Welcome to the Evercore fourth quarter and full year 2016 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. If you have a question, please press star followed by the 1 on your touch-tone telephone. Please press star 0 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, February 1st, 2017. I would now like to turn the conference call over to your host, Evercore's Chief Financial Officer, Bob Walsh. Please go ahead, sir.
Thank you. Good morning. Thank you for joining us today for Evercore's fourth quarter and full year 2016 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, our new Executive Chairman, John Weinberg, and Roger Altman, our Founder and Senior Chairman. After our prepared remarks, we will open up the call for questions. Earlier today, we issued a press release announcing Evercore's fourth quarter and full year 2016 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 transcription 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 included 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 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 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 very much, Bob, and good morning, everyone. Before we discuss the results for the quarter and the full year, Roger and I would like to welcome John Weinberg, our new Executive Chairman, to this call. John's arrival at Evercore is a giant step forward for the firm. His skill as a banker and his integrity exemplify the high-caliber senior banking professionals who we continue to attract to Evercore to elevate, evolve, and grow our business. All three of us will be on today's call. In the future, you should expect, in most cases, to have John and me. Roger will be spending the vast majority of his Evercore time with clients, which with all due respect to all of you, is his passion. Let me now talk about the year and the quarter.
2016 was a remarkably strong year for Evercore, driven by industry-leading growth in every part of our advisory business. Advisory revenues grew 27% versus last year. Our equities business continued to grow modestly and was again very highly rated in the Institutional Investor rankings, number two on a weighted basis and number three on an unweighted basis. Our investment management business continued to perform as expected. Our growth in advisory was driven by market share gains, not by a particularly ebullient M&A environment. As you all are aware, we track our market share versus public firms, which report their advisory fees separately and all publicly traded independent firms. Versus all public firms, including all the large universal banking firms, our market share of revenues was 4.8% at the end of 2015.
While all firms have not yet reported, we estimate that our market share for 2016 among all public firms will be 6% or perhaps a little higher. We estimate that our market share among all the publicly traded independent firms will exceed 18%, up from 16.3% in 2015. As a result of this performance, our advisory revenues are expected to be the sixth or seventh highest in the world, and we estimate that we rank significantly higher in the U.S. The competitive environment continues to be quite favorable to our independent advisory model as clients increasingly are embracing our approach of providing independent, senior-level, trusted, and confidential advice, free of the actual and perceived conflicts that clients frequently encounter with our universal banking competitors. Clients also have embraced the breadth of capabilities and the globality that we offer.
As we enter 2017, we are optimistic that both our relative and absolute strengths will continue to resonate with clients. Let me turn to our financial results. Evercore's fourth quarter and full year results reflect our strong performance in our investment banking business globally. We delivered our eighth consecutive year of growth in both revenues and earnings, and our margins exceeded 25% for the first time since the financial crisis. We continue to deliver significant value to our shareholders. Let me just turn very briefly to the numbers. For the full year, record revenues of $1.431 billion, with net income of $223 million, up 18% and 30% respectively, versus 2015. Earnings per share for 2016 increased 34% to $4.32, another record. Operating margins were 26.5% versus 24% in 2015, with a full-year compensation ratio of 57.3%, a modest improvement compared to the 57.8% of last year.
The year-over-year improvement in the compensation ratio occurred despite higher approvals for our long-term incentive plan and despite the addition of John to our management team. The increase in the long-term incentive plan was driven by higher SMD productivity, which quite honestly exceeded our expectations. The average revenue for advisory Senior Managing Directors for the U.S. and U.K. combined at the end of 2016 was the highest level since before the financial crisis. Our non-compensation expenses, the ratio of those to our revenue improved in 2016 to 16.3% versus 18.2%. For the quarter, net revenues were $442 million, a quarterly record, up 9% versus the same period last year. Adjusted net income in the quarter was $74.4 million, with earnings per share of $1.43, in each case, the best quarter in our firm's history. These results are up 15% and 17% respectively from the prior year.
