Welcome to the Evercore third quarter and nine months 2015 financial results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference call will open for questions. If you have a question, please press star followed by one on your touch-tone telephone. Please press star zero for operator assistance at any time. For participants using speaker equipment, it may be necessary to pick up your handset before making your selection. This conference call is being recorded today, Monday, November 2nd, 2015. I would now like to turn the conference over to your host, Evercore's Chief Financial Officer, Bob Walsh. Please go ahead, sir.
Good morning, thank you for joining us today for Evercore's third quarter and nine months 2015 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 three press releases announcing the extension of our M&A alliance with Mizuho, and our plan to commence a secondary offering by Mizuho of all of the shares underlying a warrant that they hold. This will result in an offering to the public of 3.1 million shares. Ralph will comment on this transaction and our ongoing relationship with Mizuho in our opening remarks. Also, Evercore's third quarter and nine-month 2015 financial results were released.
The company's discussion of the third quarter results today is complementary to that press release, which is available on our website at www.evercore.com. This conference call is being webcast live on the investor relations section of the website, and an archive of it will be available beginning approximately one hour after the conclusion of this call for 30 days. I want to point out that during the course of this conference call, we may make a number of forward-looking statements. These forward-looking statements are subject to various risks and uncertainties, and there are important factors that could cause actual outcomes to differ materially from those indicated in these statements. These factors include, but are not limited to, those discussed in Evercore's filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K.
I want to remind you that the company assumes no duty to update any forward-looking statements. In our presentation today, unless otherwise indicated, we will be discussing adjusted pro forma or non-GAAP financial measures, which we believe are meaningful when evaluating the company's performance. For detailed disclosures on these measures and our GAAP reconciliations, you should refer to the financial data contained within our press release, which, as previously mentioned, is posted on our website. We will refrain from repeating the information included in the press release and focus instead on the key opportunities, challenges, and changes in our business. We continue to believe that it is important to evaluate Evercore's performance on an annual basis. As we've noted previously, our results for any particular quarter are influenced by the timing of transaction closings. I'll now turn the call over to Ralph.
Thank you, Bob, and good morning, everyone. Let me start by apologizing for any inconvenience that we may have created by moving our earnings announcement back by three business days. The delay was precipitated by our desire to announce our third quarter earnings and the capital transactions with Mizuho simultaneously, and the fact that the documentation and final approvals for the Mizuho debt financing were completed very recently. As Bob indicated, we will be launching an offering today of 3.1 million Class A shares owned by Mizuho. Those of you who have followed Evercore for some time likely know the history here, but it is worth briefly elaborating on our relationship with Mizuho. First, the core of our relationship with Mizuho is an M&A alliance in the advisory business. This alliance has been in place for almost 10 years.
As part of these transactions, it has been extended for three additional years and expanded to include Japan and all geographies, not just U.S.-Japan cross-border transactions. This will enable Mizuho and Evercore to continue to capitalize on what we believe is a long-term trend, namely, the increase in Japan outbound M&A activity driven by limited growth opportunities in the Japanese market. Mizuho's sale of its shares is precipitated by the fact that Mizuho, like all large Japanese financial institutions, is evaluating all of its non-control corporate equity investments in the context of the new governance and capital standards in Japan, and obviously in response to the expectations of their own investors. Mizuho, like all large Japanese financial institutions, is focused on its core business, which we know has earned a very good return.
Obviously, this investment in Evercore is not a part of their core business, although they will realize a very nice gain on this transaction. When Mizuho approached us with the proposal to exercise the warrants, we immediately began to work with them to find an approach that was beneficial to Mizuho shareholders and to our shareholders. In summary, over the next several days, we plan to do the following: launch an offering to sell 3.1 million shares of Class A common stock. Evercore and Mizuho Securities will serve as joint bookrunners for this transaction. There is no green shoe for the offering, as Mizuho's regulatory and governance objectives dictate that they sell their entire stake and no more or no less. Mizuho will fund the settlement of the warrants by tendering the Evercore notes that they currently hold, as well as paying approximately $11 million in cash.
