Q3 2019 Earnings Call

Good afternoon, and welcome to the Greenville third quarter earnings Conference call.

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Now, let's turn the conference over to Patrick So sort of Investor Relations. Please go ahead Sir.

Thank you.

Afternoon, and thank you all for joining us today for Greenhill third quarter 2019 financial results Conference call I, Patrick So it all screen helps head of Investor Relations joining me on the call today, Scott by our Chairman 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 or outside of the firm's control and are subject to known and unknown risks uncertainties assumptions.

Firms 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 your filings with the Securities 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're 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 box.

Thank you Patrick we reported third quarter revenue $87 million and net income of 63 cents per share for the year to date, we had revenue of $194.3 million and a loss of 54 cents to share the revenue for the quarters almost identical to that of last year for the year to date revenue was down 26% as a result of our slow per se.

Yeah.

Our third quarter results reduced the year to date revenue decline and we expect to reduce it significantly further in the fourth quarter.

Throughout this year, we have benefited from a respectable performance in U.S. M&A improved performance isn't Australia, Canada, and Latin America and continued strength in our capital advisory business globally, offset by a very low level of activity in European M&A.

Well most measures of global transaction activity are down about 20% for last year, we continue to see the environment for M&A activity as a reasonably good and most of the places we operate in the same is true for capital advisory activity.

Restructuring activity has been relatively slow given favorable credit markets, but we are succeeding at our goal of building a much more substantial restructuring business that complement our M&A in capital advisory businesses.

Our expanded restructuring team has seen a big increase into assignments recently, which bodes well for both retainer and completion fee revenue in coming quarters in years.

With respect to costs, our compensation ratio for the quarter with 50% result in a year to date compensation ratio of 69%.

We expect to move our full year compensation ratio significantly further toward its historic range in the fourth quarter, our noncompensation operating expenses, excluding accounting adjustments related to the earn out in our 2015 Cogent acquisition. We are very similar to those of last year.

Our pre tax operating margin for the quarter was 29%.

Our interest expense for the quarter reflects the improved terms of our recent refinancing and it has and will continue to benefit from recent declines in interest rates.

Our effective tax rate was 23% for the quarter and 25% for the year to date and we continue to expect a rate in the mid 20% range going forward.

In terms of capital returns during the third quarter, we purchased 1.14 million shares and share equivalents through open market purchases and be a tax withholding unrestricted stock invested during the quarter.

Together these repurchases were at an average price of $14 on 43 cents per share totaling $16.5 million. We also declared dividend of five cents per share.

During October we repurchased an additional 687414 shares of common stock in the open market at an average price of $14 on 52 cents per share totaling $10 million.

And as of October 30, Onest, we had $44.1 million some share repurchase authority remaining under the terms of our recent refinancing in addition to ongoing purchases of share equivalents via tax withholding investing Rs Hughes.

Under the terms of that financing our share repurchase authority should grow next year on beyond.

We see our current share prices highly attractive and we'll continue to be opportunistic as to how we use our share repurchase authority.

We ended the quarter with cash of $117.5 million in term loan debt of $365.6 million, reflecting the repayment of a principal payments scheduled for the prepayment of Ace principal payments scheduled for year end.

Our net debt was $248.1 million at quarter end and going forward. We aim to continue deleveraging even as we further reduce our share count.

Looking ahead, we believe we are well positioned for a strong finish but to the year in terms of both revenue and profitability longer term. We are confident that the personnel moves we have made will lead to a business with increasingly diversified revenue streams as well as greater aggregate revenue our acquisition of the capital Advisory specialist Cogent partners more than four years ago.

Significantly diversified our revenue base. Following a few important hires two to three years ago, our performance in Australia, Canada, and Latin America is resulting in greater revenue diversity.

Last year, we substantially expanded our restructuring advisory team and this year have seen the level of restructuring advisory activity improved meaningfully larger restructuring advisory business should provide an important offset in revenue terms during future periods or weaker M&A activity coincides with increased credit default.

More recent investments into additional sub sectors of energy and industrials into insurance into shareholder advisory and into new offices in Madrid, Singapore and soon Paris should further enhance the diversity and scale of our revenue sources overtime.

Recruiting is key to the expansion and diversification of our revenue base and then the year to date, we've announced the recruitment of eight managing directors. We currently have 79 client facing managing directors and going forward. Our objective is to continue our balanced approach between recruiting new talent externally and cultivating homegrown talent internally.

But the result of all the foregoing initiatives, we succeed in our goal of generating greater and more stable revenue the returns to our shareholders should be amplified by both margin expansion, resulting from our cost discipline and EPS accretion, resulting from our significantly reduced and still shrinking share count.

