Greenhill & Co., Inc.
Q1 2017 Earnings Call Transcript

Published: 28 Apr 2017

[Operator:]

Good day, and welcome to the Greenhill and Company Incorporated First Quarter Earnings Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. David Trone, Director Investor Relations. Sir, please go ahead.

[David Trone:]

Thanks, Steven. Good afternoon and thank you all for joining us today for Greenhill's first quarter 2017 financial results conference call. I'm David Trone, Greenhill's Director of Investor Relations. And joining me today on the call is Scott Bok, our Chief Executive Officer. Today's call may include forward-looking statements. These statements are based on our current expectations regarding future events that, by their nature, are outside of the firm's control and are subject to known and unknown risks, uncertainties and assumptions. The firm's actual results and financial condition may differ possibly materially from what is indicated in those forward-looking statements. For a discussion of some of the risks and factors that could affect our firm's future results, please see our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K. Neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date on which they are made. I will now turn the call over to Scott Bok.

[Scott Bok:]

Thank you, David. We reported first revenue of $56.9 million and a GAAP loss of $0.02 per share, which was negatively impacted by a new accounting requirement which I will describe shortly. We've noted in every quarterly earnings release that our quarterly revenue and net income can vary materially depending on the number, size, and timing of completed transactions and other factors, and this quarter illustrates that in a variety of ways. Our revenue outcome was light as a result of the fact that our transaction completion fees for the quarter related to relatively small transactions. And transaction timing was also a major factor in our results as our year-to-date revenue costs and earnings would all have looked satisfactory if measured as of a weekend of April rather than at the end of March. Our shareholders will recall that last year started similarly for us, with lower-than-typical first quarter revenue resulting in an unusually high compensation ratio, and an unusually low profit margin. Yet our compensation ratio moved back to a normal level already by midyear. And over the course of full year we achieved both the fastest advisory revenue growth of any of the 15 major firms to disclose that figure, and a very attractive 26% pretax profit margin that was our best in several years. Given the number of unusual factors this quarter, I will walk through each of the relevant items briefly. With respect to revenue, during the quarter we closed a fairly typical number of transactions for us, but as noted above, no large M&A deals came to completion during the quarter. Relative to most of our close peers, our work has always skewed more toward larger transactions, and that strategy has server well over time in terms of high profit margin, strong cash flow, a large dividend, and sufficient share repurchases to maintain a roughly flat share count for 13 years. But that strategy can also result in volatility in quarterly revenue that has led to occasional quarters, like the one we just finished. Thus our focus has always been on delivering strong results on an annual basis and over longer term periods, although we also aim to reduce quarterly volatility over time by expanding the firm in ways that increase the diversity of our revenue sources. In the capital advisory business it was also a slow quarter in both the primary and secondary businesses, though again we believe that was simply a matter of transaction timing, and we continue to expect improved results for the year, driven by an increase in large transaction assignments. In our financing and restructuring advisory business the first quarter was a good one, though our team focused on that business is smaller than that and most of our peers, so this wasn't enough to offset a lack of large M&A transaction closings. Looking at revenue on a regional basis, the quarter's revenue was heavily weighted to the U.S. market, with fairly modest contributions from other regions. Turning to compensation costs, while our expense for the quarter was almost identical in absolute terms to that of last year's first quarter, the low quarterly revenue resulted in unusually high compensation ratio. Our objective is to bring that ratio down significantly in the quarters to come, just as we did last year. Our non-compensation costs were very much aligned with last year, apart from the fact that we recorded a $6 million benefit resulting from an adjustment to the value of the earn-out liability related to our 2015 acquisition of Cogent Partners. For the first two-year earn-out period that ended March 31, 2017, the revenue target was narrowly missed the potential outcome that we signaled on our last quarterly investor call. As a result, for accounting purposes we needed to re-measure, as we do each quarter, the fair value of the contingent cash considerations based on the probability-weighted present value, that the revenue target will be achieved on the second two-year earn-out opportunity provided for in our acquisition agreement. We continue to estimate that it is likely that the earn-out will ultimately be achieved, and