Evercore will purchase 2.35 million of the 5.45 million shares into treasury concurrent with the pricing of the public offering at a price equal to the public offering price minus the underwriting discount. The repurchase will be funded by a new $120 million five-year floating interest rate loan from Mizuho. We expect these transactions to be modestly accretive to our earnings per share, given the lower interest cost of the new debt and the modest reduction in fully diluted shares outstanding. Let me turn my attention now to our financial results. We are pleased with our third quarter and year-to-date operating results and the continued positive momentum in our business. Our results reflect record revenues, net income, and earnings per share on both a three and nine-month basis, driven by strong contributions from each of our core businesses.
We reported operating margins of 24% and 22.5% for the three and nine months ended September 30, 2015, respectively, exceeding the comparable margins reported in 2014, despite incurring elevated compensation costs associated with the hiring of a record 10 advisory Senior Managing Directors during 2015. The last three of these 10 Senior Managing Directors have joined the firm since our second quarter call, all 10 new SMDs are calling on clients and working hard to build a pipeline of engagements for 2016 and beyond. Client activity was strong globally and in multiple sectors, including healthcare, technology, financial services, and energy. Our restructuring group is seeing some pickup in activity as well, both in energy and in other sectors affected by declining commodity prices and by a slow economic activity and the stronger dollar.
Our equities business delivered another strong quarter, growing revenues and reporting operating margins of 20%, despite a soft quarter in equity underwriting. Our investment management teams continued to contribute, delivering operating margins of 28%, though the August market downturn and the declining peso reduced total assets under management. We were particularly gratified to learn in early October that Institutional Investor recognized Evercore ISI as the number 1 independent research firm in the U.S. and number 3 among all firms, a significant improvement over last year's number 5 finish. I might add, this is the first time that a non-bulge bracket firm has appeared in the top 3 since DLJ did as number 2 in 1995. Let me quickly go over the numbers. First, the third quarter. Third quarter net revenues were $305.6 million, up 36% versus the same period last year, and a record for the third quarter.
Net income, also a record for the third quarter, was $42.9 million, up 30% from the third quarter last year. Our EPS of $0.81 was also a record for the third quarter, up 14% from the third quarter last year. Operating margins were 24% for the quarter, compared to 22.9% in the third quarter of 2014. Our compensation ratio was 57.4% for the quarter, lower than the 60.5% in the same period last year. Non-comp costs increased modestly to $56.8 million, principally reflecting continued growth in the headcount of our businesses. Record revenues and net income for the first nine months were $812.3 million and $106.6 million, up 37% and 36%, respectively. This is the seventh successive year of uninterrupted revenue growth for the nine-month period. EPS for the first nine months increased 20% to $2.01, another record.
Operating margins for the first nine months were 22.5% versus 21.9% last year. The first nine months, we continued our record of returning significant capital to our shareholders, returning $188.5 million, including repurchasing 3 million shares and units in the first nine months of the year, offsetting the full effect of bonus equity awards, new hire equity awards completely, and beginning to offset the shares issued to purchase ISI. These shares were purchased at an average price of $50.87. Our board has approved a $0.03-per-share increase to our quarterly dividend to $0.31 per share, this is the eighth consecutive year we have increased our dividend. Let me now turn the call over to Roger to comment on our investment banking performance and the M&A environment generally.
Good morning, everyone. For the quarter, investment banking net revenues were $280 million, up 41% year-over-year. That's the highest third quarter investment banking revenue in the firm's history. For the nine months, net revenues were $738 million, up 44% year-over-year, and also the highest nine-month net investment banking revenue we've ever realized. Operating income for the third quarter was $66 million, up 39% year-over-year. The operating margin of 23.6% was essentially the same as the margin a year ago, although up materially from last quarter. Our $280 million of quarterly investment banking revenue breaks down as follows: $218 million of advisory fees, $58 million of equities commissions and fees, and $4.5 million of underwriting revenue. Very good quarter, as Ralph said, for our equities business. Within the advisory component of that, the number of fee-paying clients for the third quarter was 168, up from 162 year-over-year.
