Greenhill & Co., Inc.
Q3 2015 Earnings Call Transcript

Published: 23 Oct 2015

[Operator:]

Good afternoon and welcome to the Greenhill Third Quarter Earnings Conference Call. 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 Chris Grubb, Chief Financial Officer. Please go ahead.

[Chris Grubb:]

Thank you. Good afternoon and thank you all for joining us today for Greenhill's third quarter 2015 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 would now like to turn the call over to Scott Bok.

[Scott Bok:]

Thank you, Chris. This year has continued to be a good one for us in terms of important M&A announcements such that as of a few days ago, our announced year-to-date transaction volume, the sum of all deal sizes for the Thomson data source we typically cite [ph] is up 69% from the same period last year to its highest level since 2008. However, very few transaction completions fell in our third quarter, resulting in lower than typical advisory revenue and that lower revenue level resulted in higher than typical cost ratios. There were three primary factors that constrained our revenue outcome in the quarter and the year-to-date each of which should in due course turn in a much more favourable direction on its own. I will speak to each of those now followed by a few comments on the overall M&A environment and then followed by a discussion of our capital advisory business. After that Chris will speak to our cost balance sheet matters and dividend. The key factor our quarterly revenue outcome was simply the somewhat random timing of transaction completion, something that’s obviously far out of our control. Fortunately this year we’ve been centrally involved in more large deals than what’s the case in recent years but unfortunately the nature of those larger deals is such that they can take longer to close. Specifically as we note in our press release, last year a large majority of our most important announced deals as measured by total expected fees also made it a completion in the same year, while this year’s it’s just the opposite. A large majority of this year’s most important announced transactions particularly this year’s several largest is measured by expected fees look likely to get to completion beyond this year end. While that substantial difference in transaction timing will obviously impact this year’s result negatively it also means that for 2016 we already have the largest backlog of fees from announced transactions that we have had at the start of any of the past several years, and we have more than two months left in the year to grow that backlog further. A second factor in our results this quarter and throughout this year is that we continue to be in a market where improvement in M&A activity is heavily focussed on the U.S. market. Our U.S. M&A business is performing well, and this year the portion of our advisory revenue coming from clients in North America looks likely to be the second highest since before our IPO exceeded only by 2009 when we were in the debts of the financial crisis. However, we’ve always prided ourselves in being a truly global firm unless we have very substantial resources deployed in other markets where M&A activity has been stagnant or even continued to decline. For example, in Europe the number of deals $500 million or greater is on track to be slightly worse than in four of the past five years at a level about half of where it was at the 2007 peak. With respect to M&A activity, Europe is increasingly seemed to be made up of multiple separate regions with very different market characteristics, and fortunately the U.K. where we have a long standing strong market position has been a positive exception to the overall European trend. Several important deal announcements to show by our team in that market reflect that. In Australia given the smaller market size, we focus on a number of deals $200 million or greater and that figure has continued to decline in the past few years from a level 30% below where it was in 2010 and roughly half of what it was at the 2007 peak. And for Brazil and other emerging markets the general news flow makes clear the multitude of reasons for there being little M&A activity. Notwithstanding the recent years of unusual relative strength in the U.S. market, we continue to believe in the necessity of having a truly global footprint for long term success and in the quality of our advisory teams and the regions that have seen last activity of late. The third and last factor worth noting is one that is also applied for some time. That is the fact that improvement in M&A activity has been heavily focussed on mega transactions of $10 billion or greater size. Market data as of few days ago shows that we are on track to have 8% fewer transactions globally in the sub $500 million category this year and only 3% more in the important $500 million to $5 billion category. Only in deals north of $10 billion in size has been a really dramatic improvement. But if you look at the number of deals in these various categories you see that what this means is hundreds of fewer smaller deals offset by only a few dozen more very large deals globally. Just as we expect improvement in M&A activity to spread overtime to other regions beyond the U.S. and U.K., it also seems logical to expect it to spread to the full range of deal sizes. I know some market commentators are starting to declare that we are at or near a peak of the M&A cycle but the data citied above in relation to Europe, Australia, Brazil and elsewhere as well as the data in relation to deals sub $5 million in size would suggest that for many parts of the M&A market the post financial crisis upturn has barely begun. Our dialogues with CEOs and boards validate the view that M&A activity feels a long way from slowing down. The fundamental drivers of modest organic growth opportunities, low cost of capital and dynamic technological and regulatory change within many industry verticals all remain in place. It’s still isn’t easy to get deals done especially in the occasional periods of market volatility to come along but corporate interest in M&A opportunities remains high. Now let me turn to our capital advisory business. Their market conditions for both primary fund raising and secondary transactions have been robust, except for some delay in transaction completions as we saw significant volatility and public equity market valuations in the latter part of the quarter. However, the near term outlook continues to look strong for this business, for secondary transactions in particular we believe the market remains in a growth phase or high valuations mean more transactions which in turn leads to greater liquidity in a still fairly young market which in turn drives more transactions. In short, we believe there’s a bit of a virtuous circle in place in this market. Now having become the market leader through the acquisition of Cogent earlier this year, we are very well placed to benefit from that. Now, I’ll turn it over to Chris.

