Welcome to the Evercore second quarter and first half 2015 financial results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. If you have a question, please press 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, July 22nd, 2015. I would now like to turn the conference call 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 second quarter and first-half 2015 financial results conference call. I'm Bob Walsh, Evercore's Chief Financial Officer, 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 second quarter and first-half 2015 financial results. The company's presentation today is complementary to that press release, which is available on our website at evercore.com. This conference call is being webcast live on the investor relations section of the website, an archive of it will be available beginning approximately 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, 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 pro forma or non-GAAP financial measures, which we believe are material 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 on our website.
We will refrain from repeating the information included in the press release 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. Good morning, everyone. I'll start with a few introductory remarks. We're pleased with our second quarter and first-half operating results as we delivered record revenues and earnings for each period. These results reflect our sustained investment in our advisory business, our commitment to broadening our capabilities to serve our clients, and our commitment to expanding the markets that we serve. Advisory activity was strong in a number of sectors this quarter, including technology, healthcare, and financial institutions. Importantly, our energy team continued its strong run of transactions, reflecting contributions from both M&A and restructuring assignments. Despite the price volatility in the energy markets, we do not expect any material diminution in revenue in this important sector compared to last year. We had an especially strong quarter in equity underwriting, with strength in healthcare, transportation, real estate, and TMT.
Our underwriting revenues for the quarter exceeded $21 million. Very importantly, our pipeline of underwriting mandates for the second half of the year is strong. In equities, we are nearly one year past the announcement of our decision to acquire ISI and eight months past closing. The team is building momentum, delivering operating margins of 18% for the quarter and 17% for the first half of the year. Our equity team continues to focus on delivering exceptional value to our clients, growing commission revenues, and managing our costs. We have had an extraordinarily strong recruiting year, having added 10 new SMDs so far this year, two in ECM and eight in our core advisory business. As well as one who will join us at the beginning of next year.
The positive impact that we had hoped for from the ISI acquisition, higher underwriting revenues, stronger advisory recruiting, and much better margins in our equity business seem to be coming to fruition. Still early days, but encouraging. Finally, our wealth management business continues to deliver strong performance, increasing assets under management to more than $6 billion for the first time in our history. Let me quickly go over the financial numbers and then turn it over to Roger. Second-quarter net revenues were $268.5 million, up 24% versus the same period last year and a record for our second quarters. Net income, also a record for the second quarter, was $33.9 million, with earnings per share of $0.65. These results are up 10% and down 2% with respect to the EPS, respectively, from the prior year. Operating margins were 21.9% for the quarter.
Our compensation ratio was 57.4% for the quarter, lower than the same period last year. Non-compensation costs increased to $55.7 million, principally reflecting the addition of the Evercore ISI equities business. Bob will discuss this further in his remarks. Revenues and net income for the first half were also a record, with revenues of $506.7 million and net income of $63.7 million, up 38% and 40% respectively. EPS for the first half increased 24% to $1.20, the best first half in our history. Operating margins for the first half of 2015 were 21.6%, slightly higher than the first six months last year, despite the drag of higher compensation and non-compensation expenses associated with the record number of SMD new hires.
In the first six months, we returned $148.5 million to our shareholders, including repurchasing two and a half million shares in the first half of this year, offsetting the bonus equity awards made earlier this year completely and beginning to offset the shares used for new hires and for the ISI acquisition. Let me now turn the call over to Roger to comment on our investment banking performance and the M&A environment more generally.
Good morning, everybody. You can see that the firm's investment banking business was strong once again. Net revenues in investment banking were $243 million, up 29% from the second quarter a year ago, and up 13% sequentially. Those are all-time records for any second quarter that Evercore has had. Operating income was $53 million, an 18% increase over the second quarter a year ago, and up substantially on a sequential basis. This also is a second quarter record. Both revenues and operating income for the first half are records for any first half, $457 million of revenue, and in round numbers, $100 million of operating income. For the quarter, we earned 42 fees exceeding $1 million each. That's a 5% increase year-over-year. The total number of fee-paying clients increased to 179, which is a 20% increase year-over-year.