For the nine months, the number was 354, up from 310 in 2014. A major increase. We saw 35 fees greater than $1 million for the quarter versus 50 such fees a year ago. For the nine months, the two totals are 112 for the nine months of 2015 versus 117 for the nine months of 2014. These patterns are consistent with the transaction environment we're seeing, as the number of deals has not particularly increased, and I'll talk about that later, but the average deal size is considerably higher. We're doing quite a bit better because our deal size is higher. Turning to productivity, the average revenue per SMD on the usual trailing 12-month basis, which we always report, was $12.1 million globally. That's 20% higher year-over-year. By the way, another indication of higher deal size.
That reflects a strong performance in the U.S., a strong performance in Europe, both of which offset some modest weakness and smaller weakness in Mexico. I might add that our third quarter advisory fees included $14 million in revenue from advising on capital-raising transactions, our private funds group and our private capital markets advisory group, in addition to the underwriting revenue I talked about. We're on track in terms of our equity capital markets business. For the nine months, ECM revenue was $32 million, up from $19 million a year ago. Was slightly down third quarter versus the third quarter a year ago, but as you can see, strongly up for the three quarters. We did 12 book-run transactions for the nine months. That exceeded our total for all of 2014, and I'm sure when this year is finished, we'll all see that ECM is performing strongly.
On recruiting, we have continued our longstanding pattern of steady growth in hiring. We ended the quarter with 79 senior managing directors across the firm, up from 76 at the end of the second quarter. Total bankers around the world increased by 36. The three senior managing directors who joined the firm in this quarter were Daniel Aronson in Restructuring, Edmund D. Baxter in Healthcare, specifically life sciences, and Walter Kuna in Germany. In terms of our competitive standing, Evercore has increased its market share of the disclosed advisory fee pool every year over the past five, and we believe that will be the case again when the dust settles on 2015 and the data is available. In terms of large deals, if you look at recent announcements between Dell, EMC, Broadcom, Avago, parenthetically, those are the two largest technology M&A deals ever announced.
For example, the Shire Dyax announcement this morning, we're doing quite well. A couple of comments on the M&A environment more broadly. In our view, the M&A market remains vibrant. You can see this in the totals. For the nine months of this year, global announced dollar volume is $3.2 trillion. That's up from $2.4 trillion for 2014, a very big increase, 32%. That occurred despite reasonably flat totals for the third quarter itself. You're having a very strong year in terms of the global announced dollar volume. About half of that global total continues to be represented by the U.S. M&A market. That market, which is a particularly important one for us, is up 50% year-over-year for the nine months in terms of announced dollar volume. 50% year-over-year.
It's important, as I alluded earlier, to keep in mind that there's quite a dichotomy between the M&A market as measured in dollar volume and the M&A market as measured by the number. The latter remains pretty flat. It's up 2% globally for the nine months. All the growth in the market, or largely all the growth, is coming from larger deal sizes. I don't see anything in the mix right now which would weaken the M&A market. It has considerable momentum. We're not hearing any fresh or recent hesitation on the part of corporations or financial investors. The market outlook would seem to be good. Of course, we live in a world where any minute there can be some gigantic event, but absent that, we would say that the outlook for the global M&A market and the U.S. market remains quite healthy.
I'm going to turn it back to Ralph.
Thanks, Roger. Let me just talk briefly about our equities business and the investment management business. First, our equities business contributed revenues of $60 million in the quarter, including $2.2 million attributed to equity underwriting. Secondary revenue, that's commissions and checks, was up nearly 10% sequentially and was 14% higher than total revenues from both ISI and Evercore businesses in the third quarter of last year. This is the first quarter since we closed this transaction in October 31st of last year, that secondary revenues exceeded revenue received in the two businesses when they operated separately, and it was not by a little, but by 14%. Overall, the business produced operating margins of 20% in the quarter and 18% in the first nine months of the year.
Part of the improvement in margins resulted from the progress that we have made in non-compensation expense, which were roughly 25% of revenues in the third quarter, compared to a run rate slightly above 30% of revenue when we closed a year ago. As I noted at the outset, Institutional Investor recognized Evercore ISI as the number one independent research firm in the U.S. and number three among all firms. Our number three rank, as I said earlier, represents the highest finish by a non-bulge bracket firm since 1995. We are very proud of that result, particularly since it occurred in the first year of our merger. We are the only firm in the top five that improved its rankings. We had the second highest number of analysts ranked number one by II, after JP Morgan.