[Chris Grubb:]

Thank you. I will now go into a bit more detail on compensation costs, non-compensation costs, tax rate and capital management and balance sheet matters. Starting with compensation costs, our compensation expense ratio for the third quarter was elevated 61% due to the revenue outcome Scott discussed earlier on the call, which brings our year-to-date compensation ratio to 56% slightly higher than the 55% compensation ratio we achieved through the first nine months of last year. Consistent with our historical approach we include all GAAP compensation costs in these figures, which means that unlike many of our peers we include all recruiting acquisition and related personal expenses when discussing our compensation ratio. While our full year 2015 compensation ratio will be dependent on the fourth quarter and resulting full year revenue outcome, our goal remains to have a GAAP compensation ratio that is the lowest among our close peers, which we have achieved every year while also being able to compensate our people comparatively and continue to reward high level productivity. Moving to our non-compensation costs. Our non-comp costs were $18.8 million for the quarter and $53.1 million on a year-to-date basis, with both figures elevated by a variety of unusual items. These unusual items include transaction expenses related to the acquisition of Cogent, foreign exchange losses related to the way we financed our investment and our start up in Brazil and duplicative [ph] lease cost in transitioning to new office base in Sydney. For the quarter, these non-core expenses added approximately $1.6 million of additional expense and on a year-to-date basis the total impact was approximately $4.6 million. Excluding these expenses, our core non comp cost including the additional ongoing core expenses for the Cogent business were $17.2 million for the third quarter and $48.5 million for the year-to-date period and remain well under control. With respect to the noncore cost noted above, there will be no further acquisition cost related to Cogent the transition of office space in Sydney is now complete and the Brazilian currency had a 20 year low in the third quarter, suggesting the negative FX expense there should be largely behind us. On our prior call, we commented that we expect the Cogent transaction take our non-comp costs from a run rate of below $60 million to high $60 million on annual basis and we continue to believe that is a good estimate. Touching briefly on the tax rate. As discussed in today’s earnings release, our third quarter tax rate was 40% and our year-to-date tax rates was 39%. This higher than usual tax rate is driven by a greater proportion than usual of our earnings being in the U.S. relative to other jurisdictions where we operate with lower tax rates. Going forward, our tax rate will as always be a function of the jurisdictions in which we generate earnings with the U.S. having the highest tax rate of any region where we operate. As and when the regional mix of our revenues return to our historic norms, our tax rate should decline to historic levels as well. Looking at our capital management activity, our dividend this quarter was again $0.45 per share consistent with the quarterly distribution made over the last several years. And as Scott mentioned in the press release an indication of our confidence and the current pipeline announced transactions and other deal activity. During the third quarter, we repurchased a small number of shares due to employee restricted stock vestings and for the year-to-date have repurchased approximately 340,000 shares for a total cost of $11.9 million as a result of such vestings. As we said when we acquired Cogent earlier this year, our near term focus is on repaying the modest amount of acquisition that we incurred. Once that is behind us and as the revenue picture evolves as noted earlier, we expect to return to our historic share repurchase program. With the Cogent acquisition our share count has picked up very slightly above where it was post our 2014 IPO but our long term track record for avoiding dilution of shareholders remains very strong relative to our peers and maintaining that position remains a core objective of the front. We ended this quarter with cash of $35.3 million, investments of $3.5 million and a revolver balance of $44.9 million. While we ended the quarter with a revolver balance a bit larger than our cash balance as of today we are already back in our usual position of having a global cash balance in excess of our revolver balance. Now let me turn it back to Scott.

[Scott Bok:]