Our operating margins in the fourth quarter were 28.7%, up versus 27.2% a year ago. The fourth quarter compensation ratio was 57.2%, down from 58.6% in the same period last year. The non-compensation ratio was 14%, slightly down versus the same period last year. Our strong results enabled us to continue our record of significant capital returns to our shareholders, returning $225.8 million, increasing our dividend for the ninth consecutive year, and offsetting the dilutive effect of all shares issued for bonuses and new hires and a portion of the share issuance in connection with the ISI transaction. Let me now turn the call over to Roger and then John to discuss our investment banking business.
Good morning, everybody. I'll try to be quick here because I don't want to duplicate what Ralph just said. For the banking side of the firm, 2016 was the eighth consecutive record year. I'm going to focus first on the year and then on the quarter. This is covering the year. Total revenue hit $1.35 billion. That was up 21% from the 2015 level. Pre-tax income, $345 million, up 32% from the 2015 figure. To break down that revenue, advisory fees totaled $1.07 billion, up 27%. Commission and related income was $231 million, up 1.5%. Underwriting revenue, $36 million, down 9.6%. Breaking down the advisory fee portion of that further, we saw 246 fees equal to or greater than $1 million each. That's up from 180 for 2015, which represents a 37% increase.
We advised on 86 capital-raising transactions last year, generating fees of $73 million in comparison to 63 transactions in 2015. The total number of fee-paying clients for 2016 was 568, another record, up from 484 the year earlier. On productivity, revenues per Senior Managing Director on the same rolling 12-month basis we always use was $13.8 million globally at the end of 2016, up 9% versus the end of year 2015 figure. The 2016 number I just gave you reflects 79 Senior Managing Directors. The 2015 figure reflected 68. We pay a lot of attention to productivity because we think it's really an important measure of how we're doing. By any normal standard in this business, $13.8 million per Senior Managing Director is a very strong figure. Our comp ratio, 57.8% for 2016 versus 58.2%, improved obviously. Our operating margin, 26.3%, up from 24.1%.
We realized 33% of our advisory fees from non-U.S. sources in 2016, which represents good balance. For the quarter, it was a record quarter for the firm in banking, let alone a record fourth quarter by itself. In other words, a record overall quarter in the firm's history, best quarter in the firm's history. Net revenue $423 million, up 16% from the fourth quarter of 2015. I must say that if you think back to the beginning of the firm, if someone said to me that you'd be reporting $423 million of banking revenue in one quarter, I probably would've called for some psychiatric assistance. We had 256 fee-paying clients in the quarter, up from 222 a year ago. 82 fees greater than a million, up from 68 a year ago, 21% increase. $38.5 million in fees for advice relating to 35 completed capital-raising transactions.
That's up from $26.7 million of such revenue on 32 transactions the year before. We completed 14 underwriting transactions, raising $7.6 million, up from 12 transactions the prior quarter. Comp ratio for the quarter, 58.3, improved from 59.2. Operating margin 28.1, improved from 27.2. Ralph Schlosstein spoke about our market share. I won't repeat that. Evercore's market share has been going up every year for the past quite a few. I don't see that changing myself. We were the number one ranked independent firm in the U.S. M&A market, keeping in mind that's the world's largest market, based on announced transactions in dollars for 2016, and we were second among independent firms globally. We aren't number one in the U.S. market every year, but we do rank at that pinnacle in most years, and we did again, obviously, in 2016.
Ralph Schlosstein talked about our share of the global fee pool, an all-time high as we see it, and also our share of fees paid to publicly recorded independent firms, also an all-time high. I'm going to stop there and turn it over to John.
This is my first call. First, let me say that it's a real privilege to be here with you. Consistent with the view at Evercore since the very beginning, managing, retaining, and recruiting talent is foremost. So I'm going to spend just a couple minutes talking about talent, then I'm going to move on and spend a couple minutes on the M&A markets and our view going forward. Consistent with our longstanding commitment to steady growth in adding talent, we have added five advisory Senior Managing Directors in 2016, adding to our industry expertise in energy and industrials, and expanding our capabilities in activism and defense, and broadening our geographic reach in Europe. We ended 2016 with 81 advisory Senior Managing Directors.
