Greenhill & Co., Inc.
Q4 2014 Earnings Call Transcript

Published: 29 Jan 2015

[Operator:]

Good afternoon, and welcome to the Greenhill fourth quarter and full year earnings conference call and webcast. [Operator Instructions] I would now like to turn the conference over to Mr. Chris Grubb, chief financial officer. Mr. Grubb, the floor is yours, sir.

[Chris Grubb:]

Thank you. Good afternoon, and thank you all for joining us today for Greenhill's fourth quarter and full year 2014 financial results conference call. I am Chris Grubb, Greenhill's chief financial officer, 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 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’d now like to turn the call over to Scott Bok.

[Scott Bok:]

Thank you, Chris. The summary of the fourth quarter and full year 2014 for us is that it was a relatively flat revenue year, with fourth quarter advisory revenue down 1% from the prior year and full year advisory revenue down 2% from the prior year. Total revenue for the year was down slightly more due to a loss early in the year as we liquidated some of the last pieces of our investment portfolio. Our pretax profit margin for the fourth quarter was 31%, bringing our full year pretax profit margin to 25%, the same strong level we achieved in 2012 and 2013. We had fourth quarter earnings per share of $0.51 and full year earnings per share of $1.43. Between dividends and share repurchases, we again returned a lot of capital to shareholders in 2014, resulting in a share count that is roughly flat versus a year ago and a bit below where we stood in our 2004 IPO. Overall, we view this as a solid financial performance for 2014. Equally important, we believe our brand and reputation continues to grow. Our team continues to develop, and we’re well-positioned for increased success going forward. For years, we’ve talked about having four core objectives for the firm. In 2014, we again achieved three of those

[Chris Grubb:]

Thank you, Scott. Now I’ll go into a bit more detail on compensation costs, non-compensation costs, dividends and share repurchases, and only confirm here that there are no updates on our very modest remaining principal investments. Starting with compensation, for the fourth quarter, we achieved a compensation ratio of 49%, bringing our full year compensation ratio to 54%, which is consistent with the prior year. As we’ve commented previously, we’ve consistently achieved our annual goal of a GAAP compensation ratio that is the lowest among our close peers, driven by the high productivity of our people, and we expect that will again be the case for the full year 2014. Looking ahead to 2015, there are modest changes in our expectations for some of the components of compensation expense, but in aggregate, our current run rate suggests no material change to our total fixed compensation costs, and we will continue to manage the business going forward with a focus on employee productivity, GAAP compensation expense, and pretax profitability. Turning to non-compensation costs, our fourth quarter non-comp costs were $15.1 million, similar to the quarterly level achieved throughout the year. On a full year basis, we had non-compensation costs of $60.2 million, effectively flat with the prior year. Looking forward, there will continue to be some variances each quarter, but likewise, our current run rate suggests no material change to our 2015 full year non-comp costs. Moving to dividends and share repurchases, our dividend this quarter was again $0.45 per share, consistent with the quarterly distribution made over the last several years, and on a full year basis, our dividend was again $1.80 per share. Given the very modest capital needs inherent in our business model, we used much of the remainder of our cash flow to repurchase shares. For 2014, we repurchased approximately 740,000 shares at an average cost of $48.92 per share, for a total cost of $36.2 million, which kept our share count effectively flat with the prior year and below the shares outstanding at the time of our 2004 IPO, despite much stock based compensation and our 2010 acquisition in Australia. This lack of dilution compares very favorably to both our large and small competitors. We again ended the year in a net cash position, with cash of $50.9 million and debt of $35.6 million. Our board of directors has authorized a repurchase of up to $75 million of our common stock through the end of 2015. Now let me turn it back to Scott.

[Scott Bok:]

Before we take questions, I want to touch very briefly on the personnel announcements we’ve made recently. Earlier this month, we announced the addition of Joe Dilg as a vice chairman to be based in our Houston office. Joe was most recently with the Houston-based law firm Vinson & Elkins, where for many years, he previously served as managing partner. He will focus primarily on the energy sector, expanding our ability to advise on both M&A and restructuring transactions in that industry. Joe brings significant experience advising on large domestic and international M&A opportunities and is a strong addition to the team. We expect to add further to our energy team going forward, and we are also looking to add senior talent this year in a variety of other areas. We also announced the promotion of four new managing directors, consistent with our goal of developing talent internally in addition to being a destination for lateral moves by the top senior bankers in our industry. Over time, we think that this home-grown and home-trained talent will play a huge role in the future success of this firm. With that, we’re happy to take any questions.