Let me close with the thoughts of the difference between the quarter we had and a strong quarter is really quite modest. Our business has minimal capital requirements and our cost apart from compensation are largely fixed. So for us the real story is always all about revenue. Given how much of any incremental revenue drops in the bottom line, it would not have taken much of the additional transaction fees being realized to lead to very different and better financial results. And you only have to look at our 10-year history to see that we have an unparallel track record of converting revenue in the profits and capital returns to shareholders including more than $500 million of dividends paid out since our IPO. Looking ahead, much of what would lead to dramatically different and better results should happen naturally with little action on our part. First transaction timing is obviously out of our control, but large announced transactions with long type timetables can generally be expected to work their way to the finish line. History shows that very few deals get blocked by regulators and even the largest transactions rarely take more than around a year to get the completion. More typical transaction timing alone would have led to very different and reasonably satisfactory results for us for the year-to-date. Second, we have a strong and long established team stationed in key markets around the world and that’s very well positioned to benefit as improved M&A activity broadens to other regions beyond the U.S. and U.K. and to deal sizes other than mega transactions. That also should happen naturally as regions and companies of all sizes continue to heal from the financial crisis and companies facing imperative to grow their businesses despite economic growth that generally remains tepid [ph] and that would also lead to dramatically improved results for us. Lastly, and type of waiting for those two factors to turn in our favour, I want to be clear that we continue to be laser focussed on the things that are within our control to create a business that drives strong and growing revenue over the long term. Like any great sports teams or other professional services firm, our primary management focus is on acquiring and developing talent, while at the same time not being reluctant to occasionally part ways with bankers whose skills or relationships have proven to be insufficiently effective on an independent advisory platform like ours. As we look to expand and operate our talent pool, we focus on two strategies. One is adding new senior talents from outside the firm and we’ve done a lot of that this year both in M&A and in Capital Advisory and both by recruitment and by acquisition. We are very pleased with the new client activity generated both from this year’s MD recruits and from the team acquired in the acquisition of Cogent. Looking ahead, we continue to see good opportunities to recruit additional senior talent. An equally important part of our talent strategy is growing our own senior talent and we have numerous examples of people who joined our firm 10 or more years ago very early in their career and have since developed into important revenue contributors as well as the leaders within the firm. The early progress of those more recently promoted to Managing Director as well as the strong pipeline of talents still coming up to the ranks suggest that this strategy of internal personal development will become an increasingly important part of our talent strategy alongside external recruiting. With that, we are happy to take questions.

[Operator:]

[Operator Instructions] And our first question will come from Devin Ryan of JMP Securities

[Devin Ryan:]

Hey Scott, hey Chris how are you?

[Scott Bok:]

Good. How are you Devin?

[Chris Grubb:]

Hi, Devin.

[Devin Ryan:]

Good. So just looking at results year-to-date and kind of trying to [Indiscernible] the commentary, so it clearly maybe a tougher year and hopefully next year is all from a better notes its basically backlog you noted. But if that’s the backdrop how do you balance you know compensating people that really produce at a high level this year but still continuing to invest in people that maybe this wasn’t a great year for production, because I know that you got be balanced but when revenues are spread thinner how do you think about that balance?

[Scott Bok:]

Comp, look a comp every year whether you are at absolute peak of 2007 or at the trough it appears like 2009, it’s never easy in our business. I mean, people obviously have high expectations in any year you know even when it seems like revenue is very high and you work through it. I think our history has been or continue to be that we have rewarded people who have performed well, that doesn’t mean we completely cut off those who haven’t but we believe in for the future. But, you know it’s you have to go case by case, person by person and I think our track record of really and very high retention rate over the last almost 20 years now would suggest that we know how to do that in an effective way.

[Devin Ryan:]

Got it. Great. And appreciate the commentary around the M&A cycle and kind of where we are from a kind of a data perspective but are there any anecdotes or kind of things you would point to or you would say based on the conversations with boards and the specific examples where you feel like this cycle still has a long run way to go. I know the data, it may suggest and we hope that’s the case but is there anything where you are kind of getting a sense from your conversations with board members that they are just now starting to think about growth again.

[Scott Bok:]

Look there are plenty of them, but I’m not going to name this on the call obviously it’s -- all that kind of stuff is confidential and its hard to give sort of no names anecdotal. But I’d say this, look over the recent weeks the pace of sort of flow of new assignments and bakeoffs that we’ve been invited to and other situations where you are invited to the high level to talk to a company and maybe in a more serious way about a possible transaction, that hasn’t declined at all. As a matter of fact, I would say the last few weeks’ feels you know really quite good in that sense. So I’m not seeing anything that would indicate that the little state of market volatility we’ve had has derailed M&A at all and I think you are seeing that. And some announcements, its certainly behind the scenes we are seeing that in terms of the early stage pipeline being filled with -- you know bakeoffs some of which you win, some of which you loose but the fact even the ones you are getting to invited to an end up losing are suggesting little amount of activity out there and you know as long as we have a reason we’re batting average in winning those will continue to do fine I think.

[Devin Ryan:]

Got it. Maybe on that point, I mean you guys have been around longer than a number of kind of some of the newer advisory firms that are starting up, but are you seeing more firms today in bakeoffs and kind of the independent models hinted there is more kind of firms with a critical mass and a bigger branch than they were five years ago or ten years ago. So is that a dynamic that’s playing as a competitive environment that you think is impacting business at all or is it still you know you feel more head to head with board records?

