Evercore Inc
NYSE:EVR
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Evercore Inc
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Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Evercore First Quarter 2020 Financial Results Conference Call. During today's presentation, all parties will be in listen-only. Following the presentation, the conference call will be open for questions. [Operator Instructions] This conference call is being recorded today Wednesday, April 22nd, 2020.
I would now like to turn the conference call over to your host Evercore's Head of Investor Relations, Hallie Miller. Please go ahead ma'am.
Thank you, Sidney. Good morning and thank you for joining us today for Evercore's first quarter 2020 financial results conference call. I'm Hallie Miller, Evercore's Head of Investor Relations.
Joining me today on the call today are Ralph Schlosstein, our President and CEO; John Weinberg, our Executive Chairman; and Bob Walsh our CFO. After our prepared remarks, we will open up the call for questions.
Earlier today, we issued a press release announcing Evercore's first quarter 2020 financial results. The company's discussion of our results today is complementary to the press release which is available on the website at evercore.com. This conference call is being webcast live in the For Investors section of our website and an archive of it will be available for 30 days, beginning approximately one hour after the conclusion of this call.
I want to point out that during the course of this conference call we may make a number of forward-looking statements including with respect to COVID-19. As discussed in our earnings release this morning filed on Form 8-K, the worldwide COVID-19 pandemic has negatively affected our business and is expected to continue to negatively and significantly affect our business.
At this time, it is uncertain how long our business will be negatively affected by COVID-19 and the associated economic and market downturn. Any forward-looking statements that we make including those about COVID-19 and its effect on our business 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 SEC 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 financial measures, which are non-GAAP measures that we believe are meaningful when evaluating the company's performance. For detailed disclosures on these measures and the GAAP reconciliations, you should refer to the financial data contained within our press release which is posted on our website.
We continue to believe that it is important to evaluate Evercore's performance on an annual basis. As we've noted previously, our results for any particular quarter are influenced by the timing of transaction closings.
I'll now turn the call over to Ralph.
(Audit Start)Thank you very much Hallie. Good morning to everyone. It is certainly a very different world today compared to our last earnings call in January. The vast majority of our firm is working remotely, and we are conducting our earnings call from widely varied locations.
I'll comment on our first quarter results in a few minutes. But first I want to talk about our firm and how we have approached the COVID-19 pandemic from both an operational and a business standpoint.
Our global team has performed extraordinarily well in very challenging conditions and adapted quickly to our remote working arrangements. Despite working from more than 1,800 offices globally, we are effectively communicating with our clients and each other. Roger, John, and I could not be more proud of our entire team.
As we settle into our current work arrangements and acclimate to the current environment, John, Roger, and I, and the rest of the management team are focused on four very important priorities; first, assuring the health and safety of our team and their families; second, pivoting our services to address the evolving needs of our corporate institutional investor and wealth management clients; third, operating collaboratively, effectively, and securely leveraging the technology in both new and old ways; and fourth, maintaining a strong and liquid balance sheet.
The economic issue that the United States and much of the world faces today is the rapid and unprecedented increase in unemployment and the equally rapid decline in economic activity. The statistics related to unemployment are truly sobering.
22 million Americans alone have lost their lives -- their jobs, excuse me, in the last four weeks, and millions more around the world have been similarly affected. All of us at Evercore feel deeply for those who are out of work because of this pandemic. Their hardship pains us.
The sharp increase in unemployment undoubtedly presages a substantial decline in global GDP, probably starting in the first quarter and most certainly a deep decline in the second quarter, and potentially in the third quarter as well.
We have seen governments and central banks respond in an aggressive and unprecedented way with monetary and fiscal stimulus to mitigate and ultimately reverse the economic decline, and we are confident that over time economies around the world will recover, but it will take time and the recovery almost certainly will not be as sharp as the decline. As a consequence, we expect that our business will be negatively affected in the coming quarters.
In our advisory business, M&A is our largest revenue contributor, and we expect that business to be negatively affected for some period of time. As John will describe in his remarks, the conditions typically required for strong M&A activity currently are not present.
Additionally, equity underwriting has virtually disappeared since mid-February, though we anticipate a strong return once markets stabilize, similar to what we saw in the second and third and fourth quarters of 2009, following the depths of the global financial crisis. So, these are the negatives.
On the other hand, the current environment has created opportunities for us as we have rapidly redirected our advisory efforts to adjust to the evolving needs of our clients. The investments that we have made in our platform over the last several years both to broaden and diversify our capabilities and to expand our coverage of key sectors and geographies, have significantly expanded the scope of our expertise and are allowing us to continue to provide independent and trusted advice to our clients on the topics that are most relevant to them today.
Our restructuring debt and equity capital markets advisory businesses are going flat out. Additionally, the volatility and increased trading volume of the equity markets has driven a strong increase in secondary revenues in our Equities business.
These businesses are smaller than our M&A advisory business, and it will take time before the increase in revenue related to restructuring and debt and equity capital markets advisory activities are recognized. As a consequence, the increase in activity in these areas will not come quickly enough or be of sufficient scale to offset the expected near-term weakness in M&A.
Normally at this point, I'd comment on our backlog. It's way too early in this dislocation to know the overall effect on our backlogs as they are in transition. Restructuring and debt advisory is building rapidly while M&A transactions are currently being delayed, postponed, or put on hold as buyers and sellers assess the duration and severity of the downturn.
The dialogue around M&A, however, certainly has not halted as the dialogue with financial sponsors is increasing and well-capitalized and liquid companies are opportunistically exploring either long-sought-after assets or new ideas.