We are very pleased that throughout the integration process, we have been able not only to maintain our high-quality research franchise but to improve upon it. In terms of investment management, our investment management business continued to deliver steady results in the third quarter, producing revenues of $25.4 million and operating margins of 28.3%. Good results in a volatile market. During the third quarter, we took a fresh look at our investment management businesses in order to assure we were positioned to realize targeted returns from this segment. As we discussed, our investment management strategy is focused on two primary markets, U.S. wealth management and trust services, and Mexico investment management. Our wealth management and trust business continues to perform well, managing $5.9 billion for clients at the end of the third quarter, a 9% growth compared to the end of the third quarter last year.
In Mexico, institutional assets under management are MXN 34.6 billion at the end of the third quarter, down 9% compared to the third quarter of 2014. During the third quarter, we concluded that it is appropriate to recognize an impairment charge for our institutional asset management group of companies, which is comprised of Evercore Casa de Bolsa in Mexico, Evercore Trust Company, and our investment in Atalanta Sosnoff. This impairment is driven by several factors, most significantly lowered expectations for the near-term recovery in AUM at Atalanta Sosnoff, as well as declining results at ECP. Bob will provide further comments on these plans as well as our non-compensation costs and several other financial matters. Bob?
Thank you, Ralph. First, commenting on our adjusted results. Consistent with our reporting in prior periods, our adjusted results for the third quarter exclude certain costs that are directly related to our equities business and other acquisitions. Most significantly, we have adjusted for costs associated with the vesting of equity granted in conjunction with the ISI acquisition. Year-to-date, we have expensed $65.1 million of costs related to these awards in our GAAP results. In the third quarter, we expensed $22 million. Similarly, our GAAP results include a net charge of $2.8 million, reflecting an increase in an estimated earnout payment related to Kiosk that we acquired. Essentially, the businesses have delivered well in excess of initial expectations. As a reminder, our adjusted pro forma 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. On the same principle, our share count includes shares to be delivered for the earn-out that increased our shares by approximately 186,000 shares this quarter. Changing to non-compensation costs, they were $56.8 million for the quarter, an increase of approximately 2% versus the second quarter, and more than 50% in comparison with last year, all driven by headcount growth. Firm-wide operating costs per employee, a metric that we manage to, were $38,900 for the quarter, which was 3% lower than Q2. Such costs include a significant fee, which we do not expect to repeat in Q4. Cost per professional would've been $37,500 per employee, excluding that cost.
With regard to our equities business, the adjusted operating margins, which govern the ultimate payout for the G and H units for that business, are 18.4% for the third quarter and 15.1% year to date. In terms of cost, we have completed the substantial majority of long-tail projects and effectively implemented the cost containment initiatives that we have been focused on. Going forward, we would anticipate changes in operating costs would reflect material changes in headcount and growth in the number of clients and volume of transactions in the business. Focusing on investment management, as Ralph indicated, we have begun a project to address the margins for all of the businesses in the investment management segment, as some are performing quite well and others are lagging.
The principal focus of this project will be all of the costs within the businesses that are lagging. We hope to have more to report on that in coming quarters. Taxes. The adjusted pro forma tax rate for the third quarter was 37.3%, a slight increase from the first half of the year. Increasing the nine-month rate to 37.27%. As we have discussed previously, the effective tax rate changes principally due to the level of earnings in businesses with minority owners and earnings generated outside of the U.S. Our share count for adjusted earnings per share was 53.1 million, an increase of approximately 600,000 shares from Q2 2015. The increase principally reflects the addition of 186,000 shares associated with the earn-out, as well as an increase of approximately 312,000 shares, reflecting an increase in the average share price in the quarter.
Our average share price for the third quarter was $54.78. As Ralph mentioned earlier, we remain committed to returning capital to shareholders. In the third quarter, we repurchased an additional 527,000 shares. At the end of September, we have remaining authority to repurchase 4.9 million shares. We expect to use 2.35 million of this authorization in conjunction with the share repurchase that Ralph described. As Ralph indicated, our board increased our quarterly dividend to $0.31, which will be payable on December 11th to shareholders of record on November 27th. Finally, our cash position remains strong as we hold $320.5 million of cash and marketable securities. Our current assets exceed current liabilities by approximately $318 million. With that, we will 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 star followed by the one key on your touch tone phone. If you'd like to withdraw your question, please press the pound key. If you are using speaker equipment, you may need to lift your handset before making your selection. Our first question comes from the line of Devin Ryan of JMP Securities. Your line is now open.
