Greenhill & Co., Inc.
Q4 2017 Earnings Call Transcript

Published: 7 Feb 2018

[Operator:]

Good afternoon, and welcome to the Greenhill Fourth Quarter Earnings Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Patrick Suehnholz, Director of Investor Relations. Please go ahead.

[Patrick Suehnholz:]

Thank you. Good afternoon, and thank you all for joining us today for Greenhill’s fourth quarter 2017 financial results conference call. I’m Patrick Suehnholz, Greenhill’s Head of Investor Relations. And joining me on the call today 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 the 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 would now like to turn the call over to Scott Bok.

[Scott Bok:]

Thank you, Patrick. We reported fourth quarter revenue of $66.9 million, a small operating profit and an after-tax loss of $0.85 per share, which reflect a variety of usual items. For the year, our revenue was $239.2 million. We similarly had a small operating profit and after-taxes, we had a loss of $0.83 per share. While our results for the year were obviously disappointing relative to a long history of generating strong revenue and high profit margins, we are pleased that the overall results provide some significant pockets of strengths that the fourth quarter began to show signs of a rebound and that we have made progress in the initial phases of the recapitalization plan we announced last September. Before turning to the fundamental aspects of our performance and the outlook, I note that our results for both the quarter and the year were impacted by a variety of unusual and in almost all cases non-cash items, including tax charges related to the new U.S. corporate tax law; the impact of tax losses on certain international markets not being offsetable against profits in our U.S. market; new accounting guidance for 2017 related to accounting for the vesting of restricted stock awards; accounting adjustments related to the contingent earnout on our 2015 Cogent acquisition, which looked increasingly likely to be achieved; some foreign currency losses related to the financing of our international operations; and certain transaction costs related to the recapitalization plan we announced last September. However, given that those unusual items are both non-recurring and explained in our press release and upcoming 10-K filing I will focus the remainder of my remarks on the more fundamental aspects of our business with both – with respect to 2017 and the year ahead. With respect to revenues, we said last quarter, the primary driver in our result for the quarter and year was a much lower than normal contribution from our international operations, particularly from the historically strong European corporate advisory franchise. Revenue from clients in Europe and elsewhere outside the U.S. fell by more than half relative to the prior year, as a result of significantly fewer large transaction completions, partially offsetting the weaker results from international and corporate advisory activity was the fact that our capital advisory business achieved record quarterly and annual revenue. We view our 2017 results in Europe as an aberration and that we had strong results in Europe only a year earlier and we expect to again see a strong contribution from Europe in the first-half of the current year. We likewise expect to see improved results from our corporate advisory business and other international markets this year. In general, our sense is that conditions are favorable for M&A activity globally, including for the larger transaction sizes that have historically been our primary focus. Meanwhile, we continue to see strong momentum in our capital advisory business. With respect to compensation costs, our unusually high compensation ratio for 2017 is simply a function of the unusually low revenue for the year and the importance of compensating our strong performers, despite the reduced total revenue. As revenue returns to higher levels, we would expect the compensation ratio in future periods to move back towards historic levels. At the same time, we will continue to be guided by our need in order to maximize long-term shareholder value to compensate top performers competitively and to continue to recruit new senior talent to the firm. With respect to non-compensation costs for the year, these were impacted by some of the unusual items I referred to previously. Without the impact of those unusual items in 2018, we expect our non-compensation operating costs this year, which include interest expense to be around $70 million for the year. And that reflects client reimbursements that historically have been treated as an offset against expenses being treated starting in 2018 as an element of revenue in compliance with new accounting requirements. Our taxes were heavily impacted by number of unusual items in 2017 that I have already mentioned. However, as a result of the new U.S. tax law for 2018 and beyond, we expect our effective corporate tax rate, excluding the impact of the recent accounting change related to the recording of a tax benefit or charge upon the vesting of RSUs to decline from a historic mid to high 30s percent range to a low to mid 20s percent range. The change in tax level will also greatly enhance our ability to move cash around the world as needed in the future without suffering significant incremental taxes. Now, I will turn to an update on our recapitalization plan that we announced last September. We announced then that as part of that plan, we would repurchase up to $285 million of our common stock. Between that announcement and year-end, we repurchased about 3.78 million shares of stock through the combination of a tender offer and open market purchases for a total cost of just under $66 million. Accordingly, as of year-end, we had approximately $219 million remaining under our share repurchase authority, not including share equivalent to repurchase from time to time as part of tax withholding on the vesting of restricted stock. Clearly, we have so far made less progress than we had expected to in our share repurchase plan. This was influenced by two facts. First, shareholders mostly chose not to sell into our tender offer, which was set at a 20% premium to the share price prior to the announcement of our plan. Then second, the price of our stock further increase more quickly into a higher-level than we had expected when we put in place a formulaic 10b5 open market share repurchase plan, which has just recently expired just before the recent market correction starting a few days ago. Going forward, we will seek to accelerate progress on our share repurchase plan, while still maintaining a disciplined approach to the manner and timing of repurchases. I’ll now review the broader objectives of our recapitalization plan. As noted when we first announced the plan, our principal objectives were to take advantage of what we viewed as overly negative market sentiment, increased tax efficiency, reduce our cost of capital and increase employee alignment with shareholders, all within the overarching objective of enhancing long-term shareholder value. In further end of our objective to maximize long-term shareholder value, which our team is both highly energized and incented to help achieve, we have looked and are looking at every aspect of how we operate our business. That has meant and will mean significant recruiting of new senior talent, some changes in existing personnel and some incremental savings in non-compensation expenses. With respect to senior recruiting, we recruited nine Managing Directors in the outside in 2017. And based on current discussions, we expect another large class of Managing Director recruits to join in 2018, expanding our capabilities in several key sectors, as well as certain types of advice with a primary focus on the U.S. market. With respect to changes in existing personnel, it’s important to notice that we have a strong core team of Managing Directors, with about two-thirds having been with us for at least five years and many for much longer. But there will always be changes to the team around the edges, as we continually monitor ongoing performance and look to operate where appropriate. For legal and other reasons, it will continue to be our policy that we don’t comment on individual personnel moves. But it’s fair to say that the majority of historic as well as recent moves have been proactively engineered by us and we believe the aggregate impact of such changes will be to enhance the revenue productivity of our team. With respect to non-compensation cost savings, we’re seeking to implement best practices among our peers in a variety of operational areas. Obviously, the amounts involved there are nearly as impactful as revenue increases. But our thought is to leave no stone unturned in maximizing the profit potential of our rebound relative to last year and maximizing the value of our firm over the next several years. Summing up our situation, I would note the following. We have four primary engines that drive revenue on our business

