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Evercore Inc. (NYSE:EVR)
Q3 2020 Earnings Call
Oct 21, 2020, 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 Third Quarter 2020 Financial Results Conference Call. During today's presentation, all parties will be in listen-only mode. [Operator Instructions] 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.

Hallie Elsner Miller -- Investor Relations

Thank you Shannon. Good morning everyone, and thank you for joining us today for Evercore's Third Quarter 2020 Financial Results Conference Call. I'm Hallie Miller Evercore's, Head of Investor Relations. Joining me on the call today are Ralph Schlosstein, and John Weinberg our Co-Chairman and Co-CEOs 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 third quarter 2020 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 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 posed and is expected to continue to pose significant challenges for our business. 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's 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 -- Co-Chairman of the Board and Co-Chief Executive Officer

Thank you very much Hallie, and good morning to everyone. It's hard to believe that this is our third earnings call, for which we are not all together in the same conference room. For today's call, John is in our offices in New York City, it's his week in the office and I am in my office in North Salem, New York and Bob is with our traders in our office in New Jersey. Our business thrives on in-person collaboration and teamwork, and while we have been quite effective and successful over the last seven-plus months, operating out of 1800 offices around the globe we certainly recognize that our business and our culture operate best when we are physically together. That certainly is our ultimate goal once the virus is no longer a factor in our lives, but in the interim, we remain committed to serving our clients with distinction and to collaborating with one another, as we implement a gradual return to office around the world.

The first nine months of this year have been volatile, and have had significant challenges and uncertainties, but there also have been many opportunities to advise our clients on their most important, strategic and financial needs. The strategic investments we have made to broaden and diversify our capabilities over the past several years have enabled us to serve our clients on a wide array of strategic and financial matters and resulted in solid quarterly and year-to-date results demonstrating both to our clients and our shareholders that Evercore very much is in all-weather firm that can produce good results in a wide variety of environments.

There unquestionably are still uncertainties ahead; the upcoming US election, Brexit, the path of the virus and the disparity between the financial market recovery and the real economic recovery with so many of our fellow Americans, Europeans and others around the globe still unemployed or with their small businesses shuttered. However, as we see the market for merger activity improve, and we continue to see robust activity in capital advisory, restructuring, underwriting and research and trading, we have never been more confident in our ability as a firm to help our clients achieve their most important strategic financial and capital objectives.

Before I comment on our financials, I want to provide a brief update on how Evercore has broadly responded to the events of this year and on what we are focused going forward. As I mentioned, we are beginning to implement a very deliberate and thoughtful return to our offices around the globe. Our transition back is occurring at a measured pace and follows all local government guidelines designed to protect communities in which we work. The health and safety of our employees and their families remains our paramount consideration, and the return of any individual has been of their own choice.

Most of our colleagues, continue to work remotely and we anticipate that this will be the case for a reasonable period of time, probably measured in quarters rather than months. We remain focused on pivoting to meet the needs of our clients and leveraging our broad and diverse capabilities to advise them, and the changing economic and financial environment. The result is as follows: new M&A activity is being announced, in addition to the pre-downturn matters that have begun to reengage. We are seeing continued momentum occurring in our capital advisory business both helping clients raise equity privately and publicly and advising clients on debt opportunities.

Restructuring and refinancing transactions are continuing and we are having constant dialog with our clients about their future financing needs. And finally, we are experiencing strong engagement with investors looking for Research and our Wealth Management clients seeking strong financial advice. Non-M&A activity, including underwriting has been a distinct opportunity during the past several months and has become an increasingly important part of our business in the current environment.

We've been able to support clients to enhance their liquidity, raise investment capital and shore up their balance sheets. We are particularly proud of our CAPS product, which is designed to be an alternative to SPACs which we originated during the quarter and which we are in the early stages of building our convertible securities capability, including enhancing our distribution capabilities and our origination team. There was a significant increase in M&A announcements in the third quarter and that momentum seems to be continuing in the fourth quarter. Despite the many potential uncertainties which I outlined earlier as we look forward to the remainder of 2020 and into 2021, our backlogs are strong and we look forward to continuing our momentum in 2021 and in finishing this year strongly, and of course, we remain committed to maintaining our strong and very liquid balance sheet. Let me now turn to our results. We are quite pleased with our results for the third quarter and first-nine months of 2020 as the diversity of our capabilities and the entrepreneurial spirit of our team, allowed us to deliver revenues that are essentially flat year-over-year. Below average M&A transactions in March, April, May, June affected our third quarter advisory results. However, as you have seen, announced global M&A volumes nearly doubled in the third quarter compared to the second quarter and increased 38% compared to last year's third quarter in the US.

In the US, announced M&A volumes increased more than three-fold versus the second quarter and increased 55% compared to last year's third quarter. Each of the three months of the third quarter both global and US announced M&A transaction volumes were higher than the monthly average of the last two years and in September, global announced monthly volume surpassed $450 billion for only the second time in the past few years.

Third quarter adjusted net revenues of $408.5 million and year-to-date adjusted net revenues of $1.36 billion were both flat versus the prior year periods. As revenues from capital advisory, restructuring, underwriting and commissions and related fees largely offset the decline in revenues from lower M&A activity. Third quarter advisory fees of $271.2 million declined 16% year-over-year and year-to-date advisory fees of $966.8 million declined 11% compared to the prior year period.

