Welcome to the Evercore Third Quarter 9 Months 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 open for questions. This conference call is being recorded today, Wednesday, October 26, 2016. 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 very much. Good morning, and thank you for joining us today for Evercore's Q3 9 month 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 and Roger Altman, our Chairman. After our prepared remarks, we will open up
the call for
questions. Earlier today, we issued a press release announcing Evercore's Q3 2016 financial results. The company's discussion of the Q3 results today is complementary to that press release, which is available on our website at evercore.gov. This conference call is being webcast live on the Investor Relations section of the website, and an archive of it will be available beginning 1 hour after the conclusion of this call for 30 days. I want to point out that during the course of this conference call, we may make a number of forward looking statements.
These forward looking statements are subject to various risks and uncertainties, and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors include, but are not limited to, those discussed in Evercore's filings with the Securities and Exchange Commission, including our annual report on Form 10 ks, quarterly reports on Form 10 Q and current reports on Form 8 ks. 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 to their GAAP reconciliations, you should refer to the financial data contained within our press release, which as previously mentioned, is posted on our website. We 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 closing. I'll now turn the call over to Ralph.
Thanks, Bob, and good morning, everyone. As you might expect, we are quite pleased with our Q3 year to date operating results. While the announced M and A activity is generally weaker than last year, the operating environment continues to be quite favorable to our independent advisory business model as clients increasingly seem to be embracing our approach of senior level, un conflicted advice. Our 3rd quarter results were primarily driven by the success of our advisory business, particularly in the United States. M and A activity in our healthcare, PMT, Financial Services and Energy practices remains high, while at the same time our restructuring, activist and defense and capital raising practices continue to be strong.
We clearly have gained significant market share this year. As you know, we monitor our market share of advisory fees among all firms that are public and report their advisory fees separately. This includes all the large firms except Barclays, which does not report its advisory fees separately and all of the public independent firms. At the end of last year, our market share was 5.1% on a trailing 12 month basis and it was 5.7% on a trailing 12 month basis at the end of the Q2. While most of the European firms and the independent firms have yet to report, we are confident that our market share on a trailing 12 month basis at the end of this quarter will be 6% or higher.
In equities, Evercore ISI was recognized by institutional investor as by far the best independent research firm in the U. S. As we ranked number 3 among all firms on an unweighted basis and number 2 on a weighted basis. We also had the 2nd highest number of number 1 ranked analysts, a testament to our commitment to both elite research and excellent client service. Our strong results also continue our record of significant capital return to our shareholders.
Our Board has approved an increase of 0 point
will now be
$0.34 per share per quarter. This is the 9th consecutive year that we have increased our dividend. And year to date, we have repurchased 3,400,000 shares at an average price of $47.58 enough to offset all share issuance for bonuses, for new hires and to offset some of the share issuance in connection with the ISI acquisition. With these market share gains, it appears that we are on a path this year to be the 6th, 7th or 8th largest factor globally in advisory revenue,
quite a dramatic change from a few years ago.
Let me briefly go over the adjusted numbers and Bob will have additional comments on comparable GAAP measures in his remarks. First, let's talk about the quarter. 3rd quarter net revenues were $383,500,000 up 25% versus the same period last year, a record for the Q3 and our 2nd best quarter in our history. As we have discussed in the past, revenues are influenced by the timing of transactions closing, which impacted us somewhat favorably this quarter. It has been always our practice to highlight this when it impacts the quarter positively or negatively.
This time it was positive, although even without this benefit, our results still would have been very strong. Net income also a record for the 3rd quarter $62,400,000 with adjusted EPS of $1.22 These results are up 45% 51% respectively
from the prior year.
Our adjusted EPS also is equal to our record quarterly EPS in the Q4 last year as our focus on buybacks has reduced the share count year over year. Operating margins were 27.7%, up from 24% a year ago. Our compensation ratio was 56.8% for the quarter, lower than the 57.4% in the same period last year. As we have discussed in the past, we review our targeted compensation ratio each quarter and make adjustments reflecting our realized results and expectations for the remainder of the year. For the 9 month period, we have lowered our expected compensation ratio to 57.3% from 57.6% driven by a higher than expected rate of revenue growth.
