Evercore Inc. ($EVR)

All right. We are pleased to have with us John Weinberg, Chairman and CEO of Evercore. John, thanks so much for joining us.

Thanks for having me.

So let's start out by getting a view on the current environment. Deal activity seems to be picking up momentum. How have client discussions changed this year versus last year?

Well, this year started very much like last year where we really had a lot of enthusiasm. And just like last year, there was a little bit of a hiccup in the second or third month. We are now in an environment where there's very, very high activity. And from my standpoint, I think our firm is finding that we are at virtually -- close to record levels in terms of backlog. Activity is extremely high in the boardrooms and really all the discussions that we're having. And in addition, replenishment rate is very healthy. And we're just feeling a lot of momentum really across most of our businesses.

So before we dive deeper into the market and the businesses, a lot of momentum, your recent results were very strong. You've had your best quarter ever in the first quarter, $1.4 billion of revenue. And on the first quarter earnings call, you mentioned that you expect the second quarter revenues to be closer than what you experienced in the year-ago period. So how have near-term trends evolved since the earnings call about 6 weeks ago?

Well, as we said, we were comparing this second quarter to last year's second quarter, and we said that it was going to be pretty close, albeit that last year's second quarter was a record quarter. We are seeing a real pickup in our revenues and also our activity levels. So I'd say that we are seeing just a strengthening of the market in terms of our businesses.

Meaning better than expected?

Yes.

Better than expected. All right, clear. And on the M&A trends, which sectors are using the highest activity level?

Virtually, there are many sectors that are actually seeing a lot of activity, whether it's health care, industrial, energy and power, infrastructure. Really there are many, many different areas that are really seeing strength across the board, even in technology. Not all areas of technology. Software has had a little bit of a pause, although it's seeming to see activity starting to come back into it. But really across the board, we're seeing real activity and a lot of optimism. .

And there is a narrative in the market right now that there's more of an appetite for the large deals rather than smaller deals. And that has been the case over the last 12 months or so. But you operate across the continuum at Evercore. Do you agree with the statement that large deals are where the momentum is?

Definitely. There's a lot of momentum in large deals. In terms of boardrooms and management teams, there is a tremendous amount of dialogue with respect to what are the deals that people are really trying to think about. There's an optimism that deals can get done. There's a view that there is market receptivity for larger deals. And so there is a real strength in the large deal part of the market. We are seeing some steering of activity in the middle market. We definitely think that's happening. Sponsors are still going slower than we would have expected. It's up, but it's not up as materially as we would have thought it might have been or hoped it would be.

And what about AI? It seems like the pipeline is across sectors. So to what extent is the pipeline driven by AI?

Well, AI has really driven quite a bit of opportunity because there is really some dislocation both positive and negative from people's perception of what AI is going to do, it really has -- it has yielded real strategic the dialogue and activity. And so there's a lot of opportunities, both deals where companies are trying to gain in scale or trying to expand their reach, as well as companies that are looking at other adjacencies that could be involving AI. In addition, companies are looking at vulnerability to AI. So it's really yielded quite a bit of activity and dialogue. And I think that that will continue.

That's across sectors, when you think about AI, or more in the tech sector?

It's really across sectors. I mean I think it's in tech generally, but it is also across sectors. There's virtually no business that isn't looking at the impact of AI on their business. And in some cases, that really leads them to think about doing things a little bit different strategically. I think there's just no question that the AI impetus has really driven strategies and really driven boards to think more expansively and management teams to really be thinking about what they can be doing really around the opportunities and maybe challenges of AI.

And what about the midterm? How are clients thinking about the midterm? And are they even relevant to the M&A discussions?

I don't think midterms are really entering into the dialogue. I think for the most part, companies are really looking through the midterms and they're just continuing to go. I think that there is really a focus on the market and the strength of the market and the optimism of the market that is really driving the activity. .

And what about 2028 presidential election? Is that coming up at all? Is there a perception of a window that's open now for the antitrust transparency perspective?

I don't think anybody in corporate is really thinking about that right now. It's a little bit too early to be focusing on it right now. I think companies, management teams, boards, they're all thinking about the level of activity, the optimism of the market, the resilience of the market, the fact that there is a lot of factors in play with respect to financeability and shareholders' acceptance of scale and scaling and really allowing companies to really think about things more aggressively than they have in the past. .

Let's shift to sponsors. So you mentioned earlier that maybe the sponsor side was a little bit less than what would have been expected across the industry. To what extent are you seeing the reemergence of sponsor activity? And what does it really take to get that full breadth of sponsor activity going again, acknowledging that private equity holding periods have been extended?

