Evercore Inc. (EVR) Q1 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Evercore Partners First Quarter 2013 Financial Results Conference Call. [Operator Instructions] This conference call is being recorded today, Wednesday, April 24, 2013. I would now like to turn the conference call over to your host, Evercore Partners' Chief Financial Officer, Bob Walsh. Please go ahead, sir.

Thank you. Good morning, and thank you for joining us today for Evercore's First Quarter 2013 Financial Results Conference Call. I'm Bob Walsh, Evercore's Chief Financial Officer. And joining me on the call today are Ralph Schlosstein, President and Chief Executive Officer; and Roger Altman, our Chairman. After our prepared remarks, we will open up the call for questions. Earlier today, we issued a press release announcing Evercore's first quarter 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, and 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, 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 their GAAP reconciliations, you should refer to the financial data contained within our press release, which 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, both on the Advisory and Investment Management sides of our business. I'll now turn the call over to Ralph.

Thanks very much, Bob, and good morning, everybody. Let me start by saying that we are very pleased with the continued momentum of our business. Our first quarter was the best first quarter in our history in terms of revenue and our fourth best quarter ever also in terms of revenue. Our Advisory business continues to perform well, as clients and Boards of Directors continue to embrace our independent investment banking advisory model. Overall, market conditions were mixed during the quarter as the volume of M&A transactions announced globally declined by more than 34% sequentially from the elevated level of the fourth quarter of last year but increased 12% in comparison with the first quarter of last year. Equity trading volume improved sequentially, while declining in comparison with the prior year's quarter. Despite these lackluster conditions, we sustained or strengthened our market position in both of these businesses. Our Advisory business maintained its strong position in M&A, ranking 10th in announced transactions in the U.S. and 11th globally for the quarter. We earned more than $58 million from Investment Banking clients outside of the United States, our second best quarter in our history by that measure, following the best quarter in the fourth quarter of 2012. Our early-stage businesses continued to gain traction during the quarter. The Institutional Equities business gained share in the U.S. equity volumes, experiencing its 10th consecutive quarter of growth. Our capital markets team completed 12 transactions in the quarter, 14 actually year-to-date, helping raise more than $6 billion of capital for clients. In Mexico, we completed a $1.7 billion follow-on offering for Fibra Uno, the successful Mexican REIT launched in 2011. And the U.S. equities team completed its first transaction as a bookrunner. Finally, our Investment Management business benefited from good performance in the rising equity markets, as our Wealth Management business increased Assets Under Management to $4.7 billion, and overall Assets Under Management for the Investment Management business increased to $12.7 billion. Let me very quickly go over the numbers. First quarter net revenues were $153.4 million, up 45% from the same period last year but down 28% from last year's record fourth quarter. Net income was $16.8 million for the quarter, with earnings per share of $0.37. These results are up dramatically from the income reported in the first quarter of last year, but the EPS is down in comparison, again, to the record fourth quarter of 2012. Operating margins were 19.6% for the quarter. Our compensation ratio was 59.7% for the quarter, in line with the past year, and was 59.2% for the trailing 12 months ending March 31 of this year, down slightly from the 12 months ending last December. Non-compensation costs were 20.7% of revenue, essentially flat in comparison to last quarter. Let me conclude my opening remarks, before I turn it over to Roger, by reminding everyone that we believe our business is best judged over periods of time longer than 1 quarter, as we know -- as we do not control the timing of transaction closings. Last quarter, which, of course, was a record, we benefited from elevated transaction activity at year-end, which inevitably accelerated some revenue that otherwise would have fallen in this quarter. This quarter, we also experienced some slippage of closings into the second quarter. Both of these effects were particularly pronounced in the U.S. Looking at our banking business over a trailing 12-month period, revenues were a record $599 million, as Advisory revenues per SMD increased in both the U.S. and Europe by 15% to in excess of $10 million per Senior Managing Director. It is this multi-quarter performance and the momentum that we believe is most indicative of the trajectory of our business. Let me now turn the call over to Roger, who will talk about our Advisory performance and the M&A environment generally.