Based on the current consensus estimates and actual results, we expect our market share of advisory fees among all publicly reporting firms, on a trailing 12-month basis to be 8.3% compared to 8.1% at the end of June and 8.3% at year-end 2019. Third quarter underwriting fees of $66.5 million increased more than 275% year-over-year, and the year-to-date underwriting fees of $181.2 million nearly tripled versus the prior year period. The diversification of our underwriting business has contributed to a real step up in momentum.

Now, we continued to invest in broadening our industry coverage and our product capabilities. We are working hard to sustain this momentum in the fourth quarter and have a meaningful and diversified pipeline of IPOs follow-ons and convertible securities. Third quarter commissions and related fees of $43.9 million declined 6% year-over-year as the heightened volume and volatility of the first six months of the year subsided. Year-to-date commissions and related fees of $153.4 million increased 12% versus the prior year period.

Asset management and administration fees were $16.6 million in the third quarter and $47.1 million for the year. To date, an increase of 11% for the nine months and 7% -- I'm sorry, 11% for the quarter and 7% for the 9 months. Turning to expenses, our adjusted comp ratio for the third quarter and the first nine months of 2020 is 63.6%, the 63.6% accrual for the first nine-months reflects, as it has in past years our estimate for the full year compensation ratio, which includes an estimate of 2020 incentive compensation.

This year, however, as we have pointed out on previous earnings calls there is higher level of uncertainty than in prior years about both the full-year revenues and full year market compensation. Third quarter non-compensation costs of $71 million declined 18% year-over-year and year-to-date non-compensation costs of $230.9 million declined 9% versus the prior period. Third quarter adjusted operating income and adjusted net income of $77.7 million and $52.6 million declined 8% and 13% respectively and adjusted EPS of $1.11 declined 12% versus the third quarter of 2019.

Year-to-date, operating income and adjusted net income of $262.9 million and $182.2 million declined 18% and 25% respectively and adjusted EPS of $3.85 declined 23% versus the prior period. We remain committed to our historical capital return strategy in which we return earnings not needed in our business to shareholders through dividends and share repurchases. Given our solid results for the first nine months of the year, we have -- which have resulted in good cash flow generation. We are beginning to turn to that pre-COVID strategy.

Consistent with that view, our Board declared a dividend of $0.61 a $0.03 per quarter increase which is a 5% increase from the prior quarter. We plan to return to our normal reassessment of the dividend in April of 2021, and to begin to restart our practice of returning our cash earnings that are not required in the business to investors through share repurchases. Bob will provide additional detail on our cash position in his remarks. Before I turn the call over to John to discuss the current market environment and to comment further on our Investment Banking business I'd like to talk about the environment for talent.

We continue to see opportunities to further build out our capabilities and to expand geographically and we are building a pipeline of senior level A+ talent positions. This quarter, we welcomed Mike Meyers to the firm as an SMD in our Equities business to help expand the firm's convertible debt underwriting capabilities and distribution capabilities. We also remain highly focused on developing and promoting our high talent professionals from within the firm. Finally, we are especially proud of Evercore ISI's most recent showing in Institutional Investors Annual All-America Research Survey where we were recognized as the top ranked independent firm by a wide margin for the seventh year in a row and ranked number two or number three among all firms, large or small, depending upon how you count.

Ed Hyman Evercore ISI's Founder and Chairman was awarded the number one position in economics, a recognition he has earned 40 times. Furthermore, Evercore ISI claimed a record 39 individual positions and tied its 2019 record of 36 team positions. Thank you so much to our institutional investor clients for their ongoing support and kudos to the entire Evercore ISI research, sales and trading team for their extraordinary performance.

With that, let me turn the call over to John.

John S. Weinberg -- Co-Chairman of the Board and Co-Chief Executive Officer

Thank you very much, Ralph. After several months of muted merger activity immediately following the onset of the global pandemic I believe that absent a negative event which could certainly happen, we are in the early stages of a recovery as many of the key conditions necessary for a healthy M&A market continue to improve. The equity markets are strong for many sectors, access to financing and readily available credit remains, CEO confidence continues to improve and there appears to be greater stability in the markets.

As a result of these improving conditions, we are seeing increased opportunities to serve our clients across multiple industry sectors globally. In financing, we have found multiple opportunities to help advise our clients in both equity and debt capital raises. Despite the rapid government stimulus at the onset of the pandemic and the swift recovery in the credit markets, we expect restructuring and refinancing activity to stay elevated as leverage remains high across all sectors, especially those that are distressed.

Our restructuring group remains busy and continues to work through assignments and advise clients in sectors most hard hit by the pandemic. Private Capital transactions for sponsors have increased and active assignments are beginning to reemerge, again as well. While we are not yet back to pre-COVID levels, we are encouraged by the current pace of activity. Returning to our investor clients, both institutional and wealth management clients remain focused on the evolving financial markets during the quarter and we continue to provide valuable research insights and wealth management advice.

We expect this focus to continue, particularly as we head into the year end. Trading activity in the third quarter however has not been as high as the first six months of the year, as volatility has subsided. I'm optimistic about the trajectory of the merger market overall, and I am pleased with our capital raising performance and our restructuring and debt advisory teams that have stepped up over these months. Let me now turn to our performance in Investment Banking. I'm encouraged to see activity levels with both corporate clients and financial sponsors broadly increasing across our platform in many sectors. As announced, M&A activity increased during the quarter, we sustained our number one league table ranking for volume of announced M&A transactions over the last 12 months, both globally and in the US, among independent firms.