To date, in 2017, we've announced the addition of Matsuo Fukuda in Tokyo, strengthening our position in Japan, where we continue to work with our longstanding partner, Mizuho. Also, we've added Ira Wilson, further solidifying our capabilities in the industrial sector. Importantly, we continue to be focused on growing and developing our internal talent. With that, we are pleased to announce that at the beginning of this year, we promoted four advisory managing directors to Senior Managing Director, adding to our leadership teams in healthcare, media, technology, and in capital advisory for alternative investment funds. We have a number of active discussions in the process currently, and it is really too early to tell the ultimate number of SMDs that we'll be adding in 2017, but we are optimistic that this could be a strong year. Let me turn for a few minutes to the M&A market.
The M&A market remains healthy. While aggregate dollar volume of announced M&A transactions was down from record levels seen in 2017, in 2016, the number of announced M&A transactions was up 2% year-over-year. Dollar volume of announced transactions was down 15% year-on-year globally, as 2015 was skewed by large strategic transactions over $5 billion. Interestingly, when you look at the market below the mega deals, which we know is quite lumpy, you look at announced transactions below $5 billion, which is the vast majority of activity, the dollar volume is up 16% in the U.S. 2% globally, and the average transaction size in the U.S. has increased modestly. In terms of going forward, prospects for 2017. The core elements that drive healthy levels for M&A remain in place, namely historically low interest rates, high equity prices, abundant credit availability, and strong business confidence.
We started 2017 with a healthy number of announcements for the month of January, adding to our backlog. We all know that one month does not make a year, there is clearly uncertainty and headwinds, whether it be tax policy in the U.S., Brexit, elections in France and Germany, recent policy decisions in the U.S. We definitely understand that things are not going to be a straight line to success. Having said that, we feel quite good. We feel like the dialogues that we're having with clients have been quite robust, and we feel good about the activities going forward. Ralph?
Okay, let me just talk, thanks, John, briefly about our equities business. Equities performed well again this year, with modest growth in secondary revenues offsetting a modest increase or decrease, excuse me, in ECM activity. As all of you most certainly know, it was a challenging year in the ECM markets, we were not excluded from that. Our ECM revenues were down approximately 10% year-over-year. In comparison, however, to our large firm competitors, who generally were down 20%-35%. We continue to execute our strategy, participating as a book runner in the two largest IPOs in the U.S. in 2016, as an independent adviser on the largest IPO in the U.K. last year. We remain confident in our ECM strategy and look forward to stronger results in 2017.
Evercore ISI contributed net revenues of $68.7 million in the quarter, including $5.7 million attributable to ECM activities. For the year, the business reported net revenues of $246.2 million, including $15.7 million attributed to underwriting. Full-year secondary revenues were up 2% versus last year, driven by a 12% increase in trading volumes, demonstrating the success of our low-touch trading platform. Overall, the business produced operating margins of 24% in the quarter and 22% for the full year. The business continues to perform well in a challenging market, and we remain confident that we can grow this business as we steadily add high-quality talent. In investment management, we reported net revenues and operating income of $18.8 million and $8 million for the quarter. For the full year, net revenues were $80.8 million, and operating income was $24.3 million. The full-year operating margin was 30%, compared to 24% last year.
These results predominantly reflect the contribution from our wealth management and trust businesses in the U.S. and the money market investment management business in Mexico, each of which continue to perform well. During the year, we also continued to make progress in rationalizing our investment management portfolio of businesses, selling our Mexican private equity business to the professionals who manage that business. Bob will now provide further comments on our GAAP results, as well as on our non-compensation costs and several other financial matters. Bob?
Thanks, Ralph. Starting with our GAAP results, net revenues on a GAAP basis of $445 million and $1.44 billion were a record for a fourth quarter and full year respectively, just as they were a record on an adjusted basis. Net income attributable to Evercore Partners Inc. was $43.4 million for the quarter and $107.5 million for the year, records for each period on a GAAP basis. Consistent with prior periods, our adjusted results exclude certain items that are directly related to our acquisitions and dispositions, particularly costs related to our equities business. Most significantly, we adjust for costs associated with the vesting of LP units and interests granted in conjunction with the ISI acquisition. For the year, we expensed $80.4 million related to this equity, in comparison with $82.5 million in 2015.
