Evercore Inc. (EVR) Q1 2019 Earnings Call Transcript
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Evercore Inc. (NYSE: EVR)
Q1 2019 Earnings Call
April 24, 2019, 8:00 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Evercore First Quarter 2019 Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference call will be opened for questions. (Operator Instructions) This conference call is being recorded today, Wednesday, April 24th, 2019.
I would now like to turn the conference call over to your host Evercore's Head of Investor Relations, Jamie Easton. Please go ahead ma'am.
Jamie Easton -- Head of Investor Relations
Good morning, and thank you for joining us today for Evercore's first quarter 2019 financial results conference call. I am Jamie Easton, Evercore's Head of Investor Relations. Joining me on the call today are Ralph Schlosstein our President and Chief Executive Officer; John Weinberg our Executive Chairman; and Bob Walsh our CFO. After our prepared remarks, we will open the call for questions.
Earlier today, we issued a press release announcing Evercore's first quarter 2019 financial results. The Company's discussion of our results 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 For Investors section of the 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. 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 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, as previously mentioned, 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.
Ralph Schlosstein -- President and Chief Executive Officer
Thanks, Jamie, and good morning, everyone. John, Bob and I are joining you from London today. We hosted our Board meeting here yesterday, focusing in part on the changing political and regulatory landscape here in Europe and also on our strategies to continue to grow our European business profitably. Before we review the quarter in greater detail, let me broadly comment on Evercore and the competitive environment in which we currently are operating.
We ended 2018 in an extraordinarily strong position with the highest global advisory revenues among all firms behind Goldman Sachs, JPMorgan, and Morgan Stanley, and number one among all independent firms, both in advisory revenues globally and in the league tables, which of course measure the dollar value of announced transactions. And we were number one both in the US and globally in 2018.
As all of you know, we have consistently observed that we believe the best way to judge our business is not on a quarterly basis, but on a trailing 12 month basis. While our large and independent competitors have not all reported, we fully expect to maintain our same position in advisory revenues on a trailing 12 month basis at the end of the first quarter, and among independent firms, to maintain our number one position in the league tables, both globally and in the US, both on a trailing 12 month basis and on a year-to-date basis.
The first quarter of 2019, while below last year's exceptional results, is the second best first quarter in our Firm's history in terms of adjusted revenue and earnings per share. As you may have seen from the publicly available information, April has been a quite active month for Evercore for both completions and announcements. This activity and our current backlogs suggest to me that our positive momentum coming out of 2018 will continue.
In the first quarter we had balanced contributions from all of our businesses and we continue to build our backlog of strategic advisory, underwriting and capital markets advisory assignments. So far this year we are fortunate to have advised on some of the largest and most complex assignments globally, including three of the largest transactions announced in the first quarter, and four of the six largest transactions announced year-to-date.
In addition, our ongoing focus on adding to and developing our exceptional talent, coupled with the steady broadening of our product and geographic capabilities, continues to position us well for long-term growth and success. Earlier this year, we promoted seven very talented professionals to senior managing directors in our advisory business, the largest class of internal promotions in our history. This year we expect to have another strong external recruiting year, having already announced the three new advisory senior managing directors are joining the firm. And we have added significant senior talent in our equity research business as well. So we continue to invest materially in our future growth.
Let me turn now to the quarterly financial results. The first quarter net revenues were $419.8 million, down 10% versus the year ago period. In investment banking, advisory fees were $326.1 million, down 14% versus the first quarter of last year. Underwriting fees were $26.9 million, down 11% versus the year ago period. Commissions and related fees were $41.9 million, down 3% versus the period -- the first quarter last year. In investment management, asset management and administration fees were $14.3 million, up 3% versus the year ago.
Net income was $81.7 million for the quarter, down 28% versus the year ago period and earnings per share were $1. 66, down 26% versus the year ago period. The operating margin for the quarter was 22.8% versus 26.7% in the record first quarter that we had last year. Our compensation ratio was 58% for the quarter, consistent with last year after adjusting for the reclassification of certain transaction-related expenses. Recall, we changed our presentation with respect to these issues in the fourth quarter.
Non-compensation costs for the quarter were $80.6 million, up 12.8% versus the year ago period, primarily due to the increased headcount, but also due to increased occupancy costs and higher professional fees and client-related transaction expenses. The increase on a per employee basis was nominal, validating what I just said that headcount growth was primarily responsible for the increase in non-comp expenses.
As I said earlier, our advisory backlogs are strong and we remain very confident in the positive momentum of our investment banking and investment management businesses.