Good morning, everyone. By, I think, most standards or all standards, Evercore had a quite solid first quarter in Investment Banking, as Ralph said, and this applies to the banking business as well as the whole firm. It was the strongest first quarter in the firm's history. It was the fourth strongest quarter overall in terms of revenue. And keep in mind that, over time -- and this is true, I think, for us and most firms like us, first quarters are not generally as strong as fourth quarters because there is a seasonality factor. So it's a solid first quarter. We had $130 million of banking revenue, $27 million of pretax income, and revenue for the year is 53% higher than the first quarter of last year, in other words, year-over-year. We had 26 fees equal to or greater than $1 million, up from 17 a year ago. With the exception of the last 3 quarters of 2012, that figure, 26, equals the best performance on that metric we've ever had. We also had, in this past quarter, 4 fees in excess of $10 million. The number of our fee-paying clients was 115. That's up from 104 a year ago. Ralph alluded to partner productivity. That's a metric we watch very closely. We measure it, as you have to, really, on a rolling 12-month basis. It was $10.2 million globally for the past 12 months; $10.8 million in the U.S. That global figure is the highest one we've realized for 4 years, so we feel quite good about that. On headcount, we ended the quarter with 63 banking partners, reflecting the 3 promotions we made at the beginning of the year. Total Investment headcount was up 4 people, to 583. Based on the recruiting activities we have going on right now, I think you'll probably see us have the same type of additional partner recruiting this year that we've had in recent years. For the quarter, the comp ratio in Banking was 59.8%. That's down from 64% a year ago. We had, as Ralph noted, a good quarter on our still emerging Equity Capital Markets business. We served as a manager on 12 equity financing transactions, which raised an aggregate of $6 billion and generated $11 million of revenue for us. That's our best quarter we've ever had, although this business is really only 2 years old. On the secondary market side, we generated just under $7 million of revenue, also our best result, but it's relatively new business. Let me say a word about our backlog. As you know, we don't disclose the amount of it or the trend in it, but you can look at publicly available information. And so if you look at Thomson Financial's totals on publicly announced transactions, you can see, by doing a little digging, that Evercore has had 5 consecutive quarters, including this past one, in which the number of such announcements on which the firm advised went up. And with the exception of a brief interruption in mid-2011, that metric has been up for every single quarter over the past 3 years. It's a very good measure of the health of one's business. A word on market share. We also look at that on a rolling 12-month basis. Ralph talked about the past quarter. I'm using rolling 12-month basis. We ranked 12th among all firms globally. We ranked third globally among independent firms, behind Lazard and Rothschild, in that order. Those are the firms to which we primarily compare ourselves. In the United States, we ranked ninth among all firms and second among independent firms. So the firm's market position continues to be quite strong. Let me close with a couple of comments on the broader M&A environment. Announced transactions around the world totaled $537 billion during the first quarter, globally now; the completed transactions, $485 billion. Those totals are both up on a year-over-year basis. Globally, in terms of announced, they're up 12%. On the U.S. side, which is the biggest market of all still in terms of announced, up 97%. And that $537 billion total, if you look at each quarter over the past 3 years, just each quarter's global total, is not far from the average figure you'd see over the past 3 years. So to me, these figures suggest a stable and fine environment. It's not white-hot, it's not cold. And we see that, that relatively healthy environment continuing for all of 2013, in particular, noting rising levels of shareholder activism, high levels of activity among financial sponsors and, of course, very good capital market conditions. I know -- I'll close on this note, I know the press likes to say -- or the press likes to get all excited. And at the beginning of the year, wow, we're back to an environment of a giant deal every week. And then you get toward the end of the quarter or the last few weeks, and people say, "Well, I guess the environment has really fallen off." Well, neither was really right. The environment is a perfectly good and stable one by historical standards, and it's certainly an environment in which Evercore should have a strong year, and we expect that. Back to Ralph.