[Operator:]

[Operator instructions.] The first question we have comes from Ashley Serrao from Credit Suisse.

[Ashley Serrao:]

So, Scott, I think this is the first time in a while where you’ve explicitly spoken to the full year revenue outlook as early as the first quarter. So I had a two-part question. First, I wanted to clarify whether you were speaking about the firm as a whole or just those regions and activities mentioned in the press release. And two, how conservative do you think you’re being with this outlook, and should the revenue generation be expected to be more front-end or back end loaded?

[Scott Bok:]

Well, first of all, I think you might be reading between the lines to see too much of an outlook about the future. Obviously, we’ve made some statements about various parts of the business, but as I said, just actually a moment ago, it’s really too early in the year to know how the M&A market is really going to develop and what that’s going to present in terms of a revenue opportunity for us. As I said, I think we agree with pretty much all the market commentators that activity should be better this year. We certainly feel good about the several transactions we announced in the first few weeks of this year. We do have some regions of the world where I have to believe it’s going to get a lot better, in large part because of the base of which it’s going to be compared. For example, I mentioned Japan, where we have three significant announcements already this month. But you know, I’m certainly not making any grand predictions about exactly where M&A market will evolve this year. I tend to think positive, but hard to know. We obviously live in a volatile economic and market world and we’ll see how things develop in the months to come.

[Ashley Serrao:]

I guess then on hiring, I was curious to know what specific areas you’re looking to invest in, and also if you could just share your updated thoughts on the size of the firm, please?

[Scott Bok:]

You know, look, I still think there’s just huge opportunity for us to grow the firm over time, to literally multiples of its current size. I mean, over time, as you know, we’ve sort of been very opportunistic in our growth. We don’t really tend to look for people of a specific type at any one time. Right now, probably we have a lot of focus on energy. We think there’s going to be a lot of restructuring opportunities there in particular. Certainly M&A over time as well. But we’re looking all over the place. We’re talking to people in Australia, we’re talking to people in Europe, we’re talking to people in the U.S. Sometimes it’s about expanding our geographic reach, sometimes it’s about adding new industry sector specialties, and sometimes, it’s about adding different types of advice. But there’s no particular area. I would frankly like to see us grow in a number of areas over the course of the next several months.

[Operator:]

Next we have Devin Ryan with JMP Securities.

[Devin Ryan:]

I guess first, on the FX impact, and you noted that that was one of the items that impacted results in 2014, but it seems that pressure has only been intensifying so far in 2015. So, is it fair to think about the firm as digging out of a bit of a hole, all else equal, for 2015, just based on the rally in the dollar? I’m just trying to think about that dynamic versus are there any offsets - I know there’s some on the expense side, but maybe that the stronger dollar could drive more activity in certain sectors with U.S. companies looking abroad? And I don’t know if you’re seeing any of that type of activity.

[Scott Bok:]

Yeah, look, I wouldn’t look at it sort of digging out of any big hole. The dollar’s been strengthening for some time. Obviously, it has really moved up in recent weeks, but it moved up material over the course of last year. And you know, the effects are obvious. To take a simple one like Australia, there were times when our revenue was really peaking over there, when we were taking all the dollar fees and converting them at $1.10 and right now we’re converting them at $0.80. So the team over there can be doing the same job, same fee, and it obviously means a lot less to us in U.S. dollar terms. The same thing happened, by the way, when our U.K. revenue peak. If you look back to kind of before the financial crisis, there were times the sterling was like $2 over converting a pound fee at $2, now we convert it at more like $1.50. So I think the impact, it’s kind of already been felt last year, so I don’t think it’s a big new phenomenon for 2015. You’re right that there is an expense offset to a fair amount of it, but obviously, people get paid in local currencies, and you pay rent in local currencies and so on. And I do think you raise an interesting point that there likely should be, and I think we are seeing some that could be interesting, U.S. companies making acquisitions overseas, taking advantage of a very strong dollar. And, you know, stay tuned. I think you’ll see a number of those over time.