While we cannot be sure of the duration and severity of the downturn, I believe that as a relatively young and highly entrepreneurial firm, we are ready for the challenges presented by the current environment and that we have already responded effectively. If we continue to work collaboratively and adapt to the changing needs of our clients and communities, we will emerge from this period well positioned for future long-term growth and market share gains.
Let me now talk about our financial performance in the first quarter. We reported the second-best first quarter revenues in our history, indicative of the revenue-generating power of our franchise and our business model in more normal times.
Adjusted net revenues of $435 million increased 4% versus the first quarter of 2019. In aggregate our total revenues of $436 million from our Investment Banking businesses: advisory, underwriting, and commissions increased by 10% versus the first quarter of last year.
Advisory fees of $359 million, our largest revenue source, increased 10% compared to first quarter 2019 and held up very well compared to our larger competitors, almost all of whom experienced double-digit declines between 10% and 20% in their advisory revenues. As a general matter, previously announced transactions closed as expected in the quarter.
These results are especially impressive considering the fact that the dollar value of announced M&A transactions globally declined 24% in the first quarter, and the dollar value of closed M&A transactions fell by 37% compared to the quarter a year earlier. (Audit End)
Due to the strength of our Advisory revenues compared to the declines experienced by our larger competitors, we expect to increase again our market share of advisory fees among all publicly reporting firms on a trailing 12-month basis to 8.6% from 7.9% for the 12-month period ending March 31, 2019 and from 8.3% at the end of 2019.
Underwriting fees were $21.1 million, a decline of 22% from the first quarter of 2019. This business had a very strong start to the year but as COVID-19 began to spread activity in this business essentially halted in mid-February. Commissions and related fees of $55.4 million increased 32% versus the first quarter of 2019 for our best first quarter since 2016.
Our Equities fee benefited from the high volatility in equity trading volumes associated with the market downturn that began in mid-February. Asset management and administration fees from our consolidated businesses were $15.3 million, an increase of 7% versus the first quarter of 2019.
Our first quarter compensation ratio of 62% was impacted by the revenue decline in other revenue caused by the shift from gains to losses associated with the investment portfolio that hedges a portion of our deferred cash compensation plan. The compensation ratios for the first quarter of 2020 and 2019 are essentially the same when the impact of these gains and losses are excluded.
We historically have reflected a compensation ratio in the first quarter based on our best estimate for the full year revenue expectations and compensation requirements and reassess that compensation ratio each quarter to address changes in these expectations.
Given the uncertainty of the current environment our first quarter compensation ratio is reflective only of our first quarter performance. We will re-evaluate the appropriate amount of compensation and our compensation ratio on a quarterly basis as we always have, but the likelihood of change will certainly be higher in the current year than in other years due to the highly uncertain environment for the next two to three quarters.
Non-compensation costs were $82.8 million, up 2.7% from the first quarter of 2019. The increase reflects higher occupancy costs and expenses associated with certain technology initiatives, many of which are supporting our successful work-from-home operations today.
The increase in these costs was partly offset by lower professional fees and travel expenses. As we had reported to you before we had started a number of initiatives to reduce costs at the end of last year and these results begin to demonstrate our progress. Bob will comment further on this.
Adjusted operating income and adjusted net income of $82.5 million and $57.8 million declined 14% and 29% respectively and adjusted earnings per share of $1.21 declined 27% versus the first quarter of 2019.
Here again our change in operating income was affected meaningfully by the changes in the value of the hedges for our deferred compensation plans, rather than any change in our compensation philosophy and the larger change in net income and earnings per share was significantly affected by the higher tax rate in the first quarter of 2020 as compared to 2019. Bob will discuss this in his remarks.
We remain focused on our capital management strategy and returned $178.1 million to shareholders during the quarter, through dividends and the repurchase of 1.8 million shares at an average price of $76.57. Our commitment to offset the dilution associated with equity grants has been substantially completed for the year. So any additional share repurchases in 2020 will be dependent on future earnings and maintaining our strong liquidity position.
Our Board declared a dividend of $0.58 consistent with prior quarters and reflective of our results for the quarter. Our Board and management will continue to evaluate the dividend on a quarterly basis as the effect of COVID-19 virus on revenues becomes more clear, although the current expectation absent a steep decline in revenues and a significant reduction in our cash position is that our current dividend will be maintained.
Our first quarter results demonstrate continued strength of Evercore's franchise in more normal times. In each of the last two years we have generated revenues in excess of $2 billion and experienced operating margins that averaged in excess of 25%. These results were produced by essentially the same team that we have on the field today and we really don't see any reason why those results can't be repeated when normal – when more normal and less disruptive conditions return.
Let me now turn the call over to John to discuss the current market environment and to comment further on our Investment Banking business. John?
Thank you, Ralph. The market environment for much of the first quarter continued to be supportive of M&A and strategic capital raising transactions in most sectors and geographic regions. As such, the rapid change in environment associated with the global spread of COVID-19 is not generally evident in our first quarter results.
As Ralph mentioned earlier, many of the transactions we announced continued to move towards completion throughout the quarter. Yet today, the conditions necessary for a healthy M&A market including stable equity valuations, readily available credit and CEO confidence and optimism do not exist.
Demand for restructuring and more broadly debt advisory and liability management advice has dramatically increased in the current environment as companies focus on their most immediate liquidity needs. Financial sponsors continue to have record levels of dry powder. But with valuations so uncertain it is difficult for them to put money to work at the moment.
However, opportunities for innovative assignments do exist and our investment in and build-out of our financial sponsors team continues. The cash equities business tends to perform better when volatility and volumes increase. The VIX spiked dramatically late in the first quarter and it remains elevated.