[Scott Bok:]

You know we still certainly compete with bulge bracket more than anybody else. I think, overall the competitive picture is again you have to look at it pretty carefully. I mean it won’t surprise you to hear that I think the European banks continue to get weaker. You’ve seen some announcements even in recent days here that suggest that they are probably going to be more turmoil and kind of strategic developments of those places that probably at the margin help us when business against them probably hurt them and keeping good people. So that’s kind of one category. The American banks, I think are doing pretty well and they -- and like they have always been tough competitors and they are probably still the people we run into most often when we are competing for a piece of a business. You know with the so called independent advisors like ourselves clearly there are more of them. There probably aren’t as many more as you may be thinking for example, the two most recent -- public are both atleast ten years older than we are, they weren’t public for the whole period we would but they have certainly been around for a very long period of time. So there are some new and there are some tiny ones as you know who may pick off one or two or three pieces of business in a whole year and there are some others that are you know much more typical or much more comparable to us. But, you know overall it’s always been a competitive business, its probably a little more like it was when I started my career where there are lots and lots of small, medium and large competitors as compared to say ten years ago when there was just you know really the bulge bracket record kind of owned everything in their early days of our firms formation and development and the formation and development of some of the other firms like us.

[Devin Ryan:]

Okay, great. I’ll hop back in the queue. Thanks Scott.

[Scott Bok:]

Thank you.

[Operator:]

And our next question comes from Dan Paris of Goldman Sachs

[Dan Paris:]

Hey guys, how are you?

[Scott Bok:]

How are you Dan?

[Chris Grubb:]

Hi, Dan.

[Dan Paris:]

I'm good. Thanks. So, just one from a high level perspective, the delay in some closings this quarter, would you attribute any of that to the volatility that we've seen in markets and corporates kind of intentionally delaying it or was this all kind of normal course regulation taking longer, things of that nature?

[Scott Bok:]

It’s certainly wasn't the former. I didn't see – I mean, maybe if – again we don't do a lot of work in the private equity world, I mean, maybe in that world the ability to do a junk bound offering and finance deal may become more difficult for some people. But the phenomenon I am more talking about, I mean, clearly you can see we've announced bigger and more significantly transactions than we did say, last year – probably the last number of years. But when you do those bigger things they tend for whatever reason they have a little longer regulatory review. It can be because they're reviewed not in one country, but in five or ten countries in some cases and it can be just because it's bigger and so bigger markets shares are involved, and so it takes longer to get through the process. I'm sure that's the phenomenon that other firms will see with -- particular with largest transactions. But I don't think any of it had anything to do with the market volatility. Really if you look, I'm not going to talk about individual transactions, but if you did look at company commentary about their own transaction you can see the expectations are setting for closings which in many cases people are talking about year on the larger ones, that's mean, very large deal transaction which we're not involved in. There were quite open about the fact that's going to take more than year to close. And there are lots of transactions that aren't that big, but they're still very large that are in kind of the same boat.

[Dan Paris:]

Got it. And then understanding completions, near impossible to predict, I mean you seem to lose that most -- most of your transactions would spell over in to next year, does that set up risk that 4Q revenue number to look something similar to this quarter or is there anything you can kind of put us to and that trying to kind of size that?

[Scott Bok:]

Obviously, I don't want to be predicting our quarter's revenue, because that's really impossible to do. But I would say even apart from the larger phenomenon I'm talking about where we've announced more bigger deals this year, but they are just the type that are going to take longer to close and they're going to close the next year. Even apart from that, the third quarter was a very unusual quarter in terms of just to shed [ph] number of transactions that we close. We always list in our press release pretty much every M&A transaction that we have closed during the quarter. I mean, occasionally there'll be something that's confidential or whatever that we list, but we won’t almost always list pretty much everything. And I can't remember the time we ever had as few is four and of the four that are listed in there, you can see the relative sizes and they're not all significant one, certainly none of them are really, really large ones. So I would say the third quarter sort of feels like very, very much outlier in terms of not only big transaction that it will take a lot longer, but even the kind of normal run of smaller deals. And I'm sure, when you look at your data sources which you guys all look at but we typical don't. You could probably have seen coming into this. There are about four transactions that close during the third quarter. I think when you look for quarters to come; I think you're going to see quite different numbers and scale of transactions.

[Dan Paris:]

Is there any way you can size any of that for us today, like the revenue backlog on uncompleted deals is x assuming everything closes. Is there anyway to think about that or you can give that level of granularity?