We will of course further adjust this accrual in the 4th quarter depending upon both our results and expected compensation levels both within Evercore and at our competitors. Non compensation costs increased to 59.5 $1,000,000 or 15.5 percent of revenues, principally reflecting continued growth in the headcount of our business. Bob will have more to say on this in his remarks. Now let's talk briefly about the year to date numbers. Growth in revenues and net income for the 1st 9 months also was very strong.
Net revenues grew 22 percent to $988,900,000 and adjusted net income grew 39 percent to 100 $48,600,000 This is the 8th consecutive year of uninterrupted revenue growth for the 9 month period. Earnings per share for the 1st 9 months increased 43% to $2.88 another record, once again reflecting our strong operating performance and our share repurchase activity. Operating margins in the 1st 9 months were 25.5% versus 22.5% last year. We are particularly pleased with the operating leverage that we are delivering, which is due to strong revenue growth, disciplined management of non comp expenses and a steady reduction in our share count. Let me now turn the call over to Roger to comment on our Investment Banking performance and the M and A environment in general.
Good morning, everyone. As Ralph said, we had a record 3rd quarter and a record 9 months in Investment Banking. Our revenues for the Q3 of 2016 were $365,000,000 up 30% over the comparable quarter a year ago. And for the 9 months, revenues were $927,000,000 up 26% from the 9 months of 2015. The operating contribution for the quarter was $102,000,000 up 55% over the comparable quarter a year ago.
And the operating contribution for the 9 months was $236,000,000 up 42% over the comparable period a year ago. The advisory fees component of our revenue, which of course is the biggest, was $301,000,000 for the Q3. That's the 2nd highest quarterly total we've realized. On top of that, underwriting revenues were $8,000,000 for the quarter, up from the Q3 a year ago And equities revenue or revenues or commissions were $54,000,000 for the 3rd quarter, down slightly from the comparable period a year ago, Q3 a year ago. Our 3rd quarter advisory revenues included 65 fees of $1,000,000 or more as compared to 35 such fees in the Q3 of 2015.
That's an 80 6% increase. And for the 9 months, we saw 164 such fees compared to 112 for the 9 months of 2015 and that's a 46% increase. Our Equity Capital Markets and Debt Capital Markets groups together completed underwriting transactions in the quarter, which raised $14,800,000,000 per client, up from 4,300,000,000 dollars last quarter. That is a quarter ago. And our total of advisory fees in the 3rd quarter included 16 $300,000 in fees for advice on 17 capital raising transactions 17 during the Q3 a year ago.
For the 9 month period, we advised on 51 capital raising transactions, generating fees of $35,000,000 in comparison to 31 such deals generating a similar amount in fees for the Q3 a year ago. All those totaled are in addition to the underwriting totals. As Ralph alluded, our comp ratio in Banking fell to 56.8 percent, down from 57.9% last quarter and down from 57.9%, the same number, for the Q3 of 2015. And that's what you would expect when revenues are strong as this quarter's work. So our operating margin in Banking improved to 28.1% for the quarter, up very substantially from the 23.6% of a year ago's quarter.
On productivity, which is a measure as you know that we watch carefully, average revenue per SMB on our traditional rolling 12 month basis was a strong $13,300,000 globally, up 10% year over year. And it's particularly strong when you realize that the 2016 quarterly figure reflects 79 Senior Managing Directors versus 66 in the year ago figure. Ralph talked about our market share. I won't repeat that. It's the highest it's ever been.
But let me give you a few details within it. We finished the quarter as the number 1 ranked independent firm in the United States in terms of the lead tables for announced transactions in healthcare and we and second globally. And we finished 2nd among all firms in terms of the lead tables on announced transactions in Energy. Now those are 2 of the most active sectors in the world. So those are pretty impressive results.
And of course, we finished 1st in terms of independent firms in the U. S. Market on announced transactions. In other words, Evercore was number 1 for the 9 months in the U. S.