Clearly three weeks into the second quarter we face challenging conditions. CEOs are assessing a volatile and uncertain environment and dialogues are more focused on operations and liquidity requirements as opposed to strategic and growth initiatives. Volatility in the market remains high and valuations are in flux.
Many activists have dialed back on large campaigns and are starting fewer new ones, paralleling the M&A slowdown and access to public capital is challenging. Despite these more challenging conditions we are confident that the breadth and capabilities that we have position us well with clients to evaluate all situations and our independent advice model will be of increasing value in the current environment.
We are focusing our efforts on maintaining constant and high-quality dialogues with our clients to assist them in the areas where we currently – where they currently seek advice and are working hard to build relationships with new clients, looking to broaden their relationship with an independent adviser.
When the markets begin to show sustained stability, we believe that we will begin to see an increase in proactive attention to strategic matters. Until then we are actively communicating and engaging with all of our clients to help them navigate the current environment and be there for them when the eventual recovery comes.
Our performance during the first quarter was solid despite increasingly challenging conditions as the quarter progressed and came to a close. We sustained our number one ranking for volume of announced transactions over the past 12 months both globally and in the U.S. among independent firms.
Among all firms we were once again number six globally and number four in the U.S. We continued to advice on a large number of the most prominent M&A assignments of the quarter including three of the four largest transactions in the United States. Our Underwriting business had a very strong first six weeks of the quarter and we are pleased to have served as a joint book runner on two of the top three largest IPOs to price during the quarter.
However, activity has significantly decreased since mid-February. Our Private Capital Advisory business performed well during the quarter and completed assignments already in progress. Our Equities business had a very strong quarter as a result of the heightened volatility and volume associated with the market downturn precipitated by COVID-19. The strategic investments in senior talent we made last year have contributed to our success. We've been able to increase our connectivity with investors and advisory clients and provide valuable insights during a period of significant market dislocation.
Our health care analysts are digging deep into the science of COVID-19 and collaborating with our macro and other sentimental analysts to determine investment implications across many different sectors. Our macro analysts are also providing insights on government stimulus programs and the overall state of the economies worldwide.
We've also found more ways to connect with institutional clients and interactions are 35% higher than in prior periods. Our Advisory clients have had an intense interest in our research and over the past month, we've added more than 1,800 corporate executives to our research distribution.
As we enter a slower market for M&A activity and a more restructuring debt advisory and liability management-focused environment, our business is pivoting to meet the changing needs of our clients. With a number of sectors and markets badly impaired by COVID-19, our industry M&A bankers are collaborating with our restructuring and debt advisory teams to meet increased activity in these areas.
We've spoken about our flexible business model in the past and we are seeing it in full effect now. The solutions we are exploring with our clients are broad-based, involving both in-and out-of-court bankruptcies, exchange offerings and amend-and-extend agreements and private placements. The breadth of experience and talent of our independent team enables us to help clients analyze and execute their strategies and solutions.
While major activist campaigns have dialed backed, our shareholder advisory business has been working with clients to help them understand the issues they are currently facing, including potential stealth accumulations by activists and hostile raiders, capital return decisions, what to do about guidance and balance sheet and liquidity issues. Many of our Private Capital Advisory assignments are currently on hold as investors are sidelined and are resetting their expectations. We believe many funds will need help raising money and managing their portfolios as markets stabilize.
Let me briefly touch on our talented team. Our greatest asset is our people and everyone at Evercore has been working incredibly hard and diligently to make sure the firm is fully functioning in our current remote working environment and to make sure that our clients are well served in this difficult time.
Our efforts to uphold our core values of client focus integrity and teamwork remains central to everything we do. We are pleased with our two new advisory SMDs, we've recruited so far in 2020, and we will remain open to opportunistically adding other high-quality individuals, who can bring value to our clients. We are extremely proud of the promotions across all levels that were announced during the first quarter.
As we move forward, we are very much aware of the difficult road ahead. We will continue to work together in support of our clients through this downturn and the inevitable recovery. We are confident that, if we continue to collaborate and communicate with each other and adapt quickly to the changing needs of our clients, we will emerge from this downturn well positioned for future opportunities.
Let me now turn the call over to Bob to discuss our GAAP results and other financial matters.
Thank you, John. For the first quarter of 2020, net revenues, net income and earnings per share on a GAAP basis were $427 million, $31.2 million and $0.74 respectively. Net revenue of approximately $40 million, was recognized in the first quarter as transactions that closed at the beginning of the second quarter of 2020.
For comparison purposes, such revenue was approximately $34 million in the first quarter of 2019 and $3 million for the first quarter of 2019.Consistent with prior periods, our adjusted results exclude certain items that relate to our acquisitions and dispositions and also include the full share count associated with those acquisitions.
Our adjusted results also exclude charges associated with the realignment strategy announced in January. Specifically, we adjusted for costs associated with the vesting of Class J LP Units granted in conjunction with the ISI acquisition. For the quarter, we expensed $1.1 million related to those units.
Our adjusted results for the quarter also exclude costs related to the realignment strategy that began in the fourth quarter of 2019. As we noted last quarter, we expect to incur separation and transition benefit and related costs of approximately $38 million, $22.1 million of which was recorded as special charges in the first quarter of 2020. Those charges are excluded from our adjusted results.
Last quarter, we noted that we are continuing to pursue opportunities to restructure operations in certain smaller markets. We have entered into an agreement with the leaders of our business in Mexico to purchase our broker-dealer there, which principally provides investment management services. Completion of this sale, which is subject to regulatory approval, is expected to occur by the end of 2020. We continue to review additional opportunities in smaller markets, and these opportunities could result in further charges in 2020, if pursued to completion.