[Operator:]

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

[Devin Ryan:]

Hey, Scott, good afternoon.

[Scott Bok:]

Hey, Devin.

[Devin Ryan:]

Maybe first one here just on the share repurchases and plans there. I know that you might be a little bit limited here, but there’s clearly limitations in terms of just being in the open market trying to do it. And so, as we kind of think about that and the timing of how that could play out just seems difficult. So how should we think about what you’re factoring in, in terms of either staying in the open market, or doing other tender, which would maybe more efficient? And then also, I believe, you can’t prepay the debt for 18 months. But would that be a scenario that if you just don’t see the opportunity that you just – you pay that back?

[Scott Bok:]

Look, on the share repurchase, I – we for obvious reasons, we can’t be terribly specific about that. I mean, suffice it to say, our plan remains to implement the plan that we announced. We were maybe somewhat surprised that our tender offer set at somewhat of an unusual premium for a repurchase plan was not highly subscribed. Now I’ll take that for some degree as a compliment that people didn’t want to sell at those prices. We then put in place, say, 10b5 open market purchase program and the stock almost immediately traded up considerably even from that tender offer price. So until, obviously, those recent days, it was very substantially above where it was when we started our plan. So we’re evaluating all options. We don’t want to take for ever to get meaningful parts of this done. And we’ll do what’s in our shareholders medium to long-term interest in terms of how we do it and at what price. As far as repaying the debt, I mean, there certainly is a share price at which it wouldn’t make sense to buyback more stock and maybe would think about repaying the debt. But we’re a very long way from that price. And so that’s not something that is under consideration at all.

[Devin Ryan:]

Got it. Okay. And then with respect to expenses, appreciate the detail on kind of non-compensation expense outlook. With respect to the headcount expansion, I guess commentary, how should we think about the view on the comp ratio? And whether you let that go up a little bit to recruit more aggressively this year? I know that’s going to be revenue dependent as well. But just trying to think about that and then just orders of magnitude if you could, how are you feeling about recruiting this year maybe relative to last year, which was a big year just if you can kind of sensitize that for us?

