Q2 2021 Greenhill & Co Inc Earnings Call
Good day and welcome to the Greenhill second quarter 2021 earnings call all participants will be in a listen only mode should the need assistance. Please open the conference specialist by pressing Star then the deal.
After today's presentation there'll be an opportunity to ask questions.
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Please note this event is being recorded.
I'd now like to turn the conference over to Patrick Xu.
Please go ahead.
Thank you good afternoon, and thank you all for joining us today for Greenhill second quarter 2021 financial results conference call on them.
Patrick So on hold Screenhouse head of Investor Relations joining me on the call today is Scott Bok, our chairman and Chief Executive Officer.
Today's call May include forward looking statements. These statements are based on our current expectations regarding future events that by their nature are outside of the firm's control and are subject to known and unknown risks uncertainties and assumptions.
The firm's actual results and financial condition may differ possibly materially from what is indicated in those forward looking statements.
For a discussion of some of the risks and factors that could affect the firm's future results. Please see our filings with the Securities and Exchange Commission, including our annual report on form 10-K quarterly reports on form 10-Q. The 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.
Now like to turn the call over to Scott Bok. Thank.
Thank you Patrick we reported second quarter revenue of $43.2 million and the loss per share of <unk> 45 to the.
The year to date, we had revenue of $112.2 million on the loss per share of <unk> 34 cents.
Revenue for the year to date was 2% lower than our figure from last year. When we had a slow first half that was followed by a strong second half.
Industry day to makes clear the global M&A activity has been very strong for the year to date, we see that in what has been a significant 6 independent significant increase versus last year and the year before and the number of new assignments. We are winning we also see the result of a more active market and the number of deal announcements we are associated with as shown on the transaction of last we regularly.
Update on our website.
This past quarter, we announced the second highest number of transactions in any quarter in our history and on a trailing 4 quarters basis, our number of transaction announcements is at the highest level ever by a meaningful margin.
Many of those transactions have been for major companies, but for the year to date the sizes of deals that have completed have skewed towards the smaller end of the scale, resulting in soft year to date revenue and.
In the second half, we expect the size of the sides of completed deals and related fee events to significantly increase such that we should get to a full year revenue outcome that shows improvement over what was a respectable year for our firm in 2020, we saw the first versus second half play out similarly to the way I'm, describing both last year and the year before.
On a regional basis for the full year, we expect to show a strong year than last year in the U S and Canada and a much stronger year on Australia offset by reduced revenue in Europe, where we had a particularly strong revenue year last year.
By type of advice M&A is where we are seeing the greatest opportunity restructuring activity is materially lower given the strength in credit markets, but we are making progress on our strategic initiative to be more active in financing advisory assignments of various kinds of and.
In the private capital Advisory area, we continue to be busy with the secondary transactions in Europe, and Asia, including an increasing number of complex bond restructuring transactions led by fund General partners in.
In addition over the course of the year to date, we've succeeded in building out of our global primary fund raising team and we expect to start seeing revenue from that group of already in the current quarter in all our businesses, we are making progress on our strategic initiative to do more business with financial sponsors.
With respect of recruiting our press release notes and other recent hire on the M&A side of the business. In addition to 2 more recruits in the private capital Advisory area. We have other recruits and progress we already see this year is an important 1 in terms of recruiting and we should see more success in that regard in the second half.
Now turning to costs, our compensation costs were lower than last year on absolute terms, given our objective to bring quarterly compensation more in line with quarterly revenue, but our compensation ratio was still higher than our target range or.
Our objective is to bring the ratio down to our target range for the full year of while still paying our team increased compensation in absolute dollars.
Where we end up in terms of compensation cost and expense ratio for the year depends as always on our revenue outcome for the year of.
Our non compensation costs were materially lower than last year and are running at a rate slightly better than our target.
Our interest rate expense continues interest expense, while the continues to trend lower given declining debt levels and continued low short term interest rates.
We continue to estimate our annual tax rate will be in the mid 20% range. After adjusting for the impact of charges relating to the best thing of restricted stock, which is consistent with our prior guidance.
We ended the quarter was $92.5 million of cash of $306.9 million of debt and we paid down another $15 million of that debt. After quarter end. We also declared our usual 5 cent quarterly dividend and lastly as of quarter end. We have bought back 1.5 million shares and share equivalents for a total cost of $23.8 million.