On announced transactions in the league tables among independent firms. Ralph noted the superb results for Evercore ISI Research. I won't repeat that too, but very, very strong and impressive. Headcount. The total Investment Banking headcount rose to 1155 at the end of the quarter, up from 1102 last quarter and 1019 a year ago and we completed the quarter with 81 Senior Managing Directors.
Now let
me make a few comments on the M and A market. First, the data then the commentary.
Global announced M and A
totals were down 8% quarter over quarter and 21% year over year. The key weakness there was in the U. S. Market, which was down 44% quarter over quarter and 31% year over year. On the completed transaction side rather than announced, Completed transactions in the U.
S. Market for the 9 months were up 3%. Completed transactions across the world were down 8% year to date. A couple of editorial comments. Number 1, a lot of the weakness in announced deals year to date may have been remedied by this recent spate of transactions we've seen, a rash of transactions over the past week or 2.
We'll have to wait and see the data on that. And of course, we're still in the 1st part of the quarter anyway. But more important secondly, 2015 was a very, very strong year, a record year in terms of global M and A. And so 2016, while down a bit, is a strong year by any historical measure. And if you look at M and A totals on a rolling 4 quarters basis, which is an intellectually more sound way to look at You see that the past 3 years have seen very strong and rising M and A totals until this year.
But my point is this is a solid that's the word I would use, a solid U. S. And solid global M and A market. And the reason for that, as we've discussed many times on these calls, is that the basic elements, which are always conducive to,
healthy levels
of merger volume, remain in place, namely ultra low interest rates, high equity prices, abundant credit availability and reasonable business confidence. When you have those elements, you're going to have good levels of M and A volume and we do.
I'll turn
it back to Ralph.
Thanks, Roger. Let me talk briefly about Equities and Investment Management. Our Equities business contributed net revenues of $55,600,000 in the quarter, including $2,200,000 attributable to equity underwriting. Commission revenues were down 8% versus the Q3 of last year, reflecting the overall decline in the U. S.
Equity market volume of 13% versus this quarter last year. Of note, volatility last year surged in July given global growth concerns and concerns about growth in China. And we did not experience a similar period of sustained volatility, this quarter. And you can read in the papers this morning about the record low volatility we have in the equity markets today. Net revenues for the business are 177 $500,000 year to date, including $167,400,000 from commissions and checks, which are up 3% in comparison with the prior year.
Overall, the business produced operating margins of 22% in the quarter 21% in the 1st 9 months of the year, up from last year and meeting our expectations given market conditions. Once again, the eliteness of our equities business was recognized in the institutional investor ranking. As I noted at the outset and Roger did as well, Evercore ISI has been recognized as the number 1 independent research firm in the U. S. And number 3 among all firms.
Last year, we were tied with 3 other firms for the number 3 position. But over the last year, we have outpaced our competitors and seen the single greatest year over year increase in votes of any firm in the ranking. We appreciate this vote of confidence from our clients and we continue to work hard to serve our clients and to translate this recognition of our capabilities into greater financial returns. Investment Management reported net revenues and operating income of $18,300,000 $3,700,000 respectively and produced an operating margin 20% for the quarter. Year to date net revenues were $62,000,000 and operating income was $16,300,000 Year to date operating margin was 26% compared to 22% last year.
These results predominantly reflect contributions from our Wealth Management and Trust businesses, which continue to perform very well. We completed the transfer of control of our Private Equity business to Glisco Partners, an entity formed by the principles of that business. Bob will provide further comments on our GAAP results as well as our non comp costs and several other financial matters. Bob?
As Ralph mentioned, we completed the transfer of control of our Mexico Private Equity business at the end of the quarter. As this transaction is a sale, we recognized a gain of $400,000 in our GAAP results. This gain is excluded from our adjusted results. The sale includes earn out consideration which will be realized over time as the economics are related to fee streams and carry that are by their nature contingent. Assets under management of $304,000,000 related to this business have removed from our reported AUM amounts in Q3.
Revenue on a GAAP basis of $386,300,000
$994,700,000
were a record for a 3rd quarter 9 month period respectively, just as they were a record on an adjusted basis. Net income attributable to Evercore Partners Inc. Was $34,700,000 for the quarter $64,100,000 for the 9 month period, each reflecting substantial growth in comparison with the comparable prior year period. Consistent with prior periods, our adjusted results exclude certain costs 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.