Our adjusted results for the quarter also exclude special charges of $1.5 million related to accelerated depreciation expense for leasehold improvements and our business realignment initiatives. Finally, during the quarter we adopted the new accounting guidance for credit losses. The adoption did not have a material impact on our results.
As we noted, other revenue in the first quarter declined significantly compared to the prior year period as a result of losses on the investment fund portfolio, which is used as an economic hedge against a portion of our deferred cash compensation program obligations. This amount fluctuates as market values fluctuate and the significant market decline during the quarter drove the loss. As you will recall from prior discussions, this loss is offset by lower compensation expense over the term of these awards.
Turning to non-compensation costs. Our firm-wide non-compensation costs per employee was $44,100 for the first quarter down 6% on a year-over-year basis. The decrease in non-compensation costs per employee versus last year primarily reflects lower professional fees and travel and related expenses.
We began reviewing our non-compensation costs before the COVID-19 pandemic became an issue. We continue to adapt our operations in response to the current downturn and remain focused on reducing our non-compensation expense. We are cutting non-essential costs including in areas pertaining to travel and entertainment, research and subscriptions and deferring certain capital projects so that we are well-positioned throughout the downturn as well as in the inevitable recovery.
Our GAAP tax rate for the first quarter was 25.8% compared to 9.1% in the prior year period. The effective tax rate is affected by a number of permanent differences including the non-deductible treatment of certain compensation expenses. The principal driver of the year-over-year difference in the effective tax rate is a lower deduction associated with the appreciation of the firm's share price upon vesting of employee share-based awards above the original grant price as the firm's share price at the time of vesting in 2020 was more in line with the share price for those at the time of grant.
On a GAAP basis our share count was 42.3 million shares for the first quarter. On an adjusted basis the share count was 47.7 million down versus the prior year period driven by share repurchases and a lower average share price.
Finally, we hold approximately $588 million of cash and $264 million in investment securities as of March 31, 2020 with our current assets exceeding current liabilities by approximately $880 million. By comparison at year end, we held $634 million of cash and $624 million in investment securities. The sequential decline is in line with the seasonal trend driven by bonus payments in the first quarter.
As we continue to navigate in the downturn we are focused on maintaining our strong and liquid balance sheet and we continue to monitor cash levels, liquidity, regulatory capital requirements, debt covenants and our other contractual obligations regularly.
I'll turn the call back to Ralph for some closing remarks.
John and I would like to close the call by extending our thanks to our clients for selecting us to work with them in this new challenging environment, to our investors and other stakeholders for supporting us as we continue to execute our strategy and to our employees whose performance and resiliency have been extraordinary.
Evercore celebrated its 25th anniversary in March. While we have never faced a dislocation like the one we are facing now, we have spent the last 25 years building a firm that has a broad range of capabilities and products to serve our clients in all kinds of markets including the one that we are in now.
We look forward to your questions. Thank you.
(Audit Start)Thank you. [Operator Instructions] Our first question is from Michael Brown with KBW. Your line is open.
Hi. Good morning, guys.
Good morning.
So I was just hoping to start out, just given the combined decades of experience on the call, hoping to get some initial thoughts on how this downturn could compare to prior ones, particularly the financial crisis. And if we use prior cycles as a proxy, how do you expect the phases of this recovery to play out for M&A? Which areas will be kind of the first ones to recover?
Let me start and then I'll turn it over to John. I think the financial crisis there was obviously bank balance sheets and all financial institutions were severely impaired, and there was a terrific book written by Ken Rogoff and Carmen Reinhart, which basically -- the title of it was This Time is Different. And the point that it made was that recoveries from financially induced recessions are longer and shallower than those that are caused by other factors.
So, if you look at the recovery from the financial crisis the first four years after the financial crisis, M&A was essentially flat at a little over $2 trillion a year. And so, the recovery in the economy and the recovery in M&A was slow and longer. And we had actually the longest period of positive M&A activity after the financial crisis that we've ever had extending until actually through the end of last year.
Here, my own expectation is that the recovery will occur more quickly than it did in the financial crisis and more sharply than it did in the financial crisis. But exactly when that occurs, none of us know. And the reason that I say that is as I said in my opening remarks, there is an unprecedented amount of fiscal and monetary stimulus that is being thrown at the economic problems created by the pandemic. We have not yet had a reported quarter of down GDP, yet we have $2 trillion of fiscal stimulus in the U.S. and a massive amount of monetary stimulus. These will work. It will just take some time.
And as I said in my opening remarks I don't expect the recovery to be as sharp as the decline. But ultimately with that amount of monetary and fiscal stimulus, we will have a recovery and it certainly won't take three or four years for that to happen. Let me turn it over to John and he can talk about the M&A market particularly.
Yes. I would say that the stimulus as Ralph said is clearly a very, very big force in terms of what's going to happen with respect to the economy and the flow of funds, and that is certainly going to help a lot, although as we look at the world, consumers and many people and certainly a lot of the middle market has been impaired fairly substantially. And so the power of the consumer that has driven the market is going to be somewhat muted over the next year or two or hopefully less than that, but that's clearly going to be a part of it.
On the M&A side, we think there will be a recovery because there are still many strong companies out there who are very interested in looking at growth and opportunity. In fact, in a lot of our dialogs, we are talking to strong well-capitalized companies who are just waiting for there to be some firming before they start coming back and looking very aggressively at the market.
We believe there's a lot of dry powder ready to go to work in the financial sponsor side and they're going to be looking very, very carefully at what's available. So, we could easily see the merger market recovering, maybe not all the way back immediately. But certainly we can see real keynote transactions beginning to happen and some of the dialogues that we're having are clearly along those lines.