Among all firms we were once again number four, in the US in announced volume over the last 12 months. As I said, our restructuring and debt advisory teams remain busy. Our US restructuring group has already completed more transactions year-to-date than in all of 2019 and has been involved in nine of the 15 largest bankruptcies by total liabilities year-to-date. We believe there will be further opportunities to advise our clients throughout what we expect to be an elongated restructuring cycle.

The team continues to do a great job partnering with and leveraging the expertise of our industry-focused bankers. In shareholder advisory and activism defense and our Private Capital Advisory businesses, origination activity is beginning to pick up momentum. There has been a pickup in unsolicited activity and we are pleased to be the financial advisor to CoreLogic, which is the biggest hostile situation at the moment. Our Private Funds Group has successfully adapted to the virtual environment and has been a leader in this space, successfully completing virtual fund raises for both existing clients and new clients where the relationship has been developed entirely in remote environments.

Our equity capital markets business is performing extremely well. We continue to gain momentum, and we are maintaining our focus on building our team. We served as an active book runner or co-manager on six of the 11 largest US IPOs in the first nine months of 2020 and we played a key role in 30 underwriting transactions in the third quarter alone. We are very proud to have served as the sole book runner -- our first US book run mandate ever on Executive Network Partnering Corporation's $360 million CAPS IPO.

This unique CAPS offering was pioneered, structured and developed here at Evercore and brings innovation to the increasingly popular SPACs market. Clients continue to look opportunistically to raise capital and we are pleased with the breadth of the conversations and activity we are experiencing across a broad range of sectors including healthcare, financials, technology and energy. We also continue to invest in broadening the business and building out the convertible origination team with important strategic hires.

Although it is still early days for us in the convertible space, we have served as an active book runner for Helix Energy Solutions Group's $200 million convertible bond offering during the quarter. In our equities business our Investor and Corporate clients continue to rely on us for valuable macro and fundamental insights and our traders continue to help our clients execute in volatile markets. As Ralph mentioned earlier, we are very proud of the team's institutional investor results.

Our results this quarter demonstrate that our team can produce strong outcomes, no matter what the environment -- thanks to the breadth of our capabilities and the balance of our platform, despite not being physically together in our offices. I am very much encouraged by the current pace of activity and the momentum we are experiencing in our business. I would now like to call turn the call over to Bob.

Robert B. Walsh -- Senior Managing Director and Chief Financial Officer

Thank you John. Let me begin with a few comments on our GAAP results. For the third quarter of 2020 net revenues, net income and earnings per share on a GAAP basis were $402.5 million, $42.6 million and $1.01 respectively. For the first nine-months of 2020, net revenues, net income and earnings per share on a GAAP basis were $1.3 billion, $130.2 million and $3.09 respectively. Our adjusted results exclude certain items related to the realignment strategy that began in the fourth quarter of 2019.

At this juncture, we are finalizing all of the required communications that remain and are associated with the realignment strategy and we are working hard to complete its execution by year-end. Ultimately, we expect to incur separation and transition benefits and related costs of approximately $43 million which reflect a modest increase in the cost for our prior estimate. During the third quarter of 2020, we recorded $7.3 million as special charges, which are excluded from our adjusted results.

Year-to-date we have recorded $37.6 million of special charges related to the realignment initiative. As we mentioned earlier this year, 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 is subject to regulatory approval, which was submitted in June and is expected to occur shortly after that approval is received.

In addition, leaders from our advisory business in Mexico announced earlier this month that they are departing Evercore to form a new strategic advisory firm TACTIV, which we will partner with under a new strategic alliance. We believe this alliance model best positions the team in Mexico to address client needs and build a diverse and growing array of capabilities. Our adjusted results in the third quarter and first nine months of 2020 also exclude special charges of $0.1 million and $2.1 million respectively related to accelerated depreciation expense. Turning to other revenues; in the third quarter other revenues increased compared to the prior-year period, primarily as a result of a gain of approximately $8 million on the investment funds portfolio which is used as an economic hedge against a portion of our deferred compensation program.

Other revenues for the first nine months of 2020 decreased versus the prior-year period, primarily reflecting a net gain of $1 million from this portfolio compared to $9.2 million for the first nine months of 2020. Of course, this amount fluctuates as market values move and the continued strength of the market during the quarter, drove this quarter's gains. Focusing on non-compensation costs, firmwide non-compensation costs per employee approximated $39,000 for the quarter, down 17% on a year-over-year basis.

The decrease in non-compensation costs per employee versus last year primarily reflects lower travel and related costs and lower professional fees. As we continue to evolve toward more normal operation, costs associated with travel, professional fees and some other expenses will begin to recur. Our GAAP tax rate for the third quarter was 23.5% compared to 28% for the prior year period. On a GAAP basis, our share count was 42.3 million shares for the third quarter, our share count for adjusted earnings per share was 47.4 million shares.

Wrapping up and looking at our financial position, we held $1.1 billion of cash and cash equivalents at approximately $100 million of investment securities or $1.2 million of liquid assets as of September 30, 2020. By comparison, at September 30, 2019 we held approximately $305 million at cash and cash equivalents and $620 million of investment securities or $920 million of liquid assets. As we have discussed in the past, we hold cash and investment securities both for operations and to fund our deferred compensation obligations.