As a reminder, our adjusted presentation includes all of the shares we expect to issue for the equities business in the EPS denominator. Our forecasts that drive the number of shares expected to be issued did not change in the quarter. Turning to non-compensation costs. Firm-wide operating costs per employee were $152,000 for the year, a 3% decline versus 2015, as growth in non-compensation costs were lower than the overall growth in headcount. For the quarter, such costs were $39.5 thousand, up slightly on a sequential basis. The adjusted operating margins, which govern the ultimate payout of G and H units for the equities business, are 14.3% for the year above the threshold for the current year tranche of the G units. Moving to Atalanta Sosnoff. At the end of 2016, Martin Sosnoff retired from that business.
Concurrently, we performed an assessment of the carrying value of our investment for impairment and recognized a pre-tax impairment charge of $8.1 million, $3.8 million after tax in our U.S. GAAP results for the fourth quarter. Moving to taxes, the adjusted tax rate for the year was 38% as we continued to generate a higher percentage of our earnings in the United States. Our GAAP results reflect an effective tax rate of 44.5% for the year. Again, our GAAP effective tax rate is impacted by the non-deductible treatment of compensation associated with Evercore LP units and interests. The share count for Q4 on an adjusted basis was 52.1 million shares, slightly higher in comparison with prior quarters, due in part to the rising share price, shares associated with John joining senior management, and the more limited buybacks for the quarter.
On a GAAP basis, the share count was 44.5 million shares. As Ralph had mentioned previously, we repurchased 3.5 million shares and units at an average price of $48.03 for the year. Offsetting the dilution of shares granted to employees and new hires in the year, and reducing the shares associated with the ISI acquisition consistent with our plan. At December 31st, we had a remaining authority to repurchase 6.5 million shares. Finally, turning to our financial position, our cash position remains strong as we hold $625 million of cash and market and securities at December 31st. It would be reduced to $290.5 million when factoring in accrued compensation and benefits. Current assets exceed current liabilities by approximately $463 million. I'll turn it back to Ralph for closing comments.
That completes our presentation. Let's just take 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 key on your touch tone phone. 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 is from the line of Steven Chubak with Nomura. Your line is open.
Hi, good morning.
Good morning, Steven.
Morning.
Ralph, you recently announced the decision to open up an office in Tokyo and the hiring of Matsuo Fukuda . In recent years, we've actually seen a number of your bulge bracket competitors choose to retrench from some of those markets, just given very intense competition, really struggles competing with some of the local players. Wanted to get a better sense as to what's driving your decision to expand to Tokyo, whether you believe that the retrenchment of some of the more global players has provided a better opportunity, and are there other markets where you might look to expand in the coming year?
Well, first of all, this is not a major material event from a financial point of view. We've had a partnership with Mizuho. We do feel that particularly outbound M&A from Japan will continue. You have a lot of cash-rich companies locked into a essentially, no growth local economy. The impetus for them diversifying outside of their home country is very real. We felt that having a very modest, this is probably going to be three people or so, Evercore-branded effort on the ground, would help us in two ways. First, to be more involved in some of that outbound flow. Second, because of the acquisition appetite of Japanese companies, very often sell sides in the U.S. or Europe have one or more potential buyers in Japan.
We felt our ability to access those, not only through Mizuho, but through an Evercore-branded effort, would be useful.
Got it. Thanks for that helpful color.
Geographies. We do that more in response to the availability of great talent than a strategy of we have to be here or there or anywhere. We've never said that, and we never will.
Got it. Well, first off, John, welcome, and appreciated your helpful commentary as it relates to the outlook for 2017. In the prepared remarks, you did note that the ingredients for a constructive backdrop were still very much in place. As I think over the last couple of years, the message from a lot of C-level management at the various M&A shops has broadly been that low rates and a slower pace of growth actually provided a pretty favorable backdrop. Now, as we look ahead under the new presidency, you have expectations for more inflationary policies that could spur accelerated growth but also drive rates and ultimately financing costs higher. Yet the messaging continues to be quite constructive. I'm just curious to hear what, in your view, actually makes for a better backdrop in terms of industry activity.
Well, my own point of view is that so much of M&A activity is driven by CEO confidence. What we're seeing and hearing is that CEOs have confidence. They have confidence in a rising economy, whether it's a slow rising economy or more accelerated, but they really feel that. They see that there are opportunities, financing and access to capital remains high, and I think people perceive that it will remain high. So those things together, I think, really do provide a very positive backdrop for people who are looking at strategies to be able to execute on them. That's why I think we believe that there is very solid basis to believe that things will continue to be quite strong. Roger, I don't know if you have a point of view on this.
