Good morning, and thank you for joining us today. With me here are Tad Smith, Sotheby's President and Chief Executive Officer; and Mike Goss, Chief Financial Officer.

GAAP refers to generally accepted accounting principles in the United States of America. In this earnings call, financial measures are presented in accordance with GAAP and also on an adjusted non-GAAP basis.

An explanation of the non-GAAP financial measures used in this earnings call, as well as reconciliation to the comparable GAAP amount, is provided in the company's Form 10-Q for the period ended March 31, 2017. Also, during the course of this call, the company may make projections or other forward-looking statements regarding future events or the future financial performance of the company.

We wish to caution you that such projections and statements are only predictions and involve risks and uncertainties, resulting in the possibility that the actual event or performance will differ materially from such predictions. We refer you to the documents the company files periodically with the Securities and Exchange Commission, specifically the company's most recently filed Form 10-K and Form 10-Q.

These documents identify important factors that could cause the actual results to differ materially from those contained in the projections or forward-looking statements. Also, please see our Investor web page for a transcript of our prepared remarks, as well as a presentation detailing our rolling 6 months result.

Now I'll turn the call over to Tad.

Thanks, Jen. Thank you all for joining my colleagues and me this morning, and we appreciate your interest in Sotheby's.

On this call, we intend to cover the following four topics: one, what is the state of the art market and luxury goods market that Sotheby's sells; two, now that the company's new management team has been here for two years, this is my own ninth earnings call, what progress has there been against the four key priorities articulated in March 2015; three, from management's perspective, why are Sotheby's future prospects attractive for investors. And four, finally, we will close with my colleague Mike Goss' overview of the most recent quarter's financials, as well as other relevant financial information for investors.

Before we turn to these four topics, however, let me quickly summarize how we did in the first quarter. As a reminder, the first quarter is a seasonally small one, in which Sotheby's usually earns a loss.

Compared to last year, however, Sotheby's loss narrowed significantly. Today, we are pleased to report a net loss per share of $0.21 compared to a $0.41 loss per share in the prior period, which is a 49% improvement.

After excluding certain charges in the prior year period, adjusted diluted loss per share improved 36% from $0.33 to $0.21. While there were no big picture takeaways from this quarter's results, there were a few interesting nuggets that Mike will cover later on in the call.

So, what is the state of the market for the art and luxury goods that Sotheby's sells? In short, the market is starting to show signs of strengthening.

The message from our Hong Kong sales in April was that East and Southeast Asia's buyers were prepared to pay top prices for excellent quality art and jewelry. Wine has been doing extremely well in all of our markets, and some say that bodes well for other categories.

Moreover, we are pleased with our consignments for our Modern, Impressionist, and Contemporary Evening and Day Sales to begin next week in New York. If one looks at every auction we had in the first quarter of 2017, a total of 36 sales.

69% of those sales have exceeded their low estimates, which is up from 57% last year, and a particularly encouraging indicator that supply and demand are in balance. Additionally, the average price of lots sold was 116% of the low estimate versus 94% a year ago.

At the same time, it is true that the market for consignments has been extremely competitive. The Wall Street Journal did a piece at the end of February, pointing to the arrival from garden leave of a number of new executives at our competitors, and it is fair to say our competitors have been very aggressive in the market.

The good news is that they and we have some outstanding works of art for the upcoming sales in New York, and great results at all of the auction houses will be very good for the market. In terms of the macroeconomic and geopolitical picture facing the market, there is not much to add to my comments on the last earnings call, other than the world continues to benefit from geopolitical stability and also that the U.S.

administration has announced tax priorities. Broadly speaking, we believe that Sotheby's investors should be pleased with the possibility of a reduced U.S.

corporate tax rate, a possible tax holiday on U.S. repatriation of cash, and Mike will give some figures on that later in the call, lower capital gains tax rates, especially if it would apply to art and collectibles, potentially reform of the inheritance tax, and the waning enthusiasm for the macroeconomic and microeconomic uncertainty of a border adjustability tax.

Elsewhere around the world, French leadership is now clear, Brexit is underway, oil and commodity prices are broadly stable, growth in developed countries is okay. China seems balanced between reform efforts and growth, while India seems poised to accelerate.

Finally, currencies have been largely stable since Brexit, and in America, consumer confidence is rising. The worldwide market for art is not perfect, but I would definitely characterize it as starting to show signs of strengthening.

Now that the company's management team has been here for two years, what progress has there been against the 4 key priorities articulated in March 2015? Let me first remind our investors of the four key priorities: first, to develop and implement a compelling growth strategy; second, to embrace technology more effectively, both internally and through client-facing products and, thereby, to enhance the rate of innovation at Sotheby's.

Third, to build a talented team with the organization as well as the processes to sustain success; fourth, to allocate our capital effectively and efficiently. With respect to the first key priority, to develop and implement a compelling growth strategy, our management team and board have made clear progress over the past two years, and there's plenty of encouraging work still to complete.

Today, we are exceptionally strong at the high end of the fine art market. And while from sale to sale, we do not always lead in market share, indeed, often, we do not choose to do so, our sales are beautifully curated with magnificent lots at price points for many collecting tastes.

And we anticipate that our sales will continue to deliver good margins, as well as be hugely successful for our clients. We are no longer merely an auction house, as we've expanded to grow our art advisory business, which is thriving.

We've added clients and projects as well as staff to meet them. We launched an artist estate advisory business, and there, again, we've already added a number of clients.

Contrary to the opinions of some pundits, both of these advisory businesses are delivering where it matters with our clients and shareholders. Our S|2 Gallery business has a new clarified strategy, refocused towards artists, who've been celebrated in art history, but are under-recognized by the market.

