an aggressive way. We obviously cover all the sectors, and our bankers in all the sectors are interacting with our restructuring group all the time. It's really a tremendous asset to have when you're advising a company. When there is a sector that is actually in need of advice with respect to restructuring, we move fast, and we hopefully are agile. We did that in energy a couple of years ago, and it worked out very well, and we continue to be flexible and hopefully very agile, and we're covering industries across the board.
I guess the one other thing I would add is that it's not like there's a bright line between restructuring, for example, and capital markets and debt advisory. A good number of our restructuring partners and team have skills that span the spectrum from in-court restructuring to out-of-court restructuring to amendments and extensions of existing agreements to true capital structure advice. So it's not like these people are sitting there twiddling their thumbs, waiting for the next wave of restructuring.
As you might imagine, as a relatively small firm, we don't have any impenetrable membranes in any of the silos. We take the talent that we have, and we apply them to client issues and objectives, and so people are really working on multiple projects in multiple ways all the time.
Okay, thanks for the color. Have a good day.
Thanks.
Thank you. Our next question comes from the line of Jeffery Harte of Sandler O'Neill. Your line is open.
Good morning, guys. A couple from me. One, operating leverage. How should we be thinking about the operating leverage opportunity? I guess how should we balance between what's still pretty strong revenue growth and what's a at least steady, if not accelerated hiring pace?
I think the right way to think about this, I used to say there's virtually no operating leverage in our business. I actually don't think that's true anymore. I think that there are essentially two sources of operating leverage. Well, three, actually. The last two are relatively modest, and the third is exogenous. The exogenous one is the level of activity in our business, which is primarily the level of activity in M&A. High M&A activity, particularly higher fee activity, causes operating leverage. That's just a fact. Obviously, we have two sources of expense. We've had a general trend downward as our business has grown of non-comps as a percentage of our total revenues. That is a modest source of operating leverage. Obviously, if the top line went the other way, that would be the opposite.
The second is the operating leverage that comes in the comp ratio over a fairly long period of time as we move more and more toward internal promotions as a source of new SMDs rather than external hires. Because as we've discussed over the last 6 quarters, we are experiencing a modestly higher comp ratio over the last 6 quarters than we had in 2016, and that's a result of the number and the seniority of the investments that we're making externally. This is not meant to be pejorative toward the people we're hiring. There's a little bit of a pig going through a snake element in our comp ratio associated with that, which it's probably a three-ish year phenomenon starting in 2017.
We may very well be talking to you about it again next year, depending upon the number and seniority of people we expect to hire. Is that a fair answer, Bob?
Okay. Secondly, this is a tough one to answer, but as we try to assess the growth potential from the outside, it seems like a balance between the law of large numbers is how much can you grow as you're now a top five market share player in disclosed advisory revenues versus a broadening of service offerings. It just seems like the revenue pool is bigger than we're used to thinking it being. Can you help us at all to quantify some of the revenue opportunities you see outside of the traditional advisory businesses we're looking at?
Well, I think.
I mean, you.
Broadly, I think John said it very well. When you look at sub-sectors that we're not in, sectors where there is additional where the number of SMDs that we have isn't proportionate to the opportunity and geographies where we are short relative to our largest competitors, there's a significant amount of growth opportunity in the advisory business in and unto itself. In addition to that, we have been adding to our capital markets advisory capabilities and obviously you see the, quite visibly, the growth in our underwriting business. That clearly. Bless you. That clearly has more room to run. As I said, those capital markets advisory businesses provide real independent revenue opportunities.
They also enhance our relative position in M&A advisory because they allow us to be the sole or lead advisor all the way through or for the vast majority of a relationship before a financing bank is brought in. They're pretty important actually to the relative growth of our business.
Yeah. I appreciate the question very much as you're trying to look at where we are and what the growth could be going forward. The only thing that I would say, and at the risk of repeating myself a little bit, is that as I look at each of our businesses and I look at the opportunity set in each of those businesses in sectors and capabilities, I really haven't felt like we're bumping against any potential constraint. In that I really believe that in each of those businesses, if we perform better, we are going to get more business, we're going to build more clients, we're going to be in more transactions. I think there's a real running room to go with what we have and our current capabilities.
Clearly, we're going to continue to look at talent, and we're going to continue to try and bring in more talent that will hopefully, in effect, catalyze even more of that growth. I really believe that we, right now, have all the opportunity set that we need at this point.
Thank you.
Thank you. There appear to be no questions at this time. I would like to turn the floor over to Ralph Schlosstein for any closing remarks.
Thank you very much for all of your time. Have a great summer. We look forward to talking to you in October.
This concludes today's Evercore's second quarter and first half 2018 financial results conference call. You may now disconnect.