[Scott Bok:]

I don't think that's wise, because once you start on that path, you have to do and of course some is difficult to calculate. But the point I made in the script about a large majority of last year's sort of major top tier deals getting done during the same year and a large majority of this year is getting deferred beyond that including as I said, several very largest, I mean, it obviously its very heavily skewed and that's why we made the point that we have already the best backlog we've had in terms of announced deal not just sort of general pipeline, in terms of announced deal fees for any January 1 in many years and we still got two more year – two more months rather to keep increasing that margin versus recent years. So obviously I'm talking about significant numbers and things here, but I think to quantify it doesn't really make sense.

[Dan Paris:]

Okay. Understood. And then maybe just last one from me. If the deal timeline completion keeps getting push back for whatever reason, is there a way to think about what is the minimum level of revenue earnings require to kind of support the current dividend? It seems like repaying some of the debt remains the priority too. So how do we think about that balance there?

[Scott Bok:]

I think it’s a pretty low figure that would be to put the dividend into question, so we don't think we're there. If you look at – again, if you look -- obviously we do, because we're involved in these deals, but you can see things making progress. It’s not like deals, and that's why I made the point, its very rare for deals to take much more than the year to get done. So it's not like things that may look to the public like there are going to close in Q1 or going to close in Q1 of 2017 and 2016. I don't think that's realistic at all, just deals play out and the announcements company are making. So, I think we're well out of the range of having to read all about the dividend or any other balance sheet related issue. And its only question of really is when do we start repurchasing stock again and we look at this backlog and when we expect to come in terms of revenue and we think its not going to be that long, you're going to see us back to our usual position of net cash like we are today and repurchasing stock and getting back to a share count that hasn't increased in 10 plus years.

[Dan Paris:]

Got it. Very helpful. Thanks for taking my questions.

[Scott Bok:]

Sure.

[Operator:]

And the next question comes from Douglas Sipkin of Susquehanna.

[Douglas Sipkin:]

Thank you. Could you guys hear me?

[Scott Bok:]

Yes. We can hear you fine.

[Douglas Sipkin:]

Good afternoon. How are you?

[Scott Bok:]

Good.

[Douglas Sipkin:]

So I just want to drill down little bit on Cogent. And I guess, maybe if you could just sort of update how we should be thinking about it in light of I guess a little bit more of a volatile environment. I know you guys provided sort of their full year 2014 and you guys don't disclose the revenues, so I think some of the challenges at least I'm having or China, think about that stuff, thinking about I guess around the $40 million or so that it did last year and obviously I don't think that's going to be for 2015, but any color as to how should we maybe thinking about that revenue stream. I know you guys started providing sort of the number of our transaction they were involved and I think you said 23. Can you maybe provide us like what's kind of like the numbers they were doing last year and is that all has that market change in light of what we've seen a volatility wise in August and September? How do we think about relative to sort of what they did last year? Because I feel like that maybe at least from my perspective some of the problems in terms of modeling right now?

[Scott Bok:]

Look, I think, I could give you lot of statistics that probably would do nothing but confuse you and really not have any meaning to them, because obviously you can have some deals that are very small and some deals that are midsize and some that are larger. So to give you sort of numbers of deals versus last wouldn't make much difference. I would just say that we've been pretty clear. This business is performing well that we think there's kind of secular growth thing going on, because it seems like more companies are now managing, company's institutional investors are managing the portfolios of private investments in the same way they manage the portfolio of the public investments. Those seems like there is just more overall activity. Our guys continue to feel like they've got by far the leading market share and look I would say the business feels as we sit here right now; it feels better than it did a year ago. And I think the pace of new assignments; the numbers of new assignments, the number of ones that are really quite significant in terms of the fee potential are all looking like this business is doing very well. If I were to model it that for you guys to figure out and look it's not a huge part of our business. I think to assume something, I mean, we obvious, we have to earn on which gives you some target of what they were expecting to exceed. And I think they – I think that team still expects to not just achieve that but to exceed that figure.

[Douglas Sipkin:]

Okay. That's helpful. And then in terms of some of the offices where guys you've highlighted where there's not a lot going on. One thing I have noticed, I mean, historically you guys have done a great job with the non-comp and I know you've done a deal, so there is some expenses related to that, but its feel like maybe the non-comp is an area where it seems little bit elevated than normal based on your history of prudently keeping cost low and I'm wondering at what point to some of these territories where nothing is going on, you maybe evaluate some sort of streamlining. I mean, I'm not saying, go away, but something where you can sort of manage the business a little bit more effectively, because at some point of revenues just don't come back for the long period of time, it get pretty expensive to sit with it. So I'm just curious if that something you guys are exploring with certain territories where there just doesn't feel like there's a lot of going on and there probably won't be for some time?