Thanks, Roger. Let me just talk briefly about Institutional Equities and Investment Management. Our Institutional Equities business continues to add clients and to increase revenues. We now have research coverage of 294 companies and serve more than 320 clients. As Roger indicated this quarter, the business generated $11.4 million in revenues, a 61% increase in comparison to last quarter, driven principally by increased underwriting activity. Expenses in the business were $10.9 million for the quarter, so we made money. Our Equity Capital Markets is operating at a pace significantly ahead of last year. In fact, we did more business in the first quarter than we did in the entire year, last year. And we feel confident in our pipeline in this business. We are pleased that the equity business, obviously, contributed operating profits in the first quarter and expect to achieve our goal of having this business be profitable for the full year. With respect to Investment Management, operating income for Investment Management for the first quarter was $2.2 million on net revenues of $23 million. Margins were approximately 10%. Assets Under Management increased 5% to $12.7 billion. Wealth Management experienced net inflows in the quarter, while Institutional Investment Management business experienced modest outflows but significantly below those experienced in prior quarters. Each business also benefited from appreciation in the markets. Our Wealth Management business continues to perform well, increasing Assets Under Management more than 3% for the quarter to $4.7 billion. Finally, our unconsolidated affiliated managers contributed positively to the quarter, with ABS Investment Management contributing the majority of these profits. Let me now turn it over to Bob for some final comments on financials information.

Thanks, Ralph. Just a few items. As you've seen, our non-compensation costs are comparable to the prior quarter and in line with our expectations, as headcount remained essentially flat. Our tax rate also remained flat to last year. And as we've indicated in the past, changes to the effective tax rate are principally going to be driven by the level of earnings in our early-stage businesses and the level of earnings generated outside of the United States. Our share count for adjusted pro forma earnings per share increased to 45.9 million shares for the quarter, an increase of more than 2 million shares. This increase is due to the 40% increase in weighted average share price for the quarter. As you've all seen, our share price moved significantly, and the effect of this increase on our earnings per share calculation using the treasury method, the majority of the increase related to the Mizuho warrants and, to a lesser degree, on vested RSUs. Offsetting this increase, we repurchased 784,000 shares. Finally, a quick comment on our financial position. In late March, we exchanged loans that we had made to Pan Asset Management, one of the unconsolidated investment management affiliates, into common shares of the entity. And as a consequence, we consolidated its assets and liabilities in our quarter-end results, adding less than $1 million of assets and liabilities, respectively, to each. For GAAP purposes, the consolidation is treated similar to a step-up acquisition, which, among other factors, gave rise to a $1.7 million pretax loss associated with the recognition of cumulative translation losses that had been included in other comprehensive income. We excluded this loss from our adjusted results. And finally, our cash position remains strong, as we hold $171 million of cash and marketable securities. With that, let's open the call for questions.

[Operator Instructions] Our first question is from the line of Steven Chubak with Autonomous.

So recently, one of your competitors flagged frothy valuations as a key impediment to deal activity. I guess, have you heard such concerns begin to emerge in some of your discussions with senior management?

It's Roger. I'd say the answer to that is no.

Okay, that's very helpful.

I mean, if I looked it up [ph], I could talk for a while, but I'm in touch with as many companies as probably any banker on earth, and that's not true in my experience. Look, most CEOs do not look upon their own valuations as frothy and partly because that's the psychology of it and partly because they take a long-term point of view. So the answer, again, is no.

Okay. Then transitioning to the recruitment side, have recruitment pressures eased at all in your -- due to the proposed changes to the incentive compensation structure, particularly at some of the big banks?

You're asking about Europe?

Yes.