Those two metrics on fees both represent historic quarterly highs for the firm, as well as historic highs for the six months on both scores. In other words, fees exceeding $1 million in total revenue-producing clients. On productivity, which as you know, we watch carefully, our average revenue per SMD was $12 million on our trailing 12-month basis. That's up from $10 million year-over-year. It's the same as we had in the first quarter. That's a good number. The global diversity of our business remained good as 27% of our quarterly revenues originated from outside of the United States. In that regard, Europe was especially strong. Our equity capital markets business, as Ralph said, also did especially well. We participated in 26 underwriting transactions in the quarter. That makes 37 total underwriting transactions year-to-date.
Of those 37, 12 of them were book run transactions, which is more than we did all of last year. We did more in the first half this year than we did all of last year in total. We also advised on 18 other capital-raising transactions in the quarter, and that represents primarily primary and secondary transactions for financial sponsors and other alternative asset managers. We also had a good quarter advising on larger transactions. Among other things, Broadcom/Avago, the largest technology M&A deal ever done, CVS/Omnicare, Tokio Marine HCC Insurance, and the DuPont proxy fight, which is the largest proxy fight ever done. On recruiting, Ralph spoke to this. We had a very strong year in 2014, and that's continuing at least as strongly this year. Seven advisory SMDs and three senior advisors have already joined the firm in 2015. Their names are listed in our release.
Three additional SMDs are committed to joining us for the second half of this year, and one for the first quarter of next year. Our total investment banking headcount at the end of the second quarter was 971. I would also say that our advisory backlog is good. One or two comments about the environment. The second quarter was largely a mirror image of the first. Global announced M&A volume in dollars, or total dollars, was up 41% year-over-year for the quarter and 65% sequentially. A U.S.-announced volume, the U.S. piece of that, was up 55% year-over-year and 58% sequentially. You can see, very strong in total dollars. No getting around that these are strong trends. Of course, we like them. It is important to put them in context.
Quite a difference between the dollar volume of transactions, as we've noted before, and the number of deals. Quite a difference. The number of global announced deals in the first half, again, not measuring them in dollars, but just number of transactions, was up marginally, 3% year-over-year, 8% sequentially. In the U.S., which is still the biggest market, the number of announced deals was flat both year-over-year and sequentially. You can see that the major change during this most recent phase of the cycle is in dollar volume, and therefore average deal size. What's changed here is the average deal size, not the number of deals.
That reflects primarily, although there's a number of factors at work here, primarily reflects that the percentage of total transactions, which are what we would call strategic, corporate to corporate, in other words, or the equivalent, has gone up quite a bit. Moreover, this is a healthy trend, M&A volume is becoming a bit more balanced globally. Activity in Europe and Asia is beginning to pick up as we see it. At the moment, at least, these things can change on a dime given financial market conditions, at the moment, we don't see anything over the short term that would change this picture. It's a very healthy one from a macro point of view, macro M&A environment point of view. Happy to talk about any of the reasons why this seems to be the case if people would like to do so on the call.
The bottom line is a very healthy macro environment for our business. I'm going to turn this back to Ralph.
Thanks, Roger. In our equities business, it contributed revenues of $62.4 million in the quarter, including $9.7 million attributable to underwritings. Overall, the business produced operating margins of 18% in the quarter and 17% in the first half of the year. Our team remains intensely focused on helping clients and improving our position in client votes, which have improved quite materially over the last year. We are working hard to translate that momentum in client votes into revenue growth in the second half of 2015. In our investment management business, it continues to contribute to the firm as a whole. On an overall basis, net revenues were $25.9 million for the quarter, a 9% decrease from the $28.5 million for the same period last year. Management fees increased 4% to $21.9 million, private equity in marks and performance fees, which are inherently lumpy, declined versus last year.