At the outset of the downturn, we shifted our holdings to a highly liquid portfolio, reducing expenditures and buybacks to maximize our financial flexibility. We plan to begin to reestablish our longer-term investment portfolio, so that funds held to satisfy our deferred compensation obligations as well as a portion of our permanent capital base, generate a greater return. This investment strategy will result in shifting funds to investment securities relative to cash and cash equivalents.

We continue to monitor our cash levels, liquidity, regulatory capital requirements, debt covenants and our other contractual obligations, including deferred compensation regularly, and as Ralph noted, we will begin to return cash earnings not needed to support these needs -- to our investors. Let me turn the call back to John.

John S. Weinberg -- Co-Chairman of the Board and Co-Chief Executive Officer

Thank you Bob. Just a couple of comments before we go to questions. First, I want to take a moment to acknowledge our exceptional team; the results Ralph, Bob and I just summarized and the current pace of activity we are experiencing are a direct result of the dedication, teamwork collaboration and commitment to our clients that our people have demonstrated throughout this year.

Thank you to our entire team for their efforts on behalf of our clients, and for keeping our firm sustained during a challenging period. Second, during our last call, we talked about the importance of diversity and inclusion at Evercore. We remain committed to pursuing our diversity and inclusion goals and I'm proud to share that during the quarter, we added diversity and inclusion as a stand-alone core value. We are committed to holding ourselves both as individuals and as a firm, accountable in this important area and we look forward to continuing to make progress.

Finally, as Ralph and I shared with our employees during a recent virtual town hall that we conducted while socially distanced in the office we are all very much focused on finishing the year strongly and preparing for 2021. While there are still uncertainties ahead, we have never been more optimistic about the strength, breadth and diversity of our platform to help our clients regardless of the environment.

Now, I'd like to invite you to ask questions.

Questions and Answers:

Operator

Thank you sir. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from the line of Manan Gosalia with Morgan Stanley.

Manan Gosalia -- Morgan Stanley -- Analyst

Hi, good morning. As you said, we've seen a pretty strong rebound in M&A announcements for the industry, and based on what's publicly available at least we've seen an uptick on deals in which Evercore has been advising on as well, but maybe not to the same extent that we're seeing for the industry as a whole, and I sort of realized that public data isn't perfect, very often, they're updated with a lag so just wanted to make sure that we have the right takeaway here is that we can't see the full picture yet, but based on what you're seeing in the pipeline, we should see a nice rebound in completions as we go into the fourth quarter in 2021, and maybe as you address that you can talk a little bit about the competitive environment right now, given the flurry of activity?

Ralph Schlosstein -- Co-Chairman of the Board and Co-Chief Executive Officer

Sure. We feel very good about our pipeline, we are solid, our backlog is solid and strong and our dialogs have picked up dramatically. We feel like we have real momentum in our business and we feel quite good about where we stand. Our dialogs are good, we have some very, very strong relationships that continue to have very good dialogs and we -- and our clients are definitely looking at doing things and so we feel quite good about our market position. And competitively, the environment is as always quite rigorous. There are people out there in the merger business who are doing things -- I think one of the interesting things is that clients are very much willing to engage in dialogue now. There is a lot more idea generation going on; clients are looking for opportunities, to bring their businesses forward. So, we see that the pace of dialog and the pace of activity with clients just continues to pick up, and we feel like the environment, if it continues is going to continue to give us the opportunities to really find really good situation for our clients.

We also, as we've said our breadth of capabilities has really given us a whole new dimension of ways that we can serve our clients, both in M&A and beyond. And so, we believe that we have even more opportunities to be important to our clients as they look at their -- at the challenges ahead of them.

Manan Gosalia -- Morgan Stanley -- Analyst

Great, thank you. And can you talk a little bit about the impact the elections are having on deal activity. I mean, how are clients preparing for the possibility of an increase in taxes? Are you seeing more deals being pushed through before your or are more clients waiting to see what happens with taxes before agreeing on a price and deciding to close?

John S. Weinberg -- Co-Chairman of the Board and Co-Chief Executive Officer

Yeah, the elections, while certainly on a lot of people's minds haven't really affected deal activity in any material way except for one, which is in a handful of privately held companies there has been a desire to transact before the end of the year. But, other than that it's really not having much an effect on the overall M&A environment.

Manan Gosalia -- Morgan Stanley -- Analyst

Great, thanks very much.

Operator

Our next question comes from the line of Devin Ryan with JMP Securities.

Ralph Schlosstein -- Co-Chairman of the Board and Co-Chief Executive Officer

Hi Devin.

Devin Ryan -- JMP Securities -- Analyst

Hi good morning. Want to follow up on some of the last line of questioning just on activity and backlogs and the first time we've heard word strong in a while, which I know is a purposeful word. And so, when we think about just the momentum you're seeing in the business I'm just trying to get a better understanding of whether people are just getting over the fact that you can't -- you still -- your travel is still restricted and people still aren't meeting in person. So, I've always thought that that's very important to M&A activity, and so are people just willing now to buy assets [Indecipherable] or is there been a shift to now everything is virtual. And then, I'm just trying to think about whether there are certain deals that are moving forward and so that's filling up the backlog in one area, but there's still a number of deals that are being held back, just because there's still restrictions on travel and things are not as active as it normally are there?