[Scott Bok:]

Look, I’m feeling quite positively about recruiting. Obviously, you can imagine at this time of the year, we’re in pretty advanced discussions with some people, because this is kind of the season those dialogues happen. I think, we could easily have a year that’s comparable to last year. That would mean, it couldn’t be one or two less, or even one or two more, but I think, we’re poised for a pretty substantial year of senior recruiting. As far as comp ratio, I would just say, look, that that’s been – that’s hugely impacted by revenue and everything else is really not nearly as important in determining that. I think, we are very focused on growing the business and growing the long-term shareholder value that’s the whole point of the recapitalization plan and the big share buyback and kind of leveraging and increasing the ownership of those who work here. And that’s what we’re going to be driven by and the comp ratio will basically fall out of the revenue outcome as much as anything.

[Devin Ryan:]

Got it. Okay. And just last, quick modeling one. With respect to the, I guess, revenue recognition change that you detailed in the latest 10-Q, can any kind of background of why you made that decision to do that? And then just from a modeling perspective, how do we think about that, I guess, particularly related to the portion around you having to accrue when your services are provided?

[Scott Bok:]

I wouldn’t – first of all, we’re not changing anything kind of proactively about how we book revenue. There have been some accounting changes in terms of the way we’re supposed to do things and we’re simply following those. I understand that that will have an impact on how things like retainers are booked, but that’s obviously not a huge part of our business. I also noted, as I gave the update on non-compensation costs going forward that apparently, we now have to count client reimbursements as revenue rather than as an offset to expenses like we did in the past. So – but I think, all this is pretty small in the scheme of things. I mean, I don’t think the revenue going forward is much impacted by these various changes. But there are some changes and we have to just go along with whatever the accounting rules are.

[Devin Ryan:]

Yes. Okay, got it. No, that’s very helpful. Thank you, Scott.

[Operator:]

The next question comes from Ann Dai with KBW. Please go ahead.

[Ann Dai:]

Hi. Thanks for taking my question. Good afternoon.

[Scott Bok:]

Sure.

[Ann Dai:]

First question for Scott, I wanted to go back to your comments on the different segments of your business and the ones that were a little bit weaker in 2017 versus what did well capital advisory? And can you just talk about where we stand today based on early conversations, maybe early pipeline that you’re seeing across your segment, compared to where we might have stood a year ago?

[Scott Bok:]

Yes. Look, our – the thing that really drove the results, as I pointed out, was the international corporate advisory. We had a good year in capital advisory, actually the best ever. We had an okay year in U.S. M&A, it just was very weak around the world and Europe historically is a big producer for us. But in our view, it’s an aberration, I mean, 2016 was a very strong year for our European team. I think, the outlook is that, 2018 will again see Europe become a strong contributor to our revenue. Obviously, time will tell, but that certainly is our perspective. And likewise, the other regions aren’t as important as historically Europe is to us. But I expect over the course of the year, we’ll see improvement in those areas as well. As you know, so much of our business is really driven by significantly sized transactions that have large fees associated with them. You can have a period certainly quarter-to-quarter and sometimes even year-to-year, when a lot of those things cluster in one period and are absent in another period. And that’s why, if you look at our – I think, if you look at our European corporate advisory business, 2016, 2017 and 2018 put together, you would say that’s a very good business. But the revenue fell in the 2016 and 2018 period and not much in 2017.

[Ann Dai:]

Okay, makes sense. Thank you. Also, after the growth in capital advisory, can you just talk a little bit about how much of that is just the people or market volumes extending versus you guys taking greater market share in some of these categories?

[Scott Bok:]

I think, if you break it into two pieces, primary capital raising and secondary. On primary, we have a good market position. It’s a competitive market like everything else is, but we have a good position there. On the secondary side, I would say, we have more than a good position there. We have a very substantial market share. I think, it’s hard to measure precisely market share sort of moment to moment. But I think, our team got a larger share of the big things that happened in 2017. But they also have a very high volume business, where they do lots and lots of quite small things. But – so the combination of those obviously led to a very strong result in 2017. And I think it’s just not much more complicated than the fact that, there was a fair – fairly high degree of market activity. We have very good market positions, the market teams – and teams, and so we had frankly both more large things, but also more small things as well.

[Ann Dai:]

Okay. And just a clarification, I’m sorry, if I missed this. But did you guys give the headcount?