Let me now turn the call over to John to discuss the current market environment and comment further on our investment banking business.
John Weinberg -- Chairman of the Board and Executive Chairman
Thank you, Ralph, and good morning. The overall market environment for our services remains strong and our levels of engagement and activity continue at a high level. In most sectors, activity levels are high, focusing on both M&A and strategic and capital advisory assignments more broadly. There remain a few markets where companies are facing financial headwinds. These are largely unchanged from 2018. Here, restructuring, debt advisory and other strategic advisory assignments are more prevalent for us.
This environment favors the diversity of our business model. We continue to have strong dialogues across most sectors and disciplines. For example, we are seeing opportunities for strategic consolidation in sectors like healthcare and consumer, for restructuring in retail and energy, and for capital raising in both the public and private markets. In addition, we continue to see healthy levels of sponsor activity.
The equities environment continues the trend that began in 2017, as clients reduce the volume of research they receive and refine as they both pay for research and the level of payments. Quality continues to be an important differentiator.
Now, let me briefly comment on our investment banking results. Our momentum from 2018 has carried over to 2019. We are pleased that we advised in three of the top five deals in the first quarter, including the largest deal to-date Bristol-Myers Squibb's $90 billion acquisition of Celgene. We also advised on the UK deal -- the largest UK deal of the quarter, which is RPC's sale to the Berry Global Group.
Our ECM momentum continues and while activity is strongest in healthcare, our pipeline is broadening in terms of sector reach. In Q1 2019, we participated in 18 equity underwriting transactions, 16 of which our role was as bookrunner. Advisory revenues for the quarter remained diverse and reflected contributions from multiple sectors and capabilities, including financial, healthcare, technology, media, telecommunications, activism and capital advisory. We earned 69 fees greater than $1 million in the quarter in comparison with 63 in the year ago period.
In short, our momentum remains strong, but the distribution of fees by size was different this quarter. Ralph noted that we have very little influence over the timing of fees being earned.
Our debt advisory and restructuring teams remain very productive as they continue to focus on refinancings, liability management, and debt capital advisory globally. And we also continued to expand the breadth of capabilities we offer to the financial sponsor community.
Our recruiting efforts are off to a solid start in investment banking. We ended the quarter with 105 active senior advisory managing directors. As Ralph mentioned, we announced three advisory SMD hires so far in 2019; Zaheed Kajani, who joined our technology practice in January; John Startin, who will join later in April to lead our metals and mining group; and Andy Richard, who will join in July to focus on real estate. We also have one additional SMD committed to join the Firm later in the year. We are in active discussions with additional talented candidates, who we hope will come and build our franchise further and make up the 2019 recruiting class.
Evercore ISI is also busy building and enhancing teams. The senior research team is growing with the additions of Amit Daryanani in IT hardware; and David Palmer in consumer food and restaurants, who will both join this spring. Greg Melich also rejoined us at the start of the year to cover retailers. In addition to the research team, we continue to develop Evercore ISI's leadership team. We look forward to welcoming a new head of sales, Larry Sibley in June as Bill Foley transitions into a role of Vice Chairman at Evercore ISI.
We remain committed to providing our clients with world-class independent research and investing in and enhancing our intellectual capital, which strengthens our ability to best serve our clients globally.
Now, let me turn the call over to Bob, to discuss our GAAP results and other financial matters.
Robert Walsh -- Senior Managing Director and Chief Financial Officer
Good morning. Beginning with GAAP results, net revenues, net income and earnings per share on a non-GAAP basis were, $415.3 million, $67.2 million, and $1.52, respectively, for the fourth quarter.
Consistent with prior periods, our adjusted results for the quarter exclude certain items that principally relate to our acquisitions and dispositions, and also include the full share count associated with those acquisitions. Specifically, we adjusted for costs associated with divesting of Class J LP units granted in conjunction with the ISI acquisition. For the quarter, we expensed $4.1 million related to the Class J LP units. Our adjusted results for the quarter also exclude special charges of $1 million related to the accelerated depreciation for leasehold improvement in our New York headquarters.
Other revenue -- other revenues are up significantly from the first quarter of 2018. This increase primarily reflects gains on the exchange-traded funds we use as a hedge for our deferred cash compensation program obligations. This amount will move around a bit in volatile markets.
Turning to non-compensation costs, our firmwide non-compensation costs per employee were $46,700 for the quarter, down 7% from the prior quarter and 2% higher on a year-over-year basis, principally reflecting elevated occupancy costs as we have been discussing on prior calls.