The new focus distinguishes S|2 as a destination for collectors looking ahead of the curve for opportunities. It's a vision that we'll take into account the local markets and physical galleries that we operate in, with dedicated spaces in New York and London, and plans to expand the identity to our existing gallery in Hong Kong.

We currently have exhibitions on view in New York and London that reflect this new vision. In New York, we have shows dedicated to Alfonso Ossorio and Roy Newell.

While these artists have many differences, both are distinguished for creative output that stands alongside many of the giants of 20th century art. In London, we're presenting two shows by the Austrian artists, Renate Bertlmann and Maria Lassnig.

Both are key figures in the current discussions around the reevaluation of female artists of the postwar period. Our new strategy officer, Jennifer Deason, has been busy pursuing strategies to support the growth of our wine businesses, and the board will be reviewing options later this week under the leadership of Luxury & Lifestyle division head, Maarten ten Holder.

We already have the world's leading position in wine auctions, and the question is how do we grow that business? Fortunately, we have options.

The recent management focus on our jewelry and watch auction businesses produce the desired results in our Hong Kong and New York auctions, and we are looking forward to healthy sales in Europe later this month. We have lots of options to explore here on how to grow our jewelry business, and Maarten and Jennifer will be coming back to the board after the wine reviews, with further growth plans.

With respect to automobiles, we've recently agreed to maintain our investment in and partnership with RM Auctions at the same level of ownership for the next two years, while we work collaboratively on client and marketing opportunities. This preserves our options with a terrific partner, as well as a good capital allocation move for both parties, and we look forward to building even more with that business in the coming years.

Turning to the second key priority, to embrace technology more effectively and accelerate innovation both internally and through client-facing products, we've made excellent progress. The truth is that over the past two years, Sotheby's has become a powerful media company, with the ability to bring its scale and scope to bear to help our clients sell something, buy something, promote something, market something, or enjoy something.

We have numerous examples of our technological efforts beginning to pay dividends. In our first quarter versus last year, online buyers soared 32%, with a 30% jump in online bidders close behind it.

Through April versus last year, the number of lots sold online rose to 21% of the total versus 18% last year, and we had 17% growth in online values sold, 38% growth in the value of online underbids, and 25% growth in the number of online underbidders. In fact, a recent report for the week of April 22 on our online progress reads like a virtual tour de force of innovation.

Here's one example, and I quote, "Dynamic retargeting banners were launched on Friday, which automatically customized based on known browsing behavior. This means scalable personalization is available for every sale with no additional resource needs."

Or here's another example from the same report, and I quote, "Looking at e-Catalogue browsing on sotheby's.com, so far this year, Contemporary has had the highest volume of traffic by over 2x the second most popular department. However, Chinese works of art has the deepest browsing and page views per visit, and Jewelry has the most time spent."

Or here's my favorite. "87% of clients registered to today's watches sale in London can be attributed back to our email and online advertising campaigns."

Clearly, Sotheby's is innovating and learning. As of April 29, our year-to-date digital engagement versus the same period last year was up 35%.

Online paddle registrants, up 34%; online bidders, up 42%. Online buyers are up 21%, and lots sold online are up 11%.

Overall, online paddle registrants are now 53% of our total registrants versus 44% a year ago. Online bidders are 38% of our total bidders versus 27% a year ago.

Online buyers are 26% versus 21% a year ago. And as I mentioned just a moment ago, lots sold online are 21% of our total versus 18% a year ago.

Total video views between the first quarter '15 and first quarter '16 grew 101%. Let me make sure I made that clear.

First quarter '15 and first quarter '16 grew 101%, and between first quarter '16 and first quarter '17, actually accelerated to 228% growth, 228% growth. A recent top client email was for watches.

It was sent to 28,289 subscribers, opened by 6,600 of them, generating website visits by more than 2,252 of them, and resulting in nearly 30 registrations, all of this for the negligible cost of an email. It's also worth noting that 46% of the sold lots from that sale were purchased by online buyers.

On social media, our company has 1.15 million followers, spread broadly across WeChat, Weibo, Twitter, Facebook, YouTube, and of course, Instagram. During the April 25 week alone, we had a collected 107,000 likes.

Both these likes for the week and the social media audience size were twice that of our major competitor, and this does not count the fact many of our 1,600 staff have their own social media accounts and do their part promoting Sotheby's and its clients' interest. We mentioned in the last call a bit about our Museum Network, but the story is instructive as a narrative of increasing innovation here.

The idea came to an executive last summer when he was meeting with clients. He thought there are thousands of museums around the world.

Can Sotheby's help our most valued clients by using its digital marketing scale and scope to promote their museums, as well as to provide an educational resource to the world's art enthusiasts? From that idea, we launched it several months later, and today, we have 41 museums and 416 videos live.

And this summer, we are launching a new, better version of the web platform that will include 300 museums going up to 500 museums by autumn. And most gratifying of all, the site usage is rising nicely, and we use the network in our consignment pitches.

Sotheby's is indeed learning and innovating in powerful ways with technology, and our clients, our shareholders, and our staff are the winners for it. The key opportunity here is to figure out where we take these strategic new media capabilities, and that is a clear agenda item for our management and board that did not even exist two years ago.

The third key priority was to build a talented team and then develop the processes to sustain our success in the future. I'm very proud of our team, the ones that have been here for decades, the ones that have been here a few weeks, and everyone in between.