[Scott Bok:]

No, but I think 71 is the right number.

[Ann Dai:]

Okay, great. Thanks.

[Scott Bok:]

Sure. Thank you.

[Operator:]

The next question comes from Conor Fitzgerald with Goldman Sachs. Please go ahead.

[Conor Fitzgerald:]

Hi, good afternoon.

[Scott Bok:]

Hey, Conor.

[Conor Fitzgerald:]

I just want to – hey, Scott. Just want to talk briefly on some of the hiring that you’ve kind of seen and some what makes you excited for the market to start off the year. Could you just give us an update on where you’re seeing some of the success? And then, on top of that, it seems like you’re, at least, going in the near-term to take some pressure on your compensation ratio to find talent that you want to bring in the door. Just curious, is this a change to kind of some of your longer-term philosophy, or are you being more opportunistic in the market?

[Scott Bok:]

Maybe starting with the last question, I don’t think there’s a dramatically different sort of philosophy. I mean, the comp ratio in 2017 was really a function of one thing, which is it was just a very weak revenue year for us. And so you end up with a very high compensation ratio. I don’t think the hiring we did had much impact relative to the revenue outcome. So, if things evolve the way we hope they will and expect they will going forward, we’ll see a comp ratio that looks more familiar to our shareholders going forward. As far as where we’re recruiting from, as always, it’s a lot of very individual discussions, I think, the ones we’re most focused on and most advanced with our very heavily U.S.-oriented in terms of where they’re based. They’re mostly sector specialists and sectors that we want to get bigger. To some degree there’s – I mentioned, we would like to build up our restructuring practice significantly. And so, you can imagine where we’ve got some focus there and they come from a variety of firms. Some are sort of independent advisors, probably most are still from the bulk bracket firms were all familiar with, probably still see more – seeing more talent flow out of some of the European-based firms, even if it’s American-based people, but firms that are European-based, as I think, those firms, at least, an investment banking have proven to be may be less appealing places than some of the larger American banks. So no one firm in particular, but we’re certainly seeing quite a lot of interested candidates. And I would add, but I think our recapitalization plan very clearly led some bankers to think this looks like an interesting moment to move to Greenhill. And so, they kind of like aspects of what we’re doing there and what signals and what the future may hold. And so I think that has been a positive for us in our recruiting efforts.

[Conor Fitzgerald:]

Okay, thank you. That – that’s helpful color. And then just want to go back to the non-comp expenses, I think, you said your expectation with next year would be about $70 million, if I heard you right? I know you get a bit of a tailwind, because it’s kind of a Cogent accounting noise, but still feels like that line has been pretty well maintained as we head into 2018, despite the fact, usually you would expect a little bit of a pick up as just the revenue picture kind of rebounds in TD, et cetera, accelerates back up. Could you just talk about some what you’re doing there to kind of keep the non-comp expenses in line?

[Scott Bok:]

I mean, nothing really extraordinary, but I think some. We do get data from outside sources as to what different firms do differently, and the way you buy various services, the way – just the way you’re offering a lot of small ways, and it doesn’t add up to huge numbers by any stretch. But again, we’re interested in every line item from revenue to non-comp to taxes, et cetera, and trying to drive value. So there are some small things that I think bring us in line with competitors and what they’re doing that tightened up just a little bit on the non-comp cost side.

[Conor Fitzgerald:]

That’s helpful. Thanks for taking my questions.

[Scott Bok:]

Sure. Thank you.

[Operator:]

The next question comes from Mike Needham with Bank of America Merrill Lynch. Please go ahead.

[Michael Needham:]

Hey, good afternoon, everyone. So the first one is that, I want to make sure I have the right numbers for headcount. Do you guys said 71 Managing Directors, I guess, at year-end. I think, you started the year at 71 and added the nine external, and I think, you made promoted around six in the beginning of the year. So I guess, I’m just trying to understand like 2017 was a big hiring year for you guys, but the total senior headcount is flat, so just some of the offsets. And then for 2018 like offsets meaning, people is it the part of the mutual advisory. And then for 2018, do you think like the total headcount is going to increase, or might it be like another kind of offsetting year? Thanks.