Hey, thanks. Good morning. Congratulations on the nice quarter.
Thank you. Thanks.
I guess first question is just trying to understand the expansion to the global relationship with Mizuho, essentially what that entails, what changes, and then, if possible, any sense of order of magnitude around what that could mean or what you hope it to mean relative to maybe the nine deals that you guys have done together in Japan over the past seven years.
Look, I think the alliance has been something that's important to Mizuho's ability to serve their clients. It is important to our ability to serve our clients. It is not something that is a big revenue producer or material to either them or to us in that regard. We do both believe that there is a pretty strong trend over the coming years, which is a multi-year trend, not a short-term phenomenon, of outbound M&A activity by the large corporate clients in Japan. They generate a lot of cash flow. They've got strong market positions in their home market, but the home market is growing very slowly, if at all. There's a pretty broad phenomenon occurring there, and we and Mizuho want to position ourselves as well as we can to follow those large Japanese corporates wherever they may be interested in investing.
If you look back historically this has not been something that is materially economically to either of us. Unless I'm really surprised, I would expect that that would not be any different going forward.
Okay, got it. That's helpful. Appreciate the explanation. It doesn't sound like you guys are seeing or expect much impact from the summer equity market volatility, so that's good to hear. Are there any sectors on the margin where sellers and buyers' expectations have been disrupted? I know that some sectors have been more volatile than others. Some areas of the market have recovered a lot more from the summer lows than others as well.
Well, you have to differentiate between macro factors and sector-specific factors.
It's related to macro factors. I don't think any of the factors concerning growth, market volatility, and so forth, or the issues around those are producing hesitation. At the same time, there are always sector-specific factors, and the most vivid example is energy. We all know what's going on in that sector in terms of the oil price and share prices and all of that. There are always sector-specific issues. You're seeing enormous consolidation right now in healthcare, some of which is driven by the changing regulation of the healthcare market. Nothing in the macro environment suggests that the M&A market as a whole is going to soften or weaken. Each sector, however, always operates on its own cycle.
Okay. Thanks. With respect to the share repurchase with the Mizuho transaction, does any of those shares count for the shares that you anticipate to reduce related to ISI, or is that completely separate in terms of how you're thinking about taking out those shares from that transaction?
Devin, we anticipate that the real effect of that repurchase will reduce the adjusted share count by 150,000 to 100,000 shares. I would count that towards the ISI target.
Got it. Okay. Just last one for me. With respect to other expenses, ticked up a little bit lumpy there. Not sure if that was the unusual item that you referenced in the prepared remarks or if there's anything else in the other expense line.
It's really that lumpy item and headcount growth.
Got it. Okay. Thanks very much.
Thank you. Our next question comes from the line of Ashley Serrao of Credit Suisse. Your line is now open.
Good morning.
Hi, Ashley.
Hi. As you sit here today on record revenues, how are you thinking about the size of the advisory franchise? Where do you see more opportunities to add more talent? Just an update on your latest thinking around the strategic importance of investment management given today's announcements would be appreciated.
Your first question concerned what item? It didn't come through to us very clearly. Size.
Oh, just how you're thinking about the size of the advisory franchise, and where do you see opportunities to add more talent?
Our point of view, as you can see by looking at us and also just our comments this morning, is steady as she goes. We have continued to expand the firm on the advisory side at a very consistent rate, both in terms of people, which is the key to it, and also geographically and by industrial sector. We're going to continue to do that. If you look at us over the last three years or five years or longer, and look at the rate at which we've been expanding, that's what we intend to keep doing. We don't see any short to medium term reasons why that type of expansion won't continue to be successful.
I think if you look at the largest firm out there with our business model, our revenues are probably 60%-65% of theirs, their revenues are 50% or more higher than ours. We certainly don't see any constraint on our ability to continue to grow at this point in time. With respect to the investment management business, I've been pretty clear for the last several years that the opportunities that we see are in growing and enhancing the quality and scale of our investment banking business, which we've managed to do as Roger suggested a moment ago. We have not made any investments in investment management since 2011. We've said pretty clearly that we will look at tuck-in acquisitions in the wealth management business. We may do a little cleanup of some of the businesses that we have at the moment.