Just to note again, in the fourth quarter, we revised our adjusted presentation to eliminate the netting of revenue and non-compensation expenses related to client-related expenses, expenses associated with revenue-sharing engagements with third parties and provisions for uncollected receivables. This adjustment brought our results more in line with our US GAAP presentation and the presentation of our peers, and had no impact on operating income, net income, or earnings per share.
With regards to taxes, our GAAP tax rate for the quarter was 9.1% as compared to 23.9% in the prior quarter and 4.3% in the same period last year. The rate for the quarter was impacted by the accounting treatment for stock compensation, which resulted in a decrease in each of the US GAAP and adjusted effective tax rates of 14.1 percentage points. Similarly, the impact on the first quarter of 2018 resulted in a decrease in the US GAAP and adjusted effective tax rates of 19.1 percentage points and 18.6 percentage points, respectively.
Our Q1 share count for adjusted earnings per share was 49.3 million shares, lower in comparison with the prior quarter, driven principally by share repurchases. On a GAAP basis, the share count was 44.2 million shares for the quarter.
Our cash position remains strong, with $552 million of cash and marketable securities at March 31, 2019, with current assets exceeding current liabilities by approximately $691 million. We did adopt the new accounting guidance on leases during the quarter, which replaced the existing lease guidance. This resulted in the recognition of approximately $219 million of lease liabilities on the balance sheet at the end of the quarter, along with associated right-of-use assets. There was no meaningful impact to our income statement as a result of this -- adoption of this accounting standard.
Let me now turn the call back to Ralph for closing remarks.
Ralph Schlosstein -- President and Chief Executive Officer
Thank you, Bob. I wanted to close the call with a few comments on capital management and balance sheet management more broadly. Let's start with the new news. Yesterday, our Board increased our dividend to $0.58 per quarter, a 16% increase, in line with the average increase in the dividend since we went public and very consistent with the increased earnings power of our business.
While our Board has voted for a steady double-digit annual dividend increases, we will continue to focus on share repurchase transactions, both for net settlement and in the open market, as the principal means of returning capital to our shareholders. We remain committed at a minimum to offsetting the dilution associated with both annual bonus equity and new hire grants, and we'll also use repurchase transactions to return to our shareholders earnings that are not distributed through dividends or invested in the future growth of our business.
A couple of you have observed that the aggregate level of share repurchases declined in 2018. I want to assure you that this does not in any way reflect the change in our capital return strategy. Rather a couple of things were at work last year and early this year. First, we put aside cash for one-time cash needs to purchase additional interest in our wealth management business on our capital -- private capital advisory business, and to extend our main office in New York City.
Second, we reduced our reliance on RSUs, or restricted equity awards, in both our annual deferred compensation and new hire programs. These deferred -- these -- instead, we are referring -- relying on deferred cash awards to a greater extent. These deferred cash programs effectively require that cash be set aside and invested in accounts selected by our employees.
Very simply, for a portion of our deferred incentive compensation, instead of issuing shares in the form of RSUs and then repurchasing them, we are investing a similar amount of cash in deferred investment programs. This change to the mix of deferred compensation is changing how we use cash. At year end, you saw a large cash balance. That balance declined in the first quarter, as it has always, as bonuses have been paid and as we have hedged the market exposure associated with our deferred cash compensation plan and includes cash set aside for future settlement of these plan.
Importantly, this change has not resulted in any material change in the ownership of Evercore on a fully diluted basis by our senior professionals, as we hold meaningful positions in the Company, all consistent with our share ownership requirement for senior managing directors.
As I noted a moment ago, we continue to invest in growing our business by recruiting new talent for our team. This investment is now expanding beyond people to include both facilities in which our current team can work and more recently in technology. These investments to-date have been funded almost exclusively through our earnings. As I think it's fair to note, our current scale clearly supports funding some of these investments more efficiently through a more balanced mix of debt and our cash earnings and we expect to look into this further as the year progresses.
In summary, we have not changed our core principles at all regarding capital return. However, as we have grown, we have experienced some one-time uses of cash and are adapting both how we invest in our business to drive future growth and how we manage our balance sheet and cash flow.
Thanks very much. Sorry, about that long explanation. Now, we're prepared to take any questions you may have.
Questions and Answers:
Operator
(Operator Instructions) And our first question comes from Devin Ryan from JMP Securities. You may proceed.
Devin Ryan -- JMP Securities -- Analyst
John, Bob, how are you guys?
Ralph Schlosstein -- President and Chief Executive Officer
We are great. Thank you. Good morning.