Operating income was $6.1 million for the quarter, delivering an operating margin of 23.4%. Assets under management were essentially flat at $14.1 billion in comparison with the end of the first quarter. Our wealth management business continues to do well, adding talent, clients, and assets under management. Evercore Wealth Management's assets increased 2.5% quarter to quarter, ending the second quarter 2015 with $6.1 billion of assets under management. Bob will now provide further comments on our non-compensation costs and several other financial matters.
Thank you, Ralph. Our adjusted results for the second quarter exclude certain costs that are directly related to our equities business. The nature of these costs are comparable with those we reported in the first quarter, most significantly the costs associated with the vesting of equity granted in conjunction with the ISI acquisition. We began to amortize the costs associated with the G and H units in the first quarter. Year to date, we have expensed $44.1 million of costs related to these awards in our GAAP results. In the quarter, we expensed $18 million. As a reminder, our adjusted pro forma presentation includes all of the shares we expect to issue for the equities business acquisitions in the EPS denominator. Our forecasts that drive the number of shares expected to be issued did not change in the quarter.
With regard to non-compensation costs, they were higher in the second quarter, reflecting three principal factors. Professional fees increased, reflecting recruiting costs associated with experienced hires. As Roger noted, five senior managing directors started in the second quarter, also an increase in client-related costs that are currently not covered by engagement letters. Information services costs associated with both our advisory and equities business increased, reflecting increased headcount and rate increases from selected providers. Finally, travel and entertainment costs increased, including costs associated with conferences hosted by our equities business, which are seasonally higher in the second quarter. 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 12% for the second quarter and 13% for the first half of the year. In terms of costs for that business, long-tailed projects are on track.
For example, with the conversion to a new clearing broker completed this past weekend. Our adjusted pro forma tax rate for the second quarter and for the first half was 37.25%, unchanged in the second quarter, which is up in comparison with 2014, 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 52.5 million for the second quarter, a decrease of approximately 0.9 million shares, reflecting our repurchase activity. The average share price for the quarter was $51.71, essentially flat compared to $50.82 in Q1. Ralph mentioned the number of shares repurchased in the quarter. At the end of the second quarter, we had remaining authority to repurchase 5.3 million shares, or $267 million. Finally, our cash position remains strong as we hold $282 million of cash in marketable securities, with current assets exceeding current liabilities by approximately $287 billion. With that, we'll open the line for questions.
Thank you, sir. We will now begin the question and answer session. As a reminder, if you have a question, please press the star followed by the one key on your touch tone phone. If you would like to withdraw your question, 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 Ashley Serrao with Credit Suisse. Your line is open.
Good morning.
Hi. Good morning, Ashley.
I just wanted to get an update on where you're seeing opportunities today to make the incremental hire and if you're seeing any increased competitive pressures as far as retention goes.
No. The answer is, we have, over the last six years, a literally unblemished record of retention. You can barely count on one finger the number of people who have left Evercore, and this is really pretty much at all levels, not just the senior levels, to go practice their craft in another firm in our industry. We do have, from time to time, people who go off and retire or go work in industry. In terms of someone leaving Evercore and going to another investment banking firm, it just doesn't happen, fortunately for us.
I think he was asking though, about whether other employers are intensifying their own retention efforts at the expense of our recruiting.
Yes.
The answer to that is no. I don't know if they're intensifying their retention efforts or not. That's a case-by-case matter sometimes. In terms of whether that's impacting our recruiting and our ability to recruit and our momentum there, the answer is really just no.
Okay. I hear you there. Maybe, noted that you guys are seeing strength across a broad variety of industries. Maybe if you just focus in on energy and just give us an update on what you're hearing on the ground and what CEOs are telling you today.
Well, I happen to have been in Houston last week. I'm sure Roger has a lot to add here.
No.
No, he doesn't. I guess not. Well, I'm not going to say anything either. I think earlier in the year, we were asked about this. We, of course, said we didn't really know. That we expected that after a period of volatility, if the price of oil and gas settled down into a range, that even though that was a lower range, that would encourage a pickup in, again or a re-pickup of strategic activity in two areas. One, strategic combinations, M&A, and also restructuring activity. That's in fact happened. We don't generally comment on individual sectors, and we're certainly not going to give any information on revenues in any individual sector.