In the 1st 9 months, we expensed $66,100,000 related to this equity in comparison with $65,100,000 for the 1st 9 months of 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, which is the key metric we track, were $112,000 for the 1st 9 months, a 5% decline versus 2015 as growth in non compensation costs other than business development costs were lower than our growth in headcount. Firm wide operating costs per employee were 38,000 for the quarter, which is up 3% from the Q2 of this year.
The biggest driver of the increase is costs related to growth in headcount, including increased facilities costs as we grow our physical space and elevated professional fees principally associated with recruiting new senior managing directors. Quarter to quarter comparisons will be inherently lumpy as many of our costs are seasonal and relate to the level of business activity or otherwise non recurring. In the equities business, our adjusted operating margins, which govern the ultimate payout of the G and H units are 14% for the 1st 9 months. The decline in adjusted margins in the 3rd quarter reflect the revenue decline indicated by Ralph, while expenses remained essentially flat. As I had indicated previously, we remain very focused on expense discipline in this business, but progress will be lumpy at times.
Our adjusted tax rate for the 9 month period increased to 38.05 percent as we are generating an increased percentage of our earnings in the United States. Our GAAP results reflect an effective tax rate of 47.3% for the first 9 month period. Our GAAP effective tax rate is impacted by the nondeductible nature of the ISI acquisition related compensation expense as well as the geographic mix of our earnings. Our Q3 share count for adjusted earnings per share was 51,400,000 shares, essentially flat in comparison with the prior quarter as the reduction inherent in share repurchases offset the normal increase attributed to the vesting of deferred compensation awards. On a GAAP basis, the share count was 43,700,000 shares.
Finally, our cash position remains strong as we hold $512,000,000 of cash and marketable securities at September 30th with current assets exceeding current liabilities by approximately $380,000,000 Ralph?
Thanks, Bob. Let me just conclude with a couple of comments. First, let me talk about our advisory business. Adjusted advisory revenues have grown 35% on a year to date basis, strong growth compared to virtually all of our competitors. The 5 largest U.
S. Universal banking firms have all reported their results and they range from an increase in advisory revenues of 10% year over year to a decline of 14%. While many of the large European firms and our independent firm competitors have yet to report their 3rd quarter results, It is likely based on these first half results or on their first half results that our growth rate has outpaced all of them, except perhaps 1 or 2 of the smallest independent firms, which of course over a short period of time can grow more rapidly because they are growing from a much smaller base. This will be our 8th consecutive year of advisory revenue growth. In the period from 2010 to 2013, looking back in history, the dollar volume of announced M and A transactions was essentially flat, but our advisory revenues grew at a compound rate of growth of 20% during that period.
In 2014 2015, as Roger indicated, announced M and A activity grew strongly and our advisory revenues similarly grew at a compound annual rate of 20%, benefiting from the stronger M and A environment. And this year, despite a decline in year to date, in both announced and closed M and A activity, our revenues have grown even more significant. The point is simple. And by the way, it's not that we're going to grow 20% year over year, every year no matter what happens. The point is that while it is obviously easier to grow in a rising M and A environment, we have demonstrated an ability to grow consistently by taking market share even without growth in overall M and A activity.
2nd, let me talk about our Equities business. It's now almost exactly 2 years since we closed on the purchase of ISI and the 40% of our existing equity business that we did not already own. At that time, we said that this acquisition we thought would accomplish 3 things for Evercore. First, that we could have an equities business with good operating margins or not perhaps not quite as high as our advisory business, but 20% plus or minus. 2nd, that we expected that having a strong equities platform
would add to the growth rate of
our advisory business, but talent and by broadening the ways in which we serve our clients. And finally, that our equity underwriting revenues would over time grow at a healthy pace. So now that we are 2 years into this effort, we are making good progress on all three of these objectives. First, our year to date operating margins in the equities business are a little above 20%. While they are not as high as our advisory business, they are strong and are making an accretive contribution to our operating earnings and our earnings per share.