[Devin Ryan:]

And then just coming back to the headcount conversation, and increasing market share obviously can also be achieved just by adding good bankers. And that being said, it seems like the cost to recruit has only been increasing here in recent years. And so I know it’s a balance and you guys have always been very opportunistic around recruiting, but is there a point where it makes sense to maybe pay forward a bit more than you currently are and get more aggressive around what you’re willing to pay to really aggressively expand market share? Or is it still be a bit more passive and see what comes to you?

[Scott Bok:]

I certainly wouldn’t describe us as passive. Just when I think back on how I spent the recent weeks and months talking to lots of people, and I’ve been all over the world, so I don’t think we’re all that passive. We do have a profit orientation to our firm. We’re not just buying revenue unless it really makes sense economically for our shareholders. But at the same time, I would really hasten to add that I don’t think the way we do things economically has restrained our growth. What really restrains our ability to hire, and what allows us to hire lots of people in some environments and fewer in others, is really just how many people are available who we think are a really good fit for our firm. And that is both, when it comes to capabilities, they can’t be sort of a sales oriented banker who needs a whole suite of products to sell, they need to be thought of by their clients as a true trusted advisor. And second is the cultural piece. They have to really fit into our very collegial sort of team-oriented group here. And that’s really what drives it. There are markets when lots of those people shake loose and markets when fewer, but I don’t view us as sort of New York Yankees, a la George Steinbrenner, trying to use money necessarily to get whoever the people are who want to be bought at the highest price.

[Devin Ryan:]

I know you don’t have set targets of, to the prior question, in terms of where headcount should be, but is there a number where you would be happy if we brought in five senior bankers, or seven this year, that would be a very successful recruiting year and that’s kind of what we’d like to do? Is there any numbers that you can kind of provide where you’d be happy?

[Scott Bok:]

For me to be happy, it would have to be certainly materially more than five. I think five, probably as an average over time, it’s probably something like that. Obviously, it’s varied a lot from probably two or three up to 12 and 13 or 14, if you look back to the early days of the financial crisis. So you know, if we did sort of five, I would say that’s kind of normal, if we did more than that, I would say I was probably happier about it.

[Devin Ryan:]

And then I apologize if you’ve addressed this, but just the comment on expectations for the debt restructuring revenues, is the improvement driven more by just coming off of a small base and hopefully things pick up here? Or is it what you’re seeing in the credit backdrop and that’s actually translating to specific engagements that you expect to occur that are already occurring?

[Scott Bok:]

It’s a little bit of both. There are areas of our firm, and I think this is where a lot of the upside lies, that were really relatively quiet last year, and it’s not going to take a fabulous result to show some improvement. I mentioned Japan as a small one of those. You know, restructuring would probably be another one of those. I mentioned that we did quite a lot in equity financing advisory, but really not that much in debt restructuring. We have seen some new assignments that give us encouragement that more is to come, and obviously, the credit markets, certainly in some spaces, including energy, are getting tighter, so we tend to think that will lead to a lot more opportunities over time.

[Operator:]

Next we have Brennan Hawken with UBS.

[Brennan Hawken:]

Did you say that there were four promotes here in 2014? Did I hear that correctly, or is that after the year-end when those folks were promoted?

[Scott Bok:]

We always do it as of January 1. So we announced it, I guess, probably internally people find out a little before. But we do sort of the broad memo internally and let the public know. And in January, it’s effective January 1.

[Brennan Hawken:]

And then where did MD headcount finish the year in 2014? If you mentioned it, I’m sorry. I might have missed that.

[Scott Bok:]

I don’t have it off the top of my head. High sixties, I would say. Something like that.

[Brennan Hawken:]

So probably not materially different than 2013?

[Scott Bok:]

I think that’s right, yes.

[Brennan Hawken:]

And you made reference to a change in the structure of the comp, I think. Could you expand on that? What are you thinking of changing? Like, deferral schedules or something? What did you mean by that?