Devin Ryan -- JMP Securities -- Analyst
Great. Good morning. So, maybe just starting with Europe, since you're over there, would love to get a bit of perspective around I guess the current environment. It's been a slow start to the year in terms of announcements. And I'm curious what you're seeing today, what could change the backdrop or what your expectations are there over the intermediate term? And then, just how the backdrop or maybe slower backdrop is helpful, if at all, to recruiting?
Ralph Schlosstein -- President and Chief Executive Officer
Sure. I think if you look at the M&A environment, generally, the dollar volume of announced transactions in the first quarter was down mid-teens, and the number of announced transactions, both globally, was down in the high 20s. In Europe, it was actually a little bit more pronounced. The interesting thing is, if one looks at our backlogs, they're not really consistent with the announced activity in the first quarter. And to be completely blunt about it, we expect this year could be a pretty good year. We certainly don't see anything in our dialogues with clients that suggests that it won't be.
And we are also seeing -- we would expect to see that our market share would continue to progress positively. So, the phenomenon we're seeing is that activity for the first quarter was slower, the teams should have picked up in the second quarter. Our dialogues with clients and our backlog don't suggest anything that would remotely suggest a slowdown. But even if there is a modest decline in activity, it's a little bit like the discussion we had last year about the effective method on our equities business. It clearly shrank the pool of dollars that were available for research, but our market share gained and how those two factor out, it's hard to predict at this point.
John Weinberg -- Chairman of the Board and Executive Chairman
I would just add to that by just saying that our dialogue levels and our interactions with clients are remaining at a very high level. And our backlogs remain strong. And so, really, across the board in Europe and more broadly, we feel quite constructive about where we are right now. Second part of your question was about recruiting, and we have a very consistent approach to recruiting, which is, we look around the world for the people who we think are going to add to our business, we look at -- we look for opportunities to bring in people who are A level players, and we keep those dialogues on. Often these dialogues start years before and we continue those, and we're very much on a consistent frame from our standpoint, recruiting continues to be very high -- a very high emphasis for us and we feel like it's a very constructive -- continue to be a constructive environment for us in Europe and more broadly.
Devin Ryan -- JMP Securities -- Analyst
Okay. Thank you guys for all that color. And then, maybe a follow-up here, just looking at the equity commissions line, another relatively slow start. I'm curious if it just feels like normal seasonality in the business or does it still feel like there is some pressure lingering in the business as MiFID II effects continue to evolve? And the other side of that, you're seeing some really strong equity underwriting contribution, and I know that's kind of an important part of that plan there as well. So, as you think about the equities footprint overall, even if commissions weren't to recover, would you still look to expand that businesses given all the other benefits to Evercore and a lot of the success that seems like you're having in equity underwriting and you have been thinking more broadly?
Ralph Schlosstein -- President and Chief Executive Officer
Yes. As you saw and as John detailed, we made some pretty consequential senior additions to the talent pool in that business. And as you noted, the equity underwriting got off to a good start in the first quarter and in a way, it's a little bit better than it looks on a first quarter to first quarter comparative basis, because last year, we participated in a quite significant transaction in Mexico. And given the economy there, we had no underwriting revenues from Mexico this year. So, our underwriting revenues in the US are actually up nicely and our backlogs in that business are up nicely as well.
When we did the Evercore-ISI transaction, I think, I cited as one of the reasons that we were doing it is that, we thought we could build a very healthy equity underwriting business. And I said without defining a year in which that would occur, I thought that would be a $75 million to $100 million a year business for us. Given the success that we are now having, I would set a much higher goal for us.
Devin Ryan -- JMP Securities -- Analyst
Great. Thanks very much. Appreciate it guys.
Operator
And our next question comes from Michael Needham from Bank of America-Merrill Lynch. You may proceed.
Michael Needham -- Bank of America-Merrill Lynch -- Analyst
Hi. Good morning. So, my first question is on, other ways to get paid in advisory. Over the last year or so what have been the biggest contributors to revenue outside of traditional M&A advice, and what contributors have been growing the fastest?
Ralph Schlosstein -- President and Chief Executive Officer
Last year, as I think everyone noted, our advisory revenues were up 32%, which I think, if I'm not wrong, was the largest increase of any large firm or independent firm in the entire industry. And that increase reflects interestingly strength across the board. We had significant increases in the US, in Europe and in Asia. We had significant increases in M&A, restructuring, capital markets advisory and our capital raising team of businesses. So we've, I think, been 1000% consistent in terms of never identifying precisely how much revenue was in various forms of advisory services that we provide.