I would say -- this is Ralph. First of all, talking about recruitment generally, I would say the level of push, and we've discussed that, when people join us, that it's usually a combination of push and pull. I would say both the push and the pull of these discussions is -- has never been higher, the push being senior bankers' level of dissatisfaction in their current positions, and pull being the attractiveness of independent firms, generally, and Evercore, particularly, to those same people. Having said that, we also have to recognize that each one of these recruitments is a separate story that, in many cases, people who are looking to or at least explore changing firms have been at their current firms for a long period of time. In many cases, they're risk-averse. And so getting each individual to make the move, notwithstanding the increase in both push and pull, is an effort in each and every case. And I would also say that, at least in some cases, the cost of these people has gone up a little bit because the high level of deferral that they have experienced over the last couple years in their current positions, which means that they have, generally, a little bit more deferred compensation on the table when they explore discussions with us. But as Roger said in his opening comments, we expect this year to be no different from our previous years, and we expect to be able to hire 4 to 7, 5 to 7 new Senior Managing Directors.

That detailed commentary was very helpful. And I guess, finally, on the Institutional Equities business, you've indicated in the past that you feel as though you're appropriately sized for the opportunity. But just given some signs of improved momentum in that of late, are there additional verticals that potentially you're considering adding to that business potentially this coming year or beyond that?

Certainly not this year. This is a year about proving out the model and generating positive contribution to earnings. And after that, we'll obviously look at things, but we are -- we'll be as cautious as we have been in launching this business to maintain the momentum that we have, both on a revenue and an earnings basis.

Our next question is from the line of Alex Blostein from Goldman Sachs.

So going back to the broader discussion of M&A, I guess, every time we get on these calls, it always helps to hear you guys' perspective on the backdrop. And it feels like for the last couple of quarters, there were kind of visible signs of why M&A has been sort of on hold back despite the fact that corporate balance sheets are healthy, revenue growth is slow and margins are peaking, so all the reasons why M&A should happen and hasn't happened in a bigger way. Where we're kind of clearer now, it feels like we're through the election, through the debt ceiling issues, and a lot of tailwinds are kind of off the table. What do you guys think needs to happen for, I guess, a more robust M&A cycle to unfold?

That's a good question, and it is a good time to talk about it since we did solve the fiscal cliff, did solve the debt limit, did solve all those issues in Washington so skillfully. I would challenge your premise a little bit. As I tried to say in my own remarks, I don't think the environment is either very hot or very cold in terms of deals and deal activity. I think it's stable and it's fine. And I tried to draw attention to this observation about the Thomson Financial data and the degree to which, essentially, over the past 3 years, Evercore has advised on more announced transactions each quarter than the quarter before for essentially a 3-year period, including, of course, the last several quarters. So you can imagine with that, we feel the environment is fine. And I think -- I just think there's a lot of -- it's natural, it's psychology, it's just the way it is. But there's a lot of exaggeration on both sides. That old axiom that markets overshoot both on the downside and the upside, I think that's generally true historically. And I think it's true in terms of expectations. So at the very beginning of the year, after you had some announcements, Dell, Heinz and others, the press -- and I'm not trying to criticize them. It's just the way it is -- the press would still -- would talk about how deal mania was back. And then over the past few weeks, when there haven't been megadeal announcements to the same degree, there's a perception, wow, the deal environment is very disappointing. I would argue that neither was quite correct, and actually, the deal environment is fine. And again, the totals, as I talked about in my comments, $537 billion of announced transactions globally in the first quarter, that's a perfectly good number by standards of the last 3 years. Is it the highest? No. Is it the lowest? No, not even close. It's kind of right in the middle. So is this an environment in which Evercore, for example, should have a good 2013? And the answer to that question is yes. You're not going to hear us, I don't think -- unless the environment deteriorates further, and I don't think it will -- you're not going to hear us complain about the environment because it really isn't bad. Yes, we've seen better ones, but wow, we've seen a lot worse ones. So I just think you have to step back and put it in medium-term and, to some degree, longer-term perspective. And by the way, I think conditions right now, you did note that some of these deadlines, politically speaking, have been passed. Right now, I think conditions are really quite favorable between the obvious robust credit market environment, which is about as good as it gets, relatively high valuations, which does -- do tend to promote deals, rather than deter deals, and the sense that, at least in the United States, the business environment is slowly improving even. It may be inching forward, but it's moving up rather than sideways or down. I think there's a pretty widespread expectation that 2014, for example, will be a stronger year in the United States than 2013 or 2012 or 2011, and, of course, a lot of corporations and investors are looking forward to that. So that's my best answer.