Our focus is on running what we have efficiently and effectively rather than on growing the investment management business.
Thanks for the color there. Just switching to capital management. You're doing a lot this quarter and over the next few months in between ISI and Mizuho, you also announced that you're increasing your dividend. Just more curious on the last component, how are you thinking about the size of your dividend increase and just more generally going forward, what's your philosophy there?
Here, first of all, this is ultimately the board's decision, not ours. I would say that the general consensus of the board is that provided that our earnings continue to grow, there should be a steady increase in the dividend on an annual basis. This happens to be the quarter where we examine this every year. I think if you look back at our record over the last seven or eight years, that's probably a pretty good indication of what we would hope to be able to do, provided the markets and the performance of the company allows. We certainly don't see any constraint on our ability to do that at this point, because in reality, the dividend has been growing at a slower percentage pace than our adjusted pro forma earnings and cash flow.
Okay. Thanks for taking my questions, and congratulations on the quarter.
Thank you.
Thank you. Our next question comes from the line of Dan Paris of Goldman Sachs. Your line is now open.
Hey, good morning.
Morning.
Hi. Hi, Dan.
Obviously nice to see the recognition in the equities business and the II ranking this year. You saw a pretty good uptick linked quarter. I just wanted to flush out how much of that you think is seasonality of the business. I know you talk about potentially revenues in that business being back half loaded, versus just seeing more momentum on the client side.
Well, the difficult thing about the third quarter is, we definitely saw more momentum on the client side. What's visible, obviously, is the II rankings. We get a report card from most large institutional investors every quarter. As a general matter, how they view us has improved generally by two or three slots versus where we were historically, let's say, nine months or a year ago. The pickup in secondary activity in the third quarter was clearly driven by at least one thing and hopefully two things. The one thing that it clearly was driven by was increased volatility and volume, in the equity markets. Certainly to a certain extent, we, like other equity firms, benefited from that.
I think we got to wait for two or three more quarters of evidence before we can conclude that the increased regard with which we're held by the institutional investors, the actual impact of that on our revenues. I can tell you that we're very focused on that.
Got it. That's very helpful. Maybe just switching gears for a second. It looks like you've been accruing comp at a pretty steady 57.4% ratio for all three quarters this year. Should we look to 4Q as being pretty much in that same rate? Then what are the mile markers we could look for next year in terms of bringing down that comp ratio further? Is it just broad revenue growth throughout the firm? Is it certain equities versus M&A, et cetera?
Look, we do our very best to estimate every quarter what is the proper accrual for the full year. So far, our performance has validated our estimates up to this point in time. To say anything about the fourth quarter would get us into the world of forward-looking statements, which we never do. I can only say that based on where we are today and what we see going forward, we're comfortable with our accrual for the first nine months. Look, we've said that we expect this business to run in the mid to upper mid fifties from the point of view of a comp ratio. That's still our objective, but we balance that very carefully with the growth opportunities that we see.
We've been pretty clear that if an opportunity arises to add talent in a way that might actually even be a little bit of a setback in that reported comp ratio, if we believe that that adds materially to the intermediate term value of a per share of the company, we're going to do that. I think the good thing this year is that we've actually managed to bring our compensation ratio down a little bit, notwithstanding the fact that we had a record year of new hires.
Got it. Thanks a lot for taking my questions.
Thank you. Our next question comes from the line of Jim Mitchell with Buckingham Research. Your line is now open.
Hey, good morning. Just a couple of quick follow-ups on the transaction, I apologize if you mentioned this at the beginning, did you mention the timing around the secondary at all?
We're going to go on the roadshow tomorrow and Wednesday. The hope is to price Wednesday or Thursday after the market closes or Thursday.
Yeah.
Probably Wednesday.
We've launched this morning, and we'll be taking calls this afternoon, as Ralph said, on the road the next two days. We anticipate pricing after the market close on Wednesday.