[Scott Bok:]

I wouldn't look. I don't want to give the impression; people are sitting on their hands. People are busy, believe me. Its just a matter of how hard is to get transactions done in certain parts of the world, but I wouldn't honestly – we have all the things you might to want a spend lot of time thinking about modeling, non-comp in my mind would not be one of them. I think if you take away the things that really are sort of we said non-core really non-recurring type things, transitioning a lease or some foreign exchange losses on the money we put into Brazil and so on. If you take those out as Chris said, we think we're very much on track for exactly what we said, we would be at the beginning of the year. Yes. There are some parts of the world, take Brazil where it’s very hard to get deals done, but their non-comp have obviously come down very considerably just for the exchange rate, and likewise in Canada, in Australia and in Tokyo and even in Continental Europe. So the places, I mean, there's still on one tiny silver lining really to very weak exchange rate in some of these markets. There's not a whole lot of activity in some of the non-U.S., non-U.K. market, so it's not really a big factor in hurting revenue. But you do get some savings in non-comp obviously as well as in base salaries and things like that. So I think our non-comp is still very, very much under control and we've normally changed our philosophy or I think our execution in that respect.

[Douglas Sipkin:]

Great. And then just finally, I know you've touched on it, so, forgive me. I'm just trying to put into context. When you speak about sort of starting January, is it your trends – I mean, what do you referring to in terms of, is it the fee revenue potential was the strongest in-- I don't know if you said, how many years, but/or is it sort of the deal value is the strongest then how many years?

[Scott Bok:]

I'm talking fees, so what we're doing is we're taking unknown transaction and the fees that we expect to collect, that are still to be collected on completion and maybe other events along the way if you will. That the backlog from those and on top of that obviously there are things we're working on that, haven't gotten to do an announcements and so on. There's always the backlog of that kind of thing. But the backlog that's obviously pretty solid because it relates to announced transactions not just for hopeful transaction. As of that we will enter 2016 where there's already very significantly better than we entered 2015 or 2014 or number of years before that with – and as I've said we have two more months to make that differential even bigger.

[Douglas Sipkin:]

Okay, great. Thanks for answering all my questions, Scott.

[Scott Bok:]

Thank you.

[Operator:]

And the next question is from Brennan Hawken of UBS

[Brennan Hawken:]

Hi. Thanks for taking the question. Just a quick one, we'll actually phrase that and maybe broad one, Scott. We've had – and of course any single quarter can be really lumpy, right, so not about this quarter per say, but even if we take a step back and look at the last several years there's been a lack of revenue growth with Greenhill and a lot of the competitor are doing meaningfully better, have shown substantial revenue growth. So, obviously the market is difficult, but others are able to execute in the market and it conclude some terms they focus on the mid market and smaller deals. So, is there something that needs to change? Is there an approach that needs to be adjusted? Do we need to do something substantially different here or do you think that it's all just choked up to bad luck?

[Scott Bok:]

I mean, I wouldn't say bad luck. But I would say this, look the firms in general that have had significant revenue growth, have had a very significant headcount and cost growth, and share count growth. And so, we have made a sort of strategy policy decision a long time ago, like when we were public that we were going to focus very much on real profitability, and so we did this in 2004 and 2005 when we were the only public firm of our type out there and we've continue to do that since then which is why – while others again have taken somewhat of different approach of very aggressive headcount growth and so we've talked about [Indiscernible] pro forma out number of the cost related to that. But if you look at the real cost and if you look at the share count. I think that growth has been pretty expensive and we focus on profitable growth. And I think if you look at the way our firm has developed and what we've built out and you look even in the year to date announcements, look life would be a lot easier if things for closing four months instead of 12 among the big things. And then we would be having this conversation about of our growth. But I think we're very contend with what we are and we think our really an – as I said an unparallel track record of pretax profit margin that many others set the target but achieve share count that essentially what it was, so we went public 11, 10.5 years ago and $500 million in dividends paid. I think that's the strategy we're going to stick with going forward. And we think as number one, the obvious thing if these deals that are announced worked away through to the pipeline and get closed and then beyond that as the M&A activity expand beyond U.S. U.K. I think the chickens will come home to roost in a very positive way in terms of the investments that we've made.

[Brennan Hawken:]

Okay. All right. Thanks for that perspective. Where did MD headcount finished up at the end of the quarter?

[Scott Bok:]

75 clients facing, my CFO tells me here, which I think it’s about where it was last quarter. Maybe one plus or minus, I don't remember.

[Brennan Hawken:]

Okay, great. And then, last question here, so it seems like there might be some timing difficulties for sure which have been hit on extensively. We've got 14 roughly million bucks of dividend payments per quarter. You've got I think around $35 million cash on the balance sheet, what are the cash requirements as you approach year end for bonus payments. How should we think about cash trajectory between now and year end?