Add to that the fact that are from as well as our peer group is trading well below historic valuation multiples and it's clear what we are excited about the value creation opportunity that lies ahead. Our team collectively owns 46% of the economic value of our from through stock and restricted stock and therefore had the powerful incentive to take full advantage of that value creation API.

Turning now I'm happy to take any questions.

Thank you well now begin the question answer session.

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Today's first question comes from Michael Berman KBW. Please go ahead.

Hi, good evening guys.

This is Scott so yeah, we're month into the quarter.

I was just wondering if you could kind of give us a little bit more color as to how you expect in the fourth quarter to shape up.

I guess is it possible for the revenues to be up sequentially in the fourth quarter.

Thank you.

It's not really appropriate or possible for me to sort of give quarterly forecast and that's always the some of your when you're not only one quarter left so so it.

Difficult to do that as I said, we do expect a strong finish to the year in both revenue and profitability terms and.

Exactly what that means in terms of dollars in sense I think we'll just have to wait and see but we certainly feel like we're going to have a strong finish the year.

Okay, Great and then on the comp ratio I appreciate the color there.

Could you give maybe a little bit more.

More information about kind of where the range at the full year comp ratio come and add it sounds like you're kind of targeting anymore.

More consistent comp ratio prior years, but it's obviously kind of bounced around a little bit so you're looking for something in the low sixtys is that kind of right way to think about it.

I would say, it's simply going to be a function of where the revenue comes out I mean, what you saw this quarter when.

We had improved revenue was we we had a significantly lower compensation ratio than we normally do obviously, what we're trying to work toward a is a compensation ratio the looks like the range. We've had in recent years.

Which is more like mid to high Fiftys.

And when we had.

A low level of revenue in the first half obviously that just becomes not possible at some point you've got to.

Fixed level of compensation and an amount sort of bonuses et cetera, you have to pay.

We by having a lower than normal ratio in Q3, we moved it in the right direction and we expect to do the same thing in Q4, how far we can move at just simply really depends on where the revenue comes out in this last quarter earlier.

Okay, and just one more if I could.

Could you just clarify did you say there was 44 million left on the on the buybacks and then any color on kind of the trajectory of the pace from here. Thanks.

Sure I guess, that's 44 million last and we're going to continue to just be opportunistic I think we.

We could have hurried a lot faster and frankly would have missed some.

Real market dislocations, where we get some shares that what we think are very attractive prices like we did over the last couple of months and.

We're going to continue to be judicious about how we do it also I just know theres others, There's limited liquidity in our stock and there are a lot of rules around corporate repurchases and I'm sure you're familiar with so there's a limit to how fast we can do it if even if we want to but where we do have.

Discretion, and we're going to use that to try to get the most shares we can for the for the funds we have left.

Okay. Thank you for taking my questions.

Thank you.

Next question today comes from Richard rooms of Goldman Sachs. Please go ahead.

Thanks. This is James filling in for Richard. The first question is just you saw net attrition of one M.D. This quarter do you still expect to be able to grow Mds by I think you talked about 10%.

In the past.

I have that really been any changes in the hiring environment you would highlight.

We're obviously going to have some movement around the margin always in Mds or we're going to continue recruiting fairly aggressively and as I said. We also of course are looking to develop talent internally as well 10% in terms a net growth is certainly our objective we're not going to do that every single year some years.

You are going to do more some years, we're going to do last I would say the recruiting environment continues to be pretty good. We were pleased with a couple the recent announcements we've.

We've made we've got others that we're talking to right now I'd say at this time of the year, it's not at all clear, we'll announce more before the Arizona possible, but.

But but not at all certain more likely we're spending most of our time right now building a pipeline for kind of first quarter or so of 2020 ones.

Year end compensation, that's been paid to people at various firms.

Got it.

And then the second one is you discussed a strong restructuring outlook for next year, how much of this is from expanding the team versus a stronger industry environment.

I think it's a lot from expanding the team we made a significant move really starting about 18 months ago to build out of substantially larger team, mostly in New York.

I think the environment has gotten somewhat better over that 18 months clearly there are some sectors, where there's more.

Financial pressure energy retail et cetera.

So I don't think right now we're seeing the benefit that someday, we will see if when when you the economy goes into recession and suddenly theres a lot of restructuring activity. What makes the most pleased about what we have seen here recently as I think it's just very clearly an increase in market share and what other firms have described as a relatively flat restructuring environment. We are.

We're really seeing our business grow pretty significantly and I think thats just a larger team out on the field, it's getting more wins.

Great. Thanks, a lot.

Okay. Thank you and I think Thats. Our last question. So we thank everybody for dialing in and we will speak to again in the quarter if not sooner.

Today's conference has now concluded and we thank you all for attending today's presentation. You may now disconnect your lines have a wonderful day.