We continue to offer great development opportunities to experienced professionals from all over the world, as well as to turbocharge the careers of graduates coming out of schools from many countries. Where do we go from here?

I think the hallmarks are greater depth in our most skilled areas, more rigorous succession planning for talent, and a more diverse workforce. For Sotheby's, the hunt to attract, develop and retain the world's best talent is never finished, and our processes and compensation programs continue to evolve to serve these needs.

Just this past month, I gave speeches at Wharton and Harvard to Chinese students studying there, two auditoriums filled with incredibly talented people interested in our industry and company. And what was gratifying to me was how desirable a place Sotheby's is to work for the most talented and passionate graduates.

Our summer program attracts -- accepts 27 from 650 resumes submitted. That 4% yield stands up to any elite U.S.

college, and Sotheby's clients and investors are the beneficiaries. Our fourth priority is to allocate our capital efficiently and effectively.

Mike will give the latest statistics on our company's share repurchases, but let me just cast a light on two examples of our capital allocation, guarantees and inventory. For next week's sales, we currently have $217 million in gross guarantees outstanding to consignors, but only $40 million net guarantee exposure after offsetting the risk for irrevocable bids.

In other words, 20 of our 36 guaranteed lots for those auctions have irrevocable bids that ensure us returns, consistent with our profitability requirements before the sales even begin. This is an extraordinary accomplishment for both clients and shareholders, and even more so when you consider the expanding list of Sotheby's clients, who are backing our guarantees.

In another area of capital efficiency, I direct you to our inventory account. It appears at first glance that our inventory in the most recent quarter was only somewhat lighter than in December 2016.

However, the text of the 10-Q reveals that our inventory count based on transactions already completed is expected to fall sharply in the second quarter. We've been working aggressively over the past year both to convert inventory to cash and receivables, as well as to reduce the amount of new, unplanned inventory we take on.

By unplanned, I mean inventory that is booked as a result of failed guarantees in the auction room. In March 2016, we held $205 million in inventory.

In the most recent quarter, we held $151 million. And when recent second quarter sales are ultimately recognized, we're likely to be holding less than $90 million.

Two years in, I feel good about the market for art and luxury goods. I'm pleased with Sotheby's progress on its strategy, but thrilled with options we can still explore.

Our technological prowess is still in its early days, but accelerating, and our innovation rate is soaring. The team is doing well, and we're a great place for talent.

Finally, we're using capital wisely and well. Before turning it over to Mike, I want to add one paradox amid all of this good news.

Mike and I visit with investors the world over. Our current investors seem very happy with how things are going.

Support for our proxy, thus far, is strong again this year. We hear the same messages in our investor meetings.

But persuading prospective investors to join our mission when they see our stock is at a multiple of 26x trailing adjusted earnings per share can make for an interesting conversation. So, from management's perspective, why are Sotheby's future prospects attractive for investors today?

Let me summarize the reasons I tell prospective investors. First, Sotheby's underlying market includes a compelling secular growth trend of greater wealth accumulation at the high end, globalization and cross pollinating of cultural and luxury tastes, and intergenerational wealth transfers, particularly in developed countries.

Let me pause for a moment to illustrate the secular effect of increases in wealth on the art market. We compared the peak, median and lowest wealth numbers estimated for the Forbes 400 in 2006 and 2016, versus the value of the most expensive piece of art and the total value of the top 10 most expensive pieces of art in those same years.

The results were extraordinary. While the number one and the number 400 on the Forbes 400 were certainly interesting, the Forbes #201 was the one we used for the analysis.

In 2006, the 201st wealthiest person on the Forbes 400 would have had to spend 10% of his wealth to purchase the most expensive piece of art sold in auction that year. In 2016, that same number was only a little over 5%.

In 2006, the 201st wealthiest person on the Forbes 400 would have had to spend over 70% of his wealth to purchase all of the top 10 pieces of art sold at auction that year. In 2016, that same number was under 40%.

In other words, the median member of the Forbes 400 would have seen his personal spending power to purchase art at auction, grow 75% in the past decade alone. Returning to the second reason why Sotheby's future prospects are attractive for investors, the industry in which we compete, the global market for art and other collectibles, provides Sotheby's with extremely high entry barriers and arguably, recent regulatory and capital trends are raising them.

Third, technology acts as a force to power Sotheby's growth and reach, especially in the middle market. Fourth, while Sotheby's is very seasonal and cyclical and the stock can be volatile with an estimated beta of just under two, our capital allocation and other initiatives seek to raise both the apex and the trough of the stock's historical cycle, and doing so would obviously make any particular entry point of the stock, irrelevant to the long-term investor.

In summary, we have very good things happening for clients, investors and staff here at Sotheby's. We will have up quarters and down quarters, but we are confident in our story, our upwards secular growth trajectory, and our strategy.

Now I will turn it over to Mike for a specific review of the first quarter.

Thank you, Tad, and good morning, everyone. There's a lot of good progress to report in this quarter, starting with news regarding our sales levels and what such levels say about the health of the market.

First, for the reported numbers, our net auction sales showed 3% contraction for the period, which everyone will recognize as a much-improved statement relative to each of the four quarters of 2016. But this statistic doesn't tell the whole story.

Interestingly, if you're looking to our sales for a sign of what is happening in the marketplace, it's informative to note three additional factors in this quarter, which show an even better picture. First, our private sales were up 41% for the quarter, the result of both a stronger market and the results of our internal efforts against this critical strategic initiative for future growth.