[Scott Bok:]

We didn’t mean anything by it really that you’re suggesting. Sometimes, analysts like yourself have asked sort of very granular questions about the elements of what add up to GAAP compensation. You know, the base salaries, the [RSU] amortization, cash bonuses, recruiting payments, up front grants, and so on. And what we’re saying is that the pieces of that, they evolve a little bit every year, but we don’t see, at today’s run rate, any material change in the compensation structure or the overall fixed compensation costs that we sort of enter each year with.

[Brennan Hawken:]

So sticking with that, roughly $130 million a year for fixed comp expense on a GAAP basis is how we should still think about it?

[Scott Bok:]

I think that’s a good way to think about it. As I said, there are small movements within that. Over the course of the year, it will depend on how much recruiting we’ll do, things like that. Obviously, if we succeed in lots of recruiting, some of those people will get stock grants, and it depends on when they join and how much amortizes the first year. But the number you gave is a reasonably good estimate, which is consistent with what we’ve said over the last few years.

[Brennan Hawken:]

When you think about Europe, and that market, how do you think the QE announcement could impact deal outlook in the region here in the coming year?

[Scott Bok:]

You know, I’m probably not smart enough, and maybe nobody is, to know exactly the answer to that question. But I think QE, you can debate the effectiveness of it, but I think there’s no question it has driven higher asset valuations around the world. It’s done it pretty much everywhere, and I think if you want to worry, as we certainly always would, about downside risk to economic meltdowns, there’s going to be a lot less downside risk if the central banks are pouring a lot of money into the economy. And if you want to think about are people going to feel better about their businesses and therefore go out and want to expand them and do acquisitions and try to do things that are interesting and strategic, I think at the margin that kind of activity all becomes more likely in a market where central banks are flooding the market with liquidity.

[Brennan Hawken:]

Is it possible to expand on the strong start that you expect here in 2015? You made reference to some deals sort of not falling in in 2014. Does it have to do with that, or does it have to do with a change that you’re seeing in your pipeline?

[Scott Bok:]

Again, I’ll say this a little bit like the question from Ashley earlier. I think I’m very careful not to make any sort of grand prediction about 2015. I’ve spoken, and we always do, in our first quarterly call, of a calendar year focused really on the full year that just passed. What does that mean? What can we take away from that? Yes, I made the point that we thought at many times throughout the course of the year it would be quite a bit better year. Some of the things we thought would happen didn’t happen. Certainly, we hope some of those things will come back and end up getting done this year, but I’m not, at this point, making any sort of grand prediction about what 2015 looks like. As I said, we think M&A should get better, like everybody else seems to think that, but what exactly that means in terms of revenue opportunity, we’ll have to wait and s

[Operator:]

Alex Blostein, Goldman Sachs.

[Alex Blostein:]

Just drilling a little bit deeper in the advisory business, you mentioned in the prepared remarks, and I think in your press release as well, that a number of businesses really drove the bulk of the growth for you guys this year. Some of the fundraising business, etc. Maybe just a reminder where those businesses stand today, what kind of growth, and what we should anticipate next year? So, kind of things aside from the more traditional M&A business.

[Scott Bok:]

As certainly I indicated even earlier this year when we kind of narrowed our focus in fundraising to real estate, we felt like we had really a world class team there, and if not number one, probably number two in that space. And we’re very pleased with how the year came out for those guys, and they feel good about what they’re working on. What exactly that means in terms of what gets done, obviously, that depends on exact fund sizes and how many things close this year and so on. But we certainly like our competitive position a lot in that market. In terms of other types of advice, like I said, we had a pretty good year in sort of equity financing advisory stuff. We had a less active year in debt financing and restructuring, bankruptcy type work. We did some, but not as much as we have probably in most years. And so if credit markets do tighten up a little bit, maybe not just in energy, but even more broadly over time, that should be a good thing for that business. But look, for us, the big driver is always going to be M&A. Those other businesses and activities are very, very important. They often serve the same kind of client base. They help us build relationships with blue chip companies, but clearly, the biggest driver for us is M&A activity and principally M&A activity in the U.S. and Europe, and to a lesser extent, Australia. That really is what drives that revenue outcome for us.