Got it. That's very helpful. And then just one quick question for Bob on the buyback and the share counts. So clearly, the creep up in the share count and just warrants, I guess, this quarter, and maybe some of that solves itself this quarter, maybe not. But as you guys think about it longer-term, I guess, are you still committed to keeping the share count flattish on a fully diluted basis? And how do you kind of, I guess, balance that if -- with -- I guess, with the treasury method of accounting and if the stock kind of hanging in there, the warrants continue and, I guess, kind of weighing in on the share count, would you consider, I guess, offsetting that with more buybacks as well? Or the buybacks are more kind of RSU-related?

Let me -- this is Ralph. Let me first talk about the RSU issue and let Bob talk about the warrants. And over the -- if you look over the last 3 years, we have purchased, either in the open market or with net settlement with employees, more shares than we have issued RSUs in our year-end compensation. In some years, we've actually repurchased enough shares to make a significant dent in the shares that we've issued for new hires as well. And so that is the policy that we have followed for the last 3 years, and it is the policy that we intend to follow for the foreseeable future. Basically, purchases that exceed the amount of issuance for year-end comp in each and every year. So from a policy point of view, that's where we've been, and that's where we're going to be in the future. So the volatility, as you've identified, in share count really comes from 2 sources: one, the change in our share price, higher share price means, because of the warrants and other things at -- a higher share count; and second, to the extent that we use shares to expand our business and, most specifically, to hire new Senior Managing Directors and to replace shares that they are leaving behind from their former employers. Bob?

Yes. Not much more to add than what Ralph has said. I think we have navigated share repurchases fairly consistently, some have observed, opportunistically. And I think we'll just continue to do that while adhering to the commitments that Ralph summarized.

Our next question is from the line of Brennan Hawken from UBS.

So a quick question here on revenues this quarter. When we look at the revenue versus the publicly available data, this quarter seems to be tracking sort of worse than the recent history, and not just with you guys. We saw it at a boutique last week, and we saw it amongst many of the bulge bracket firms. Was there anything specific going on this quarter from your experience that caused that?

Well, let me just ask you about your question. I mean, we're just sitting here, so we can kind of be informal. I don't really agree with the premise of that question. Maybe I misunderstood it.

Well, I think what he's referring to is that if you look at the publicly available Thomson data, some of the analysts use that and put a multiple on it to estimate our revenues, and that multiple might be a little lower this quarter than it has been historically. And the answer to that really is that we -- and I kind of alluded to it in my opening remarks. If you look at, first of all, the very heightened activity in the fourth quarter of last year, which led to very high announced transactions globally in the aggregate statistics and led to a record quarter for Evercore, there was some sort of acceleration in effect of revenues that might have occurred in the fourth quarter and the first quarter into the fourth quarter of last year. And we suspect that some of that was induced by tax law change in the United States because the effect was particularly pronounced in the United States. And then in addition to that, as I said in my opening remarks, we had, as we sometimes do, some slippage in -- from the first quarter to the second quarter of transactions as well. So I think that, looking at the data, sort of the multiple of our revenues relative to what's publicly visible on any one quarter has the same challenges that looking at any aspect of our Advisory business in any one quarter has. Got it?

Well, I just have a simpler addendum. We thought by standards of first quarters, which tend, as I said, to be weaker than fourth quarters, it's just been true for a million years, it was a good quarter. And so are we expecting a strong year? We are. So that's just our take on it.