It will take time though to get back to where we were in my opinion. I think that it's -- there are whole sectors that are really needing time to recover. And so, it will not be broad-based. It will be pockets of quality opportunities that come up, but it will begin -- as soon as the markets really begin to firm and capital becomes accessible, we think that there will be deals that will be starting to happen in the not-too-distant future.
Okay. Thank you. And I appreciated the color on the compensation ratio for the balance of the year. I understand there's significant uncertainty there. But if we assume a significant decline in revenues over the next couple of quarters, how will you approach compensation? And how should we think about really what the fixed comp costs are for the balance of the year?
And just given the environment has shifted significantly since the realignment announcement, do you expect that you may actually need to make deeper headcount reductions to reflect the change in the environment?
Well, first of all, with us working remotely, we certainly have no plans while that is in place to do any adjustments in headcount. So, let's be clear about that.
With respect to the comp ratio for the rest of the year, when we get to the end of the year, we will -- as we always do, we have to pay our people competitively because that's the team of people that when things return to normalcy, which they inevitably will, we’ll be able to produce the $2 billion plus of revenue and 25% margin. So, we will have to pay competitively. I would expect that compensation across the board in Investment Banking and the large firms and the independent firms will come down consistent with the weakness in revenue that I think everyone anticipates through much of the remainder of this year. (Audit End)
So when you put all of that together, if revenues are considerably weaker in the next two or three quarters and we have really no idea, how much weaker they'll be, you should expect that that will have a negative effect on our quarterly and full year compensation ratio.
But the key here is, for us to be able to keep the valuable team that we have together. And we will do that in a way that is as absolutely protective as our -- of our shareholders as we possibly can.
Okay. Thank you for taking my questions.
Thank you. And our next question comes from the line of Manan Gosalia with Morgan Stanley. Your line is open.
Hi, good morning. You mentioned that your restructuring capital markets advisory and equities businesses are doing well and they are partial offsets to the weaker M&A environment. I was wondering, if you could give us a sense of any early indicators you're seeing especially on the restructuring side and if there are any numbers you can help us put around the opportunities.
John, you want to -- I'll start with this. We generally have never given precise numbers on restructuring or equity or debt capital advisory. And the reason we haven't is that there are not bright lines between these activities. So very often there's a fee that we get in connection with a merger, but part of it is for debt advisory, part of it is for equity capital markets advisory, and part of it is for the transaction itself.
So we've never broken out our advisory revenues. But as I did say in my opening remarks, the largest component of our advisory revenues is M&A. And so an environment like the one we're in today, where M&A slows down fairly significantly and the other activities pick up fairly significantly, they aren't in scale equal to M&A, so they're not going to offset that the decline in M&A in our Advisory revenues.
And certainly with respect to restructuring, the revenues tend to be -- take a little while to come in. So when you get hired on a restructuring assignment, you have monthly retainers, but they are relatively modest compared to the success fees that ultimately occur. And those success fees generally come six to 18 months down the road as the situation is resolved. So both the magnitude and the timing of the pickup in these activities, even though they're quite substantial and we're really happy that we have them is not going to be sufficient to offset the weakness in M&A activity.
I would just add to what Ralph said is that, even though we've done a great deal to leverage our capabilities in both restructuring and debt advisory, in terms of getting many of the individuals and the strong bankers in the Advisory business focused and helping on those, that opportunity will be significant and building, but it clearly doesn't have the same scale that our merger business does. And so as Ralph said, it's not going to offset. But clearly, we are building and we continue to have very high-quality assignments in those areas.
Got it. And then separately, you said that you would maintain your current dividend absent a steep decline in revenues or the cash position. Are there any specific guideposts that we should be looking at? I mean you have about $600 million in cash. It feels like you have a significant buffer, but just curious about how long the stress would have to persist before you start to review your capital actions?
Well I think we said exactly what we meant. We have a strong cash position and the Board and management maintained the dividend this quarter. We would expect to continue to do that as long as our cash position stays strong. It doesn't have to stay exactly where it is today to do that and anything beyond that would be foolish on our part I think.
Got it. Thank you.
Thank you. Our next question comes from the line of Brennan Hawken with UBS. Your line is open.
Hey, good morning guys. Thanks for taking my questions. I'd like to start on cash and liquidity. Bob, I think you suggested that the drop in both cash and marketable securities is similar to the typical decline, which makes sense once you sum them both up. Is the mark that you guys took the nearly $30 million, is that in the investment securities line? And then, therefore, should we think about the balance of that being basically spoken for and therefore not part of the accessible liquidity? Are there other calls on any of that liquidity? Can you give us a sense about how much of your liquidity is actually completely free versus reserved either via explicit or implicit requirements? Thanks.
Bob, do you want to take that?
Sure. Brennan, I think the number I would look at in the context of your question is, there's $880 million of working capital. So that pulls in all of those liabilities that have some claim if you will on the cash and the investment securities. So look during the year as Ralph said, we're going to think very carefully about compensation and how that has to build and we're going to watch that $880 million of working capital very carefully week-to-week, quarter-to-quarter, but we've got liquidity.
Okay. So does that working capital tally net out the -- I believe most recently disclosed $127 million of unvested cash comp, which would be an obligation over the next two years?
Yes. It nets out, the portion that's been accrued as a liability to date. Again, as comp builds throughout the year, the liability that includes -- we'll build for a portion of that $120 million that's currently unvested.