Secondly, our net auction sales, which were reported down 3% on a dollar basis, were actually up 7% on a constant currency basis, given the concentration of sterling-denominated sales in London during the first quarter, and the adverse change in the sterling to dollar exchange rates versus a year ago. And finally, if you add together our aggregate auction sales, our private sales, and the sale of our house property reported as inventory sales, which can be sold either at auction or privately, you'll arrive at a number we report in our filings as consolidated sales.

This measure provides visibility into the broadest level of activity across Sotheby's, and in this regard, we reported growth of 13% in dollar terms, and growth of 23% on a constant currency basis. It is this statistic that makes us feel much better about the state of the market going into 2017.

With respect to our reported revenue, you'll see similar signs of encouragement, most notably, the fact that our agency commissions and fees were up 23% versus a year ago. This growth is attributable to 3 factors.

First, an improvement in our auction commission margin from 15.4% last year to 18% this year. Even if you exclude the impact of the final Taubman sale from last year's first quarter, our auction commission margin still improved by 160 basis points, marking the fifth consecutive quarter of improvement.

Secondly, we wrote guarantees this year, which generated much better financial performance than the guarantees associated with last year's first quarter sales. And finally, we reported higher private sale commissions, in line with our higher private sales level.

On the expense side, our adjusted expenses, which excludes from our reported expense line the interest expense associated with financing our Sotheby's Financial Services loans, the cost of goods reported as inventory sales, as well as certain charges from last year, were up 8% year-over-year. This increase was alluded to on our last earnings call, as we expected to be making investments that drive our digital marketing initiatives, expand our advisory in private sales staff, address new geographies, and acquire new customers.

The net effect is that the stronger sales activity and better revenue margins in our agency business overwhelm the impact of our higher expense level and investment spending to help us deliver a 47% better adjusted operating loss in the seasonally low first quarter than we reported a year ago. From a balance sheet perspective, as Tad mentioned, we continue to focus on the generation of cash in order to redeploy this capital into more productive uses.

As evidence of this progress, we point out that our estimated Sotheby's cash balance, which we define as cash you see on the balance sheet, less amounts we've collected that is due to consignors, is approximately $25 million higher than a year ago at this time, despite having returned approximately $200 million since then to our shareholders in the form of stock buybacks. This was generated by both operating profit and better management of our balance sheet.

I should also point out that we still have almost $300 million in Sotheby's cash that is still being held abroad, but awaiting potentially repatriation, and for which of the tax liability associated with this cash has already been provided for, but remains unpaid. Sotheby's hopes the federal government comes through with means for bringing this cash back, pursuant to some type of repatriation holiday because the savings for investors can be substantial.

Finally, I'm pleased to report that we've recently completed a 10b5 stock repurchase plan in which we purchased 740,000 -- 740,000 shares of stock for nearly $34 million, specifically to offset the dilution from recent grants under our long-term incentive plan. As we head into the second quarter, we're anticipating improved performance from next week's New York Contemporary and Impressionist and Modern sales, reflecting both signs of a stronger market and a continued focus on margins, and we're anticipating further progress in Private Sales as well.

However, we know we're up against last year's extraordinarily strong sales in Hong Kong and our record jewelry sale in Geneva last May. We're also up against a very strong level of fees earned at Sotheby's Financial Services last year, and our June London sales will once again be translated back to U.S.

dollars at an unfavorable exchange rate. Taken together, revenues generated by our strong North America spring sales may well be offset by tough comparisons elsewhere.

On the expense side, we expect to continue to trend higher in adjusted expenses. But as with our spending in this quarter, we feel such spending is justified in the pursuit of our strategic initiatives and our anticipation of the resumption of market growth.

When taken together as a 6-month period, we continue to feel this -- feel that the overall projection that we provided heading into 2017 remains the same. That is, we are likely to show little, if any, EPS growth during the first half of the year, but we will be well positioned if the market rebounds to historical levels of growth in the second half.

Tad and I are now happy to address your questions.

Hi. Good morning.

Good morning.

Congrats on the progress and the results and Tad, thanks for those details on the media and the impressions data. That's helpful.

So, I'd ask a question about that and then a quick follow-up, I think, for Mike. Tad, how do you think about that typical sort of tricky luxury balance of being more visible, but also having exclusivity for the clientele that cares about that, especially given what an impressive media growth you're showing or impression growth you're showing?

And then Mike, I know it's always global supply and global demand across your network, but any update and sort of general trend update on demand from various parts of the world on maybe the buy side or the sell side would be helpful. Thank you.

Look, David, on the first question, to me, we're certainly highly motivated by doing what's right for the client. And certainly, all of the elements of what we do are very much focused on that, and we think we'll keep doing that in either the digital or the analog space.

Good things will happen. If I didn't grasp the nuance of one of your questions, I may need to have you repeat it.

But otherwise, that's really all I have to say.

No, I think all I'm getting at, it sounds -- that's what I want to understand is just the -- as you reach further digitally and more media impression, obviously, the efforts you're doing on the back end, this historic clientele-ing, and you've used some technology for that, if you could just update us on how often you're in touch with clients and things like that. That's helpful.

How often I personally -- in touch with clients?

Sorry, I'm using the old mute button. The network.

I think your comments explain it, but yes, just trying to understand the balance between being more visible broadly, and then the historic clientele-ing efforts that you've tried to enhance with technology.

Oh, okay. There, I'm sorry.

Yes, two things: one, our tools for managing client relationships are improving, but gently; and I think there's going to be substantially greater improvement over, I would say, the next 18 months, and so I'm actually really excited about that. When I say tools, I mean, the tools that our key client managers can use to make sure that they have a really rich insight on the needs of our clients.