No, I share that. I've said many times on this call or referred many times to the basic elements of the framework that typically translates into healthy M&A activity. John referred to them in his own comments. I won't go over them again. I just think they are in place, I expect 2017 to be a healthy year with our continuing to gain market share, a year in which we again do well.
Got it. Maybe more specifically in terms of cross-border activity, how are you thinking about the potential impact of giving some of the protectionist rhetoric that has come out recently? At the same time, we've also seen quite a bit of U.S. dollar strengthening, which could clearly give more purchasing power to U.S. corporates.
I think we have to just wait and see on that. There are going to be a lot of crosscurrents this year, given the arrival of a lot of new policies, both or at least potentially in the United States and reactions to those policies elsewhere. Very hard to tell at the moment. I don't have a particular view on that. I've learned over many years that trying to forecast exchange rates is harder than forecasting the weather. We just don't know.
Fair enough. Well, that's it for me. Thank you for taking my questions.
Thanks, Steven.
Our next question is from the line of Michael Needham with Bank of America Merrill Lynch. Your line is open.
Hi, good morning, everyone. First, just a bigger picture question for John. What are your aspirations for Evercore, and what are you going to be focused on in your first couple of years?
When I came to Evercore in making the decision, I was really impressed by, number one, the level of talent here, and also as I've looked at the values and the principles. My own expectation and my desire is to really take a strategy which has been very successful and to help to drive it forward. There are definitely places where we could continue the strategy that we've had, which is acquiring great talent, developing great talent, retaining great talent, and then focusing on clients and trying to really take a very disciplined approach at really understanding their needs and trying to fulfill those needs. Whether those lead to transactions or not, they lead to great relationships and a franchise value that goes forward.
That really is what my focus will be, which is to continue those great values and principles, to keep the strategy, which is this intense, relentless focus on clients, and to try and build it out further. What Roger and Ralph have done is really to take a firm and really take it step by step to even more relevance and larger size and really just more activity. I think that's really what our goals are going to be, is just to keep building that out.
Okay, thanks. Then I was just hoping that you guys could drill down on the impact from the election. It sounds like the level of conversations with clients is healthy. I don't know if maybe you can comment on pre- versus post-election, whether that level is higher or lower. Any near-term risk to your pipeline and deals getting completed on time. Eventually, would you expect the healthy level of conversations to convert to mandates?
First of all, we're two weeks or so into the new administration, and it's pretty hard to generalize as to what it means for our business over the medium and longer term. I would say so far, the level of discussions or conversations or evaluations is up from the pre-election period, not down. There's obviously some anticipation we can all read in the press of lesser regulation, including on competition policy. Whether that continues, who knows? For the moment, I'd say it's up, and we'll just have to see how that evolves.
Okay, thank you.
Our next question comes from the line of Brennan Hawken with UBS. Your line is open.
Good morning. Thanks for taking the questions. You all made a comment in your opening remarks about being optimistic in the recruiting environment. How should we balance the potential for a less hostile regulatory environment amongst some of your larger competitors playing into the mix? Do you think that might impact the recruiting outlook in any way, or maybe the cost of recruiting? Thank you.
Well, first of all, let me take the second question first. While there's, as you've heard me say in the past, there's always some combination of push and pull that causes someone to leave another firm and most often a large firm, but not always, and come to Evercore. The push factors, the regulatory environment in which bankers have to work is pretty far down the list of things that cause people to leave. I would not expect a more benign financial regulatory environment, if one is forthcoming, by the way, to have much of any effect on the open-mindedness of bankers to consider departing where they are and joining us. With respect to the first question, we're really, as John said, a little early in the year to tell. We have had the two announcements that John alluded to.
We have a third person that we're quite far along in discussions. There's a number of other discussions, these are a little bit like the transactions that we work on. Until there's an announcement, you don't really know that you're going to get something done with these people because the people who we are recruiting generally are the most valued and the most treasured at the places that they are. There is always an aggressive effort on the part of their current employer to keep them.