And part of the reason we don't do that is, the lines are pretty blurry. How do you distinguish restructuring from capital markets advisory, from a strategic advisory, when all of those options may be considered when you're working with the company. So -- but the reality is, we're really experiencing strengthened growth in all our practices including the strategic shareholder and activists defense.
John Weinberg -- Chairman of the Board and Executive Chairman
As we really built out our capabilities with respect to things that we can provide clients, what we've really been able to do is, is grow in multiple of areas. And as Ralph said, we don't specifically break things out, but areas like debt advisory and activism and defense and capital raising are all elements that we've been able to bring to existing client relationships and new client relationships to really build the revenue base and the possibility for revenue base grows for the Firm. And so, we have any number of ways that we can assist and work with clients now increasingly. And that's really been the strategy, which is to be able to bring more important advisory elements to our clients.
Ralph Schlosstein -- President and Chief Executive Officer
And we apologize that that makes your job harder because the links between deal logic and revenues aren't as tight as they have been in prior periods.
Robert Walsh -- Senior Managing Director and Chief Financial Officer
I would rather say we acknowledge.
Michael Needham -- Bank of America-Merrill Lynch -- Analyst
Okay. Fair enough. Second one on talent and hiring, has competition from the large investment banks changed at all? Some of the management teams have commented recently that they're focused on growing or retaining their investment banking businesses. And I've heard that in certain cases, some areas competition just for like comp levels is increasing a little bit. Just curious to get your view on it. Thanks.
Ralph Schlosstein -- President and Chief Executive Officer
I would say I think I've said this in the past that almost every everyone who joins us, there is some combination of pull and push. The pull I would argue has gotten stronger in each of the last three or four years and that's certainly reflected in the number of dialogues and the intensity of dialogues with -- and the willingness of people to talk to us about Evercore and our business model. And that pull is really centered around the desire to spend a 100% of your time working with clients on the matters that they consider most important, their strategy, the M&A they may undertake to execute their strategy, activism, capital markets structure, and of course, equity. If you're a CEO, the two things you focus on are your strategy and the M&A you might execute to implement that strategy and directly. So that pull and the culture and the collegial work environment we have here, it is pretty sustained and I would say, in each of the last three or four years, it's intensified rather than going in the other direction. So that's a good thing for us.
I would say that the larger firms, as a general matter, have gotten better at identifying the bankers who would be most of interest to us, who are the ones who do focus on these high value added activities, but from what we've seen, comp hasn't really changed materially at the large firms and certainly, not in a way that would make people less accessible to us.
John Weinberg -- Chairman of the Board and Executive Chairman
My own personal experience in talking to many of the candidates that we are looking at and talking to and are recruiting is that, there's generally a very positive view of the Firm. And I think that what we have found is that, more than anything, what people are looking at is the quality of the experiences they are going to have when they come. And I think what we've been able to demonstrate for people is that, coming to work at Evercore is a highly favorable and a really good place to be, and to practice your craft. And I think that when we talk to people that is evident. And so, our conversations have been very constructive and the environment feels very constructive. In terms of the big firms, it's really hard to know. There are some big firms out there who are also hiring good people. We really -- we have found that very good people want to come and our conversations in the past and currently seem to be going quite well.
Michael Needham -- Bank of America-Merrill Lynch -- Analyst
Okay. Thanks. And may just ask one more modeling question. Was there any material deal pull-forward for deals that closed in April and in the first quarter?
Robert Walsh -- Senior Managing Director and Chief Financial Officer
Yes. It was inconsequential, little bit more than $2 million.
Michael Needham -- Bank of America-Merrill Lynch -- Analyst
Okay. All right. Thank you.
Operator
And our next question comes from Brennan Hawken with UBS. You may proceed.
Brent Dilts -- UBS -- Analyst
Hi. Good morning. This is Brent Dilts on for Brennan.
Ralph Schlosstein -- President and Chief Executive Officer
Hi.
Brent Dilts -- UBS -- Analyst
Hi. Just understanding that M&A is a lumpy business, could you just talk a little bit about just where we are with comps? I mean last year was a good year. So how should we be thinking about comps? I mean it seems you're still pretty optimistic given the backlog. So, just anything around the comps, just as you think of expectations or levels there from here?