Our CRM capabilities, and by that, I mean the capabilities that we have to provide digital information to people that are looking for information on art, jewelry, whatever it might be, that has expanded dramatically. And I believe that our invaluable platform has been very helpful with that, and we continue to use a variety of measures there.

And by the way, we're expanding those also. One of the things that excites me is that we're just on the cusp of this.

At the same time, both our Chief Operating Officer, Adam Chinn, and Jennifer Deason, our Chief Strategy Officer, have launched an effort to look at our overall approach to managing clients, what we're sort of calling a KCM or key client manager review, and we're -- they're at the very beginning stages of that. It's a crucially important piece of work.

They're probably, what, Jen, two weeks in, not even that, 1.5 week in? And already, the depth of understanding about where our clients' needs are, what the profitability of clients is to us, where our -- the amount of service level we give them.

All of that is in the very early stages, and I think there's going to be a lot of innovation out of that. And moreover, we also are looking at very rigorous measures on how we're tracking client service.

None of this I mentioned in the script, but because all -- it's sort of -- we're going to save it for future earnings call, and we have something to talk about. But the very early indicators from that, what Jen and Scott Henry and operations show, that we have a lot of things that we could be doing that are very exciting.

There are clients that do business with us that are very, very pleased and happy. And then occasionally, we have some that fall through the cracks.

And if we could just keep the ones that fall through the cracks, keep them happy too, and there's some very specific things we can do, whether through technology or honestly better processes and better communication, I think good things will start happening for clients and shareholders. It will honestly be much more -- a much richer, more exciting environment for our staff.

I hope that was clear.

Very much. Exactly what I was looking for.

And then any update on regional demand or supply?

Yes. I would say that the region that we're most enthused about, and that seems to have returned and is driving the signs of strengthening is actually the North American market.

In both the November sales here in New York, the strength in London even, and now the anticipated strength or at least, we know, the consignments are strong for the upcoming New York markets are all driven by a return of the North American buyer and consignor. So, we like that.

It's a large market, and of course, very critical to the health. The Asian market is also -- or the Asian buyer is also -- has really never went away, but still showing good strength, as evidenced by our sales in Hong Kong.

And they do tend to buy high-quality pieces in the New York and London sales as well, and then there's not really much news to the positive or negative about European buyers or consignors. David, do you happen to have our Fine Art share -- Amy Cappellazzo with us in the room today, maybe just -- Amy, you want to provide a little color commentary on the state of the market from your perspective?

I would just concur with what you and Mike said. I think the market is definitely strengthening, and there's confidence across many categories.

We're going to see and feel that next week in the Impressionist and Modern and Contemporary sales that happens here. The interesting thing is you'll see it at absolutely all levels.

So, you'll see it in the very top lots that will go off next week, as well as even the more fledgling new buyers coming in at the entry-level price points. So that shows broad galvanization of the market across all levels.

Great. Thanks so much.

Thanks David

Hey guys. Thanks for taking my call.

I guess my question is -- and I appreciate the color on the guarantees earlier in the call. Just kind of wondering, I guess, maybe if you could give us a color or perspective last year, what irrevocable bids were.

I believe it's a relatively new strategy you guys have implemented. And does that kind of change how you guys look at the guarantee business going forward?

Well, we've always done irrevocable bids, and so that part is not new. I think we're being a little more conscious about at the moment that we write a guarantee that we know what our strategy will be with respect to either seeking an irrevocable bid to hedge that risk, or if we want to continue to carry that risk.

So, I think we're just approaching that with a little greater science. One of the things that drove our guaranteed performance last year was we also had written some guarantees well in advance of the auction, which we're now being a lot more cautious about.

So, in this year's first quarter, our guarantee performance is better, not only because we've hedged that risk in a smarter way and written the guarantees at prices that we want to own the painting, not prices that it takes to get the consignment. But we're also writing those guarantees closer to the time of the sale, so we're not taking as much market risk as we did a year ago.

Okay. That's helpful.

And then just one more follow-up, I guess. Can you just talk about how we should be thinking about the balance of the year on the expenses in terms of salaries and related costs, given where they came in on the quarter and then in an improving market?

Right. Well, in this quarter, the line that we call adjusted operating expenses is up 8% quarter-over-quarter.

And as I suggested, this was something that we flag for people to expect coming into the year because we know that we've hired a lot of people to bolster some of those growth initiatives. If you wanted to extrapolate that kind of rate into the future, that would be a good starting point.

If anything, it would be higher than that, perhaps. But to extrapolate what we've done in this quarter is as good of a estimate as anything.

Okay. That's helpful.

Thanks a lot.

Thank you. Good morning.

I appreciate all the color, very interesting, guys. I wanted to ask a question about the raising of the break points that I think you guys have discussed in the last couple quarters.

A, how's that going? Are you seeing the others in the marketplace, the competitors in the marketplace do the same thing, raising the break points effectively and raising the margin profile a little bit?

And then are there risks associated with these type of moves, specifically from other competitive channels, dealers? Help us understand and think through the dynamic and ramifications there.

Well, we implemented -- I think you're referring to an increase in the buyer’s premium, Omar. Is that what you're...

Yes, yes.

Yes, so we implemented that in November just prior to the North American sales and we did it -- we tinkered with the breakpoints a bit, and we raised the top rate against values in excess of $3 million by 50 basis points from 12 to 12.5. All told, it only amounted to about a 2.5% to 3% weighted average price increase, just kind of what Starbucks does every year for a cup of coffee.

So, it's not -- it wasn't terribly momentous, and it wasn't terribly -- it didn't receive a whole lot of media attention. We've received very little push back.