Ralph Schlosstein -- Co-Chairman of the Board and Co-Chief Executive Officer

Well, as John said in his remarks, there has been a real pickup in activity -- that's obvious from the third quarter numbers and from the numbers that we've seen at the beginning of this quarter as well. There have been transactions that have been done primarily or exclusively remotely, but we're also seeing that in larger transactions, people still want to interact and have face-to-face discussions. Those are done in a safe way with masks and social distancing and even outside. They're probably a bit more garden meetings for transactions than have occurred in the last 10 years. But, there's definitely a demonstrable pickup and the interest in strategic and inorganic activity.

John S. Weinberg -- Co-Chairman of the Board and Co-Chief Executive Officer

The thing that I would add to what Ralph said is that I think, and I'm sure you all feel the same way -- there has been an increasing comfort with the Zoom call equivalent, where people really believe that they can accomplish almost as much or maybe just as much through that mode of communication and deals and transactions and dialogues have taken place in that medium very effectively, and so maybe there is a behavioral change. We believe that we are all going to go back to face-to-face in the office obviously, we really believe in that and also seeing clients face-to-face, but there is an element of comfort with that mode of communication and that mode of actually transacting.

Devin Ryan -- JMP Securities -- Analyst

Terrific, thanks for the color. And then, just a follow-up on the compensation ratio, your year-to-date revenues are roughly flat, the comp ratio is about 550 basis points above last year's level year-to-date and I appreciate that the backdrop throughout the year has been uncertain and still is quite uncertain, but I'm just trying to kind of think about whether where we are year-to-date is more about you're being conservative with the uncertainty versus mix of revenues versus a view on the competitive environment for talent, and really, I'm thinking about what the implications are this year, and then also whether there is any implications -- the fact that we're kind of at a higher level year-to-date through the first three quarters, if that has implications on thinking about maybe the go forward comp ratio in a more normalized revenue environment, and especially if momentum in M&A continues here?

Ralph Schlosstein -- Co-Chairman of the Board and Co-Chief Executive Officer

Yeah, I think it has, all of those factors. We are -- notwithstanding the fact that the first three quarters were essentially flat in revenues. We certainly are not -- we have greater uncertainty as to what the fourth quarter will bring, than we do under in normal years number one, number two as you correctly pointed out, and as I did in my opening remarks, we have very little idea of what our competitors large and independent will do with respect to compensation at year-end, and that of course affects the majority of our of our team who are not Senior Managing Directors whose comp is more tied to the ups and downs of revenue. And the final question that you asked is that we would not imply anything from first nine-months of this year, in terms of what the comp ratio will be next year or in following years. I think this is a unique and unusual year and as we said on earlier calls, we're focused on a couple of things. Number one, we have a great team. It's a team that's produced over $2 billion of revenue in 2018 and 2019, and in more normalized environments, which we seem to be returning to obviously could be derailed again, but we certainly at this moment look like we're heading toward the beginning of a more normalized environment.

And so, there's no reason that we can't produce results like that again, and then in 2018, we had a comp ratio below 58%, in 2019, we had a comp ratio of 58.2% and we'll obviously -- when we get to next year, we will do our very best to estimate what it will be for the full year of 2021. I think you should also take into account that the last two or three years have been years of reasonably heavy talent investment, and of some very senior people including my co-chair and Co-CEO, which has been a phenomenal addition to the firm, but those investments are flowing through the income statement. Last year, this year and they start to become significantly less impactful in future years. So, I wouldn't deduce anything from where we are for nine months as having any implications at all for 2021, 2022 or beyond.

Devin Ryan -- JMP Securities -- Analyst

Okay, that's terrific. That was the color I was looking forward. Thank you.

Operator

Our next question is from the line of Richard Ramsden with the Goldman Sachs.

Richard Ramsden -- Goldman Sachs -- Analyst

Hi, good morning guys. Perhaps, we can talk a little bit about the restructuring business. I know there's been a lot of debate over how the broad availability of liquidity is going to impact this restructuring cycle. Six months I guess, post the pandemic kind of really hitting, what is your thought process -- how is your thought process around this restructuring cycle, and I guess the key question is when do you expect to see peak revenue recognition from the restructuring business?

John S. Weinberg -- Co-Chairman of the Board and Co-Chief Executive Officer

Well, in terms of our business, we continue to see real activity and as Ralph and I both said, our restructuring group is performing extremely well. We are involved in many, many restructurings and even more dialogues and in fact, our restructuring group gets involved in helping to give advice to any number of clients -- corporate clients such that there is a tremendous amount of activity going -- coursing through that group. In terms of the liquidity in the system, there's a lot of liquidity in the system and clearly, that means that the restructuring cycle is elongating in that some of the companies that might have had really struggled have actually been able to get financing and to glean enough liquidity such that they are not in complete distress, so it's elongating.

In terms of calling the top of the cycle, that's really hard to do, but what I would say is the activity level continues to be very high for us. We feel like we're in very, very good dialogs with a multiple of clients, and we anticipate that, that activity level and our productivity will continue over the next quarter.

Richard Ramsden -- Goldman Sachs -- Analyst

Okay, great. And then, perhaps you can talk a little bit about the ECM business. I mean, that looks like it's on track to make well over $200 million of revenue this year. Can you talk a little bit about the trajectory for that business and what do you think is a realistic or feasible market share within ECM fees, if you think about the medium term, let's say, three to five years for that business for you?