That's great. And actually, following up on that addendum, so, I mean, given sort of your commentary here so far, my guess is that your -- the pipeline, from what you guys can see, has remained pretty solid. You guys have still continued to announce and be involved in a bunch of announced deals. So the -- your continued outlook for revenue here this year is not waning at all, right?

Well, if you were in our shoes and using Thomson Financial data, the number of announced deals on which you would've advised had risen for 5 consecutive quarters and essentially every quarter over the past -- with a slight exception, over the past 3 years, would you feel good about your business?

Yes, no, no doubt. I just am looking forward to the stuff beyond what I can just see. You guys...

Well, you answered pretty good, so, yes, I think -- look, if we look at our backlogs, both on a risked and unrisked basis, they look strong. But yes, you also have to recognize that the visibility in this business, it goes out maybe 3 to 6 months, but it doesn't go out 12 months or 24 months. So I think from what we see right now, we're -- we feel pretty good about the market, generally, and we feel even better about Evercore's capacity to take share within that market.

Cool, that's helpful. And Roger, I can -- we've put a note out with some of those public data, so you can take a look. It wasn't -- we're just trying to point to the data. That was all. And then...

No, it's a good -- it's a very good question, and I don't mean to challenge the question. Periodically, my colleagues refer to me as having acid reactions to certain questions we get, but yours was not one of them.

I can relate.

But those are normally to internal people.

Last one for me. On institutional equities, I know it's a small piece of the business and I certainly don't want to dig in on something that's a small impact to the bottom line. But I think it was on the fourth quarter on the expense side that you guys indicated that you had some investments that caused the expenses to be higher. But yet this quarter, expenses, I think, took even a step-up from that. I know revenues were better, but how should we think about profit margins in that business? Were there any unusual items in the expense line item? How do we think about profitability as you guys continue to grow there in the near term?

I think the way you should look at it is that there is some uptick in expense that is tied to revenue, most importantly, in the compensation line that, just like in any one of our businesses, occurs in -- as revenues go up a fair amount, there's some drag up in compensation as well. But as we get to this level of expense and above, you should expect to see some improvement in margins. And quite honestly, if revenues fell back a little bit, you would also expect to see expenses fall back a little bit as well. I mean, we alluded to it in our comments, but we did have a particularly strong quarter in terms of equity underwriting revenues, ECM revenues. And I certainly would not want to predict that, that will be annualized for the-- through the full year.

Brennan, as you began, we are looking for this business. It is in the black. We're looking for it to stay in the black as it moves through the year. But it's not going to move the bottom line.

Our next question is from the line of Hugh Miller from Sidoti. Hugh M. Miller - Sidoti & Company, LLC: I just, I guess, had a question within the Asset Management segment, which hasn't kind of been touched on as much. I mean, it seems like from the industry, we did see kind of a shift in sentiment towards money coming back into equities. And while you guys did see net inflows with the market appreciation, it seems like you're still seeing some challenges there on the redemption side. I was wondering if you could just talk about how conversations are going, just given that change in the dynamics versus relative performance. And whether or not if the sentiment continues, we continue to see assets coming in equities, do you anticipate that we will start to see that being a benefit for you as well?

Okay. First of all, the principal place where we might experience that is in the Institutional Investment Management business and, most specifically, in the interest that we have in Atalanta Sosnoff. And as we have discussed in the past, they have had an overhang of weak returns, which goes back to 2011. Actually, 2012 was a good year. 2000 -- and the first quarter '13 year-to-date was also good. But the reality of the money management business is that both outflows and inflows tend to lag performance, and you need a sustained period of time before you -- an individual firm might be a beneficiary of a shift from fixed income or cash to equities, which is occurring more broadly in the market. In our Wealth Management business, those tend to be, more often than not, balanced accounts or asset allocated accounts. So they have some material amount of equities but aren't 100% equities. And there, it's really driven not by an allocation away from one to another but just by client acquisition. Hugh M. Miller - Sidoti & Company, LLC: Sure. Yes, I'm sorry. The question, certainly, was focused on the Institutional Equities portion of the business with Atalanta Sosnoff. And I understand that they're probably needing to get up to the 3- and the 5-year metrics in order to kind of get some benefits on the flow side. But -- So it's just kind of running the course for you guys and continuing to just wait until the relative performance improves.