It seems to have affected us very little. I think in the future, we would hope to have similar increases to our buyers premium, depending on competitive situations, and we'll, of course, monitor that, the way other industries do.

But right now, the impact seems to have been very, very small. I mean, it's positive for our numbers, but I'm saying the impact seems to have been small on our clients or on our market share.

That's really helpful color. Can I also ask -- the advisory business, which is pretty new initiative for you guys, how is that coming along?

There's a little bit of controversy around that, I guess, in the art world. But it seems like a pretty complementary platform to your overall business, and any color there would be helpful too, please.

I'll chime in on this. I would say one of the great wonderful things to watch was how the advisory business has grown over the past year, and the range and diversity of clients and type of projects that advisory is engaged in continues to expand.

So, it's that -- what I mean by that is there used to be a very traditional idea of what advisory meant and now that it's expanding across many areas, including our artist estate business, which is headed by Christy MacLear, so that's sort of definitely a new business for the new business in the marketplace, and certainly, new business for Sotheby's. So that continues to grow beautifully and steadily, and it's growing across all geographies.

There seems to be a high demand for it in other parts of the world. You could say there's lots of art advisors in New York, but certainly, not in other parts of the world, and so our services seem to be sought after and desired.

That's very interesting. And then maybe one last one if I could.

Help us think about -- the art market is strengthening. There's times you've said -- you said the art market is strengthening.

As an effective kind of broker-dealer, if you will, intermediary, is it art prices rising as the key dynamic? Is -- what are other -- some of the other kind of macro-level catalysts that create that turnover and flow that really drives your business?

Well, you might recall, Omar, that one of the factors that we felt was impacting 2016 to the negative was that consignors were withholding their product from sales. What you're seeing now is just more consignments, more number of sales.

The prices are showing good strength, particularly, at the higher end of the market for masterpieces. Even through 2016, we saw lots of record prices recorded once a product made it into an auction, but it was the consignors who were withholding their product.

Now you're just seeing consignors feel like there's -- the uncertainty that they were dealing with in 2016 has abated, and they are now consigning their product with greater confidence. So, it's more of an availability question than it is pricing, although pricing has been very good at the high end of the market.

That's great color. Thanks so much.

Good luck.

Hi. Congratulations.

So, our question is that the business model has a lot of nice potential leverage. How -- Tad and Mike, how would you prioritize what should be the bigger drivers we should focus on amidst a lot of really constructive and positive and exciting opportunities, whether it be private or auction commission margins or digital, just a sense of prioritization?

And the flip side to this question is as we prudently think of the year ahead, what would you say are different risk factors, just investors should also consider as you look to managing an environment within the controllable versus uncontrollable factors?

Oliver, I'm going to take the second question because I also want to add something to what was said in response to Omar's question. But Mike, why don't you take the first one?

The first one was what's going to drive our operating leverage in this particular year, Oliver?

Yes. And also, how would you prioritize factors for us to think about in terms of weighting what will be the most important, and driving it?

Yes, yes. Well, I think if you're an investor who looks at comparison to prior year, there's going to be nothing like consolidated sales to keep your eye on.

A lot of the priorities for growth in our non-art categories, wine, jewelry, cars, soap, experiences, and so forth, they're going to take a little longer to materialize. And the investments we're making there don't necessarily yield to quick gains.

But the operating leverage provided by stronger auction sales first, but then the other ancillary revenue streams in our business, like private sales, if it continues to grow like we believe it can and should under our stewardship. And the advisory business, that provides great leverage, but there's nothing -- there's going to be nothing quite like auction sales in 2017 to compare to 2016.

Oliver, with respect to the second part of your question, which is what are the risk factors, looking forward -- and in some sense, Omar, if you're still listening, this is related to your question earlier, which is what are sort of the macro factors driving the business -- the underlying market, and I would divide it into two pieces. At the high end of the market, it really is about, how do consignors of very valuable pieces feel that their pieces will do when sold?

And that can be influenced either by skillful management of guarantees, or could be that they look forward into the future. And they see concerns about the equity markets in China that we saw in June of 2015, or they see potential geopolitical risks to France, which were abated a week ago, or they are concerned about substantial changes in tax policy that might render them unfavorable, or they are concerned about a rising tide of instability in places in Europe, where you don't want it to be unstable.

Those are the kinds of things that can affect the psyche of a person who's considering selling something that's large and very valuable and precious. And absent people selling them with the psyche to sell them, it's very hard for us to find buyers.

At the lower price points, a lot of that also can be affected by the supply, but a lot of that would be how much money do the affluent have, and how are they feeling about spending it? And it's different from a consignment psyche thing.

So, it really is, honestly, a fairly complicated algorithm. And what you have to say is, in the minds of people that have the discretion to consign expensive works, what does the environment look like for them?

How do they feel? And that can be oil prices.

It can be equity prices. It can be things they're reading in the news.

It can be all of that. That's why I went into a little bit of detail in my part of the script talking about, if you look at the environment that people are facing right now, it's not bad.

It's actually pretty good. Sure, are there black swans around us?

Potentially, yes. But compared to a year ago or two years ago or three years ago, or actually, honestly, compared to multiple points over the last five years, this is not a bad point for people to feel things are looking pretty good.

Okay. That's really helpful.

And another question, Tad, is the talent, and you've done a really creative and analytical and special job kind of creating the organization and adding talent, new and existing talent. So how are you feeling about M&A versus organic and what capabilities?

And as you continue making progress along changes and the opportunities ahead, what's your perspective on M&A versus developing organically? And a related question to talent, the specialists have been operating with very good discipline in terms of procurement at good prices.