[Alex Blostein:]

And then just a quick numbers question. Clearly, good job keeping the share count. It’s actually flat for a number of years here. As we look out for 2015 and beyond, any sense of how many shares you guys need to repurchase to keep the same dynamic? Kind of similar amount as you did this year, or does that number fluctuate?

[Scott Bok:]

It fluctuates in part based on a lot of things. Obviously, if people go, sometimes we sort of claw back [RSUs] that are forfeited. When we hire people, we have to give them RSUs, and that leads to more shares being issued over time. So we try to buy those back. So obviously, we focus more on how many dollars we’re going to spend. Obviously, going to buy back more stock at lower prices than we can at higher prices. So I wouldn’t want to try to do a calculation. I think people can probably get a broad sense from running the numbers themselves. But our goal over time has been to have a roughly flat share count. We’ve done it for seven and a half years, we’re going to try to do it for eleven and a half.

[Operator:]

Joel Jeffrey, KBW.

[Joel Jeffrey:]

I’ll apologize in advance, but I am going to beat a dead horse a little bit here. Just in terms of the quote that was attributed to Bob in the press release, the stronger start to 2015? Is that in regards versus the end of last year, or year over year?

[Scott Bok:]

That’s clearly referring to the beginning of last year. And I think that’s pretty clear. If you look at the way last year evolved, one of the real issues for us, and as I said, we’re sort of reasonably content with where we ended up, given all the relevant factors, but as we point out in that same quote, our first half revenue run rate was a lot smaller than our second half revenue run rate. So we were kind of digging ourselves out of a hole with a very weak first couple of quarters. We did manage to dig ourselves out of that hole and get back to basically a flat outcome, but what we’re saying there is that we think we’ll do a little better at the beginning of this year than we did last year.

[Joel Jeffrey:]

And then just in terms of the recent market volatility that’s gone on, I’m just wondering if you’ve seen that have any kind of negative impact on early stage discussions between acquirers and sellers.

[Scott Bok:]

I would say no. I can’t think of anything specific. And a general answer I’ve often given to that question over the years is I really think that M&A discussions that are kind of the type we tend to work on, public companies, pretty big deals, very strategically important, I don’t think CEOs are watching share prices every day, or currency rates every day, to decide do I want to do that acquisition or not. So look, if you have wild volatility, it can make a difference to people, certainly. And if the volatility gets people scared about what it might mean about economies and so on, that can have an impact. But I don’t think the kind of stock market gyrations you’ve seen recently would have had a huge impact on kind of early stage dialogue.

[Joel Jeffrey:]

I appreciate the color you gave in terms of the impact that the rising dollar has had on non-US revenues, but just curious if you could give possibly a little bit more color in terms of that decline you saw as a percentage of revenues from outside the U.S. Can you give us some sense of how much might have been attributable to the stronger dollar versus this decline in overall business activity in those markets?

[Scott Bok:]

No, I think that’s too specific. And by the way, I haven’t even calculated that myself. It even depends on sort of what day things close, and you end up booking revenue, and what are the FX rates those days. The bigger factor, by far, and you can see it from the M&A statistics, is that things picked up in the U.S. a lot more than they did elsewhere. All I said, really, was that the FX kind of exacerbated that problem a little bit further by taking the fees we were able generate overseas and translate them into dollars at less attractive exchange.

[Operator:]

Next, we have Douglas Sipkin with Susquehanna.

[Douglas Sipkin:]

Just wanted to follow up on a couple of items. First off, sort of just looking at the balance sheet, it looked like you guys had a nice jump sequentially. I’m pretty sure some of that is how you guys received the money on the fund placement business. It takes more time. Is that what drove that? So I guess what I’m looking at, sort of the cash levels, they’re the highest they’ve been in a while, so is that that process? I believe it takes like 12 to 24 months to get all of that money.

[Scott Bok:]

I don’t think you’re reading that right. But yes, you are correct fundamentally that you often get paid for fund placement fees over sometimes even longer periods than that. I think it sometimes goes out as far as three years in terms of the ways people pay. They tend to link it to when the general partner collects management fees. They then want to pay the cost of raising that capital. But I don’t think there’s been a significant change, as you’re suggesting.