Ralph Schlosstein -- Co-Chairman of the Board and Co-Chief Executive Officer

Well, when we did the ISI transaction six years ago, we articulated three reasons for doing it, and probably the most consequential was that we felt that we could build an underwriting business that would have some consequence for the firm. I was cautious at that time, I said I thought it would be $75 million to $100 million and I did that based on looking at firms Stifel and Blair and they were all doing $75 million to $125 million. So, I figured, we could do $75 million to $100 million with the quality of our bankers.

We achieved that level of $93 million last year, and I would say what's happened this year is a big step function forward and there are a number of reasons for that. First of all, as we've certainly seen, ECM activity has been up across the board, although not -- it's been up double-digit percentages for all firms, obviously no firm I think has had the experience that we've had -- triple-digit increases. So, I think a couple of things have happened, one in the period March, April, May, June, July M&A activity was essentially discussions were put on pause and clients were heavily focused on liquidity, restoring their balance sheets, equitizing their balance sheets and our bankers who are incredibly talented have very strong relationships and very entrepreneurial figured out that their clients were not going to talk to them over this period of time about the next merger disposition or splitting of the firm.

And so, they engage with clients and produce a fair amount of business, and so the characteristic of our underwriting business this year is really good in two respects. Number one, a much broader industry diversification. Obviously in the past, we've had a very strong healthcare and biotech underwriting practice. We have that again this year, but the interesting thing is that both our healthcare and our non-healthcare underwriting revenues are already ahead all total revenues for underwriting last year -- year-to-date, our year-to-date revenues.

So, a significant pickup in the diversification and I would say there is also a step function change in what should be the run rate of our equity underwriting revenues, and obviously we never make any guidance or forward-looking statements and obviously equity underwriting revenues are always attached to the overall level of equity underwriting in the markets. But, if you asked -- if I were asked today what it should be, our aspiration it's certainly where we're headed this year and hopefully beyond.

Going back to the remarks I made earlier in response to Devon's question, the $2 billion in 2018 we did $2.80 billion of revenue. We did $64 million worth of underwriting revenues that year. In 2019, we did $2.30 billion of revenue with $93 million of underwriting revenue. If what I just described comes to pass in underwriting which we're pretty confident of that there is a step function change in the run rate of that business. The opportunities for our firms in a more normalized M&A environment are pretty significant.

Richard Ramsden -- Goldman Sachs -- Analyst

Okay, thank you very much.

Operator

Our next question is from the line of Jeff Harte with Piper Sandler.

Jeff Harte -- Piper Sandler -- Analyst

Good morning guys. Can you give us any more color on the advisory fee revenue mix, and I'm kind of saying that from -- this is another quarter with a really meaningful beat versus expectations that we generally derive from kind of visible transaction data. So, was trying to get a better feel as to what's contributing to the strength?

Ralph Schlosstein -- Co-Chairman of the Board and Co-Chief Executive Officer

As a general matter, this -- as we said in our earnings release and John's comments M&A is a little weaker and restructuring, capital markets advisory are a little stronger. We're not going to provide any information like that and the reason is there, there's so much -- there's so many assignments that we have that involve more than one type of advisory work, it's not at all uncommon and in fact, some of our largest fees this year had restructuring, they had M&A, they had financing advisory in some cases they even had hedging advisory.

So, to try and parse an individual fee, so that it would fit into those buckets just doesn't make sense. And so, the answer is we won't, and it's not because we're trying to hide anything, it's just that it's just very difficult to disaggregate them in the way that you're suggesting.

Jeff Harte -- Piper Sandler -- Analyst

Okay. Just, it makes it more challenging when the things we're used to looking at are really not getting us close to where we probably should be.

Ralph Schlosstein -- Co-Chairman of the Board and Co-Chief Executive Officer

I sympathize.

Jeff Harte -- Piper Sandler -- Analyst

And on a related point, should we be thinking about a potential advisory air pocket coming and I guess I'm asking it because advisory down 16% and what could be the completed M&A for the industry low point, it is surprisingly strong. I mean, is there more of an air pocket to come or are the announcements picking up quickly enough that M&A revenues could actually just start going upwards from here?

Ralph Schlosstein -- Co-Chairman of the Board and Co-Chief Executive Officer

I think we've said in various forms that we expected the third quarter to be the weakest quarter from a topline perspective in 2020, and sitting here today there's nothing that we would look at that would suggest that, that will not be the case. But, as John said, and I said, there's a lot of things that can happen, whether it's the election or market volatility or Brexit discussions or a myriad of other things. So -- but, sitting here today, the comments that we've made earlier about the third quarter, likely to be -- through the mid year in terms of revenues we certainly don't see anything that would cause our view to change on that.

Jeff Harte -- Piper Sandler -- Analyst

Okay. And I look at it non-comp, and I don't know that there is an answer here, but can you guys help us at all think about kind of what the outlook there is going to be, I'm coming from the perspective of activity levels are starting to pick up nicely in 3Q, yet we still saw non-comp down quarter-over-quarter. Do you have any kind of idea of how quickly that could pick up, how much it could pick up and kind of just the outlook there?

Robert B. Walsh -- Senior Managing Director and Chief Financial Officer

For sure. I think it's there's really going to be two drivers of that number turning. One, as Ralph said, there is a very active market for talent and to the extent there are professional fees associated with bringing some of that talent on board, that could drive an uptick and then building on what John said, our bankers are accomplishing an awful lot, virtually but travel will return.