have therefore retained the same probability factor for the second earn-out, as in prior periods. The adjustment this quarter is therefore related entirely to the present value impact of deferring any payment to the end of the second earn-out period. On taxes, our results were impacted by a new mandatory accounting requirement that changes the way we record the tax effect at the time of vesting of restricted stock awards. Prior to this accounting change, we reported the tax effect of the vesting of restricted stock awards as an adjustment to equity, rather than to the provision for income taxes on our income statement, as we did this quarter, and will going forward. Excluding this accounting change, which does not impact the amount of cash taxes that we pay, our tax rate would've been 37%. That figure is higher than last year's level as a result of the fact that our income was more heavily weighed to the U.S. market than was the case last year. We continue to be hopeful for corporate tax reform in the U.S., particularly in periods like this when activity is weighted toward the U.S., a lower U.S. corporate tax rate would have a substantial positive impact on our earnings and cash flow. With respect to capital management, on top of paying our normal $0.45 per share quarterly dividend, we repurchased more than 423,000 share equivalents in the quarter as part of the annual share settlement payment for withholding taxes on restricted stocks invested. With respect to our balance sheet, we ended the quarter with more net debt than typical, but by the end of the first week of April we were back in our targeted position of having global cash in excess of the amount drawn in our revolver. As our press release notes, since quarter end we also made the term loan payment on the Cogent acquisition debt, that was due at the end of April, and there is now only $11.25 million dollars that remains outstanding on that term loan. And we also completed the annual renewal of our revolving credit agreement, and increased the size of our credit line, to $80 million. This increases our flexibility to hold cash overseas offset by domestic borrowing until a change in the U.S. corporate income tax rate makes that unnecessary. Now, let me comment on the transaction environment and outlook. First, while we see our quarterly revenue result as largely a function of transaction timing, it is also true for the market as a whole that the year has had a relatively weak start in terms of transaction activity. Both the number and volume of completed transactions were down meaningfully in the first quarter as compared to the first quarter last year. And the five largest U.S. investment banks have already reported an aggregate decline in advisory revenue for the quarter relative to last year. And that's on top of that same group having reported a full-year decline in advisory revenue in 2016, compared to our 29% full-year increase. In terms of announced deal activity, the number of transactions is down, and the volume is about flat versus the first quarter of last year. But it's worth remembering that last year also started slowly amid steep equity market declines. Notwithstanding the slow start to market activity this year, we remain positive on the outlook for deal activity going forward. Clearly there was a degree of market euphoria following the U.S. presidential election, as investors came to expect tax cuts, regulatory relief, and infrastructure spending, which together were expected to drive higher economic growth. As more clarity develops on the potential for such business-friendly government policies which we are hopeful for in the near term, we believe more of the ongoing strategic transaction dialogues we are seeing will convert into actual transaction announcements and related advisory revenue for firms like ours. Finally, I will close with a brief comment on recruiting. We said last quarter that we thought the recruiting environment was quite favorable, and that we expected to recruit at least as many managing directors as the six we did last year. We are pleased to say that we've already announced the addition of six new managing directors in the year-to-date, including two will open an office in Spain once we complete the regulatory process for that, one in Australia, and three in North America. And we continue to be in dialogue with other candidates as well. Going forward, we believe that our pure advisory business model combined with our culture of teamwork will continue to make our firm an attractive destination for talented bankers. With that, I'm happy to take any questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Devin Ryan with JMP Securities. Please go ahead.

[Devin Ryan:]

Hi, Scott, good afternoon.

[Scott Bok:]

Hi, Devin.

[Devin Ryan:]

Maybe just to start here, just trying to reconcile the actual result this quarter relative obviously to the hope that the year would've started a little bit stronger. I'm just curious, is it as simple as timing deals that just you thought when you were looking out a couple of months back and thinking about the first quarter coming together, deals that seemed likely to be closed in 1Q, and they just ended up happening to close the first couple of days of the second quarter? Or are there some deals that maybe just didn't come to fruition, and seemed like they were going to, and so that's the disappointment?