[Douglas Sipkin:]

Can you give us the actual receivable number?

[Scott Bok:]

That’s always in the 10-Q, that will have a detail of the receivables, so I’d say just wait for that.

[Douglas Sipkin:]

Shifting gears, obviously, I saw you guys made a solid energy hire. And I’m just looking at the biography, I guess. It seemed like it was a little bit more of a lawyer background, legal background. And I’m wondering, does that have anything to do with the way you guys are thinking about the energy market? Maybe coming at it a little bit more from a restructuring standpoint here, given what we’ve seen in oil prices? Or is it really just a coincidence that the hire was more from a legal background?

[Scott Bok:]

I would call it sort of a lucky coincidence, if you will. I think what we wanted, as one piece of the expansion puzzle in energy, was to have somebody who was just incredibly well known, well respected, and well connected in Houston. And you’re right that he has a little bit of a legal background, since he did it for about 37 years at Vinson & Elkins, and I don’t think he ever did anything else. So yeah, he’s a hardcore lawyer, he’s managing partner at one of the, certainly I would say, two leading firms in energy and in Texas. Maybe one or two firms might quibble with that, but that’s the way I would see it. And you know, a guy like that is going to know everybody who’s important in Houston, which is really important to us. I think you could call it a little bit of a lucky coincidence. I would tend to suspect that in the energy business, there will be more restructuring opportunities in coming months perhaps than M&A, just on the theory that given what’s happened with oil prices, I can’t believe there are going to be a lot of enthusiastic sellers. There may be distressed sellers, but I can’t imagine a lot of enthusiastic ones, except in very particular circumstances. So I think lawyers often are sort of the gateway to restructuring opportunities, in a way that maybe they’re less likely to be the gateway to M&A opportunity. So I think he should really pay off in that respect.

[Douglas Sipkin:]

And then just finally, and I apologize if you addressed it earlier, the fund placement business, it looks sort of like the revenue is generally flattish, with 13, so maybe the solid growth rates you guys have had for a couple of years may be steadying out a little bit. I know you guys long term feel very good about that business. Maybe just a little bit more on what you’re seeing into ’15 and ’16? I know it still feels like the private equity firms were sort of seeing exits and returning money and that whole process was starting. Are you sensing maybe that’s slowing down a little bit with some of the volatility in the market, which could, in theory, hurt that fund placement business?

[Scott Bok:]

I think right now, we’re at a point in the cycle where it’s actually very good for that business. You can debate what future returns are going to be, but I think the bottom line is that, whether you’re talking real estate funds or private equity funds, they’ve invested a lot of capital quite recently. That capital has generally shown very good returns. Obviously, look what’s happened to equity markets and real estate markets. And so people are coming back to raise the next fund a lot more quickly than maybe you would have expected. You know, there are other markets where it takes not only a very, very long time to raise the fund, but it takes quite a long time to invest it, and so you might do a great job for a client and they might come back to you five years later. Now, they’re coming back a lot more quickly than that. So I think at least for now, obviously, all it takes is a big market dislocation and people can get worried about investing in illiquid things like private equity and real estate private equity. But you know, for now, that business feels pretty good.

[Douglas Sipkin:]

And then just finally, I guess in terms of that business, I guess you guys are comfortable predominantly with the real estate focus? I guess maybe internally, you guys have debated growing it again personnel wise. Any update on there? Or is it sort of status quo right now?

[Scott Bok:]

It’s clearly status quo right now, but as I said before, we’re always looking for opportunities to expand, and we like what we’ve got. When we do expand, we want to do it in a way that’s going to be consistent in terms of quality and productivity is the team we’ve got. But no news on that at this point.

[Operator:]

Michael Wong, Morningstar.

[Michael Wong:]

Just double checking, generally, do your debt restructuring capabilities extend to, say, Australia or Brazil, with the personnel that you already have in place?