Jeff Harte -- Piper Sandler -- Analyst

Okay, well I've got you Bob too. Did you guys cite or can you cite the revenue pull-forward from 4Q closings, if there was any?

Robert B. Walsh -- Senior Managing Director and Chief Financial Officer

About $20 million.

Jeff Harte -- Piper Sandler -- Analyst

Okay, thank you.

Operator

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

Brennan Hawken -- UBS -- Analyst

Good morning, thanks for taking my question. So, a question here on some of the comments that you made earlier on the investments. You guys have SMD headcount that's actually up from recent years in advisory despite the restructuring. So, kind of interested to hear what you're seeing, below the surface in productivity. What kind of trends are you seeing on these new SMDs that you brought in? How many of them are still in the ramp stage and what kind of color can you provide on that front that'd be helpful. Thanks.

Ralph Schlosstein -- Co-Chairman of the Board and Co-Chief Executive Officer

Look, the -- we have two -- first of all, we have two forms of ramping; internally promoted and peak talent that's joined us externally. The externally -- the best assumption is, and if you look at 2018 and 2019, we had roughly 25 or so Senior Managing Directors in our advisory business that we're ramping, split about equally between external and internal. The internal ones are really -- they tend to be younger people and they are building each year hopefully and growing productivity.

The external ones, the best assumption is in the year, we hire them although there are exceptions to this, assumes very little if any revenue in their first full year 50% to 70% of our normal productivity and our second full year and their second full year, pretty much normal productivity as long as they're in a sector that doesn't have a cloud over it, so had we hired for example, a Cruise Line banker in 2018 and their first full year was 2019 they would not have hit full revenue in 2020 because of what happened with COVID.

So, absent those things by the second full year they tend to be ramped, and this year we've had a -- we generally hire four to eight SMDs externally will be probably toward the lower end of that range this year, and really only one or two in pure advisory. So, they're more ramped -- there are fewer ramping SMDs in 2020 than there were in 2019 than there were in 2018. So, I think that provides some opportunity for us and in normal M&A environments, we would hope to see our productivity return to 2017, 2018, 2019 levels.

John S. Weinberg -- Co-Chairman of the Board and Co-Chief Executive Officer

I'd just add, just a couple of things to what Ralph said. First is, and I'd just like to emphasize the fact that hiring people into sectors that are slow makes it a very difficult environment to be measuring that because ramping in an environment like we've been in, in the last couple of quarters makes it really difficult, and so I think we're going to see a lot more of how these all play out as we go forward. And the second thing I would say is that as you've seen, we've invested quite a bit in our equities business, equity capital markets, which you have seen the productivity of that group, and so that in and of itself will actually help and we're going to continue to hopefully grow that area and the revenues from that group which as you've seen have been very, very productive. And so, the sum and substance of it is, we feel very good about the people we have and the people we've brought on, and I think as the environment continues to improve, I think you'll see that the productivity will trend upward.

Brennan Hawken -- UBS -- Analyst

Great, thanks for that. Certainly, an unusual environment to ramp, which is a very fair point. So, just two more things from me. One, I don't think you mentioned but if you could give the quarter end SMD count and then also how should we -- it was interesting to hear your comments about the election not really impacting activity. This has been a strange year on so many levels -- how should we think about seasonality? Is it going to be strange for seasonality as well or should we think about 4Q being a typical source of seasonal strength, particularly given the fact that we've seen some pickup in activity, you flagged some smaller deals that are getting done for tax reasons before year-end. How does all that come together?

Ralph Schlosstein -- Co-Chairman of the Board and Co-Chief Executive Officer

Well, that was that would fall into the cat. I'll let Bob give you the quarter-end SMD count, but the second part of your question falls into the third rail, which we never touch, which is statements about the next quarter, revenues or anything of that nature. I think.

Robert B. Walsh -- Senior Managing Director and Chief Financial Officer

Come on Ralph, I painted the inside corner on that. All good.

Ralph Schlosstein -- Co-Chairman of the Board and Co-Chief Executive Officer

I think the statements that we made earlier that if things don't change, we're confident that the third quarter will be the lowest quarter of the year -- should give you as much as we will possibly ever give you.

Robert B. Walsh -- Senior Managing Director and Chief Financial Officer

So, Brennan there's 114.

Brennan Hawken -- UBS -- Analyst

Thank you.

Operator

Our next question comes from the line of Steven Chubak with Wolfe Research. Your line is open.

Steven Chubak -- Wolfe Research -- Analyst

Hey good morning. So, I've had a lot of follow-ups on some of the comp commentary, so maybe wanted to ask a more pointed question on the comp ratio just given some of the positive momentum cited in the backlog, it really feels like barring a negative macro shock, we should see revenues get back to that $2 billion level in 2021 and just assuming we can get back to that bogey, and just given the restructuring actions and the headcount reductions that you did late last year can we reasonably underwrite or return to that sub 60% comp ratio assuming a $2 billion plus revenue outcome?

Ralph Schlosstein -- Co-Chairman of the Board and Co-Chief Executive Officer

I think the answer to that is that when we're in 2021, we will be prepared to have that discussion with you, but that is certainly our objective, OK?

Steven Chubak -- Wolfe Research -- Analyst

Okay. I mean, I guess what would preclude you from achieving that outcome?