I think to a large extent, sponsors are really right now thinking about what is the impact of AI, both in terms of their portfolios and also those sponsors who hold software companies, what's the impact on value. And I think there's a little bit of a pause in the sponsor world looking at really what are those impacts. I think that for the most part, large sponsor deals are still going to get done. The highest-quality companies are actually coming out and getting done and getting done quite well. There is a real thought process going on with respect to those companies that are not quite at the A+ level or the larger deals where people are looking at them and saying, what is the impact going to be? And how does that really impact valuation, whether it's to impair valuation or whether those deals can get done? Inside Evercore, we have a series of deals out there, both software and non-software, that are in the market right now. And it will be really interesting to see how those come about and how they fare in terms of the market and how the values come out. I think that for the most part, we're watching carefully. We're getting business, we're -- our pitch rate is up, our win rate is up. So we're seeing really good activity. I think we're going to really see how those deals fare in the market.

Would you say that growth in Private Capital Advisory solutions is, to some extent, structurally delaying sponsor [ add growth ]?

I don't think so. I think that private capital advisory businesses right now are a really viable opportunity for sponsors to think about how to monetize or certainly how to drive activity in their portfolios. The continuation vehicle is a very legitimate opportunity and option for private equity. And it really takes its place along IPOs and sales and other monetizations that really will allow sponsors to manage their portfolios. I don't think it's really impairing the activity level coming out of portfolios. I think actually it's helping it and accelerating it and giving the sponsors more to consider. And I think that you'll consider -- you'll continue to see the presence of these continuation vehicles as well as other private capital alternatives really coming out of the portfolios.

So as investors think about the eventual return of sponsor activity, how is Evercore positioned to take advantage of that?

Well, we've really built our sponsor coverage effort. And we've also done a lot to bring together some of our businesses that were at one point quite independent, whether it's Private Capital Advisory, whether it's our PFG group, which is the fundraising group, whether it's our GP stakes group and also our general M&A group, we are covering sponsors very differently than we have in the past. It's a much more comprehensive approach. We're really seeing synergies in terms of how we cover those possibilities. Each of the sponsors has a much different relationship with Evercore now that we've brought it all together. And I think we're more important to sponsors. And we're -- I think our dialogues because of that are higher quality and we have a much better insight into what the sponsors are thinking and really, on an asset-by-asset basis, we have an understanding as to how they're positioning those and how to thinking about them. .

Evercore has leaned into private capital advisory, you are a major leader there. How sustainable is the growth in private capital advisory? And how do you protect the moats that you've built?

Well, I think we have a very high-quality business in Private Capital Advisory. It's built on experience. It's built on really high-quality professionals who really know how to do this business. It's built on data. We're collecting a lot of data, and we're using that data in terms of thinking about things. And it's also reputation, the fact that over time we've done a very good job for a lot of clients. And those relationships matter. And so I think that we have a very strong, defensible and growing business I think that the market shares are quite strong, and it's certainly hard to hold on to market shares. But we've really been able to do that over the last number of years. And so I really anticipate that that business will maintain its strength. And we continue to invest in it. We're investing pretty much every year in making sure that we're positioned at the very top of the business in terms of technology and people and really access.

And it's a growing pie that you're maintaining share in.

It is a growing pie. And I think that we're going to continue to try and maintain that share as the pie does grow. .

Great. Let's shift gears to liability management and restructuring. So what's your view on how long current elevated levels of liability management and restructuring can last?

Well, I think the liability management and restructuring business has actually changed a lot over the last number of years. When I first started, it was really just more restructurings. We were just looking at trying to restructure businesses that were really in trouble. Because the -- there's been so much more of a need to really give advice on capital structures and liability management for all kinds of companies, it's really grown in terms of the reach that business has. Our business is very strong. It's -- last year was, I think, our second strongest year ever. And we are running at a very good rate right now, feeling very good about that business. Backlogs are very strong there. And I think the activity level is very high. And we are dealing in a much, much broader [ sense ] with companies, whether it's dealing with companies that really are looking at trying to extend and amend or whether it's sponsor portfolio companies that really want some help in kind of bulletproofing their balance sheet. We're doing a lot of business with sponsors at this point. And so I think that the reach of that business, the extent of our opportunity to touch different companies and different sponsors has grown. And so that business is quite healthy. And I think that the applicability of that business or the opportunity for that business to impact clients has actually expanded.

And a lot of investors are thinking through perceived headwinds in the software space, business services space. Is that likely to drive up activity on the liability management restructuring side?

There is no question that there is a lot of activity on restructuring and liability management on software companies. Those are very strong dialogues. And I think it will drive up their activity level in that sector. I think that those dialogues are right now very much a work in process, meaning that we don't know how those will go. Frankly, we're not we're not negative on exactly how software is going to go. Because in many respects, some software companies have been really kind of valued down that may not end up being valued down as people start to really interpret how those businesses will interact with AI and really the durability of those businesses. But for the most part, we have a lot of dialogues going on with software companies in that space. And I think those dialogues are quite healthy, and that will drive activity.