Ralph Schlosstein -- President and Chief Executive Officer
Well, we commented that our backlogs are strong and that they are not consistent with the dollar volume or number of announced transactions in the first quarter. And as I commented in my opening remarks, from everything we can see, the strong momentum with which we executed 2018, will continue. Do I expect our advisory revenues to go up 32%? No, but we certainly see a continued strong momentum in our business. And I can't end without saying, make sure that Brennan knows how much we missed him on the call.
Brent Dilts -- UBS -- Analyst
Will do.
Robert Walsh -- Senior Managing Director and Chief Financial Officer
The other point I would add is, as both Ralph and John indicated, in addition to a constructive view in terms of the business opportunity, they have an equally constructive view in terms of the recruiting opportunity. So, as we sit here at the beginning of the year, with some degree of uncertainty as to what the revenue picture will ultimately be and some degree of uncertainty as to exactly how many candidates we'll successfully recruit, we've begun the year with our best judgment, which happens to be effectively the same judgment we had at the beginning of last year, and we'll see.
Ralph Schlosstein -- President and Chief Executive Officer
And I would point out as we have, as John and Bob and I all have in the past, at the beginning of the year, we're giving you our best judgment of what the comp ratio will be for the full year. And obviously, when we have more information we modify it, as we did last year and the year before as we got toward the end of the year. But I would also say that -- I've said a number of times in the past, that we are going to continue to invest to create intermediate to long-term value in our business. We still see significant opportunities to grow, whether those are geographic, filling in more in certain industries or deepening our capabilities in certain product areas. And if we do at some point enter a downturn, which I'm absolutely confident will happen at some point in the next two decades, if we do enter that period of time at some point, we would likely be talking to you about investing through that cycle to have an even stronger market share when we come out.
Brent Dilts -- UBS -- Analyst
Okay. I appreciate that. And on similar topic, if there is a downturn and given the dividend hike this quarter, does that reflect any change in how you're thinking about expenses in a downturn or just where you may be investing? I mean it sounds like you still want to keep the hiring pedal down, especially if there is opportunity in a downturn, but just how should we think about the dividend versus like expenses, hiring in a downturn?
Ralph Schlosstein -- President and Chief Executive Officer
I think our goal would always be to maintain or to grow modestly the dividend regardless of the environment, but you can't make a categorical statement. There are a lot of people who made categorical statements in 2007, who ate their words in 2008 and we don't want to do that.
John Weinberg -- Chairman of the Board and Executive Chairman
We don't intent for a dividend policy to restrict us from being able to recruit highly talented people when they're available in the cycle. And so we will continue to make sure that we provide -- have the provision of fire power, the balance sheet room, the cash flow to be able to recruit good people whenever they become available because our strategy is to continue to grow the talent level of the Firm.
Brent Dilts -- UBS -- Analyst
Okay. Thanks, guys.
Ralph Schlosstein -- President and Chief Executive Officer
Thank you.
Operator
And our next question comes from Jim Mitchell with Buckingham Research. You may proceed.
James Mitchell -- Buckingham Research Group -- Analyst
Hi. Good morning. Maybe just talk a little bit about SMD headcount growth? It's really accelerated both gross and net basis for last three years, seems like internal promotes becoming a bigger part of that, last year close to 50%, this year could be close to that. Is the internal pipeline of SMDs given this is sustainable at this pace, and I guess how confident are you in generating the same level of productivity from all these new hires that you've been generating over the last few years?
Ralph Schlosstein -- President and Chief Executive Officer
Well, internal promotes are always going to be a little lumpy just like external hires are. I think as a general matter, if you look at the stock of our advisory SMDs now, it's roughly a third internally promoted, that's up from 10%, 11%, eight or nine years ago, and if you look at the flow last year, it was almost 50% internal promotion. I happen to feel, and I know John agrees that this is a very healthy thing. That is ultimately how we create a self-sustaining enterprise. We have a terrific backlog of talent that would be eligible for promotion over the next one, two, three years. I have no idea, since we have a committee now that -- a group of two or three who decide promotions and we won't know until late next year how many make it.
The one point I would also add, and I'm sure John will have some observations as well, is that, our productivity from our internal promotes is virtually identical to that of the people that we've hired externally. And that's after we've sorted through those who weren't a perfect fit with our business model, which fortunately there have been fewer and fewer of those in more recent years. So we have a very rigorous process and that rigorous process has served us extraordinarily well.