Based on the meetings I had with our team in Houston last week, I guess I would repeat what I said in my opening remarks, that we don't expect a material diminution in revenues this year versus last year. Change in revenue a little bit, but not a fall off.
Okay. Thanks for the color there.
Our next question is from the line of Devin Ryan with JMP Securities. Your line is open.
Hey, thanks. Good morning, everyone.
Morning, Devin.
Maybe just coming back to the theme that Roger discussed. M&A volume's on track to potentially hit a record this year. If you back out the largest mega deals above $10 billion, volumes are actually looking like they're down a little bit year-over-year. As Roger mentioned, the number of deals is down. I think the question keeps coming up. Is this just around timing of when the middle markets get going? Is it financial sponsor related? You mentioned strategic activity has been strong, or is it a function of just the middle market companies are lagging the larger companies in their business recovery? Just trying to get some better sense of what may spark a recovery, kind of outside of the largest deals.
That's a good question, it's hard to say. Historically, you'd see a pickup in medium-sized deals after the pickup in large deals. I really can't say whether that's going to happen anytime soon or not. That would just be the historical pattern. Overall conditions, as we traditionally think of them, availability of credit, cost of credit, share prices
Broadly speaking, business outlook tend to be quite good by past standards as they correlate to deal volume. It might be better, just to kind of stretch here, if the business outlook itself, I mean the underlying economic outlook, was a little better outside the U.S. than it is. Fundamentally, conditions are quite good. Good question. Hard to say. I don't have a precise answer because we just don't know.
Mm-hmm. Maybe just with respect to having conversations with companies that are not at that kind of larger end of the spectrum, is there anything that you're hearing from them specifically that makes you feel like they're not as comfortable in their business outlook or their willingness to do something transformational? Or is it more just, one-off and there's not a great conclusion at this point?
I think it's important. The answer to that question, Devin, is no. Is there anything in those conversations that indicates they're not as confident or they're hesitant? The answer is no. It's important to keep in mind that in any given month or any given quarter, any given year, for us and all of our competitors, most deals are what we would generally call mid-size deals. If you look at numbers of transactions, the number of deals that are, say, north of $10 billion, very few. They get a lot of attention. They drive the volume totals, they're important. We care a lot about them. The percentage of total deals that is represented by that, again, number of deals, is not very large. Never is. It's important to keep this whole picture in perspective.
For us and for most, I would say all of our competitors, in any given quarter, you have, if you're fortunate, two or three or four large deals out of as I said, we had 179 revenue-producing transactions. We have a strong mix on the large deal side, as you can see from our average SMD productivity, which is $12 million, probably the highest in the industry. If you read the press, you end up thinking that the only thing going on is large deals. Well, that's just not true. It never is true. The mid-size sector is not unhealthy. It just isn't showing the same kind of growth that the large deal sector is. I would say it's quite solid. Quite solid, if it wasn't, just speaking for us, we wouldn't have the very strong results we have just reported and have generally been reporting.
Got it. Appreciate the color. Then maybe on recruiting. You guys, I think, set the stage for a strong year this year, just with all the conversations you were having in the back half of last year. With that said, should we think about this year's recruiting effectively being done in terms of bringing someone in for this year? Then, how active are conversations today with folks that you think could be in the 2016 class?
First of all, we are always having conversations with people who are expressing an interest in joining the independent advisory business model. Those conversations are generally underway. We do have a number of conversations underway with very senior people in the business, and we had those underway last year, and nothing materialized. It's possible that it's a little bit like wildcatting in Texas. You drill a bunch of holes, and you can have a bunch of dry holes, or you can hit a couple of active wells. At this point, we're in the drilling stage, so it's really impossible to comment. In terms of laying the groundwork for next year, that tends to happen throughout the fall.