So putting it together, it seems like there's tailwinds potentially in both the liability management and restructuring side and on the M&A side?

Yes. Yes.

And is that atypical or, well, unusual to the cycle?

It used to be. But over the last 4 or 5 years, it hasn't been. They used to work in opposite directions. It used to be that when mergers was doing well, there wasn't really much need for liability management or restructuring. And when mergers was not doing well, there was a lot more of it. Right now, we've seen both businesses doing well. And it's been that way for the last 2 or 3 years. And so from my perspective, I think that it's not a definite that those businesses will actually act in opposite directions anymore. Certainly, it's possible. There will be -- I'm sure there will be a period when that does happen. But I don't think it's inevitable that they will act in opposite ways.

All right. Let's shift to equity capital markets. So what's the white space left in Evercore's equity capital markets business. You've been gaining share. What's left?

Well, we are doing a lot more in equity capital markets. And we've added products, whether it's converts or whether it's derivatives trading. What we're trying to do is to really extend our ability to serve clients in other -- in all sectors with respect to equity. I mean it's a very important product. It's a real opportunity for us to build, and we're seeing that activity. Over the last year, the biotech business has really picked up, and we've shared in that pickup on the ECM. But we've also done lots of energy. We are doing industrial. And so there is a real activity level. We think that there is a real opportunity to keep growing in that business, and we're continuing to invest in ECM. The more we do, the better we get. And the more we are able to really do more business, it kind of feeds on itself. And so we're seeing a really strong -- very good strength in that business, and we see a pickup. And recently, we've seen a real pickup in the business in terms of our connectivity with clients and also the opportunities we're being given to actually help them.

So it seems like opportunities in both sector and product.

Yes. .

And you're seeing a pickup I think the entire market is seeing a pickup in IPOs. How do you expect the market to continue to open or maybe broaden out as some of the large IPOs come to market?

Well, I think what we're seeing is that there's a lot of receptivity for some of these big IPOs, and it can't hurt the market, although there is a lot of capital being pulled out of the market with some of these huge IPOs. I think there's, I'd say, a sense that there is opportunity in IPOs. And I think that whereas a year ago people weren't nearly as optimistic about IPOs and how they might be able to play out, I think now there's a much higher level of positivity with respect to IPOs. And so I think what we're seeing is there's a much expanded view by issuers that it's a very legitimate thing to be looking at very intensively right now. And we're seeing that market actually strengthen in terms of activity levels.

Strengthen meaning broadening out?

Broadening out and beyond the big ones. So we're -- obviously, there are some very big deals that are coming down the pike, and everybody is watching those. But beyond that, I think there is a positivity in the second-level IPOs that aren't the really big ones that I think people are saying they're quite positive, and there's a constructive approach to those.

On the equity sales and trading and research side, what do you see as the biggest avenues for growth for Evercore?

Well, we continue to focus on how we can serve the buy-side clients. And the better we do there, the more opportunity we have. It's a relationship-driven business. And we have a very high level group of research professionals who are driving one of the -- really the very best research business on the Street. And I think that what we're seeing is that there's a continuing relationship that is driving both our ability to help people think about their business as well as them wanting us to do more for them. So we have the capability to help. Those dialogues are getting stronger as we move forward. And that really does drive revenues. And so we're seeing good strength in that business.

So we talked about growth opportunities across the business lines, which brings us to hiring and expenses and how you're funding the growth. So Evercore continues to attract a lot of talent, MD head count is up around 60% from 2021 levels. So how much more capacity is there ahead to keep growing?

Well, I don't really know how much more we can do. All I know is that we don't see any limit at this point. We feel really good about the opportunities ahead of us. We think there's a lot of white space for us to build. We don't think that we are going to run out of room. We are seeing really high-quality talent. Talent is very -- the talent market is very competitive. But we've been really competing well, and we feel really good about what we're able to add in terms of talent. And I think what we're really seeing is that the -- our opportunities grow with our reputation and the momentum of the brand, and we're continuing to see that. So I really don't see a limit to it at this point. I really think that we continue to see really good strength.

And you mentioned competition for talent. So given that the market seems to be at a cyclical upswing in terms of deal activity, has there been a noticeable increase in competition for new hires?

I think it's always been quite competitive. I think maybe it's more competitive now just because I think every -- all of the firms really who are in our business are looking at the fact that there's a real possibility that there could be a pickup, and people are starting to really try and make sure that they're positioned for that. But I do think it's always been -- for the top talent, there's always been really competitive. And we continue to engage. Our pipeline is very good right now. We've done at 8 new hires this year so far, in addition to the number of hires we did at the end of last year that are starting to come online. So we're seeing real success in this. And I think we spend a lot of time on it. And it's, I think, something that we take pride in doing well, that we identify really strong A+ talent. And we work hard to make sure that we're a good place for people to go.