Okay. Thanks for all of that, Ralph. Appreciate it. On the ISI and equities business for you all, I don't think I heard it. If I missed it, apologies. Where did the full-year margin in the equities business ex underwriting, the calculation used for the shares tied to the deals, where did that shake out? I believe the full year 2015 for comparative purposes was 15.2%.
It was 14.3% for the year, Brennan, which exceeded the threshold for the current tranche of units.
Got it. While I get the environment for equities is certainly difficult, it seems like you guys think that it's going to improve or that the pressure is temporary. Would love to hear your thoughts on that. When you think about the margin opportunity using 2016 as a jumping-off point, how much of it in that business would be tied to revenue opportunity versus further expense discipline and rationalization? Thank you.
Okay. I think our operating assumptions are not that we have a cyclical weakness in equities. It's more oriented towards that there are secular impacts on that business, some of which may modestly reverse. The growth of passive investing, the leveling off or even shrinkage of active equity assets and hedge fund assets are all modest headwinds for that business. Obviously, offsetting that on the other side is the growth in the equity capital markets generally. I would also say that there are some pretty consequential regulatory changes, initially in Europe in the MiFID II standards which both the clients and the providers of equity research services are starting to prepare themselves for. Those will also have an effect certainly in Europe on the wallet spend of equity managers.
We do think that our business approach which interestingly enough is identical in our advisory business and in our equities business, which is to have the most elite business, the top talent. We do think that that approach offers the opportunity for us to gain market share. If you look at the equities business over the long cycle, it is not a secular growth business unlike the advisory business, which even though it's cyclical, has for the last 35, 40 years, been a secular growth business. In terms of how do we expect to make money, we continue to look at our costs. I think our non-comp costs, we'll continue to make modest progress, but they're really not going to be a source of additional margin.
We do need to continue to attract and retain the best talent, upgrade talent where that is the appropriate thing to do, and also utilize our distribution resources as efficiently as possible and to make sure that they're matched up against where the revenue opportunities are as well. Sorry about the long-winded answer, but it's a business that's really important strategically to what we're doing here. It definitely doesn't have the same wind at the back that our advisory business does.
That's really great color, and nice to see you could sneak in at least one use of the word elite on the back of last quarter. Thanks a lot.
Maybe a long day on that score.
We're going to miss Roger.
Well, I have to warn all of you. The show, so to speak, that Ralph and I have had here for the past few years has been one of balance between
One theory, which is why use 20 words if four can do, which might be mine, and another theory which is why use 20 words when 80 might do, which might be somebody else's. John Weinberg has a very heavy burden to carry.
Our next question comes from James Mitchell with Buckingham Research. Mr. Mitchell, if your phone's on mute-
Jim
please unmute your phone.
Can you hear me now?
Yes.
Hi, Jim.
Oh, hi. Sorry about that. Maybe one for John. Since you're new to the firm and coming from a full-service shop, when you look at the underwriting opportunity at Evercore, how would you look at that and see what kind of upside there is in growing the market share in underwriting?
Well, I think there's actually a great deal of opportunity in that Evercore has a very strong reputation with respect to advice. Very strong financiers, people who really know how to give really objective thought to strategic decision-makers who may be thinking about equity. From that score, there's in place a group of people who actually can really bring the kind of quality that issuers are looking for. The capability of actually distributing and helping to structure securities and basically drive underwriting is there. Really what we actually are trying to work on now and really thinking through is how do we create the muscle memory? This has been a firm that has really made its bones and really made kind of the majority of the fruits of its labors from giving advice on mergers. Now we have this capability, which we're integrating in.
There are two aspects of it. One is the actual capability, which I think we have, and the second is making sure that we have all of our bankers who are out there having hundreds and hundreds of dialogues every day with people who are making decisions on capital raise, and giving that advice and having ourselves be part of the group who are going to be put into those capital raises. We're starting to make that progress. It's all about, I think, muscle memory. Having been in a firm where that was really a big part of the suite of products, you see how that takes place, and we're just starting to really work hard on developing that.
To really go back to your question, I think there's a lot of potential, and it's all about us starting to learn how to do it in a very effective way.
You don't think that comes at the expense of getting the M&A assignment, that's maybe what some of the bankers are worried about?