[Scott Bok:]

I wouldn’t – I probably would counsel again sort of trying to do too much of an audit on sort of headcount numbers. Maybe sometimes we’ll have people will move to a different role within the firm, it can be a part-time role, senior advisor role and things like that. I don’t – I think, you’re beginning of your number, last year would have included the internal promotes. So it’s not as dramatic difference as what you’re laying out. Looking forward, I would expect that we will see some meaningful headcount growth this year both in terms of Managing Directors and through the ranks just again based on the various dialogues we’re in right now with respect to several different industry factors.

[Michael Needham:]

Okay. And so the starting count should be 65?

[Scott Bok:]

I – for last year?

[Michael Needham:]

Yes.

[Scott Bok:]

I don’t know to be honest. I’d have to look back and we can try to get that for you offline. But I can’t recall, where we were exactly a year ago.

[Michael Needham:]

Okay, that’s fair. And…[Multiple Speaker]

[Scott Bok:]

Yes it’s interesting. By the way, sometimes I think there’s some confusion. We try to avoid this in more recent times. But when I talk about Managing Directors, I’m talking client facing. And we obviously have people like in finance or legal or things like that who have that title, but we don’t count those. I think we used to include those in some of the numbers we put outside. There’s a bit of confusion in that regard.

[Michael Needham:]

Okay. And then for restructuring somewhat I gathered in the past like those guys can be hard to get. The teams aren’t that big. They have fair amount of loyalties. So I guess, any early progress? And then this part of the cycle, it’s – there’s definitely some activity, it’s just – it’s not a really strong period, so that you’re kind of investing more for the future and the next term? Thanks.

[Scott Bok:]

Yes. Look, I think there are – certainly are some talented people out there and there are always people who are interested in moving for a variety of different reasons. So I think, we expanded the group a little bit last year with particularly one senior recruit from the outside, and I think we’ll find ways to do it further this year. And I certainly agree with you, it’s not, because we think there is a kind of an imminent boom in restructuring, but we do think there is one coming. Obviously, there has been a lot of dislocation in equity markets in recent days and interest rates starting to move up. And so at some point clearly, credit markets are going to turn and there will be a lot of restructuring to be done. But I would view the big opportunity there is probably in 2019 and beyond, whereas right now, the bigger opportunity is pretty fully on the M&A side.

[Michael Needham:]

Okay. Thank you.

[Scott Bok:]

Thanks.

[Operator:]

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

[Brennan Hawken:]

Hey, good afternoon. Thanks for taking the question. Scott, just to follow-up on that MD question. Of the 71 MDs that you finished the year out, how many of those were client facing?

[Scott Bok:]

Oh, that’s what I was saying. When we get the number now, we try to say it to avoid confusion, because that only shareholders care how many back office people may have that title. So, yes, those were all client facing.

[Brennan Hawken:]

Okay, got it. Okay, great. Then – and then that’s what’s going to be the standard going forward? We just – there won’t be any two different accounts to keep track off.

[Scott Bok:]

Oh, correct, yes.

[Brennan Hawken:]

Okay. Thank you.

[Scott Bok:]

Yes.

[Brennan Hawken:]

Excellent. And then I believe previously maybe it was about three or four months ago in the Qs and such you guys had spoke to a pretty optimistic revenue outlook here into – in the year-end and then in the beginning of 2018. And so just curious like when we look at the public data, it seems like activity levels are a bit more limited. Can you maybe update us on your outlook? and are we just not, is there activities that are just not showing up in the public databases that that’s – that make those look deceptively softer than what you guys are seeing?

[Scott Bok:]

Look, I think there are – we’re probably doing a bit more stuff that is less visible to the outside, I mean, if I look at just where the analysts collectively had targeted revenues, they’ve tended to by the end of quarters end up a bit lower than where we actually end up certainly that appears to be the case this quarter. And I think that’s because areas like capital advisory and some of those other types of advice that are – other than sort of the straight forward M&A transaction can have a meaningful impact for us. As far as what we kind of indicated or predicted, I don’t recall anything terribly specific. I mean, I think, we said we expected there to be to see the beginning of signs of a pickup by year-end and into this year. And I feel like we did. We’ve had some sizable transaction announcements and we feel pretty good about where we’re working on now. I obviously made the comments I did about seeing – expecting to see a meaningful rebound in Europe this year. So well, I wouldn’t want to make any sort of forecast. We’re obviously in markets that can be somewhat unpredictable. That kind of volatility can both create new opportunities that can – and it can set back existing ones. So I think, we’re well-positioned coming into this year certainly relative to what was a very unusually quiet year in 2017, but obviously we’ll have to see as it plays out.