[Scott Bok:]

I'll leave you to do your own modeling for the next 10 weeks for the year, because that's not a very long period of time. But as Chris said, we are back in our normal position of cash well in excess of our drawn revolver. We of the $500 million of dividends that we paid probably more than half of that has been paid, since the first time I was at to one of these calls, whether we would be able to pay the dividend. And we continue to have confidence not only in the short time, but in just the pipeline of business we have as we go forward. So I think, leave it up to sort of how we're going to spend there, when we're going to come back to share buyback et cetera, but we are quite comfortable with the business as we see playing out over the next several months.

[Brennan Hawken:]

And even with the $22.5 million debt payment due on in April 2016, that's not an issue as well?

[Scott Bok:]

Half of that was repaid already in the second quarter, so you're number should be half of the number you just throw out there.

[Brennan Hawken:]

Perfect. Okay, great. Thanks for clarify on that.

[Scott Bok:]

Sure. No problem.

[Operator:]

And our next question is from Ashley Serrao of Credit Suisse.

[Ashley Serrao:]

Good afternoon.

[Scott Bok:]

Hi, Ashley.

[Ashley Serrao:]

Scott, I heard you comment and just the feeling of, of Brennan's question. Do you think there is an argument to be made that you should be trading off compensation as share count discipline in favor of building franchise value by hiring people and growing revenues?

[Scott Bok:]

Look I think, we – as I've said, we believe in profitable growth. We’ve added a lot of people this year, probably the most we have in any years since maybe the last – the couple of years just post crisis when there was really a lot of people flaying [ph] the big bank sort of 2008, 2009, 2010. We've obviously got the whole Cogent team that came on board. We've had people from Australia and Japan and Houston and San Francisco, TMT level and now I think we're making investments at the right pace in order to maintain our sort of historical tilt to our profitability and returning capital to shareholders while also investing in the firm to grow.

[Ashley Serrao:]

Okay. I guess the sceptic [ph] would argue that the past few years you've been able to hang on to some with your margins really through a lot of benefits from people departing the firm and at the end of the day also a goodwill on the balance sheet does not really expense, so the income statement when you deals, so curious what your take on that is?

[Scott Bok:]

I think the overestimate the importance of people leaving the firm. I mean, every year we give out obviously a quite a lot of stock as part of our compensation because we want people to be align with shareholders and share those some call back that comes when people go and essentially they argues they back and thrown into the pond and given to somebody else as part of inventing and rewarding and retaining them for the future. So I don't think there's been anything – I mean, if anything about our firm you have to say, there's no – there's nothing hidden, I mean, we do no pro forma, that's all, you can see the cash, you can this very substantial dividends they're going to pay, the share buybacks and I don't – I think it’s about a simple event and I think the fact we have a very high retention rate over the years, so people would suggest that we're obviously doing something to retain people and we're doing something to reward shareholders.

[Ashley Serrao:]

Okay. What do you think the market is missing, because it feels like the market has spoken by just relating on the stock on the multiple basis. So what is the market missing? What would you tell? What you'll tell to market going forward?

[Scott Bok:]

Look, I think we traded at a very long time, if you all know at a very large premium multiple and right now, from what I can tell, we traded a very similar multiples with everybody else. So I don't think its sort of going to a really anomalous level. I think investors probably more so than analyst saw what deals we're going to close this third quarter and so they had their own view is to what earnings were going to be, so I don't think for example our share price would be where it is if people really thought we were going to achieve the revenue numbers that went some of the analyst reports. So I think investor should kind of ready for a volatile quarter. We're not a lot got done. I think on the whole people look at the announcement, the pipeline is that I think probably feel reasonably good about the business longer term, but look we had a dry pad, so there's no question about that and we just had a quarter whereas I said I can remember past press release going back many years when we had [Indiscernible] multiple of that in terms of deals that announced. So, look, I think we'll work our way through this and I think there's been times over the year when our share pricing very high to me and there were times over the years when our share pricing surprising low to me. So I think those who are interested in the fixed cost pertain yield and the longer term benefits of what we build here we don't have change to buy and those who want to get out obviously have a chance to rebate [ph] itself.

[Ashley Serrao:]

Okay. It feels like the definition of scale has changed. Folks are more invested in building a franchise with a deeper mode and more sector expertise, do you believe you're at scale, would you like to quicken the pace in terms of like adding expertise, is there demand in the marketplace?