What are your thoughts on that framework in terms of managing ROIC and making sure the organization has the right barometers to drive profitable dealmaking?

Well, I'm going to give the second question over to our Chief Operating Officer, Adam Chinn. So, Adam, get ready for that one in just a minute, but let me take your first question, Oliver.

On the talent side -- well, as I said, I'll leave that with Adam. In terms of acquisitions, here's where we are on acquisitions, we've done several this year.

At least I want to say this year. In the past 15 months, and I'm really very pleased with them.

I would say, as we look at the market now, there are out there interesting things for us to look at, that could enhance our capabilities and could potentially be bolt-ons. At the same time, though -- and this is crucial.

At the same time though, we like being very tough on our capital allocation. That has worked well for us.

We think our own business has -- as I said earlier, it will bounce up and down, and we'll have up quarters and down quarters, but we like the long-term secular growth tendency of it, and we like being very, very careful on our shares. We think we hold them very dear.

So, when you look at the acquisition landscape, that's the way we think about it, which is if there are specific things that are in the marketplace that we think would enhance measurably our strategic position that are adjacent with having attractive return on invested capital or have an attractive way to advance us in the marketplace, would we look at them? Absolutely, yes.

But I wouldn't necessarily say that -- let's put it like this -- we're not going to start being profligate, how's that? Adam?

Yes. So, on the second question, I think a lot of it is just a question of focus.

I mean, our specialists colleagues are incredibly talented, passionate people who will pretty much do what they're asked to do. So, if they're asked to create the biggest sale you can create, they'll do that.

And if instead they're told now what we want to do is we need to have a sale, that obviously, is a reasonable size, but it's the most profitable sale that we can have, they will do that. And I think one of the things that has been the most gratifying over the last 15 months that I've been here is that the businesspeople and the specialists are very much working hand-in-hand.

And I think one of the reasons why our guarantee book and sort of the strategies around that has been as successful as they have been, is that we've got a group of people now who work very, very well together and who are just damn good at pricing pictures. And I can do all the financial wizardry in the world, but if I haven't got people who can price pictures, it doesn't really matter.

And so, what we've been doing over the last 15 months has been, I think, creating something of a virtuous circle, which is we're guaranteeing pictures at attractive prices that people want to back. The prices are attractive enough to get the consignment off the wall, but also, we've gauged the market reasonably well.

Fewer and fewer bids, fewer and fewer guarantees are falling on one bid to the people who have backed them, which means that they're being paid, and they want to do more. So, I think it's the combination between sort of financial discipline, and frankly, an incredibly valuable skill of the ability to call the market that is the focus that we're on here, and hopefully, that continues to yield good margins and profits, and excellent returns on the capital that our shareholders have entrusted us to invest in the business.

And just our final question, we've done a lot of research for Cowen on millennials and generation Z, a lot of aspects about the changing aspects of aspirations. Also, the newer generations of wealth have a certain younger demographic.

So, as you evolve the core, how will you continue to make auctions entertaining and exciting? And what's ahead for innovation in terms of what you should do that's brand appropriate, yet highly innovative and disruptive in ways that make sure that they embrace new clients and welcome new clients in an appropriate, exciting, seductive way?

I think, this is a really, really good one for Amy. She has been in the business for years.

She has kids. She knows this when called.

Amy, what do you think about that?

Well, I think about it every day all the time, and as do a number of my colleagues. You are absolutely right.

This is -- some days, it's a live theatrical performance business here and making sure the auctions are incredibly compelling, interesting and seductive for people to come and participate is key. You will see a greater deployment of intelligent technology.

You will see a more thoughtful and concise way of Sotheby's being deployed as an educator in the business and how people glean and receive their education about works of art, artistic movements, trends, market information, etcetera. So, I would say watch this space.

Certainly, technology is going to play a role, but we are very thoughtful about how people gain their information and knowledge and use it.

And I think, Oliver -- if you went to Sotheby's.com or if you looked at Sotheby's on Apple TV, you'll see that it's not your father's Sotheby's anymore with respect to the look and feel of how we project ourselves in the marketplace. The spending that we're doing in the P&L is largely focused against that digital marketing effort.

That's what's driving our increase. It's expensed.

It's not capitalized. But you can see and feel and touch the -- that improvement by looking at our digital presence.

Thank you. Best regards.

Thanks Oliver.

Good morning.

Hello. Good morning.

I was curious whether you guys are seeing any increase in online competitors that might try and kind of charge lower margins or buyer's premium rates than you guys are that are taking any meaningful share.

It's a complicated answer. There are a number of online competitors out there, and more of our -- their business models are evolving in lots of interesting and innovative ways.

I mean, I've already mentioned Invaluable. I think they're a very interesting company.

I think Artsy is very interesting. I think 1stdibs is also very interesting.

You look at those, and you say, they've got very -- they've got different business models, and a lot of them are doing interesting things. One of the things at the moment, the thing I look at, is not just what they're doing now, but how their business model might evolve.

And from my perspective, I think that I feel very good about where Sotheby's is digitally, but one of the reasons why we're hitting really the accelerator on these areas is because we see a really bright future in the intersection of technology and art and luxury items, and we think Sotheby's and its brand and its unique positioning there can be very exciting. With respect to some of the others, I think they're doing some very innovative things.

And I look at them, and I watch them and how they evolve. I can assure you we keep close tabs on it, and we think about it.

So, let me pause there.

Okay, great. So, I guess, I was curious whether you think that you guys can essentially effectively replicate what they're doing in some way or whether those might be attractive M&A targets over time.