No, I don't think that at all. On the contrary, I think the more important strategic discussions you're having with management teams, the stronger the relationship is. Actually, I think that they'll feed on themselves, and it'll be somewhat synergistic. That's kind of the way I've seen it. I've actually seen it take place, and I believe that's the way it'll be.
Okay, great. Thanks for that color. Then maybe one, Bob, as we think about buybacks, the stocks, obviously the whole group's had a pretty good run. Do you think a little differently about net buybacks versus maybe a special dividend or a debt buyback? How do we think about deploying capital? Your cash balances were up, I think 22%, 23% year-over-year, going into this year.
We don't really see anything that's going to change our principles, Jim, which is the dividend which the board sets is reviewed annually, and it's gone up every year as we mentioned. The remainder of the excess cash is going to be returned to shareholders through buybacks, making sure we cover the shares we use for new hires as part of our bonus awards and continuing to make progress reducing the shares we are using for the ISI acquisition.
Okay, fair enough. That's it for me. Thanks.
Our next question is from the line of Vincent Hung with Autonomous. Your line is open.
Hi. Good morning.
Good morning, Vincent.
I was impressed by the year-on-year increase in the number of client transactions. Can you give me any sense for how much of that is from new versus so-called repeat clients?
We don't have data on that.
Okay. Is there anything you can say in regards to the ECM pipeline right now?
Entering this year, and I'd say this is pretty standard across the board, it looks stronger than it did entering last year. That's a industry-wide commentary, and Evercore is not an exception from that.
Great. Thank you.
Our next question is from the line of Devin Ryan with JMP Securities.
Hey, thanks. Good morning, everyone.
Morning.
Maybe just starting here, and just a couple follow-ups. European M&A announcements have been pretty much stagnant since 2009, a couple recessions over there, some disruptive events. Appreciate the comments around kind of the broader M&A picture, and I get it that there's a lot of moving parts here as we look forward. When you look at Europe specifically, is that cautious optimism maybe that characterized as your outlook for this year the same over there, or just how are you thinking about some of the scenarios in Europe in the year ahead?
I would say that we are cautiously optimistic there, but there's even more uncertainty there, we believe, than here. I guess that cautious optimism, I hate to say it, may be a cop-out, but it's even more cautious. We really believe that the people and strategic decision-makers over there really are looking and want to be moving forward. We just think there are a lot of barriers and obstacles, or maybe better said, headwinds that they're confronting right now. As Roger said, there's a lot that's going to happen in the next two to three months that is really going to indicate what happens over the whole year. I think a lot of people are sitting and watching right now. I hope that's helpful.
Yeah. I appreciate that. Just one on the restructuring business. How are you guys thinking about revenue momentum there? I'm sure there's some spillover of mandates from last year. Maybe that keeps revenues elevated. It would seem the new mandates are slowing from the outside. I'm just curious how you guys would characterize what's going on in that business.
Well, as you know, we've made this point many times, the restructuring business historically has been almost perfectly countercyclical vis-à-vis the M&A business. When one is up, the other is down, and vice versa for reasons that actually are very logical when you think them through. Now, this past year or two has been a bit different, because the restructuring business was stronger than historically one would have thought, "despite" a strong M&A market. We'll see. Evercore has a great restructuring business, and as you know, we're big believers in it. It's a great business. We think we're one of the three leaders in the world in that business. I say think because the data's not perfect. A lot of situations you don't know about, because they're resolved privately rather than publicly. We're big believers in the business. We have a great team.
It's served us extremely well for many years, it will continue to do so. Whether this historical cyclicality has now been interrupted, as the last couple of years say, or whether it'll reassert itself going forward, just too hard to tell.
Got it. Okay. That's helpful. Just one last quick one here. The Luminis Partners interest stake that was taken yesterday, I guess a 19% stake. I understand there was already a relationship there. Is there a timeline here for a full acquisition? I know you've done deals like this in the past, just to remind us around the rationale of buying an interest in a company versus a full acquisition.
Sure. Two years ago, when we entered into the partnership with Luminis, we made a loan to them, which was convertible into a 19% interest in the company. This was essentially a mechanical conversion of our debt instrument into a 19% interest. Their business is off to a good start. We're thrilled to have them as partners, we don't contemplate any change in that equity ownership position at this point.