[Brennan Hawken:]

Sure. Sure, that’s helpful. And then given your plan to ramp up hiring here or sustain the recent pace of hiring, how should we think about the profile of profitability when we model? Like is it that – it was going to take a little while for revenue to come on Board. So there might be some incremental initial negative operating leverage would you expect to earn your way out of in the back end of the year. How does a profile and the budgeting come together from your perspective?

[Scott Bok:]

I think, it’s in a way, it really does. I don’t think this is an industry, where you can really forecast or budget any individual and these productivity or how long it takes to recruit to ramp up or things like that. I mean, what drives our revenue is primarily what our clients are doing. And if you have a year like 2016, it look like a real positive standout versus our competitors in terms of rise or revenue growth. In 2017, it looks like just the opposite of a real outlier on the negative side in terms of that. It doesn’t mean, we had any – the same group of people. We didn’t have any – we didn’t even have a lot more, we didn’t have a lot less. We didn’t have a lot of different ones. So it just kind of depends on where the transactions fall. When we recruit people, we’re certainly not – sometimes we’ve had people come in, and they have an revenue impact very surprisingly quickly, but we’re really making a long-term decision. And we’re expecting that anybody we bring in probably not in their first full calendar year, maybe they’ll get hopefully some engagement letter sign of things. But to think somebody is going to come in and sign on in February, March, come in May after their notice period and get an engagement letter signed, get a deal announced, get that deal closed in that calendar year is probably not realistic. So we – we’re looking for more kind of what the NPV. What kind of a revenue stream can a new recruit drive for you not in that first calendar year, but in the years that that follow. And I think that people we’re talking to are of stature in the industry and their respective sectors, but they can drive a significant NPV for our shareholders.

[Brennan Hawken:]

Sure. And sorry, if I wasn’t specific in my question. I wasn’t talking about the specific recruits. I was actually speaking about your business broadly when you sit down and think about budgeting for Greenhill at large here in 2018. Do you suspect that given some of those dynamics in your intention to be active in the marketplace hiring folks in the beginning of the year. But yet still many of the revenues on the come that will be looking at a way more back-end loaded earnings profile here for 2018?

[Scott Bok:]

No, I would not say that. I don’t think, you’ll – I don’t have any reason to think it would be back-end loaded versus necessarily front or middle loaded. It’s – there are kind of two different things. I mean, the recruits, yes, they’re going to drive long-term value. But how 2017, 2018 rather rolls out by quarters will be driven by individual deal announcements for things that we’ve probably been working on anywhere from a few months to a few years. So no, I wouldn’t link those two and draw any sort of seasonal kind of conclusions from it.

[Brennan Hawken:]

Okay. Thanks for the color.

[Scott Bok:]

Okay. Thank you.

[Operator:]

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

[James Mitchell:]

Hey, good afternoon. Just maybe a quick question on the buyback. Just you seem to imply that maybe some the constraints you had built in are coming off. Is that – is there – what kind of constraints should we think about, or that is there any way you can help us think about if there’s a stock price of a percentage of volume on a given day? How we should think about the pace over the next couple of quarters from what’s left in the buyback?

[Scott Bok:]

Well, the only constraints, I mean, there are rules that change every week, I think, in terms of how many shares you can buy back as the company on a given day. But the main driver and the one I was highlighting is, are the constraints you set yourself. And if you want to just make a decision every morning as to how many shares you want to buyback, you’re only in the market about half the time, because you have the blackout period around as you come off to quarter-end and then after quarter-end until you announce result. So if you want to be able to buy through those periods, you have to put in place, what’s called the 10b5 plan, where you agree parameters and sort of formulas. And essentially, when our stock went not only through the tender offer price, but pretty quickly considerably above that, it just frankly kind of outran, where we had expected and set those formulaic parameters. So where – that plan is now expired. We have the ability to do a variety of different things going forward and we’re going to obviously consider what the right way to move ahead in this repurchase plan, what’s the optimal way to do it and maybe multiple ways over time. But as I said, we’re still committed and excited. And frankly, given the recent market decline, I’m glad, it’s played out the way it has so far. And I think, we’re in a good position to buyback some shares of what I think is an attractive price.

[James Mitchell:]

Right. So I guess, now that it’s back below the tender price, it seems like you could have the flexibility to accelerate now that earnings are out?