Well, let me set aside whether all of what they're doing is stuff that we would want to be doing. So, let's set that aside.

There are things that several of those entities do that we think are very interesting, and the analysis of build versus buy is always on our mind, and we know those entities well. We think highly of them, and there's really not much else to say, other than we watch them closely.

We keep in good contact with them. There are lots of things, I believe, that they're learning from us.

There are things that we -- they're doing that weren't learned from us that we're actually learning from them. What else can I say?

Okay. And then, I guess, just lastly for me, you've repurchased some shares after the end of the first quarter.

I guess, how will you think about share repurchase activity kind of at some of these elevated stock prices?

Well, with the completion of this last 10b5 plan, we don't have any remaining unused authorization from our board. It wouldn't surprise me if they were to top that up again at some point in the future.

We're constantly looking at what to do with the formidable amounts of free cash flow that we generate. We're not terribly leveraged, but we can choose to pay down debt.

We don't have a long list of CapEx or M&A candidates, so I think our hierarchy of needs or uses or desires will be, first, to invest whatever cash we need in the base business, and make sure we can sustain our internal initiatives first. Second would be to look at any external type needs, such as acquisition candidates, that not being a long list.

It doesn't take you long to get to number three, which would be more stock buybacks, and it really is less dependent on the price than it is alternative uses. And if we have good alternatives that we think clear our return on invested capital hurdles, that's our first -- always first choice.

And excess, we'll just return to shareholders.

Great. Thank you very much.

Good morning, Ted and Mike and I appreciate all the color this morning. Kind of a long-winded two-part question, but it relates to the guidance for H1, but also the trajectory of expense in investment over the coming quarters and even next year or two.

Obviously, Q1 is seasonally light. But that said, it improved $20 million year-over-year on a pretax basis, and your share count's probably down by five million year-over-year in H1.

And the art market is improving, and we're still sort of looking for flat EPS. So, are there incremental expenses that given things are improving that you can and are going to make relative to how things looked maybe three months ago?

And secondly, how do we think about the trade-off of allowing incremental dollars as the art market continues to improve, flow to the bottom line versus longer-term investment? I know it's long-winded, but any thoughts you have would be great.

Yes. Well, first and foremost, remember, some of the items that I pointed out in my prepared remarks about the year-ago second quarter.

I think we're going to do quite strongly in North America with -- given the consignment levels of our New York sales. But also, a year ago, we had record sales in Jewelry in Geneva in May.

We had very strong sales in Hong Kong a year ago, and we do have some London sales at the end of June, which are going to be translating back at a much more adverse exchange rate. So, the top line is where a lot of the challenge is.

On the expense side, as we mentioned on the last call, and again, this morning, where we're up 8% year-over-year in the first quarter, we expect that trend to continue, and a lot of it is headcount-driven. Some of it also is incentive compensation-driven in that our assumption for accruing compensation expense, as we go, does assume some continued strengthening in the market throughout the course of the year.

So that's working against us, and we have additional hedge, largely in the digital marketing area, to grow our business. All of that is consistent with our strategic plan that the board reviews.

So, it's all part of the plan to grow Sotheby's, but it is a combination of tough comp year ago in the non-art part of the business, and then secondly, higher spending for people this year, which is largely driven by growth and assumed resumption of strength for bonus purposes and incentive compensation purposes.

Okay. I guess, the corollary or the follow-up to that would be, going forward, are there -- there's lots of opportunity to invest, obviously, particularly around technology.

Would you expect the trajectory of that spend to -- or the increase to move higher if the art market does continue to recover? Or as you said, you do expect, if things get better, a little bit of improvement in H2?

Just sort of comments around your -- the philosophy around that would be helpful.

Yes. Yes, well, I did happen to recall another piece of guidance that we gave in the last call, which would be that we expect 2017 spending to return to the 2015 level.

That's still a number we stand by. And one of the things that we've been cautious about all along is that we're looking for signs of strengthening, and we feel good about what we're seeing in the marketplace, but we've always been cautious that, that upturn, if it does happen, is likely to be in the second half of the year, not the first half of the year, and I think we're standing by that part of the guidance as well, that we're seeing signs of strength.

As you know, one of the shortcomings of our business is we have difficult visibility on the revenue line. We're hopeful.

We're optimistic that the second half will contain -- will have that upturn on the revenue side. But on the expense side, we stand by our prior guidance.

So, Dan, does that -- is that responsive to what you're asking?

No, it certainly is. That's very helpful.

In terms of philosophy, Dan, let me just add something. When we look at the opportunity in our markets -- and the opportunity for us is, as I've mentioned earlier, a real -- a secular one.

Our inclination is to be careful, but to chase it, and one aspect of that is that we are making selected investments in various areas to chase it. And I think you see that we're already beginning to pay some rewards for it, but I'm particularly excited that we're only at the beginning of that innovation curve.

However, it's important to note, and you saw this in 2016, when our revenue turns south as a result of a cycle or some unusual event, remember that a substantial portion of our expenses are variable, and that's -- and he was alluding to that. Mike was alluding to that a minute ago about incentive compensation.

At the same time, so we do have degrees of freedom to move in that direction, and we think it's the best decision for shareholders right now to stay the course, continue investing, frankly, modestly, but at the same time, to chase an exciting revenue opportunity, and also a strategic growth opportunity for us.

That is helpful again. Appreciate it Ted and Mike.

Thank you.

Well, I want to thank everybody for a very thoughtful set of questions. I want to thank my colleagues for joining me this morning, and we appreciate your interest in Sotheby's, and have a great day.