Got it. Okay, terrific. Thank you guys very much.
Thanks.
Our next question is from the line of Jeff Harte with Sandler O'Neill. Your line is open.
Thank you. Good morning, guys.
Good morning.
A couple of wrap-ups from me. One, when we look at the comp ratio, I guess I'm trying to get at the potential for it to improve over time. I mean, 2016 was near the higher end of kind of the long-term range you guys have talked about. Can you talk a little bit about the balance between what should be some positive operating leverage on the pretty impressive advisory revenue growth you've had versus the cost of continued hiring and expanding?
I would say that, first of all, the comp ratio that we had this year was the lowest we've had in my memory. I think we've consistently said that we expect to make progress toward a comp ratio that is 55%-58%, 59%, and we've done that. We've also said that if an opportunity presents itself to grow the value of the firm by hiring a higher than normal number of senior managing directors, that we'll take advantage of that, and we'll obviously, at that point, explain to you how we might affect the comp ratio. The progress that we have consistently made to be affected.
Interestingly enough, in 2015, we had a year where we hired 10 senior managing directors, and I think at the beginning of that year or mid that year, we said we at least advise you that it's possible that that would have an impact on our steady progress with respect to the comp ratio. Fortunately, we had a strong enough year from a top-line point of view that that did not happen. The comp ratio will be a function of our revenues and our hiring. We really can't provide any forward guidance point. At the end of the first quarter, obviously we'll have to have a comp ratio, which will be our best guess of what it'll be for the year. I think we'll be prepared to discuss it a little more robustly then. That's the fair.
Okay. On the non-comp side then as well, I guess I'm a little more used to looking at the dollar amount quarter-to-quarter as opposed to the ratio. I know the ratio keeps getting better, but the dollar amount stepped up quite a bit the back half of 2016. Dollar amount-wise, how should we think of that going forward? Is it just a function of a higher head count or were there some unusual items? We'd see it maybe go back to where it had been running?
I think, Jeff, you should continue to expect the dollar amount to grow with the number of people in the firm. As you know, that's the metric that we pay the greatest attention to, and we try to get some leverage there, as we did this year, reducing our cost per head. In the fourth quarter, there's a couple of lumpy items. If you look back over the past couple of years, the fourth quarter seems to attract a couple of lumpy costs, drops back in the first quarter, and then normalizes. I wouldn't read too much into the quarter. Look for us to continue to grow the firm, add people, and that'll be the real driver of our non-comp costs.
Okay. What was the employee count at the end of the year?
1,475.
1,475.
All right, thank you. I guess, finally, this has been hit on already, the concept, I'm looking at use of excess cash. Returning excess cash to shareholders, can you help me balance that a bit against what looks like a pretty low payout ratio of what we think your operating cash flows would be for the year? You returned a lot of capital to shareholders, relative to what it looks like your operating cash flows were, it actually looks like a pretty historically low amount.
Yeah. Well, I think our board's policy with respect to the dividends, the regular dividend, has been to increase it steadily year-over-year. It's generally, I think, our third quarter board meeting where we consider the dividend for the next 12-month period of time. If you look back historically, the board has been pretty regularly increasing it by 10% plus or minus. I don't want to speak for the board, but I suspect the reason the payout ratio has drifted down a bit is that, fortunately for all of us, our earnings have grown at a faster pace than our dividend has. This is a business that should be run carefully, in our view. I think that historical policy represents the board's view of what should happen to the regular dividend.
Whatever excess cash flow we develop, and we've been very consistent about returning all of our cash flow to our shareholders, historically has all gone into buybacks. I think it's way too early in the year to say. At this point, I think that's our anticipation again.
Okay. Thank you.
There appear to be no further questions at this time. I would now like to turn the floor to Ralph Schlosstein for closing remarks.
Thanks very much, everyone, and we'll speak to you next quarter.
Ladies and gentlemen, this does conclude the program.
Wait, one other thing, Roger, I'll miss your repartee.
I'm not sure about that.
I am. It's true.
Thanks, operator.
Thanks.
You're welcome. Ladies and gentlemen, this does conclude the program. You may now disconnect. Everyone have a great day.