[Scott Bok:]

Well, but it’s actually unrelated to that. I mean, literally the plan – these plans have a – an end date and we’re passed the end date. So we could do anything absolutely anything we wanted at this point within the parameters of the roles. We can decide every morning what we’re going to buy. We can put in place the 10b5. We can do a tender offer. We can do each of those things and different orders over the months to come. So it’s kind of a clean slate right now. And here we said we were sitting last September, October with all the funds set aside to do this and basically they’re all still there. So certainly very large portion of the market. So we’ll figure out what the best way to create value for our shareholders in the medium to long-term is by buying back stock.

[James Mitchell:]

Yes. Okay, fair enough. Maybe just this was – I’m not – I didn’t – I’m not sure if I heard this correctly or not on the $70 million non-comp. Was that inclusive of interest expense or excluding interest expense?

[Scott Bok:]

That is excluding interest expense.

[James Mitchell:]

Okay. Yes, it make sense [Multiple Speakers].

[Scott Bok:]

Now also just to be clear on the other thing is that, it also with excluding client reimbursement that used to be an offset of expense and going forward on the new accounting guidance are supposed to be treated as revenues. So both of those it would include all the other kind of non-comp you would expect.

[James Mitchell:]

Right, right. Okay, that’s helpful. And then lastly, do you have a – give a sense by the – by now of what the stock-based comp impact could be in the first quarter? How we should model that?

[Scott Bok:]

I wouldn’t want to get to – into any predict – and I don’t think anything unusual relative to answer you. So I wouldn’t worry too much about that.

[James Mitchell:]

Okay, great. That’s it for me.

[Scott Bok:]

Okay. Thank you.

[Operator:]

The next question comes from Steven Chubak with Nomura. Please go ahead.

[Steven Chubak:]

Hey, Scott. So most of my questions have been asked and answered. Just wanted to add one follow-up regarding the non-comp guidance. The $70 million inclusive of interest reflects a pretty substantial dollar reduction, but you noted that include some accounting changes. I was hoping you could speak, given your focus on the expense side on a like-for-like basis, what that implies in terms of non-comp reduction?

[Scott Bok:]

It’s not – I think, you’re confusing a few different things there. So I’ll – let me try to clarify. I don’t think what we’re forecasting and we’re trying to give you as many kind of as much guiding as we can in some of these line items like tax rate and non-comp cost as we can. I don’t think we’re indicating any sort of dramatic change in non-comp expense. There are three things I would highlight. One is that, historically, when we got reimbursed by a client for expenses, we treated that as an offset to get expense, that is not going to be treated as a part of revenue according to new rules. Two is that, interest expense – we – when we used to have trivial interest expense, we would include that in operating expenses and now we’re just setting that out separately, because obviously there’s a different kind of expense from things like rents and travel and so on. And three, the one thing that just was a volatile number over time was the kind of accounting adjustments in relation to the Cogent earnout. So that we have – when the earnout was missed on the first try that the accounting adjustment was very favorable to reduce our expenses when it became more likely they would, it sort of swung back on the other direction. So the number we’re now giving you is a pretty clean one that does not imply anything dramatic at all about the changing the way we’re doing business. It’s just what we expect to some of our rents and travel and information services, and all that good stuff will be for the year 2018.

[Steven Chubak:]

Maybe just one follow-up just regarding the tax guidance. I assume that doesn’t include any impact from interest expense deductibility potentially being limited. It sounds like there’s good revenue momentum in the business, so unclear, whether there’s going to be any impact there. But just curious whether that could actually impact the pace of investment that you alluded to?

[Scott Bok:]

I don’t think that’s not an issue we’re particularly worried about. I mean, first of all, obviously, the hope is that, we do have sufficient pre-tax earnings that the limitation or interest deductibility isn’t an issue. Secondly, if it were in any particular period to become an issue that deductibility is not lost, it simply rolled forward under the new tax rules. And thirdly, we’re just not talking about that much money. I mean, if you look at the amount that just takes the kind of the current interest rate times are $350 million of debt. I mean, we’re only talking about a several million dollar a year tax benefit from the deduction. So it’s pretty small fry in the scheme of the broader things about revenue and so on in terms of driving our earnings.

[Steven Chubak:]

Got it. Thanks very much, Scott, for taking my questions.

[Scott Bok:]

Thank you. Okay, I think that was the last question. So thank you all for dialing in and we’ll look forward to updating you again in a few months. Bye now.

[Operator:]

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.