Okay. So it will reflect the current portion of that okay. Got it. That's fair. And then, totally get how difficult it is to try to assess the environment right now. I mean this is completely unprecedented. So I guess my question -- and the only reason I'm asking is I'm trying to parse a couple of the different comments, because obviously all of you have a wealth of experience through many cycles and you all have your own different perspectives on matters.
So you probably -- and I get the sense you were sort of opining on your own views which are probably going to be different, right? You pool five different people all rich and deep experience and they all have different views on how this is going to work out. But when we think about the concerns that are on many CEOs' minds, your primary clients' minds and you think about riding out the liquidity during this current downturn, what do you think is a reasonable timing for when they're going to start looking at M&A?
And I get that there will be some strong companies that are going to be in a position where they're already starting to think about it? Those are going to be the exceptions though right not the rule. I'm more talking about when do you think we get to that pivot period where it actually broadens out and starts to reflect a shift in the market writ large that can lead to the sort of move in M&A announcements that would actually result in a lifting that is broad-based. Is that feasible to guess now?
It's -- your question appropriately cited the difficulty in answering it. And I don't know if you remember back to the -- most of you are probably too young to remember the 1992 Presidential campaign, but Bill Clinton and his advisers basically said, it's the economy stupid. And the answer to your question is, it's the virus, not you stupid.
But if you could tell me what the path of reduction -- significant reduction in fear about the virus I -- we could respond more accurately to your question. And unfortunately none of us know the answer to that. I think the best way to answer is to say that, we often talk about the conditions that are necessary for a healthy M&A environment.
And those are a strong and supportive equity market liquid and active debt markets clear visibility as to the future direction of the economy and CEO confidence. And certainly the last two are not present today. The debt markets are still largely disrupted for more levered activity. And the equity markets have recovered a fair amount anticipating a pretty strong recovery in the economy and in corporate earnings which we don't know for sure, we'll have it because of -- going back to my initial comment it's really about the virus.
So, I'm very confident that these unprecedented actions that the fiscal and monetary authorities have taken -- I mean the stimulus -- the fiscal stimulus is more than double what we incurred, what was put forth in the financial crisis and it's going to grow. It's going to grow by another $460-some million this week and we haven't even had a down quarter of GDP yet announced. So these things are going to work and the virus will determine how quickly we get back to work in my view.
Yes. The only thing that I would add to that is that, so much of what happens here is really going to be determined by really what happens with respect to the health and science. Because if we have a rapid recovery, if we somehow can inoculate people and get people in the economy back going that will have a real impact.
But if there's a second wave and if we continue to have to struggle with this that will definitely impact people's view of the market and people's confidence level. And so much of this is really going to be determined by factors outside of the basic merger ingredients that we've always looked at before. I think it would be wrong to think that we're going to get over this quickly though. It's going to take some time.
Yes, thanks for that John. Yes. And don't worry Ralph I'm a sell-side analyst, so I understand the day-to-day risk of being called stupid. No big deal. So…
I thought you would enjoy seeing the uptick in our secondary equity revenues though.
I did note that. That was solid. Nice job nice job. One last one for me, bit unusual or at least it's a little different versus the last downturn to have Evercore cutting staff in the beginning of the downturn. How do you -- obviously this was done and decided before all of this happened and so you were already thinking about repositioning the business.
Does it -- does a potential plan to adjust the size of your workforce or adjust expenses should that factor into how we normally think about Evercore as more of an aggressor in a potential downturn? How do you balance protecting shareholders as you referenced earlier with building on the franchise and adding to long-term capabilities as you so effectively did in the last downturn?
What we're focused on always is the value of the company two, three years out. And as I said in my opening remarks in 2018 and 2019 with essentially the same team on the field, we generated over $2 billion in revenue and at margins that averaged in excess of 25%.
So, we're certainly not going to cut into muscle or bone that would impair our ability to achieve those kind of results or better when the M&A markets recover. I would say that what we did toward the end of last year and at the beginning of this year was really a modest adjustment that sometimes firms and companies that have had a pretty remarkable 10-year growth record. In the period of time 10 years ending at the end of 2019, our Advisory revenues grew on average mid to high teens. Our headcount grew sort of low teens. Our margins pretty much expanded every year through that period of time.
And when you grow at that pace, you inevitably make some modest investments that didn't pan out as you had hoped either in people or in locales. And I think looking forward; I've said internally, if we grew at the rate of topline Advisory growth that we grew over the 10-year period ending at the end of last year, in five years, we would be the size of Goldman Sachs' advisory business. And in 10 years, we'd be twice the size of Goldman Sachs' advisory business. I'm pretty confident that's not going to happen in our Advisory business.
So, the adjustments that we made were really targeted toward people who we didn't think are the A-plus, A standard that we like to maintain in our firm or businesses which are quite modest. But our business in ECB for example that Bob discussed is one of those where the returns weren't sufficient for our standards. So, that affected a relatively modest part of our business.
And then the second thing, I would say is that, when you're growing at the pace that you're growing and your margins are widening each year, your -- you focus a little bit less on every paperclip and bagel. And in the environment that we anticipated, we anticipated slower growth for -- just because of the law of large numbers as I just outlined. In that kind of environment, you have to focus more on the paperclips and the bagels.
Okay. Thanks for that color.
Thank you. And our next question comes from the line of Matt Coad with Autonomous Research. Your line is open.
Hey, good morning guys. I hope you're all making it through this tough time as well as you can and thank you for the question. So, this one's a little open-ended, but I was hoping given the great number of conversations you have with various business leaders across the country and globe that you could provide your take on any potential ramifications this crisis could have on M&A activity once the economy begins to recover.
John, do you want to take that?