Okay, great. If you look at the buyback, it's over 4% of your diluted share count. Do you think you can hold the line there, or should we expect to see some creep back up as you issue stock for bonuses and things like that? Or do you think you can hold it at these levels?
Well, our policy has been, which we've executed, that our goal is to purchase sufficient shares to offset any equity that we grant in the form of RSUs for year-end bonuses, any equity that we grant to new hires, and over the life of the ISI transaction, or the first five years, to repurchase roughly half of the shares that were issued in connection with that. We've done all of that this year. Obviously, this is the first year that ISI has been in the mix. Absent acquisitions, which we have none on the drawing board at the moment, but absent that kind of activity, we wouldn't expect the share count to grow.
Okay, great. Just maybe one bigger picture question. I think Roger talked about how the number of deals really hasn't moved despite volumes have picked up on the large transactions. Based on your experience, the smaller deals, should they follow in terms of activity levels? The big, large transactions create greater activity down the road. Is that how we should think about it? Or is that not what you've seen in your experience?
Well, I've learned that there are similarities in terms of the long-term cycles in the M&A market, each individual cycle has some sometimes subtle differences. The real answer is, speaking for myself at least, I don't know. Theoretically, as the M&A market hums along, so to speak, the number of transactions should rise, but I really do not know if that will happen. Keep in mind, Evercore is not talking about truly small transactions. Right? Right. We're not in the really small transaction business. We're in the medium-sized and larger transactions business.
What affects us is the number of deals in that category. I'd be making it up if I said I know. I really don't know. Number of transactions was up 2% year-over-year for the nine months globally. It's up, not down, but it's up marginally. We'll just have to see. Really don't know. Let me add just one thing on the share count, which I think is apparent to most people, but just to make sure everybody understands. The Mizuho warrants are already in our share count to a certain extent. In effect, the difference between the strike price and the current market price is reflected in our adjusted pro forma share count. As Bob indicated, the purchase that we're making here is a little bit higher than the current accounting treatment of the Mizuho warrants in our adjusted pro forma share count.
Very importantly, almost every quarter, we sit here and talk about our share count going up and down because of the price of our shares during that quarter because it affects the difference between the strike price and the market value. By eliminating the overhang of these warrants, we will eliminate that source of volatility in our share count. Is that correct? Relating to the warrants? Yes. There'll be a nominal amount related to the RSUs, but we'll only talk about it if the share price moves a ton.
Right. Thanks for taking my questions.
Thank you. Our next question comes from the line of Steven Chubak of Nomura Securities. Your line is now open.
Thank you. Good morning.
Morning, Steven.
Just a quick question on the underwriting side. $32 million revenues for the first nine months. The third quarter was a bit light, but that was pretty consistent with the industry pattern or where we saw pretty meaningful declines. The outlook commentary overall was pretty constructive for you, Roger, I just wanted to get a sense as to whether we should expect that you are currently on pace to meet the $40 million-$50 million target that you alluded to on the last earnings call for the full year.
Yes.
Excellent. Okay. Then just one question on the investment management side. I appreciated the commentary you guys have given on the expense review that you're looking to pursue, I just wanted to get a better sense as to what you see as the margin opportunity for that segment going forward. I know it's running in the high teens, low twenties on average over the last few quarters, where do you think that could potentially build to?
I think high teens to mid-twenties is probably the normalized margin there. It goes a little higher when you have a quarter as we just did where you had a couple little marks because we still do have some residual private equity positions. There's not a lot of opportunity to squeeze more juice out of that lemon.
One final one for me, just on the Mizuho transaction. I appreciate the color on the actual share count reduction that you guys are anticipating. When thinking about the other element of the accretion benefit, which is the refinancing of the loan, can you give us any early indications as to where that pricing should roughly end up?
The loan with Mizuho, the new loan is LIBOR-based. You might think of it currently as about a 3% interest rate. When you put their margin on top of it, that number will move around both as rates and other factors move. Then opportunistically, we'll look at sort of other financing. We've sought to refinance that debt for some time, and this transaction enables that. Whether this is the right form of longer-term financing, we'll address that in future quarters.
Understood. That's it for me. Thanks for taking my questions.
Thank you. Our next question comes from the line of Joel Jeffrey of KBW. Your line is now open.
Hey, good morning, guys.