So then outside of hiring, you've also shown a willingness to grow through doing some M&A yourselves, recently with the Robey Warshaw deal. How is integration of that deal going? And should investors expect more M&A ahead in the near to medium term?

The Robey Warshaw deal is going really well. I think integration has gone even better than I would have hoped. I think that there's been an embrace by both the Robey Warshaw people coming in and our people to really look at the strengths and how we work together. I think it's working together -- people are working together extremely well. It's seamless. I've been on many calls recently where we have Robey Warshaw and old Evercore together as a team. It's really one team at this point. I don't think anybody really thinks about it as 2 teams anymore. And people are working really well. They are collaborating. They're joining and thinking about the strength. The relative strengths of different relationships are being brought together. And I think that it's actually been quite impressive in terms of how the organizations have come together. In terms of additional M&A, we never -- I never say never. We'll look at anything. But we're not really looking to do anything like that in the near term. I think what we're really trying to do is run our business well, stay focused on really what our strategy is, growing and really continuing to recruit top talent, and making sure that we're very focused on where we -- what we think we can do well, and to do it well.

All right. So compensation ratio, question we have to ask. Any update on the comp ratio trajectory for the rest of the year or maybe further out?

As you know, we came in lower than our -- than where we went out on last year. We -- in terms of what we are thinking now, we set the pace for the first quarter. We are working as we always are to bring that down, and we're going to do our very best to keep that coming down. So I'm not going to give any indication as that really -- what that order of that would look like, but we're going to work hard to try and keep it in a downward scenario.

And the word that Evercore has used before was gradual downward. Is that still the word we should be thinking about?

Yes. I think that's safe.

Yes. All right. Great. Clear. So AI is driving a debate in the market on how it will impact the investment banking model, the workforce. Do you see significant opportunity for Evercore to structurally operate more efficiently? Or do you expect expense savings with AI to be reinvested or maybe competed away?

Well, for us specifically, we're looking upon AI as an opportunity to serve clients better. And we're spending a lot of time and effort on making sure that our capability of using AI to serve clients is a high priority. So we're doing a lot of that. And I think we're feeling good about the momentum we have in that. We're obviously working really hard to make sure that people throughout Evercore are really becoming literate in terms of how AI can be used appropriately for clients. In terms of how we run our firm, we are absolutely looking at AI. It's still too early to tell how that's going to be. The way we think about people right now is that we're not really thinking that we're going to be reducing people because of AI. What we're hoping is that we're going to be able to cover more clients and cover more ground with clients as we integrate AI. And the people of Evercore, if we do have AI, they're going to be more productive. So maybe we'll hire at a slower rate, but we're not looking to shrink.

And hire at a slower rate more at the non-MD level?

It would -- yes, I would say that's right. But we're really not looking at shrinking the firm at all. I mean what we're looking at is we're looking at growing the firm and how do we grow responsibly. .

All right. Let's turn to buybacks. So you've had a record quarter buyback in the first quarter. You increased the dividend. You did the Robey Warshaw transaction last year. So how are you thinking about the different capital allocation priorities?

Well, we're unchanged in terms of what our goal is, which is all capital that we don't need to really run the business and stabilize the business, we will return to shareholders. And our strategy is always to return capital to shareholders. So that will continue. And we always repurchase the equity that we put out for compensation, and we have no plan to change that. We also look at opportunities when the stock price shows an opportunity for us to invest that we will look at that. So I think it's really more of the same. And what we're going to try and do is continue to be opportunistic about how we repurchase equity and also to be predictable in how we're going to be returning capital.

So before we wrap up, what do you view as the most differentiated about Evercore's strategy?

Well, I don't know if it's really differentiated, but I can -- I mean our strategy is we invest in client relationships, we invest in the highest quality people. We think a great deal about our culture. And we are working really hard to drive a brand where we are highly respected and valued by clients. And I think we really stay to that. We stay very disciplined. And we're working really hard to make sure that when you see Evercore, clients know what to expect. And there's been a lot of momentum built. Our total revenues globally have grown, and we're in really the top group in terms of global revenues. And we expect that will continue, and we expect to continue to really invest in the business. So it's really, as much as anything, we have a strategy which we really clearly articulate, and we try to stay -- stick to it.

Great. So a lot of growth opportunities ahead for Evercore. Anything else you wanted to get across before we wrap up?

No. I think we are actually very optimistic about where we stand and where the market is and where our firm is right now. And we're excited to continue to cover our clients and to deliver for clients.

Great. John, thank you so much for joining us.

Thank you.