[Scott Bok:]

It's pretty much the former, as I indicated. I mean, I think you would say it was a good start to the year if you measured it as of a week into April, and it's less than a good start to the year if you measure it as of the end of March. And it really is about as simple as that.

[Devin Ryan:]

Got it, okay. And then maybe just a million-dollar question. So you obviously started last year kind of in a similar spot, and then ended up battling back, and putting together a pretty nice year. And so when you sit here today, in kind of another little bit of a slow start and at least for the first quarter, how do you feel today relative to one year ago? Do you think the outlook for this year feels better where we can maybe still have a good year like last year, or even better? Or is there something that maybe gives you pause relative to how you were feeling a year ago?

[Scott Bok:]

We don't obviously make forecasts for a full year ahead. But, look, I think in many ways the interest among companies in transactions is higher than it has been in a long time. I think the presidential election, as I noted, had a big impact on that. But I think if you'll look at the data it just hasn't translated into a significant pickup in announced deal activity yet. So I think as more clarity develops, which I think it could. It maybe have even started too [ph] this week, I think you'll see a lot of those kind of transaction dialogues lead to more speedily to transaction announcements. But obviously there's uncertainty. And so that -- as there always is, particularly at the time of what could be significant change in terms of various government policies.

[Devin Ryan:]

Sure, okay. Just last one here. Obviously a lot of dynamics impact both U.S. and abroad, but it does seem like we're maybe getting a little bit better tone out of Europe, and some of the elections have been going smoother than kind of worst case. So I'm just curious how business in Europe is feeling, and if it feels kind of similar where we might be moving into a little bit better backdrop.

[Scott Bok:]

I'd say I would make a very similar comment I think about Europe. I mean, I don't doubt that, and again if you look at the data, there's not been a big surge in transaction activity. The year looks an awful lot like last year looked, and like the several years before it looked. But I do think the French election sort of removes some uncertainty. I think the British election; I think everybody probably knows how that one's likely to come out. But it still will provide some more certainty about what Brexit might look like when that election is completed very shortly. So, I think getting things like those two elections out of the way will lead to more stability in Europe, less uncertainty, and therefore more transaction activities. So kind of like here, they're on brink -- we're on sort of the threshold of a fair amount of change in terms of political leaders, and how Brexit is going play out, and how Donald Trump's changes in economic policy are going to play out. But those things are starting to become clear, and that should lead to more activity on both sides of the Atlantic.

[Devin Ryan:]

Okay. I'll leave it there. Thanks, Scott.

[Scott Bok:]

Okay, thanks.

[Operator:]

Our next question comes from Jim Mitchell with Buckingham Research. Please go ahead.

[Jim Mitchell:]

Hi, good afternoon.

[Scott Bok:]

Hi, Jim. How are you?

[Jim Mitchell:]

Good. Hi, Scott. Just with the number of hires. There are quite a few high profile number of MDs. How should we think about that in impacting I guess net MD growth. And I guess secondarily, what that might do to the comp ratio or you can still hold the line in the comp ratio if revenues can kind of come in where we were last year?

[Scott Bok:]

I don't think the pace of hiring is such that it's going to have a dramatic impact on the comp ratio. I mean, look, this is a meaningful number, but it's not huge relative to the number of MDs we've got. I do think, certainly as I've suggested, there are other dialogues going on. We could end up with more. If we ended up with a lot more it could have some impact on the comp ratio. But I wouldn't lead to any conclusions on that. I think that the main driver of comp ratios is always revenue. It can have some impact on the margin to do more or less recruiting. But as I said three quarters ago, we feel like there is some good talent out there that was interested in joining us. And we've talked to lots and lots of people, and came away with six so far. And I think we'll probably come away with others who should have a meaningful impact on the firm's revenue in 2018, and beyond.

[Jim Mitchell:]

Right. And can you help us with the number of MDs currently. Have we seen an increase?