2nd, our strong and elite equities platform clearly has contributed to our ability to attract certain senior advisory professionals, particularly those in sectors like biotech, tech and energy, sectors in which equity issuance is an important part of the strategic advisory relationship. And finally, while our U. S. Equity underwriting revenues are weaker than we had hoped for this year, they have declined less than those of the 5 large universal banking firms. Ours are down 22% and the 5 large U.
S. Firms are down 23% to 48%. And they still have grown materially since before the closing of the ISI transaction. And finally, combined with our ability to use the earnings from our equities business to increase our share repurchases, this transaction already is materially accretive to our earnings per share. Finally, let me talk broadly about our goal for Evercore.
We are a global independent Investment Banking advisory firm. By that I mean that we are a firm that is only in businesses in which we compete solely based on our ideas, our intellectual capital and our relationships, and in which the only source of revenues is fees. If there is balance sheet risk in a business, we are not in that business, both because we don't want to have exposures that put us in conflict with our clients and because we don't want to risk our shareholders' capital. Our goal is really simple. We want to be the most elite global independent investment in banking advisory firm in the world.
True eliteness requires scale, it requires globality and it requires true eliteness. In both of our businesses, there are measures of eliteness. In advisory, it is the average revenues that the firm generates per senior Managing Director. It's a pretty simple concept. What are the firm's clients paying the firm for senior professionals for its advice?
The higher that is, the more highly the clients value your advice. For the past 2 years, as Roger indicated, we have consistently been in the $12,000,000 to $13,000,000 range for senior managing directors, considerably higher than all of our public independent firm competitors. And in equities, there is also a measure of eliteness, the institutional investor ranking, where we have done extraordinarily well over the past 2 years. Believe me, we have lots more to do here and we certainly are not resting on our laurels. But we are making good progress in consistently establishing our eliteness in our 2 key businesses and we are quite consistently taking market share in a highly competitive business in good times and in less good times.
Let's now open the floor to questions. Thank you.
Thank you, sir. We will now begin the question and answer session. Our first question is from the line of Ashley Serrao from Credit Suisse. Your line is open.
Good morning.
Good morning, Ashley.
So just first question on the hiring outlook. I know you've been selective, but curious whether you're seeing an increase in Evercore caliber talent being available for hire in the advisory business? And how would you characterize the overall hiring environment today? Thank you.
Yes. It's probably a little early to tell over the next month or 2, we'll start to build the backlog for next year. I would say that because of the accomplishments of the firm, We unquestionably are a destination of choice for those high quality advisory bankers who are interested in the independent advisory model. I would also say that there have been quite a large number of senior professionals who've left the larger firms, for firms like Evercore and our competitors and also to establish even smaller firms so called kiosks. So we expect to be able to do as we have.
We always say we're going to hire 4 to 7 senior Managing Directors in our advisory business. I don't see any reason sitting here today that we wouldn't say exactly the same thing about last year. So far this year, we've hired 5 last year. We were able to hire a total of 10, although 2 were in Equity Capital Markets, ECM. So it was really 8 in the pure client facing advisory businesses.
So I don't expect next year will be different sitting here today from any other year.
Our next question comes from the line of Jim Mitchell with Buckingham Research. Your line is open.
Hey, good morning. Hey, Bob, cash balances were up, it looked like almost $200,000,000 quarter over quarter, didn't seem like your borrowings increased. Is that really was there anything unusual in there? Or is that just cash flow and limited buybacks during the quarter?
Cash flow from operations, Jim.
And given how much, I think that's the highest levels you've ever had in the Q3. Typically, it goes up in the Q4 as well. Do you feel like that's you're going to put all that excess capital to work? Is there any change in how you think about buybacks versus, say, a special or something like
that? No, I wouldn't anticipate any change in what we've been doing, Joe.
Okay. And then maybe on your outlook, you talked about all three areas looking constructive, including restructuring. I think some of your peers have been sort of mixed on restructuring given that the environment's improved particularly in energy. What gives you more confidence in the outlook for restructuring from here?
Well, don't misinterpret what we said, please.