I think it's fair to say that with respect to what I would call sort of regular way recruiting, filling in industry or geographical, to the best of our knowledge, we're pretty much done for the year. We're a little early to be developing the pipeline for next year other than the hire that has been in the media, which obviously we're not in a position to confirm at this point, which would be a very early next year start.
Got it. Great. Then just last one real quick. With respect to equity underwriting, phenomenal quarter. Great to see. You highlighted healthcare having a lot of traction, transportation, real estate, TMT. Is there kind of a next push here where you look to hire ECM bankers or just where you feel like there's a big opportunity that you expect to be doing more business there?
I think we added two new senior managing directors in ECM, for the time being, I think that's going to fill our requirements in that area. What really will drive hopefully continued growth there is a number of things. Number one-
As I said last quarter, it takes a while for the message to get out into the issuing community about our distribution capabilities, our research capabilities, and our banking capabilities. We are a relatively unique firm. We're the only independent advisory firm that has both equity and M&A, and restructuring advisory capabilities. There's definitely a spread the gospel element to this in the outside world, and that process is really in its early stages. There's also a spread the gospel element, even within Evercore, and that we have bankers and teams that have varying histories and comfort with the equities business. It quite honestly takes a while for even that to happen within the firm. Obviously, we're pleased with our quarter in the second quarter.
I will, as I always do, caution you never want to annualize one quarter's results in our business, whether it's the M&A business or the equities underwriting business. Look, as I said in my opening remarks, the things that we had hoped that the ISI transaction would accomplish for us, a significant wind at the back of our underwriting revenues, a reinforcement, and hopefully a breeze at the back of our recruiting activities, and significantly enhanced margins in our equities business. At least as of the moment, these are all coming to fruition, which is encouraging to us.
Got it. Thanks for taking all my questions.
Sure.
Our next question is from the line of Dan Paris with Goldman Sachs. Your line is open.
Morning, everyone. Thanks for taking my question. Just wanted to follow up a little bit. It looks like the ISI deal, like you mentioned, is performing very well on the ECM side, helping with recruiting and operating margins are all improving and strong. I think the one thing that caught me is we haven't seen a big pickup in the equities trading line relative to kind of the legacy ISI run rate. I wanted to get your thoughts on how much of that might be seasonal in nature, and how much might be related to cost reduction plans that might be weighing a little bit on that business. Thanks.
We really don't know the answer to that, Dan. If you look at, as you know, the major institutional investors effectively provide us with a report card every quarter on how we're doing versus all of our competitors. If you look at collectively where we stood or where ISI alone stood, or where ISI and Evercore together stood, because we were still apart in the second quarter a year ago. Literally investor by investor, our position has improved. I'm not talking going from up one position. They've generally been more than that, which is quite encouraging. At the same time, commission volumes in the cash equities business have been declining.
What we don't know the answer to is, are we in a period where there's a lag in the effectively conversion of our improved recognition by the institutional investors, and is the revenue recognition of that or them paying for it lagging a little bit, or not? We're running the business in a way that we can, as you can see, generate quite attractive margins, in a slow environment and capturing the market share that we're capturing today. Obviously, if things get better, either our market share or the overall activity in the market, that would be quite constructive for our margins. I have to say that predicting equity commission volumes is not any easier than predicting the overall level of M&A activity.
Understood. That's very helpful. Maybe just one quick follow-up. I know you mentioned that the performance targets associated with the G&H units are kind of tracking along with expectations so far. What are the markers we should be looking for to see whether share count ultimately gets kind of revised up or down? Is the right way to look at it kind of just that 12% margin that was mentioned relative to, I think, what it was 17% operating margin target over a longer period of time?
Yeah. Dan, looking at the adjusted margins, which I mentioned in my remarks, is.
Yeah
You should be tracking. Yeah, 12% is the first threshold that you look at for 2015.
I think our intention, Bob.
Share that information with you on a regular basis.
Yeah. We'll disclose that every quarter.
That's great. Thank you, guys.
Our next question comes from the line of Brennan Hawken with UBS. Your line is open.