[Scott Bok:]

It's basically -- essentially no change since year-end in terms of attrition of any kind, so no change there. Some of these people haven't started yet of course, but it's essentially there's no meaningful change since the last year –- last quarter rather.

[Jim Mitchell:]

Do you feel like this recruiting class is you think has significantly more or better prospects? You feel good about the prospects of their ramping up over the next year or two? Does it feel better than what you've had in the past? It seems like the activity levels around recruiting for all year peers seems to be higher.

[Scott Bok:]

I don't want to offend the people who came last year and the year before saying that the class is better, so I'll refrain from that. But I think we got some very senior people, people who are very far along in their careers, and including in Australia and in Canada, I think we got -- Spain is not a huge M&A market but it's, we think, a growing one. And I think we got two of the top people out of the top domestic firm in that market. So I'm excited about who we brought on, and I'm excited about some of the ones we're still talking to today.

[Jim Mitchell:]

Okay, all right, great. Thanks.

[Scott Bok:]

Thank you.

[Operator:]

Our next question comes from Christian Bolu with Credit Suisse. Please go ahead.

[Christian Bolu:]

Good afternoon, Scott. So, a question on the competitive landscape, I'm not sure why you used the large investment as the competitive set in your remarks. I guess the three independent banks that have reported so far have posted their 1Q at 42% up on average year-over-year versus down for you guys. So stepping back a little bit here, if I think about the growth momentum in 2016, which was pretty good, after three of four years there were a bit lackluster, could raise your confidence level that 2016 wasn't the exception, and kind of your back into growth mode again here?

[Scott Bok:]

I focused on the large investment only to illustrate the point that the market -- I think the pool of advisory fees actually shrank in the year-to-date. I mean there are two European banks that have announced, and they're both down as well first quarter versus last year's first quarter. So I think the pool shrank some. I think what has probably helped some of our peers relative to us is really two things, and both hinted at in my script. One is that there was a lot of talk, on the transcripts I read, about small and mid-cap M&A, and in a market where there wasn't as much large-cap activity. And I think some firms have very intentionally gone for a strategy that kind of builds out that part of the business, and in a way that we've not focused on. And the other is that while we have an outstanding restructuring team, and we've had a great first quarter in restructuring, and we have a good business in restructuring, we have also not made that as big a part of our firm as others. So I think the beginning of this year was one where our focus on smaller cap deals and a focus on restructuring paid off in terms of revenue. And I think that's probably why you're seeing the firms that focus on those two areas do really so dramatically better than the seven big banks that have announced so far, because they obviously don't really do restructuring, and they certainly tend to skew toward much larger focus on M&A deals.

[Christian Bolu:]

Okay, got it. And then on the hiring front, absolutely impressive in terms of six MDs and some of them look pretty interesting. But I'm just curious what exactly your pitch is to the very best bankers. I guess from a very high, very simple level to your top banker [indiscernible] you look at Greenhill's share price, revenue growth, or comp ratio over the last five years. My guess, you would probably assume other boutiques are more attractive destinations, just my guess here. So maybe just help me understand what exactly the unique or the unique selling points you offer to these bankers as you pitch them?

[Scott Bok:]

I think a few things. I think one is kind of the point I just made, which is that we tend to focus more on larger transactions. And there are a lot of bankers out there, particularly [indiscernible] that's their history. They'd rather focus on a few homeruns than a lot of singles. And they prefer a firm that has that strategy. I think secondly, I would still argue that we're the most global of the independent firms, putting aside Lazard, which is 150 years older than us. But I would still say we're actually very, very similar to Lazard in terms of if you look at how much revenue comes from clients outside the U.S., that besides us and Lazard, the other firms are all really quite significantly lower, so if you're in a sector where cross-border global activity is critical to what you do I think you're going to be drawn to us. Third, I think we are known to have a really collegial team-oriented culture. So if it's important for you to work in teams to do complex cross-border things, I think that's a positive for joining us. And fourthly, I think frankly a big one, is that we're smaller. I mean, some other firms have grown really dramatically in the last few years, so they've just got less white space. And there are people who can have had a 20-year career somewhere, and they look at Greenhill, and depending on what they're niche is, what their focus is with the client they might be an awful lot of white space here where it becomes quite interesting. Whereas as slotting in to be the fifth MD covering your space at a firm that's built out a lot more on a personal level is not nearly that interesting. So that's fundamentally my pitch. And I hope a few recruits are listening to that, and they'll give me a call tomorrow.