Hey, good morning.
Just to follow up on Steve's last question. Just in terms of thinking about how you're looking at your capital structure, what was really the need to refinance this? Why not just eliminate this debt?
Well, the need to refinance it came from our desire to repurchase an amount of shares equal to or slightly in excess of the current number of shares created by the Mizuho warrant and our adjusted pro forma share count. It's really a desire to have a transaction that lowers interest expense and modestly lowers share count. I have to say that we're not big fans of debt on these companies, but our trailing 12-month revenues are about $1.1 billion, I think. To have $120 million of debt on a company like that, I don't think is an appalling situation.
Great. Thanks. That's all I had.
Some would argue we should be more leveraged. We disagree with that.
Thank you. Our next question comes from the line of Vincent Hung of Autonomous. Your line is now open.
Hey, good morning. How's it going?
Morning, Vincent.
Just on the equities business. Seeing as you've now been running an equities business for nearly a year, I just wanted to see whether you've got an update on how you view the structural outlook for the equities business. I'm referring to things like shrinking commission pools and the possible impact of MiFID II.
Well, the answer is we're not smart enough to know the answer to that, sadly.
Okay.
I think that we do feel that through the combination of market share gain, and a equities business that is stable, or even covering a little bit, that we can do well in that business. If you look at the data, there seems to have been a bottoming in the amount in the commission pool and a slight bounce back. I have no idea whether that is a true bottoming and a little bit of a recovery or whether that's a blip on a somewhat, for a long-term secular phenomenon. I do think, though, that if you look back during the six or seven years ago, we were able to grow our advisory revenues in an environment where the pool of advisory fees was shrinking. Our hope and expectation is that in equities, we have a similar experience.
Great. Thanks a lot.
Thank you. Our next question comes from the line of Jeff Harte of Sandler O'Neill + Partners. Your line is now open.
Morning, guys.
Morning.
Just to make sure I'm clear, there's a big slug of buyback coming from the Mizuho transaction. What should we be thinking about incremental share purchases after that? I mean, does that kind of mean you've done what you're going to do for a little while, or does it have an impact?
We'll be opportunistic in the latter part of the year. As you know, we were pretty aggressive in the first half. Continue to look to offset the dilution, particularly related to the ISI shares, if the opportunities are there.
Okay. Thinking about kind of, I know the kind of targeted comp ratio, is there a way we should be thinking kind of going forward about revenue growth versus comp growth? I'm kind of just thinking on a general operating leverage. I mean, the revenue growth has been really strong for a number of years. How should we think about that revenue growth continuing to exceed comp expense growth?
I think we've said this a number of times. The operating leverage in this business as a general matter is pretty negligible in terms of adding SMDs and teams to support them. Basically, the operating leverage is spreading Bob's comp, my comp, and maybe a handful of other people's comp over a broader SMD pool, and that's not a whole lot of operating leverage. The operating leverage in this business generally comes from a very, I guess I'll use the term hot M&A environment, where productivity per partner goes up somewhat from where it is today. We're in a very good M&A environment. So the idea of sort of expecting that revenues are going to go up 20% and comp's going to go up 10%, rest your minds. That's just not going to happen. Except in a year where there's just extraordinary revenue growth.
I think you can be pretty simple-minded about this. If you just look at how Evercore's done over the past, say, five years, we've been able to grow the firm quite consistently, quite steadily, maintaining comp in the high 50s. Absent some really sharp change in the macro environment, we hope to be able to continue that.
And we were-
I mean, that's really it.
We focus on the per-share value of the company and the earnings per share. That's not to say we don't aggressively focus on keeping costs under control and comp costs and non-comp costs. I've been doing this for six and a half years. Roger's been doing it for 20. I haven't seen any real evidence that there's this fantastic operating leverage opportunity coming down the pipe.
Okay. That's helpful. Thank you.
One of the oldest adages in business is, if it ain't broke, don't fix it. I think our point of view about Evercore is it ain't broke.
Thank you. There appears to be no questions at this time. I would now like to turn the floor over to Ralph Schlosstein for any closing comments.
I have nothing to add other than we look forward to talking to you.
Next quarter.
next quarter. Thank you.
Ladies and gentlemen, thank you for participating in today's conference