Good morning.
Hey, Brennan.
Just a quick one on the middle market weakness. From sort of following up on Devin's question, do you think maybe that it might have to do with availability of financing? I mean, we're seeing capital markets wide open, yet regulatory pressure on leveraged loan markets, bank balance sheets under pressure. Do you think that might be having an impact on middle market velocity in the M&A market?
I think it's important, as I tried to say in regard to Devin's question, to parse this as follows. A mid-sized deal in our parlance, as it's just Evercore, might be a billion or 2 billion. Maybe for the industry as a whole, that's an upper mid-size deal. If you're talking about that definition of mid-size, I don't think it's questions on availability of financing that explain it. No, I don't. As you yourself said, financing availability today is robust. I think the larger point is, it's not that weak. This idea that the middle market is really, really weak. No, it's not. I'm looking at Tim LaLonde, who's the COO of our investment banking business. Would you say it's weak?
No.
No, it's not weak. It's just not as powerfully upward as the big cap feels. Although, again, I don't have the numbers on the tip of my tongue, but the percentage of total deal for us and anybody else that would qualify as large cap, especially somebody's observation that deals below 10 billion or deals above 10 billion are large cap. That's a very small percentage for anybody. I don't care who it is. I think it's important to set the picture correctly. The M&A market as a whole is solid. I would not say that the mid cap or let's call it upper mid cap sector is weak. It just isn't. I just want to try to reset that picture.
Okay. That's helpful. Thank you. Quickly, we're transitioning over to underwriting. I know, I believe Ralph cautioned against annualizing the quarter. As we start to think about what we should expect from the new franchise, is this reasonable? Should we be looking at a range somewhere around here? What's the right way to think about expectations going forward? Is there a right way?
Well, I think that, first of all, we've avoided making forward-looking statements like that in any of.
We are going to continue to avoid it.
I was thinking about that.
I know. I was terrified.
We provided information to you when we announced the transaction that showed that firms that were not the bulge bracket firms, it was not unusual to see, once they were fully up and running, $75 million-$100 million of underwriting activity. This is not a forward-looking statement. It's a hope, which I expressed before, that once we're up and running, we would be hopefully in that range. There's certainly no reason why, given the strength of our banking business and the quality of our research and the breadth of our relationships, that we shouldn't be able to be in the same zip code as those other firms. How long that takes is a question of how long the issues that I discussed before, how long does the market recognize?
How long does it take for clients to recognize that we have those very strong capabilities? Also, obviously, the meter of issuing activity, and both of those are a requisite for getting there. I did say earlier this year that on our last call, that our hope was that we would do $40 billion-$50 billion of underwriting activity this year. We've done $27 million in the first half of the year. I wouldn't really change that statement at this point in time.
Okay. You all referenced a desire to try to convert this positive momentum you're seeing on the votes into revenue. Does that mean that we should count on further investment into maybe trading capabilities, and such down the line for the equities business? Because revenues for equities isn't always just about research. Sometimes it's about trading, right? Does that mean we should think about maybe further investments from here?
I think we've said earlier this year that
Pretty much, this was a year of consolidation and non-comp cost reduction. Other than a strategic hire that we made earlier this year in the energy E&P area to fill in a hole that we had, I think that's the correct statement. There are some things that we're doing which are net neutral from an expense point of view, maybe investing a little bit more in electronic and a little less in high touch. Those are not things that are going to affect the expenses, either compensation or non-compensation in the business.
Okay. Last thing, just confirmation. It seemed as though you all said with the margin sort of tracking where you had initially expected, that you were not revising your outlook for the deal and corresponding performance share issuance has not changed, even though there was maybe a bit of a downtick in the pace of the amortization that Bob walked through tied to the deal. Is that correct? That there's no change in the outlook for performance share issuance and investing?