That's correct. And the good news is that the outflows, which, once again, are a residue of the underperformance in the second half of 2010 and 2011, have slowed materially relative to what they've been in prior quarters. Hugh M. Miller - Sidoti & Company, LLC: Okay. And the other question I had was, you had kind of talked about the disparity between kind of some of the headlines for M&A announcements versus the reality and how those dynamics had kind of shifted over the last several months versus reality being somewhat stable. Have you noticed any change in kind of CEO confidence levels? And are they kind of, would you say, tracking more the reality of being somewhat stable? Or are you seeing kind of them following the headlines and -- with the discussions you're having?

I would say that this is the type of thing that you can't measure or really appropriately look at on a quarter-by-quarter basis. So let's step back. Are CEO confidence levels, as far as M&A is concerned, up, relative to 2 years ago, the same or down? And the answer is they're definitely up. And I think slowly, but nevertheless, definitely, they also are moving up. There's a tremendous focus, I might say, on megadeals, and people tend to think that this is a spate of megadeal announcements, while M&A is taking off like a rocket. And if there aren't megadeal announcements, wow, it's falling down. Keep in mind that if you look at any given year, or any given 3-year, 5-year period, the actual number of megadeals is always relatively small and for any firm, Evercore, Goldman Sachs, whatever your example is, the day-in day-out bread and butter are what you would call mid-cap and upper mid-cap transactions. So I would suggest -- I always try to get people to focus on the number of deals to a greater degree than the amount of announced deals because the amounts can be inflated or deflated by 1 or 2 great big deals. I always hope we're the ones in those deals, but 1 or 2 great big deals. Whereas the number of deals is probably a better long-term indicator. And so if you look at the number of deals, I think the trend is pretty healthy.

Our next question is from the line of Joel Jeffrey from KBW. Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division: Just thinking about your comments about the strength of your international business. Can you talk a little bit about which markets you're seeing the strength in and if you see this continuing throughout the year?

Well, we -- notwithstanding the general pall over the market in Europe, we actually had a good quarter in Europe. It was pretty much across the board. We had a good quarter in Mexico, obviously, and we had normal quarters in Hong Kong, Asia and in the business in Brazil. So when you add it all up, it adds up to the second highest activity that we've had in any quarter for non-U.S. clients. Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division: And is this something you think is a trend that's going to continue for the remainder of the year [ph]?

Look, I think -- once again, I think judging any business like this in -- on a 1 quarter basis is an error. And I think one of the things that we're seeing now in Evercore, which is a very good thing for us and for our shareholders, is the benefits of diversification. We're considerably more diversified by industry than we were 3 or 4 years ago. So if an industry that we happened to have a particularly strong knowledge base in happens to be slow, that has less impact on our revenues and profitability than it would have 3 or 4 years ago. And similarly, we are somewhat more diversified geographically than we were historically. So both of those things tend to mute, hopefully, the quarter-by-quarter volatility in our revenues and earnings. Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And then on the Investment Management side, the gains you guys had during the quarter were a little bit higher than what we were looking for, and just trying to think about what was driving that. And again, maybe is this a sort of higher run rate we should think going forward, or are these more onetime issues?

I think they are more onetime issues, Joel. Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division: And what was driving them, sorry?