[Scott Bok:]

I think we want to be – we want to continue to add people very thoughtfully and carefully. Look, I know that investors love a rapid growth story. I know and which analyst probably do, lot love a story of rapid growth. And its easier to sell a story of rapid growth than sort of reality of actual numbers and I can walk them back to almost exactly ten years ago when we had -- if you look at those peer group today, I think Evercore has the highest market capital, a very close peer group that have almost $2 billion. We had a larger market caps than that, in 2000 almost 9.5 years ago with 7% of the people that Evercore has today. So, where investors probably reading too much into our growth story at that point, yes, I think they probably were to value of firm with just over 100 people at $2 billion. And I think likewise right now the market is probably giving too much value to other firms that are selling us to or even some firms that are been on for very, very long time, but just came public give them a lot of credit for a growth story. We're focused on the reality of building a great business with people already have a long time in generating cash flow which we can reward them with and return money to shareholders rather than doing things that may investors or analyst may find exciting in a short term. We're much more focused on actual stuffs in the results than trying to things that we think will sort of trigger a certain market reaction in a short term.

[Ashley Serrao:]

All right. Thanks for all the perspective and taking my question.

[Scott Bok:]

Sure.

[Operator:]

And the next question is from Doug Doucette of KBW.

[Doug Doucette:]

Good afternoon, guys.

[Scott Bok:]

Doug, how are you?

[Doug Doucette:]

Good. Just had a quick question. So I know you mentioned that deal activities kind of being pushed out 2016, but seeing as 4Q is typically seasonally strong. Just keeping that in mind, do you want to anticipate any element of seasonality this year?

[Scott Bok:]

I think that I find that question little bit confusing. I definitely announced the deal activities push out to 2016. In terms of deal activity measure by announcements, so do I think the activity that we work on, we work and getting deal sign and announce that's actually when quite a busy and it continues to be one. What I've said is that the approval process is usually regulatory then obviously shareholders as well. We’ll take a lot of things into into 2016. As far as you know seasonality, I’ve never really believed a lot in that. It’s very -- it can be fairly random in the sense that you know even companies, even principals don’t have much influence over when deals get closed. They can have a lot of control when they get signed and if it’s a small and private deal it’s pretty easy for them to maybe control up, but if there’s a regulatory process you know the best they can do is walk your way through that and I don’t think companies spend a lot of time worrying about whether a deal closes in late December or early January for example.

[Doug Doucette:]

Okay, yes that’s -- that’s my only question. Thanks.

[Scott Bok:]

All right. Thank you.

[Operator:]

And next we have a question from Vincent Hung of Autonomous

[Vincent Hung:]

Hi, how’s it s going.

[Scott Bok:]

Good, how are you?

[Vincent Hung:]

Very well. Two questions, so do you think you guys need to be more nimble when it comes to chasing opportunities in the M&A space because when you talk about the lack of M&A opportunities outside of the U.S. and you are telling shareholders to be patient and wait for activity to come back. But why don’t you just try and chase the more nearer type opportunities in U.S? I know there is going to be some difficulties on deploying bankers but just want to hear your thoughts on that?

[Scott Bok:]

Look obviously there is a limit to what you can do in terms of where I’m spending my time and a lot of our people are spending their time obviously we’re doing as much as we possibly can and that markets like the U.S. and the U.K. where they is actually quite a high level of activity. But you know clearly you are not going to a large degree redeploy a bunch of people sitting in Australia, Brazil to come to the U.S. and do transactions for your health [ph] and then go back home. You know if you want to build the business in those markets, its really all about building relationships with clients and you do that or when the time is right and the environment is like those relationships turning to revenue opportunities. So, if you believe in the global model, which certainly we do and we think its I mean all the major banks have spent lots of time and money trying to build a global model and we’ve done the same thing we’re not going to for some short term we are using to give up on that and say we’re going to just be kind of a U.S. U.K. firm or something like that. We believe very strongly in the opportunities elsewhere around the world and in fact really it’s the margin, its hard to sort of move people around to say you know we’re all going to rush to New York to try to do deals for Europe as its more here.

[Vincent Hung:]

Yes and I would just say your bankers are packing the existing strategy, because I can’t imagine everybody is hiding themselves at the back. I guess how and hold when the share price is back to lowest level since 2011. Payers keep gaining share and the newer players that have emerged in recent years are now considered the so called winning teams.

[Scott Bok:]

Look, I think you know people are busy here. As I said, it’s been a great year in terms of deal announcements and I think people are pleased with what they have got and done and they have confidence their deals were closed and generate revenue and you know I think things in that sense are actually fine [ph] are people thrilled that we had a quarter when almost nothing closed, of course not. But I think people are experienced enough to know that there is just very little end points we can have over that. You just have to move onto the next quarter and see what closes then and you know most importantly, keep yourself focussed on building client relationships and getting deals announced. You can sort of have some influence over when they get done and put into the pipeline you can really have almost none as to when they cross the finish line for closing. So I think our people are certainly are senior people who have done this for 20 or 25 or more years and they understand that completely.

[Vincent Hung:]

Okay, thanks for your insights.

[Scott Bok:]

Okay. Thank you. I think that’s our last question. So thank you everybody and we’ll speak to you in about three months.

[Operator:]

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