As I said, the assumptions that drive the earn-out shares are unchanged. The downtick in the GAAP expense, Brennan, is really a function of the GAAP accounting in the fourth quarter of last year. We did not take any expense. Our view was we had no basis. We did not have sufficient experience to make a probable judgment. When we had sufficient information in the first quarter, GAAP required us to record five months of expense in the first quarter, essentially catching up on that change in ability to make a probability assessment. If you take the expense that you've seen recorded in six and think about it over eight months, it's pretty smooth.
Okay. Cool. Also no change to fully diluted shares tied to the deal at all at this point too? Is that right?
There is a very modest change in terms of the fully diluted shares, that has to do with people who have exited the business.
Got it. Thanks a lot.
Our next question is from the line of Joel Jeffrey with KBW. Your line is open.
Hey, good morning, guys.
Morning, Joel.
Hi.
Just a quick question. On the comp ratio, given the recruiting that you've done this year, granted, I'm assuming there was some offset there just because ECM revenues were pretty strong as well. Should we be thinking about 57.5 as a good comp ratio for the remainder of the year?
Joel, we've been very consistent about this. When we set the comp ratio at the beginning of the year, we form an expectation as to how we think the year will progress, then we continually revise the comp ratio up or down as we get better information. Consistent with all of the prior years, we'll true it up again in the third quarter and ultimately the fourth quarter based on the evolution of both costs and revenues.
Okay. Just in terms of some of the advisory revenues you guys generated this quarter, you had a very large number of big-sized deals in the quarter. Just wondering if you give us a sense for how much fees from announcements might have impacted this quarter's revenues.
Wait a minute. What do you mean by that?
Well, it looks like if you look at the difference in the publicly disclosed pipelines, that a large number of very meaningful deals were announced during this quarter. I'm just wondering in terms of if you were paid at the time of the announcement of any of these, and what kind of impact that might have had on revenues during the quarter.
Well, I appreciate the question. It's a little bit off. It's rare to be paid anything at the time of announcement. If you are, it tends to be a very small percentage of the total compensation which you receive upon closing. The answer to your question essentially is no. That had nothing whatsoever to do with it. I do mean nothing.
Okay. Just lastly for me, there has been some talks about some change in the U.S. tax code where the earnings from multinational corporations based in the U.S., their non-U.S. earnings would no longer be taxed. Can you give a comment on how that could impact M&A either positively or negatively?
Well, I haven't heard a single word of discussion about that issue as far as it affects M&A. At least so far, any anticipation or lack of it is having absolutely no effect, at least in my experience. Most senior decision-makers don't sit around trying to calibrate whether the XYZ legislation has a 21.4 chance of happening or a 41.7 chance or that stuff. They just take conditions as they are and make decisions on that basis. I haven't heard a single word of discussion about that.
Thanks for taking my questions.
Our next question is from the line of Jim Mitchell with Buckingham Research. Your line is open.
Good morning. I appreciate the comments earlier around Europe and Asia, how it has picked up in the quarter. As we got to the end of the quarter, obviously there was some concern around Greece and a slowdown in China and the volatility in the markets. Has that had any impact on conversations in your mind as you think about the trajectory and potential recovery in the international M&A markets?
Not particularly. I think there's a widespread view, right or wrong, that Greece is not a major event as it relates to global financial market conditions or, for that matter, economic conditions outside of that country. I don't think Greece is a big factor in decision-making. China is a different story. Very different story, in many respects, the question isn't whether China's continuing to grow, it's at what rate, and even the downside cases tend to be a pretty decent rate, certainly by standards of the rest of the world. I can't say yes or no as to whether uncertainty about the growth rate for China going forward is affecting a deal here or a deal there. The international, the outlook for non-U.S. deals is better than it was a quarter ago and six months ago, even taking into account any of those factors.
Okay, that's helpful. Just maybe on the non-comp side, it was a little bit elevated this quarter, as you noted, particularly in professional fees with the new hires. If the hiring pace slows down, should we expect that to slow or to come back down going forward? I guess same with communications and technology. As you work through the integration of ISI and Evercore, should we expect sort of those to kind of tail off at the second half of this year or no?