John Weinberg -- Chairman of the Board and Executive Chairman
My perspective on this is that, if you think about what we're really tried to accomplish is we've tried to have continued to increase the talent level of the Firm and continue to build to increase our capabilities with respect to advising clients in more things that are relevant to them. And if you think about that way, you realize that we need to continue to add good people. And those good people can come through promotion, which is really a desirable way to do it, because as Ralph said, if we can continue to develop and promote great people, that's a tremendous way to actually drive SMD growth, but also looking outside for highly talented people who want to come and join the team. And we continue to have real opportunities. And there's more white space for us to really fill with this talent group. So, I think Ralph and I anticipate that we will continue to keep adding people as good people become available. And we don't really see the limitations to that at this time.
Robert Walsh -- Senior Managing Director and Chief Financial Officer
Jim, it's Bob. Just to put a point on Ralph's comments on the productivity, clearly when we look back in time as Ralph noted, the productivity for our internal promotes has matched that of those we've hired externally as they've ramped up and they've evolved over time. As your question noted, we've had a very large class this year and the year before, so we're watching the productivity ramp of those two classes carefully as we always do. It's too soon to articulate performance for them, but as Ralph said, the standard and the expectation is the same.
James Mitchell -- Buckingham Research Group -- Analyst
Right. I would imagine the ROI on internal promotes is pretty good too. Okay. Maybe just a follow-up, you guys had laid out a lot of white space to grow with these hires. Is there any kind of priority, is it, hey, Europe is kind of dead on its back, that's an opportunity set to take advantage of that, to build for the next maybe rebound there, or is it, hey, we want to fill out restructuring? Is it just the staff lead or is it, there is some focus on where you are investing the most?
John Weinberg -- Chairman of the Board and Executive Chairman
We have identified areas really across the board that we think have needs for investment from us. But as we said, we're only going to grow in places where we can put A-plus talent into work on it. And specifically on Europe, we've been here, we've been talking about the business plan here, there are tremendous opportunities here for us. And we really like our business model and we very much like the people we have who are driving our business here. And we think there is room to grow. Now, we're going to grow responsibly. We're not going to crash in with a whole number -- a huge number of bodies and look at things that are uneconomic. We're going to actually do, as we've done consistently, which is that we look for A talent. We bring the A talent into places where we think there is white space and we match it. There is definitely opportunity in Europe and we been discussing that and we're on the path to continue to grow here.
But also, in really virtually all of our businesses, we have opportunities. We are not that big and we're growing. And I think our brand is continuing to have resonance with clients. And so, I think there are increasing opportunities really across the board. And so we're going to continue to look at it that way. I don't think there is really a limit right now to us. So the real constraint for us is, we go slow because we're very careful, we hire one person at a time.
James Mitchell -- Buckingham Research Group -- Analyst
Okay. Thanks for the help.
Operator
And our next question comes from Michael Brown with KBW. You may proceed.
Michael Brown -- Keefe, Bruyette & Woods -- Analyst
Hi. Good morning, guys.
Ralph Schlosstein -- President and Chief Executive Officer
Good morning.
Michael Brown -- Keefe, Bruyette & Woods -- Analyst
So just, actually, kind of where you are investing question, just a slightly different angle. So what we are kind of hearing from largest banks is that they're actually looking to expand coverage into smaller cap companies. So, in the past you have really talked about focusing on deals that have generative fee of about $1 million or more. So, as you talk about broadening coverage, would that also include moving down cap and working on deals that could generate lower fees?
Ralph Schlosstein -- President and Chief Executive Officer
No. I think if anything, a little bit more in the other direction. We welcome the competition. We think we have a very good and balanced across market cap business model, while our -- obviously, as John indicated, we're in four of the six largest deals announced so far this year. So we obviously have a meaningful presence in large-cap companies. But if you looked -- I have no idea what it is this year year-to-date, but if you look historically at our mean deal mean, the average size of transactions we announced, it's $2 billion to $3 billion. And if you look at the median, it's $600 million, $700 million typically in any given year. So, I think one of the things that's pretty unique about our franchise among the independent firms is that we have a strong presence in large-cap transactions but we also do a lot of transactions.
Robert Walsh -- Senior Managing Director and Chief Financial Officer
What I found when I came here was that this Firm was more focused on quality rather than size. And so, we were very willing to do business with high-quality companies that may not be big. And so there is a very strong business in the middle market at Evercore. Having said that, we also have a strong business in the upper middle and in the large-cap market. And I think that, if anything, what we're trying to do is just continue to build on all levels. I think we provide real service to middle market companies because we know them well and we've done that business for quite a while. But we also,. As we've said, are building out services to serve the very large cap companies and get involved in some of their most important things. And that's the strategy to really maintain it in all of the different levels.