This is one
of those unusual environments. In fact, I can't remember another one. When M and A volume, Broadleaf and at Evercore is good and restructuring activity also is good because historically they've been almost perfectly countercyclical when one is up or the other is down and vice versa. But our message is not that restructuring levels are at all time highs because in the broad market, all restructuring, in other words, they aren't. It's just that they're healthy at a time in the M and A cycle when you would expect them to be very weak.
All right. Fair enough. And Bob, thanks for giving us the number of bankers. If we can get everyone else to do it, that would be great.
Our next question is from the line of Brennan Hawken with UBS. Your line is open.
Thanks for taking the question. Good morning. Just a quick follow-up there on Jim's question. We had cash spike on the balance sheet and also buybacks down a pretty this is pretty low level for buybacks here. Can you tell us or give us some specific logic?
Is there a reason why capital seems to be building on the balance sheet here?
Yes, Brad. As you know, we were extremely aggressive in buybacks in the first half of the year, sort of covering offsetting all of the dilution caused by bonus awards as well as new hires to date. So when you balance that sort of aggressive buyback in the first half of the year, where we thought it was a good opportunity to do that against the need to just build up some cash as you approach the end of the year, be in a position to fund bonuses, etcetera. It was a light quarter, but our strategy for buybacks and returning capital is unchanged.
Bob correct me if I'm wrong, but this is pretty simple. If we pay cash bonuses in the Q1 of next year, you can build up that cash linearly over the four quarters or you can try to be a little bit more opportunistic upon about when you purchase shares. We used cash in the first half of the year to purchase shares. And in the second half of the year, we have to make up for that to have enough cash to pay bonuses. That's pretty simple concept, right?
Okay. And then, I appreciate the margin in the equities business in the first half. But could we get it to the 10th percentile there just so we can make it comparable to your prior disclosures? And is it possible to get margin in the Q3 as well? Seems like margin is dipping in that business.
Obviously, there's some environmental pressures. But can you tell us why that wouldn't make you want to rethink and adjust maybe your expectation for dilution on that deal?
So we actually did give it to you to that percentile. It is 14.0. And as I noted That's for
the deal. Yes. Not the reported portion. Yes. Brennan always focuses on the deal.
And Brennan, in my comments in the Q3, as Ralph mentioned, revenues were a bit softer. For us in the quarter, expenses were flat. And that's going to have the effect on margins that you've observed. For purposes of the deal, it's an annual measure. So in our view, giving you the year to date results as we sort of move to measuring the Gs at the end of this year again, that's the right measurement.
The math, as you observed, the margins were weaker in the Q3.
Yes, yes, yes. Okay, terrific. And then just last one, obviously, a personal issue here somewhat, but given the importance, is there any color you can provide on how Schoenbaum is doing and any potential expected timing for him to return from medical leave?
Obviously, medical leave is a private matter. We're not going to discuss that. And he's told us that his expectation is that he'll be back by the end of the year.
Okay, terrific. Hopefully, that's the case. Hopefully, he's doing well.
Thanks a lot.
Thanks.
Our next question is from the line of Connor Fitzgerald from Goldman Sachs. Your line is open.
Good morning. Just wanted to follow-up on some of your comments about the recent strength in the M and A market. I want to ask about any particular deals, but just given the chilling effect we saw in the market when some large deals broke at the beginning of this year, I wanted to get your thoughts on whether it was important to kind of see some of the larger transactions that are still pending kind of close to get renewed CEO confidence about pursuing M and A?
Well, I'm not seeing myself any diminished confidence in the total, again, looked at on a medium or longer term historical basis don't suggest any lack of confidence either. You have to appreciate or you might appreciate that a very small percentage of deals face tight regulatory scrutiny. And on an average day, the type of things that anybody at Evercore is working on generally aren't in that category. I don't know what I can't use the percentage in terms of what percentage of deals are chancy from a regulatory approval point of view. But in terms of number of deals, it's got to be well less than 10%.