In terms of professional fees. The recruiting cost for the senior hires has always introduced volatility or put upward pressure on that number, I think as Ralph or Roger said, there are three additional SMDs which will join us in the second half of the year. I wouldn't expect that to reverse entirely until we have them onboarded. In terms of the communication and the information costs, prime driver there is headcount increase. Roger mentioned the total headcount investment banking, which is another record. That drove a significant amount of that increase in absolute terms. There will be some opportunity to take further costs out there as we complete the integration of the equities business into our processes. A lot of that has happened already.
Okay, that's helpful. Thanks.
Our next question comes from the line of Vincent Hung with Autonomous. Your line is open.
Hey, good morning.
Morning, Vincent.
Hi. It seems like trying to gauge the backlog through your comments these days is like trying to read the Fed. In the release, you say your advisory team is extremely busy.
Thanks for the compliment.
Roger, you said the advisory backlog is good. How do I corroborate the two? In the last quarter, you said the backlog was just strong.
Well, I'll rephrase what I said because I didn't mean to differentiate it. Backlog is strong.
Okay. Thanks. Next question on underwriting. You noted that you've been on quite a lot more book run deals this half. Could you just talk about the economics of that business just in terms of running through the different economics from different deals and fee differentials, et cetera?
Yeah. I think I said last quarter that our hope and expectation was that underwriting revenues would increase over time, driven by two things. Number one, that we would be a participant in more transactions. Number two, given the dramatically increased strength in our distribution capabilities and the, I would say in some sectors, the quality of our research, that our hope would also be that our economic participation in those transactions would increase as well. Book run is an important label which reflects an increase in economic participation. The numbers in the second quarter in underwriting reflected that both of those things were happening. In terms of the actual percentage participation, it's all over the lot, from mid to high single digits to well into the double digits. There's really no consistent theme there at all.
Okay. Just lastly, I think you said you had 971 people employed in investment banking this quarter. How much of that in, or how many of those in just the advisory business?
We don't break that out.
Okay. Thanks a lot.
Our next question is from the line of Douglas Sipkin with Susquehanna. Your line is open.
Yeah, thank you, and good morning to all. First I just want to congratulate you guys. Definitely, at least from my perspective, a validating quarter for the transaction with the underwriting revenue, so very encouraged to see that. Just sticking with that a little bit. I know you guys are not looking to make forecasts or run rates or anything like that, but I guess, is it your opinion that with some of the success here in some of the pockets, it's going to probably, or I shouldn't say probably, in your opinion, make it easier to, one, motivate other sectors to really aggressively pursue Equity underwriting capabilities, and secondly, give maybe CEOs or CFOs in different sectors more confidence to go to you guys for equity underwriting, given the strength that you showed in a couple of spots this quarter.
I don't think we've seen anything that would cause us to be more optimistic or pessimistic on the pace of adoption. It's getting the word out to clients. You also have to have a capital raising need. They can think the greatest thing about Evercore ISI's equity capabilities, but if they don't need to raise equity, our revenues will be zero in that sector. I think that there's a broadening interest and knowledge among our bankers of our capabilities here. They're letting their clients know of that, and the pace of adoption will be what it will be. We're encouraged.
Okay, that's helpful. Second question. Now that it looks like, again, I'm just observing the markets, it looks like maybe energy is taking another dip down. In your guys' view, how close are we to sort of seeing traditional sort of restructurings, not just like asset sales, but more like bankruptcy type work that potentially could sort of add to the advisory revenue pool for the industry?
We don't really know the answer to that. As Ralph said in his comments, our energy revenue today is a mix of traditional M&A-like work and restructuring, we really don't have an ability to forecast that.
Okay, great. Thanks for taking my questions.
Yep, sure.
There appear to be no questions at this time. I would now like to turn the floor to Ralph Schlosstein for any closing comments.
Thank you very much for your attention, and we'll speak to you in a quarter. Thank you.
This concludes today's Evercore second quarter and first half 2015 financial results conference call. You may now disconnect.