Ralph Schlosstein -- Co-Chairman of the Board and Co-Chief Executive Officer

Lower revenues, lower productivity.

Steven Chubak -- Wolfe Research -- Analyst

Right, but with the assumption that the revenues add $2 billion plus because the one issue that I guess I and others are struggling to reconcile the comp accrual this year is high, we recognize the revenue backdrop is challenging, if we can get back to a revenue run rate in line with 2018-2019 what is a reasonable comp ratio that we can underwrite? You guys have taken a lot of expense actions, restructuring actions I'm just not seeing that those underpinnings in this year's comp trajectory, but I'm wondering for next year could we start to see some of those benefits come through?

Ralph Schlosstein -- Co-Chairman of the Board and Co-Chief Executive Officer

Okay, let me sort of go back in history and see if I can help you a little bit. So when I joined the firm 11.5 years ago, we had a comp ratio of about 15% -- or margins of 15% and a comp ratio in the 67%, 66% 68% something like that, and what -- at that time it was Roger and I on these calls and we were of course asked this very same question, and the way we answered it is we said that we believe that we can run this business with sub 60% or in other words, high-50s percent comp ratio and margins that are in the mid-20s. And we said that we would make steady progress toward that -- we never said we're going to make get there in 2014, 2015, 2013, 2017 and we also said that if we have an opportunity to hire a disproportionate number of A+ talents in any given year, we'll do that because it will increase value two to three years out because of the ramp period, and we'll let you know that. And so obviously, this has been a very challenging year for all kinds of reasons.

And I think the statements that Roger and I made back then and that John and I have subsequently endorsed since John joined the firm four years ago, we're still comfortable with those. The only thing I would say is, we're not going to ever articulate a precise time when that can happen because we don't know what revenues are going to be, we don't know what market comp is going to be and we don't know what investment opportunities we're going to have. But, certainly as a place that we want to arrive and should be able to arrive, nothing has changed with regard to that.

Steven Chubak -- Wolfe Research -- Analyst

Great, thanks for that additional context Ralph recognizing there is a lot of uncertainty still. One of the other questions I wanted to ask is just on some of the comments relating to the SPAC alternative product. We've obviously seen a surge in SPAC volumes, it certainly seems timely that you're launching this now. Curious what some of the early feedback has been from corporates, maybe what's differentiated about the value prop of that specific offering?

Ralph Schlosstein -- Co-Chairman of the Board and Co-Chief Executive Officer

Okay. Look, I think historically, we've had a reluctance that, that would be an understatement to underwrite traditional SPACs that reluctance has been predicated primarily on the view that there wasn't sufficient alignment between the incentives for the sponsor of the SPAC and the investors in the SPAC and the point there is obviously that when a transaction is done, there's a big amount of dilution that goes to the sponsor just for doing a deal, which is quite different from more private equity planned incentives where the returns to the sponsor are tied to the returns to the investor. So, we created the CAPS product which -- does that aligns the interests of the investors and the sponsor to a much greater degree and we've done our first one and we have a second one that we'll be doing shortly.

And having said that, the market is also evolving in the world of SPACs and when -- while it says on the -- in the legal document that the sponsor can get 20% of the capital or the outstanding equity of the company when the merger occurs, those get negotiated down a lot now, so there is more alignment by virtue of the merger discussions not by the underwriting, but by virtue of the merger discussions and in the last six to 12-months merger into a SPAC has become a quite legitimate way of taking -- of introducing a company into the public markets and ultimately taking it public.

So, we're finding increasingly with our clients that are private that a consideration of capitalization alternatives includes a regular way IPO, direct listing, merger with a SPAC or sale of the company. And so, where we are obviously -- we've been very active in the SPAC merger market, both representing SPACs as acquirers and companies being sold and merged into SPACs and this is a -- it's becoming certainly a more legitimate and common way to capitalize the value of the a private business.

John S. Weinberg -- Co-Chairman of the Board and Co-Chief Executive Officer

Just to underline a couple of things that Ralph said. We've been very involved in talking to SPAC and SPAC sponsors and in the middle of that market. Beyond the caps market, we have a lot of expertise in generally the SPAC market and the transaction itself. And so, we are participating and we're evaluating whether we build more momentum into our involvement, we clearly like our SPAC -- our CAPS product, but we also are looking at a lot of other places where we can -- as an advisor add value, and certainly it's part of and important to our Equities Advisory business to be experts in SPACs.

Steven Chubak -- Wolfe Research -- Analyst

Great, very helpful color both of you. Thank you so much for taking my questions.

John S. Weinberg -- Co-Chairman of the Board and Co-Chief Executive Officer

Sure.

Operator

[Operator Closing Remarks]

Duration: 70 minutes

Call participants:

Hallie Elsner Miller -- Investor Relations

Ralph Schlosstein -- Co-Chairman of the Board and Co-Chief Executive Officer

John S. Weinberg -- Co-Chairman of the Board and Co-Chief Executive Officer

Robert B. Walsh -- Senior Managing Director and Chief Financial Officer

Manan Gosalia -- Morgan Stanley -- Analyst

Devin Ryan -- JMP Securities -- Analyst

Richard Ramsden -- Goldman Sachs -- Analyst

Jeff Harte -- Piper Sandler -- Analyst

Brennan Hawken -- UBS -- Analyst

Steven Chubak -- Wolfe Research -- Analyst

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