[Christian Bolu:]

Okay. Well, thanks for the color there. And then just lastly, just on your commentary that if the quarter was one week later you'd have had a good quarter. Can you in any way just help us quantify? Does that mean you would've been better than last year? Would've been better than consensus? Just trying to get a sense, just again given the -- and I absolutely appreciate that one quarter is not the way to look at the business, but just given the scale, I think I'd be helpful just to understand how one week would've changed the results of the firm.

[Scott Bok:]

Look, we can't quantify that, I think obviously when you put out specific numbers they have to be audited and all that, so I wouldn't be able to do that. But I'll put it this way, it may seem like a big miss, but if you look at it on a revenue sense I think we're like $10 million or $11 million below consensus. You can work on one $1 billion M&A transaction and earn a fee of about that amount. So you can have pretty random timing of transactions, and you can have deals accelerate and slowdown, and you can have deals die of course, in some cases it can drive things, or new things can get announced and suddenly you've got a big announcement fee. So I would just say as we've said in the comments already that if you look at this a week later, we and you I think would be feeling very good about the year-to-date, one quarter and one week in, in terms of all the key metrics. And I think that kind of says it all, that in terms of what -- yes, I know in percentage terms may seem like a big miss, but it's really the movement of one fee makes all the difference, and two fees, and suddenly you're well above expectation, so pretty modest, really, in the scheme of things.

[Christian Bolu:]

Okay. Thank you so much. I appreciate all the answers.

[Scott Bok:]

Sure, thank you.

[Operator:]

Our next question comes from Michael Needham with Bank of America Merrill Lynch. Please go ahead.

[Michael Needham:]

Hi, good afternoon.

[Scott Bok:]

Hi.

[Michael Needham:]

Hi. Just first, one follow-up on the hiring, it looks like you're starting the year off clearly very strong. I was hoping you might be able to comment on how productive you think these people will be versus, say, the average banker already at the firm? I know it can take time for them to ramp, and you may not look at average productivity as a hurdle for hiring someone. But I'm trying to gauge how additive the people are going to be.

[Scott Bok:]

I mean, we don't hire people who we think are worse than our median. So I feel, as I mentioned a minute ago, very positively about who we recruit. I've looked at this over time though, and it's interesting when you even look at your highest paid people or something. And it's a pretty random mix of people who've been here forever, like myself and some others who've been here for almost 20 years, people who came up through the system and joined us out of business school or something like that, and many years later have grown into being prominent producers or came here five years ago, two years ago, or one year ago. So, it's always hard to predict, and it's not all about the quality of the person. If you're somebody focused in a sector that suddenly gets very active or you've got a set of clients who are particularly loyal to you, and suddenly after you move they do a big deal then as opposed to doing one a year earlier or a year later, you can get -- hook a return on the investment. But certainly we feel good about the people we've brought in. I think we're -- mining is a sector we've actually never covered really at all, and we've got some really senior people focused on that now. We've made a change in leadership in Canada last year, and we've now built that out with a couple of more senior hires, who were excited about that, and you know, as I mentioned about Spain a minute ago, we're quite excited about that as well. We heard a senior industrial person in the U.S., industrials been a real big area of success for us, and you know, to bring in somebody who's adjacent to where you've already had a lot of success as kind of a higher probability of success higher than entering a new area. So, we feel good about them, but obviously time will tell.