And so the totals don't reflect the diminished lack of confidence. I'm personally not seeing it. Just don't think it's there. Of course, if you're working on one of those deals within give or take the 10%, everybody spends a tremendous amount of time on it. But fundamentally, if you just laid out, for example, every one of the deals that Evercore worked on in the Q3, and I mentioned, I think we had $65,000,000 involving fees of $1,000,000 or more.
I don't think there's either more than 1 or 2, maybe even none, but not more than 1 or 2 that are even involving any serious regulatory scrutiny. I mean the press is naturally focused on a couple of great big ones that do, But that's not the day in, day outflow at all.
That's helpful. Thanks. And then I know it's going to depend on how 4Q shakes out, but at least if I look at your backlog numbers, it looks like 4Q could be another strong revenue quarter. So I wanted to follow-up and just get your kind of thoughts around the compensation ratio assuming that the revenue strength kind of flows through as expected. Should we interpret the lower compensation ratio you saw in 3Q as a sign that if the revenue strength continues, there might be some additional leverage there?
I think you should interpret that we'll look at it again in the Q4. We're not going to give you any forward looking comments.
That was an elite answer to an elite question in an elite firm and an elite environment.
We try anyway. All right. Thanks for taking
my question.
Roger is making fun of me because he was impressed with my comment that eliteness requires eliteness. Yes. It does. And then to have
an elite firm, you have to have an elite mentality and an elite location with elite people and elite clothes and so forth.
But our office is good news. A little sprucing, but they don't look so elite.
That's true.
That completes my elite bingo board. So thank you.
Thank you, Connor. We do have a little fun here
too.
Our next question is from the line of Steven Chubak with Nomura. Your line is
open. Hi, good morning.
Good morning.
So, one of the questions I wanted to ask on and Roger maybe your best to opine here is really the disconnect that we've seen in terms of the strong momentum you've had across the business and maybe continued subdued outlook that we've heard not just from investors, but maybe even what's also implied in consensus, where the earnings momentum continues to be quite strong. Both you and the independent peer group have yet, despite that, experience pretty significant multiple compression. And looking at the outlook for consensus, it does imply declining productivity over the next couple of years. But given the constructive outlook that you outlined on your prepared remarks, do you believe that that more cautious revenue or earnings outlook is misguided? And would you expect to grow revenues and earnings next year?
I can't answer that, honestly speaking. I can't because we're not going to talk about earnings next year, and I'm not going to comment on what various other people think of the outlook. I mean, everyone's entitled to their own opinion. And I'm just going to I'm just not going to take that one on.
Okay. Fair enough. I had to give it a shot.
Yes. The only thing I have a manful effort. Yes. I would comment as I have a number of times that in our business, you basically have decent visibility for 3 months and a little bit less than decent visibility for 6 months. So to ask us what earnings will be next year is a or even if you were sitting here in that second quarter and asking us what they're going to be for the remainder of the year.
I will say that, as I did in my concluding remarks, there are 2 ways that one can grow in this business. 1 is to have the rising tide lift all ships a strong M and A environment and the other is to take market share to take market share both in the M and A environment and to take market share by virtue of broadening the things that you are doing with your clients. And obviously, there's no way that we can look at the past and use that as a prologue for the future. But some of the ingredients that would suggest that market share gains might still be possible for us are certainly in place.
Thanks, Ralph. That's extremely helpful color. And just switching gears for a moment, maybe just a follow-up to one of Connor's earlier remarks. But on the question of seasonality, if we look at the seasonal pattern you've seen historically, and it's pretty consistent with the broader industry pattern, second half stronger than first half in terms of revenue, and 4Q is typically the strongest quarter of the year. And since Ralph you did note in your last response that you at least have visibility on the next 3 months, is it reasonable to expect that the Q4 this year is going to be the strongest one for over the last 4?
Are you going to finish off on stronger? This is Roger. I'm older than Ralph. And so I get to say this and Ralph just once in a while has to kind of bite his tongue. We're not going to comment on that honestly.
That's not what we do on these calls as you well know. Good try, but no.
That was me biting my tongue.
Fair enough. Well, I guess we'll leave it at that. Thank you for taking my questions.
I don't know how the transcript is going to reflect that.
Our next question is from the line of Devin Ryan with JMP Securities. Your line is open.