Yes. Thanks for the question. We -- clearly what is going to be a very important part of whether M&A can get going is exactly what Ralph said which is what are the underlying conditions and the conditions being do you have stability in the markets, do you have access to financing and does the future look good for companies who might want to acquire. And if you get those in place, companies will begin to think about how they can move forward and grow.
There are clearly industries -- broad industries that are impaired and will be impaired going forward. And those industries, many of them will need to do significant borrowings both from the government, but also in terms of distressed financings. And part of what they'll need to do is to get -- is to build back their capabilities. And so, as the merger market increase -- improves or as the conditions go into place, there's a whole group of sectors that really won't be able to participate. So, the companies that are healthy and have been able to come through this in a very good way. they will be the first ones to be able to do M&A.
Financial sponsors will also be looking for opportunities. And there is clearly so much dry powder in the equity side that when the leveraged finance markets are open and when there's a predictability to it, one could easily see those companies both -- those sponsors both large and small being -- looking at deals up and down the size spectrum. So, those are the participants that will be involved.
But you asked, is there -- are there some conditions that are going to in effect impact the merger market? And I honestly think that it's going to be the fact that there are many sectors that won't be participating certainly in the early stages of any merger recovery.
Awesome. Thank you. Appreciate the color. And then just one quick one, just given all your commentary on maintaining the strength of the balance sheet, is it fair to assume that just in the near term the buyback will be shut off?
We have basically completed the amount of buyback that we need to do to offset any issuance of shares in connection with year-end bonuses for 2019 and in connection with new hires in 2020. So, for the -- until we have more clarity as to our revenues over the next couple of quarters, I think that's a fair assumption.
Okay. All right. Thanks guys.
Thank you. And our next question comes from the line of Devin Ryan with JMP Securities. Your line is open.
Great. Good morning, everyone. I hope everyone is doing well. I guess the first question, just love to get some perspective on the energy space specifically. Clearly, Evercore is a leader there. It's experiencing some of its own issues not all tied to the health crisis. If we go back to 2015, 2016, clearly a different backdrop, but the deals shifted from M&A to more restructuring centric, but your revenue has actually held up quite well.
It's just more of a timing differential and ultimately you still came back with a very good performance. And so, I'm just curious if you're seeing a similar dynamic in terms of how deals are shifting. Clearly, there's going to be more restructuring. But just any more perspective around how you see kind of advisory needs in that space developing and ultimately kind of how that could affect results for the firm?
Yes. I think that so far our energy revenues out of the last five years have been fairly consistent. The source of revenues in terms of what types of transactions has varied quite substantially, as you correctly say from M&A to restructuring. And we're certainly in an environment where restructuring is a huge component of our energy activity.
But we don't really -- don't normally -- haven't seen historically a huge falloff in energy when there's been stress in that market. And the reason is that we have -- yes, we're fortunate to have a -- both a strong energy and a strong restructuring practice. And you need both of those to sustain revenues in that sector during periods of distress.
Okay. Thanks, Ralph.
I'm sorry. Go ahead -- the other thing I would add to that is that this is a shock as I think you said and others have said like really no other that we've seen. Now, we really do feel well positioned to actually help clients, both clients that are looking to be opportunistic, but also clients that are struggling. But we've not seen something like this, even in the oil patch before.
And so, on the energy side, we're really looking and talking to clients and we're getting clarity as we speak, but it's still quite early. The one thing that Ralph said I would -- that I really do believe is a very important factor which is, we do have the muscle memory of being able to pivot back and forth restructuring, M&A, strategic. And so, our people are well versed in this, but so much of it is playing out as we speak.
Okay, great. Thanks, John. And then, just my follow-up here and covering Evercore for some time in the prior cycle as well. I mean, there's not, I'd argue, a firm that scaled better coming out of the financial crisis than Evercore. Revenues were up five times from the prior peak. And so, kudos for the success there.
And I just want to make sure I'm getting the takeaway here right in terms of being opportunistic. I mean, is the expectation at this moment that there's going to be a pretty good increase in that A or A-plus talent that's open to moving as we've seen before? And if that is the case, how you guys are currently thinking about balancing the opportunity to accelerate growth and kind of have another stair step, if you will, coming out of this versus managing the comp ratio and still delivering earnings to the extent the revenue backdrop is tougher. Just trying to kind of put it all together and make sure I'm taking away the kind of the right message here.
Yes. There's so many, I think, imponderables to answer that question: how are the larger firms particularly going to compensate their people this year, how quick is their recovery and also the relative strength of the other firms who are competing for talent.
The initial reaction of talent in environments like this is to be motivated a little bit by inertia and to be cautious. So I would expect less hiring activity this year among all the independent firms, not just Evercore, than we've seen historically until there's greater clarity as to what the forward market looks like.
I do think -- if you look at over that 10-year period that I discussed a little earlier and you referred to, we grew advisory revenues on average mid to high teens and the average dollar amount that advisory revenues grew was $130 million $140 million a year. My own view, and this is a personal view, is once things stabilize and we return to normalcy, there'll be, first of all, a recovery in M&A activity.
And then, I don't see any reason why we can't continue to grow at that dollar volume, plus or minus, on average. Obviously, this is a cyclical business, so you're not going to do that year in and year out. But we would anticipate that coming out of this we will continue to gain market share. John, you want to add anything?
I think that, that is clearly what we are focusing on, which is how do we responsibly gain market share coming through this. And I agree with Ralph that the biggest thing is that we're going to be open for business in terms of talent, but that we're going to keep the bar high. And it would be our intention to find some good people, but we're certainly not going to stretch. We're going to do it only, if we find the right people. And so it really does depend, but we definitely have a view that coming through this, if talent which we think is really strong is available, I think we're going to want to bring that talent onto our team.