[Scott Bok:]

I would say to some extent in Australia. We’ve worked on some there. Brazil, I would say the team probably would hold themselves out more as M&A experts. That’s not to say we wouldn’t get involved, and are in fact involved in some restructuring type situations. I think in that particular market, restructuring probably more often the company needs to raise equity, often private equity, and certainly we can help them with that. If you’re talking about sort of good old fashioned chapter 11 bankruptcy type things, that’s something that happens more in the U.S. and Europe, and we think we’re well-positioned in those two markets.

[Michael Wong:]

And can you talk a bit more about your dividend, which is one of your core type goals. Greenhill is definitely capital light, and you can have a payout ratio of about 100%, but the high dividend definitely decreases your flexibility in terms of the method of capital returns, like your capacity for share repurchases.

[Scott Bok:]

Look, you’re absolutely right. Clearly, the dividend’s a higher priority than share repurchases, so the first money we return to shareholders is always going to be the dividend. And to the extent we have excess cash flow and we think it’s a good opportunity to do it, we buy back shares, but the dividend is clearly the highest priority. You can’t flex your dividend the way you can share buyback, so that’s a higher priority.

[Operator:]

The next question we have comes from Jeffery Harte with Sandler O’Neill.

[Jeff Harte:]

First of all, following up on the capital question, preventing dilution for a while, for a long time, is good, but the buyback, kind of the amount bought back, dipped down again last year. And I look at your net capital position, over $50 million of cash, you know, like $35 million or so of debt. I’m wondering if you have the appetite to become more aggressive on the buyback, because it seems like the capacity is there.

[Scott Bok:]

There have always been times we sort of thought about and even analyzed the possibility of kind of levering up to buy back stock, and we think our stock is really cheap, but we’ve kind of concluded, and we’ve said many times publicly, and I’ll say again, that one of the things we also value, we don’t talk about it a lot, because it’s kind of a given, but we value having no net debt. We want to be an investment where people are investing for the profitability, the dividend, the growth potential, and we’re just not interested in levering up to try to accelerate returns in some way.

[Jeff Harte:]

Even without levering up, just looking at your cash flow generation, and your cash position, it would seem you could be more aggressive on the buyback. I guess I’m wondering if that’s something you’re at least considering doing with the stock being cheap, or beyond having to kind of add leverage to do it?

[Scott Bok:]

Maybe there’s a little bit, but we try to be prudent about it. At the beginning of the year, we always have a pretty big RSU vesting. We effectively buy back quite a lot of stock by just doing the tax withholding on people’s RSUs. We always note that in our subsequent press releases. So it’s important to end the year with a balance sheet that’s ready for that kind of thing.

[Jeff Harte:]

And this has been hit a couple of times, and I hate to hit it again, but the whole off to a better start in 2015. I guess I’m thinking of it in relation to some of the comments about some of the sell side roles not materializing in 2014, that you kind of were hoping would have. Should we look at that as just kind of having backed the wrong horse in 2014, as far as them not materializing? Or is there kind of still things in the works that have just been delayed that you think actually could still materialize in 2015?

[Scott Bok:]

In our business, sadly, there are always delays. Deals always take longer than you think, and many of them you think are dead, and then they have a way of coming back at some point in the future. But as I’ve said a few times now, and I know you guys all love to sort of draw me into this sort of forecasting, which I’m just not going to be drawn, but all we’re saying is last year we essentially had to dig ourselves out of a bit of a hole, because the first half was very weak for us and we feel like this year’s off to a better start than last year was. I would just continue to monitor, see how things develop, see what deals we get announced, and you guys will be able to figure out how we think things might evolve from there.

[Jeff Harte:]

And finally, you mentioned Japan, parts of Asia, could have a better year. It’s actually been, for the industry, a pretty strong start to the year for Asia as far as deal announcements. And you’ve had a few in Japan. Have you noticed any kind of a geographic or regional shift there that things have kind of really been stepping up in Asia?

[Scott Bok:]

I think it’s too early to draw any conclusions. I know there were a couple of gigantic deals out of Hong Kong that we had nothing to do with, but with the Hong Kong billionaire who invested a lot in real estate and infrastructure, whose name slips my mind right now. But that I think is really skewing whatever M&A volume stats you’re looking at for the year to date. And yeah, there have been some interesting transactions in Japan, but not nearly of that size. But it’s too early to try to draw any conclusions about how M&A is going to look regionally over the next year. I wouldn’t even want to draw how it’s going to look globally over the course of the year, other than to say, as I did, that I think most people expect it to be somewhat better than last year.