Hey, thanks. Good morning.
Good morning.
Maybe a question on senior banker capacity and then kind of how you're thinking about that right now. Really, how much more can people work? And I know that's maybe a tough thing to answer, but I'm just trying to think about framing it because clearly productivity is quite high. During the summer, it sounded like one of the biggest tasks at the firm, which is thinking about resource allocation and making sure people were going after kind of the highest revenue opportunities. And so maybe that's another way of asking, how much higher productivity could go or whether productivity is structurally higher, but I'm just trying to think about the capacity at the firm right now.
Well, the answer to that is we don't know. Like many of the forward looking questions that you asked. If you look back historically, if you go back to the period of time, 2010 to 2013, M and A, as I said, in my comments, was completely flat during that period of time. During that period of time, our productivity grew from $7,000,000 to roughly $10,000,000 I can't give you a concrete answer on why that happened, but I we have a view. And the view is, number 1, the average quality of our senior managing directors drifted upward, both through joinings and leaving.
Number 2, and this is an anecdotal thing as the brand of the firm grew a little bit during that period of time. We probably got 1 or 2 more in bats per SMD per year and maybe we got had a slightly higher batting average. And then number 3, we have been as Roger indicated in his remarks broadened the things that we do with our clients. This morning, we have a we were the IPO advisor on the largest IPO in Britain this year and the largest healthcare IPO ever in Europe. That's a capability that we had anecdotally at the firm, but now we have a focused effort on advising companies on their IPOs and equity offerings in Europe.
So there are a number of things that have happened. I think our the average quality has gone up. What we're doing with clients has gone up and the brand has improved. And I think that that continues to be the case in the last couple of years when you've had both an upward drift in M and A activity in 2014 2015 and a little bit of a downward drift today. So all we can do is keep doing what we're doing, which is to hire the very best people that we can and to interact with our clients on as many things as we can possibly do at a very deep lead level to point a word that Roger selected.
That's really helpful color. I appreciate it. Now it's a tough one. Maybe another difficult one. Just bigger picture, the advisory business has been a secular growth industry over time just as economies develop and more companies are increasingly comfortable with M and A.
So that leads to more deals and then higher market caps drive deal volumes higher. So I'm curious if you guys are seeing any indicators that would suggest the M and A markets are maturing. You've had a lot more activity out of some of the more nascent markets like China and some other areas as well. So I'm just curious kind of your view of that secular trajectory. And then when you think about future growth opportunities in the advisory space, what areas do you think have the best trajectory within that?
Short answer to your question is no. And to give you a couple of illustrations as to why it's no. A few years ago, let's say 10, tech M and A was quiet or low. Today, tech, and I'm not talking about TMT, but tech, would be one of the 3 or 4 biggest sectors globally, up from maybe number 10 or 15, 10 years ago. And I'm not trying to be precise there in terms of 10 years ago, just giving you a metaphor.
And healthcare, similar trajectory, maybe you have to go back further, But take biotech. Biotech M and A is very, very active. 12, 14 years ago, there was no biotech M and A. And I could go on and on.
So whether it's places around the world, look
at China related volume, for example, We just advised on the Hilton transaction visavish and a. Or whether it's sectors that weren't active becoming active, I don't see any secular slowdown or secular maturation.
Okay. That's very helpful. Just last one here. Any thoughts on how much the election, if at all, is having an impact on activity? And do you see activity improving on the M and A side, I guess, particularly post the election?
I don't think the election is having any impact. And it would if it's not having any impact now, it probably won't have any impact after the election. I can't say that for sure, but I don't see any evidence that the election is having an impact on M and A volume. I haven't personally seen transactions where it was even discussed really.
Got it. Okay. Great. Thank you guys for taking my questions.
Thanks, Devin.
There appear to be no more questions at this time. I would now like to turn the floor to Ralph Schlosstein for any closing comments.
Normally, I would have extensive closing remarks, but I'm biting my tongue. So I look forward to talking to you in another quarter. Thank you all. Thanks.
This concludes today's Evercore 3rd quarter 9 months 2016 financial results conference call. You may now disconnect.