[Michael Needham:]

Okay, make sense. And then just second, on policy uncertainly, you've had such on it on the earnings release, so I was wondering if you could give us a sense of the client behavior that you're witnessing, and whether you think there are a lot of clients sitting on the sidelines and which -- you know, the few issues is the biggest impediment for clients?

[Scott Bok:]

I just have the sense it is -- I'm also I'm trying to do is reconcile two facts; one is that I have it feels like there is a very strong pace of dot transaction dialogs, an interesting transaction dialogs when you go see clients, but at the same time when you look at the market deals statistics of the entire market, and it looks pretty soft. And along the way I can reconcile that people are feeling sort of generally bullish about the future for reasons of tax cuts and deregulation and so on. And yet they're not quite the same may be a clarity to want to really make a firm commitment, borrow the money, spend the cash, do whatever it takes to do a transaction. So, I think -- look I think the biggest factor is taxes, there was talk about not letting interest to detectable that would have a huge impact not on deal activity overall, but certainly on the kind of deal activity. There would be a border tax. It could have a huge impact on some companies, retailers and many others. And so I think once there's some clarity around, you know, what's going to happen with taxes, and it doesn't have to be some huge miraculous fact, so I don't think there really least a lot of transaction interest. I think that kind of clarity will make a big difference.

[Michael Needham:]

Got it. Thank you.

[Scott Bok:]

Thank you.

[Operator:]

Our next question comes from Brennan Hawken with UBS. Please go ahead.

[Brennan Hawken:]

Hey, good afternoon, Scott. Thanks for taking my questions.

[Scott Bok:]

Hi. Sure.

[Brennan Hawken:]

So, I just wanted to circle back to the comments that you made before on 2017 revenue off to a strong start, and I get it that the timing is a bit of an issue, but we had what it was like the right way of deal that closed in the beginning of April can even if we add that in, it's not likely would have been growing revenue meaningfully, consensus is sort of a moving target, right, I mean consensus dropped by a dime from mid-March and April. So, more importantly rather than talking about timing or anything like that, I just wanted to maybe ask for an update on your optimism on the first half or even strength in 2017 sort of sustaining from what you guys were able to do in 2016? Do you still feel good about that, or do you think that we might be looking at some pause until we have greater policy certainty, because it just seems like the tone might be a little more reticent here.

[Scott Bok:]

No. Look, I wouldn't read too much again into what is not a really significant difference between the revenue that maybe I and our investors who might have expected for the quarter and what it turned out to be it; as I said, sort of one transaction can make all the difference. By the way, I don't want to comment and never do on any particular transaction, but I will comment that we did not work on the one that you referred to a two minute ago. So you must have confused with another firm on that. So -- but in general, look, we feel -- we do feel like there's a lot of interest and transactions out there, including quite large transactions of a strategic nature with big public companies doing things, and I think, you know, I can't tell you the pace at which those will unravel, but I think the -- you didn't start out that differently than what we really expected. It just is a matter of, as I said, of timing and some slower announcement activity, but again, I think as the policy clarifies a bit, I think that will remedy itself pretty quickly.

[Brennan Hawken:]

Okay. So, the start to the year was in line with your expectations?

[Scott Bok:]

I would say if you -- I mean, again, what do you mean by start? I mean, I didn't -- we don't predict quarters and so we never said anything about the first quarter; what I'm saying is essentially I think as of a week into April, we and all our investors would have thought that's a strong start to the year. And I think as of the end of March obviously you wouldn't say that, and neither would I, but I would say that evenly a short period in April.

[Brennan Hawken:]

Okay. And then, thinking about leverage, I think you guys indicated that you took up the revolver a bit. So, like how should we think about leverage on the balance sheet? I know that you guys generally tried to run with net cash flat type of a deal, but excluding the Cogent leverage, is that generally how you're going to tried to stick to an operating principle throughout the year?