Okay. Appreciate it.
Thank you. And our next question comes from the line of Steven Chubak with Wolfe Research. Your line is open.
Hi. Good morning. Hope everyone is doing well. Appreciate all the color regarding the global M&A picture. I was hoping to drill down a bit just more in terms of what you're seeing across the different geographies. And I was hoping you could speak to your expectations for the outlook for activity in the U.S. versus Europe? And maybe what your expectations are also just for cross-border M&A just given varying pace and shape of recovery across the different geographies?
John, do you want to take.
Yeah. I'll start that. There is no question that really, this crisis and this virus and what has happened to economies, does not have a regional or geographic bias. It's really been everywhere. And I think the real question is where do the conditions firm up first? And in some respects that has to do with, where has fiscal and monetary support been the fastest and strongest. And it would be my observation that the United States in many respects has been very, very strong in terms of how they've created support for the economy and really bolstered the market.
So, I think that one could say that it is clear that the conditions could easily get better, because there's so much central support in the United States. In Europe, it goes country by country, but there will be a firming up. And the central government – the governments and the ECB are clearly creating support. And so there will be recovery in those markets, but it will be one-by-one and we'll have to see how that goes. And in terms of cross-border, I think that will take some time, but I do think that there will be – as we've talked about earlier on this call, there will be a sense of opportunism from the strong companies both in Europe and the United States that are going to be looking at companies that they have aspired to or where they think there's a good fit and they'll be looking at that. But as we've said earlier on this call, none of this is going to be fast. It's hopefully going to be intentional and will happen over time. But I think that it's going to take some time for this to really fully play itself out and for the activity level in a broad sense to really begin.
That's really helpful. And then maybe just a question for Bob on the non-comps. It was a touch elevated this quarter, but I'm also mindful of the fact that COVID stress did not really materialize in earnest until later in the quarter, and certainly have to make necessary investments in tech to support the work-from-home transition. I'm just wondering, how we should think about the percentage of non-comps that are variable versus fixed and the resulting trajectory of non-comp per employee over the remainder of this year.
Bob, do you want to take that?
Yeah. Steven, again, let me deal with the second part, because as you know, we think of non-comp per employee as the right metric. And as Ralph said, the firm – the whole firm is paying attention to non-comps now. We had started to work on it at the end of last year and had a lot of momentum going in. So, I would expect the trajectory of non-comp per head to be going down for as long as this environment is dictating, how we operate.
Any sense as to the mix of fixed versus variable non-comps?
Leases, occupancy, depreciation think of those as fixed. Think of everything else as moving with heads, and as I said moving down at this point.
Great and just, one more, quick follow-up, I know you touched a lot on the balance sheet. One item that you didn't address was the debt covenants, with the firm being subject to the max leverage ratio of two times under your existing covenants.
I'm just wondering how you're managing the business to avoid potentially breaching that upper bound. And any sort of mitigating actions you could take such as shifting more of the comp, away from cash and towards more share-based awards?
You've hit on one of the levers, that's available to us to manage that. We've actually had a list of five or six or seven things that will help us navigate that. It's -- which ones we're going to pull when and how is going to be a function of how revenues evolve and how the business environment evolves.
But, at this point again we're very comfortable with the liquidity we have. And we're going to do, a number of things to sustain that level of liquidity. And as long as we do that that covenant is in good shape.
Great.
I would just add that. It's a trailing 12 months measure. So, given the strength of the fourth quarter last year and the first quarter of this year, it really doesn't even become an issue until the fourth quarter of this year. And only in the circumstances with a very, very deep decline in revenues and where we don't make adjustments of the sort that Bob is talking about in his response.
Great, thanks for clarifying Ralph. And thanks for taking my questions.
Thank you. And our next question -- and our final question is from Jeff Harte with Piper Sandler. Your line is open.
Hey good morning guys. Most things have been covered. A couple of details, from revenue recognition kind of pull forwards a number of large deals closed, the first few days of April, did some of those revenues show up in first quarter?
Hey Jeff and Jeff you can have one of your people go back to the transcript. We ran through the first quarter tally fourth quarter of last year and first quarter a year ago. So...
Okay. Sorry, I think, I missed that part. And secondly can you give any more color on kind of the level and makeup of client dialogues?
And I guess, I'm trying to get a feel for current underlying C-suite desire to and focus in acting strategically relative to what we've seen in prior recessions, when it seems people are really hunkered down.
I mean, how much more interested are C-suites in kind of still looking at strategic things today even though they obviously can't act on them in the near-term?
Well. We're seeing the dialogues. And our people are spending a lot of time on the strategy discussions. There's no question though that these dialogues are not near term but they are clearly ones where people are looking carefully.
In terms of differentiating it from other recoveries, it's really hard, because we really don't know -- how quickly the conditions that are going to get people feeling confident about making these acquisitions. And really moving forward strategically, we don't know when that's going to happen.
The quality of the dialogues is high. We are talking to very high-quality companies about things that they would like to do. And so I think we feel really good about the fact that those dialogues are happening.
But as you know very well the difference between having those dialogues and then moving to actioning that is the big question. I think -- what we think is it's going to take some time to get to the actioning phase but the dialogues are happening.
Okay, thank you.
There appears to be no questions at this time. I would now like to turn the floor to Ralph Schlosstein for any closing comments.
I just want to thank all of you for spending the time with us. And we look forward to talking to you again in July, when hopefully the future will be a little bit clearer than it is today. Thanks.
This concludes today's Evercore First Quarter 2020 Financial Results Conference Call. You may now disconnect.