[Operator:]

The next question we have will come from Vincent Hung of Autonomous Research.

[Vincent Hung:]

The first one is, so, your revenues are down 2% year on year, but when I look at global M&A revenue, it was up 18% year over year. I know we’ve talked on this call about the various reasons for the weakness year on year, but is there anything Greenhill specific? Or is there anything you’ve been trying to investigate into as to why you’ve lost market share, such as diminishing brand recognition in board rooms?

[Scott Bok:]

I don’t think there’s anything fundamental like that. I think I’ve made the points that are relevant. Yes, after several consecutive years of market share growth, clearly we did have a flat outcome last year. There are reasons for that related to the global nature of our business. We’re not as concentrated in the U.S. as some are, and that’s where the action really was. And there’s also just kind of the randomness of some years you get a higher percentage of your deals done and get them done more quickly, and others, you usually don’t. But I certainly wouldn’t want to try, as I said, to draw any trendline based on the one data point.

[Vincent Hung:]

And last year, you seem to have been characterized by a lot of notable departures. I just wanted to get a sense for how you view the mood of employees internally, because this may be an unfair statement, but I guess from my external viewpoint, I see a stock price that performed poorly in the last few years and market share declines, people have left, [comp per head] is down, and the comp structure to me seems like there’s a lot more higher deferrals than appears. So I just get the feeling that we’re setting ourselves up for more employee attrition this year.

[Scott Bok:]

Well, certainly, I don’t think so. I think morale is actually quite good, both for the people that are here and some of the people we talked to about joining us. I think compensation is fine. No, I don’t think there’s anything to it. I don’t think our deferrals are unusually high. So we’ve made the point that our fixed compensation expense, of which a significant piece is deferrals, is kind of consistent with last year. So no, I don’t share that concern.

[Vincent Hung:]

And just the last question, do you think you should be more aggressive on hiring, because when I look at the kind of people that your boutique peers have hired, they’re very high caliber. And it seems to have worked for them. The question is, the talent is out there, so maybe you guys need to be more aggressive.

[Scott Bok:]

I’m not going to try to sort of run the firm in a long term strategic sense to try to drive short term stock price performance. There are moments when the stock market likes one strategy, maybe different than another, but we’re here building a firm that’s been around for almost 20 years. It’s been public for almost 11 years. It’s been a great success, and we’re going to continue to run it in a way that we think will make the greatest success for the next 10 years, without, frankly, worrying about what short term investors may want us to do any particular year. And so we’re focused very much on the quality of people we bring in, and the fact that they’ll fit into what’s a very close knit culture, and that really is what drives our hiring, more than some decision that maybe hiring more people might move the stock price.

[Operator:]

Next we have a follow up from Ashley Serrao from Credit Suisse.

[Ashley Serrao:]

Scott, as we come closer to the fifth anniversary of [unintelligible], do you still expect the final tranche of the [unintelligible] preferred to be canceled?

[Scott Bok:]

I do, yes. They will not achieve the second - I think that’s been clear for a long time, by the way - but they will not achieve the second earn out. They achieved the first one. No shares were paid out a long time, I guess, after the third anniversary. We’re now on the brink of the fifth anniversary, and as has been clear for quite some time, they won’t hit that, so those common shares won’t be issued.

[Ashley Serrao:]

I’ve read a couple of articles in Detroit and the bankruptcy there, and the judge is reviewing fees. I was just wondering if there’s any exposure for you, or just more in general for the industry.

[Scott Bok:]

In Detroit, there’s none for us. That assignment is over, that bankruptcy has ended. We’re content with how things worked out for us. I would caution that in any bankruptcy situation, there’s always some risk right to the very end about how judges will look at fees, but we’re content with how we’ve been treated, and all the things we’ve been working on recently. I think that’s the last call, including a little double dipping by Credit Suisse there. So we look forward to talking to you all again in a quarter. Thanks.