[Scott Bok:]

That's been our standard approach for a long time. We don't really consider ourselves leveraged. As you said, we normally aim for cash in excess of our revolver balance. Yes, we do sort of think of the term loan for the Cogent acquisition definitely, but that's not under the $11 million. So that's a pretty trivial -- pretty trivial thing. And you know, yes, we did take up the revolver size a little bit. I think we've done that almost every year, because our approach is this -- one hopes the business gets a little bit bigger each year, and we want to have a lot of flexibility as I said to, to not have to for bring cash back from overseas to pay higher taxes on it. If we get a tax card, I mean forget about the 15%, if we just got 1% to 25%, there would be affectively be no limitation or even hesitation on our part to move cash around the world. And I think at that point you would see us with a different kind of balance sheet you know rather than having, a fair amount of cash that offset of any kind of a similar amount of debt. I think you'd find us with a simpler balance sheet, and last kind of absolute amount of debt.

[Brennan Hawken:]

Okay. And then last one from me, how should we think about the fixed cost base? A few years ago I think the indication was that it was around 130, but you guys have done the Cogent deal, and recently done some hiring. So, is that still the right way to think about the fixed cost base of the business?

[Scott Bok:]

I'm not getting too specific; I would say we don't feel like that numbers really chang4e that much in the recent years. So I think the number we used back then it's still a reasonably good number to use in terms of the fixed costs of the business.

[Brennan Hawken:]

Okay, thank you.

[Scott Bok:]

All right, thank you.

[Operator:]

Our next question comes from Jeff Harte with Sandler O'Neill. Please go ahead.

[Jeff Harte:]

Hi, good afternoon.

[Scott Bok:]

Hi, Jeff.

[Jeff Harte:]

A couple of clean-up things; the comp dollar amount staring up at the $44 million in the quarter with revenues being lighter, should we interpret that as kind of once you start getting close to $40 million that's kind of is low as comps going to go depending on revenue not dependent or you already kind of factoring in which you knew were some deals are closed early in the second quarter and in certain -- the comp dollar amount that high?

[Scott Bok:]

Well, I think you should sort of take some guidance from last year when -- in the first quarter, we have similar situation. And look, there's a there's a point below which you don't want to take compensation. Obviously, you can do what -- you know, in theory whatever you want on a quarter-to-quarter basis, but you have not only a fixed part of compensation, but you've got, you obviously got to pay people bonuses where that's appropriate, and it generally is in our industry. So, we thought rather than having these sorts of artificially low just we did the same thing we did last year, which is what we think as the right sort of absolute level. And you saw last year that as revenue evolved, there is the -- you know, we had a lower comp ratio and it kind of netted out in a year-to-date basis to a reasonable place by midyear and a very good place by the end of the year. And so, I think that clarifies your question.

[Jeff Harte:]

Okay. And the Cogent contingent consideration benefit; assuming they get on track to hit the new targets for the second deadline, how and when would we see that come back in? That could be just something in a given quarter you'd say we think don't hit it again and we'll see kind of the charge come back in, does it come in over time? How should we think about it going forward?

[Scott Bok:]

It probably it's going to -- most likely moving away [indiscernible] notice at this point. This was the big moment, obviously, where you go from in this net present value accounting calculation from thinking that the payment could be imminent to the payment having to be two years out, what we did over those eight quarters before that which will do for the next eight quarter as well, just kind of tweak it each quarter based on the present value movement as we get closer to that date and also our view of the probability. So, if there are -- if the business is performing very well on pace to achieve or exceed the earn-out, we will kind of tweak it up each quarter appropriately. And if it goes the other way, we would tweak it down each quarter properly, but I wouldn't expect an abrupt move like we had this quarter when you obviously switched from a year or two, or now to a year four or now.

[Jeff Harte:]

Okay. Finally with cash in the balance sheet jumping back up again in April, this is less of a concern, but the ASU accounting impact; I get why it would be a charge for you guys at the direction of your share price over recent years, and I get that it's an accounting, not an economic issue over time, but is there a timing of cash flow impact that would come along with that? I guess I'm wondering whether it would actually have an impact on the tax cash flow payments should be making in a given year.

[Scott Bok:]

Yes, the accounting change that impacts our tax rate in relation to the vesting of stock has no cash impact at all; not in terms of the amount we pay or the timing we pay or anything like that.