We had increases in our private equity marks. As we are required to do, they tended to be more favorable this time. And in a business in Mexico, the activity spiked a bit in the quarter, but there's no indication that, that's going to repeat itself. Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, great. And then -- and just lastly for me, and possibly risking getting an acidic answer from Roger on this. In terms of the overall health of the market, I understand that, certainly, deal volumes have held up a little bit better, but we continue to see a pretty big decline in the number of deal announcements. I know your guys' pipeline is certainly holding up nicely. But is there a point at which that becomes a concern for you guys?

Well, by the way, I try to refrain from any acidic responses on earnings calls and just save them for the internal dynamics, where it's much more fun. But I'm looking at a chart right here in front of me on measuring announced deals and completed deals, U.S. and global, 2013 versus 2012. And I have to fall back on my earlier comment that I think the market is -- again, looking at it on a 2-year, 4-year basis, whatever medium-term time frame you like, the market is stable. I mean, in other words, the numbers we're seeing right -- again, I'm challenging your premise a little bit -- are not signifying a weak market by historical terms. Are they weaker than the fourth quarter of last year? Yes. Are fourth quarters, in general, the strongest quarters? Yes. So are these numbers today -- I have another chart in my hand that takes all the stuff back to 2008. I'm looking at it right now. Are these numbers, if you look at the past 5 years, signaling a weak market? No. Are they signaling a white-hot market? No, they're not doing that either. That's just our take on it.

The next question is from the line of David Trone from JMP Securities.

I just wanted a qualification real quick, my apologies. You mentioned 4 to 7 SMD adds this year?

Yes.

Was that just banking, or was that Evercore-wide?

That would be in the Advisory business.

Okay. And are you -- got any thoughts on the other units?

If you look at the -- I think we've said that we don't expect, really, any headcount growth in our Institutional Equities business. We don't expect any headcount growth in our Private Funds business. And so, I mean, I think you would expect the headcount growth, to the extent that it occurs, would be in our Advisory business.

And you mentioned earlier the deferred issue, the pickups. In a base case -- I know they're all probably a little different, but in a typical case, are you picking up 100%?

Well, we're in the midst of those discussions right now. Historically, that has been the case, and historically -- and this is a very rough rule of thumb, but historically, people's deferral tended to be in the same zip code as their annual comps. It just works out that way. With some of the firms that have done virtually all deferral for the last 2 years, that ratio starts to creep up a little bit. And we're having discussions with people about the degree to which, if at all, we can share that risk.

The next question is from the line of Michael Wong from Morningstar.

So what amount of scale do you think you need in your Asset Management business? And are you still generally keeping away from Institutional Investment Management acquisitions?

Yes, I would say right now, as we've said in the past, our capital is being deployed to grow the Advisory business and to repurchase our stock and to pay dividends. So we don't have any plans under way at the moment to expand our Asset Management business. And then with respect to the leverage in each of those businesses, each of them operates independently. We tend to own a piece of them rather than 100% of them. So there isn't the operating synergy that you would have if they were all one business. But each of them has some amount of operating leverage in their own business.

Okay. And just talking about operating leverage. I was wondering if you can go a little more detail into that potential increase in expenses related to Institutional Equities and maybe a split between expenses related to the higher revenue and maybe a drop-off of compensation from last quarter due to expensing of your REIT team that was hired mid-year?

The increase is entirely driven by the growth in revenues.

Okay. And just a quick last question. Is there any particular reason for the high number of capital raises in the quarter that you participated on?

I would say...

Yes, we're doing a good job.

It's some increased activity, generally, and some increase in our market share. It's both.

There appears to be no questions at this time. I would now like to turn the floor to Ralph Schlosstein for any closing comments.

Nothing to say. I think I'll turn it over to Roger. He'll be much more pithy.

Well, it's the old story. Lyndon Johnson used to say, "I hope you have some questions for my answers." So thank you very much for serving up the questions fitting our answers. Have a good day, everybody.

All right, take care, everyone.

This concludes today's Evercore Partners' First Quarter 2013 Financial Results Conference Call. You may now disconnect.