Michael Brown -- Keefe, Bruyette & Woods -- Analyst
Great. And just for the M&A environmental, you had touched on consumer and healthcare really being strong verticals so far this year. Which verticals conversely have been quieter this year for you guys? And then, also, we saw a large deal in the energy space last week, and oil drifting closer to $70 a barrel, do you really expect a pickup in energy related M&A? Are you seeing a pickup in conversations in the energy space?
John Weinberg -- Chairman of the Board and Executive Chairman
Our energy people are very busy right now. They are running very, very hard. So with respect to the energy vertical, I think, obviously, the volume levels haven't been as high, but we seem to be in a lot of different situations right now. And the activity level in that area continues to be high, maybe because our bankers are working really hard to create -- to provide value for clients. I would say in terms of our business, we pretty much see a pretty healthy set of discussions across the board. I couldn't say that in terms of activity levels that there's any group that's really quiet right now for us.
Michael Brown -- Keefe, Bruyette & Woods -- Analyst
Okay. Great. Thank you for taking my questions.
Ralph Schlosstein -- President and Chief Executive Officer
Yeah. Thank you.
Operator
And our next question comes from Steven Chubak with Wolfe Research. You may proceed.
Sharon Leung -- Wolfe Research -- Analyst
Hi. This actually Sharon Leung filling in for Steven. So, I just want to ask on the non-comps. Just how do you think about the trajectory of non-comps going forward? You had cited the non-comp per employee that was up a little bit year-on-year. Just looks like some of that uptick is related to fixed expenses. You had also said, it's some of the investments in facilities. So just wanted to get a sense of how that should traject going forward and if we should expect that kind of uptick to continue?
Robert Walsh -- Senior Managing Director and Chief Financial Officer
So, as I said in my remarks, the headcount growth remains the primary driver of non-compensation expenses for us. The fact that the average for the quarter per employee is up a little bit is consistent with the discussion we've had for more than a year that we're investing rather significantly in facilities. So we've added square footage at a rate faster than we have added people. That would normalize, but probably over a couple of years. So heads are the driver. As I did mention the change in presentation of client related transaction expenses will introduce a little bit of variability, both from our underwriting and our advisory engagements. Certainly, it had a modest impact in the first quarter, but the driver, as it has been, is going to be the growth of the business and adding heads.
Sharon Leung -- Wolfe Research -- Analyst
Okay. Great. And then just a quick follow-up on the restructuring outlook. I know you had cited strength in the retail and energy sectors. Just wanted to get a sense of what your outlook is for that business going forward and what the backlog looks like at the moment?
Ralph Schlosstein -- President and Chief Executive Officer
As I said in answer to another question, our advisory revenues last year were up in every category, including restructuring, notwithstanding the fact that default levels are at almost all time lows. So I think we've been able -- we've added talent in the restructuring area. We think we are well-positioned to capitalize on a pickup of activity when that inevitably happens. But other than relatively isolated sector activity like retail or like we saw in energy two or three years ago, there certainly is no broad scale pickup in distressed companies at this point in time.
John Weinberg -- Chairman of the Board and Executive Chairman
And the other thing I would add to that is that, what we have done to our traditional strong debtor business we've increasingly engaged with clients on the creditor side. So we've really added an element to the way we cover clients and that we think may lead over time to a more velocity, more business in the restructuring business generally.
Sharon Leung -- Wolfe Research -- Analyst
Okay. Great. Thanks for taking my questions.
Ralph Schlosstein -- President and Chief Executive Officer
Thank you.
Operator
There appears to be no questions at this time. I would now like to turn the floor over to Ralph Schlosstein for any closing remarks.
Ralph Schlosstein -- President and Chief Executive Officer
Thank you very much for your time and we look forward to talking to you in three months. Thank you.
Operator
Ladies and gentlemen, this concludes today's Evercore first quarter 2019 financial results conference call. You may now disconnect. Everyone have a great day.
Duration: 57 minutes
Call participants:
Jamie Easton -- Head of Investor Relations
Ralph Schlosstein -- President and Chief Executive Officer
John Weinberg -- Chairman of the Board and Executive Chairman
Robert Walsh -- Senior Managing Director and Chief Financial Officer
Devin Ryan -- JMP Securities -- Analyst
Michael Needham -- Bank of America-Merrill Lynch -- Analyst
Brent Dilts -- UBS -- Analyst
James Mitchell -- Buckingham Research Group -- Analyst
Michael Brown -- Keefe, Bruyette & Woods -- Analyst
Sharon Leung -- Wolfe Research -- Analyst
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