[Jeff Harte:]

Okay, time is clear as well. Okay, thank you.

[Scott Bok:]

Alright, thanks.

[Operator:]

Our next question comes from Steven Chubak with Nomura Instinet [ph]. Please go ahead.

[Unidentified Analyst:]

Good afternoon everyone. This is actually Julian [indiscernible] filling in for Steven.

[Scott Bok:]

Okay, welcome.

[Unidentified Analyst:]

Hi. So just going back to the comp ratio, I know that you mention that you plan to manage the ratio lower like you did last year, but I was wondering if the flat year-over-year guide that you provide at the start at the end of the fiscal year is still an achievable target to manage to?

[Scott Bok:]

I don't remember giving specific guidance on that, but I think we're -- look, if you look at recent years we've been really in a fairly narrow range in terms of comp ratio. It's has been -- it's really at or below our peer group level, but it's within a fairly narrow range, and you can see how you know a little more or a little rest less revenue as impacted that depending on the year you look at it. And so, I think that gives us some guidance as to what our targets is going to be as we go forward.

[Unidentified Analyst:]

Okay. And lastly, just switching gears to just your perspective on restructuring, can you just discuss how your outlook for restructuring as energy deals, which have been very active over the past year or so appeared to me being the later innings, and there have been -- there's been an emergence of deals in the consumer retail space. While it's facing significant headwinds it's not as involved as energy deal; just wanted to hear your thoughts on that, and as well as on the sea opportunity in the space.

[Scott Bok:]

As I mentioned, we have a very good restructuring business, staffed by very good people, but it's not a huge team the way it is that many of our peers, and in a quarter like we just went through, that benefits some of those peers who are more bigger in restructuring and benefited even more than we did from the kind of the energy wave. But look, our team is busy, and we think there will continue to be some good opportunities in energy. I would probably agree that something like retailing is much is under a lot of pressure is probably not going to create as much restructuring advisory opportunity as energy would, but we're not -- I think we're not going to have very low interest rates forever, and we're not going to have a growing economy forever. And at some point we'll we're facing higher rates and/or recession, and you'll see of any increase in broader restructuring activity, it means that we really have very little for the last several years until the energy price collapsed, and that led to a lot of companies defaulting in that space or coming close to default, but you know, what the question about is not a kind of a huge driver of how we'll do for the next year or two, probably have more question ready for some of our peers.

[Unidentified Analyst:]

Thank you. That's it from me.

[Scott Bok:]

Thank you. Thanks.

[Operator:]

Our next question comes from Vincent Hung with Autonomous. Please go ahead.

[Vincent Hung:]

Hi. So factoring in the reversal certification, and now, is $16.7 million the right -- costly run rate for the non-comp sense?

[Scott Bok:]

I think broadly if you look our non-comp expense apart from this one Cogent earn-out adjustment, has been quite consistent in recent quarters, and we don't foresee a dramatic move in either direction for that. So, I think that continues to be a pretty good number.

[Vincent Hung:]

Okay. And I think you hired five of the six MDs announced this year from outside of the U.S. Are you just focusing on non-U.S. hires right now?

[Scott Bok:]

No, I wouldn't say that. I mean, first of all, I kind of think more in terms of North America, because people work very much across the borders between U.S. and Canada, particularly in some of the sectors like mining. So, and a number of the people we are still talking to are based in that U.S. So, no, I wouldn't say that. We are looking for what I would describe as sort of the great athletes in our business, and when we find them in a particular market we are going to take some, and so at any given time you could take tow, three, four, five, six, and have them skew towards a particular region or type of advice or sector, or something like that, but the strategy is certainly a broad one and if anything we are probably much more involved, and we are putting discussions in the U.S. and we're also right now.

[Vincent Hung:]

Right, thanks.

[Scott Bok:]

Okay, thank you. That was our last question. So, thank you all for dialing in and we will speak to you again in about three months from now.

[Operator:]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.