And had an additional $26.2 million of repurchase authority available for the year ahead through next January.
As I said last quarter, our principal focus is on deleveraging, but we also intend to continue to purchase shares on a prudent manner to further enhance the upside potential for continuing shareholders or employees currently own about half of the economics of the firm through stock on restricted stock and are thus fully aligned and trying to drive shareholder value in the quarters and years to.
Come.
To sum up we recognize that our first half is an outlier relative to peers and what is the strong M&A market at our smaller scale of the random timing of deal completions has a large impact and can result in a weak quarter or even multiple quarters.
Last year, we saw that the same phenomenon yet with the help of a record quarter at year end got to a very respectable full year result. This year, we have the benefit of what is the significantly higher pace of new assignments and a deal announcements looking beyond this year. The same smaller scale that today results in greater quarterly volatility is what creates future upside potential for our.
First the strategic moves we are making should reduce future quarterly volatility as well as the increase annual revenue the effort to develop of financing advisory business in the to devote more resources to serving financial sponsors should be particularly important in diversifying and growing our revenue base second the successful rebuilding and expanding.
<unk> of our private capital Advisory business should also add to revenue diversity and scale. Starting later this year and lastly, with our lower cost declining debt and interest expense and much reduced share count the benefits of increased revenue would be magnified in terms of net income and shareholder value creation with that I'll take any questions.
We will now begin the question and answer session.
Question on April.
Star then 1 on your Touchtone phone, if you're using a speakerphone please pick of patients.
Well thanks, so much.
The question has been that day and you would like to withdraw your question. Please press star 2.
At this time moving clock Wilmington, Inc, with Nomura.
Yeah.
Our first question comes from Devin Ryan with JMP Securities. Please go ahead.
Hi, Thanks, This is Brian Mckenna for Devin.
So you talked about a material increase of new client assignments and that number of deal announcements deal announcements is at an all time high over the past year. So could you just give us any additional color on this like the absolute number of new deals and how that compares to say last year or what specific teams and regions are driving all of this activity.
I mean, the deal on the <unk>.
There were <unk> 77 for the last 4.
4 quarters on that that doesn't include our private capital advisory business, which obviously those deals are pretty much all private so we don't we.
We don't tend to to list of those but the fact that gives you some sense I don't think we've been about 70 before so so that's a pretty significant increase and we think that trend is going to continue just based on <unk>.
Announcements.
Quarter to date and things we've seen start to.
Start to move into the near term pipeline for the for the next couple of months.
As to where that's happening as I said, we've been very busy on Australia frankly, it's all of the areas that were very quiet last year of seem to be very busy this year, Australia certain sectors like industrials.
Canada that day.
Okay last year, but all of those are doing much much better this year, obviously theres less restructuring but.
On the bottom line is it's fairly broad based.
All of the regions, we work in and pretty much focused on M&A. We've had some notable successes on financing advisory as well, but no.
No no real trend other than just frankly more activity all across the firm.
Got it.
And then you also cited full year results should be another respectable period for the firm just kind of based on the pipeline, which implies a significant ramp in second half revenues, but how should we think about that as it relates to the third and fourth quarter or is it likely to be more evenly split between the 2 quarters or more weighted to 1 or the other.
I look last year. It ended up for random reasons really very heavily concentrated in the fourth quarter I think of this year will be much more evenly split between between the 2 if I had if I had the gas obviously, we can never predict exactly whats going to happen in the quarter, but I think last year was a pretty unique event, where 1 quarter with some important of all.
The year for us.
Great. Thanks, Scott.
Thank you.
Our next question comes from Michael <unk> with Keybanc. Please go ahead.
Okay, great. Thanks for taking my questions.
So Scott.
Scott I was looking at the MD head count.
It looks like at that 71 last year was at 76 on the second quarter and.
Heard you correctly on kind of on the press release it looks like there's been 10 additions year to day. So could you just give us a little color as to whats the.
The Delta there is it does it retirements or moving to maybe senior adviser of <unk> or just kind of net.
Lawson and head count there.
I'm just trying to help parse through those MD changes year over year.
I think the biggest factor there is toward the end of last year as you'll remember we had several members of our private capital advisory team leave it was the team.
The much all are in the U S and in Europe and in Asia, we're pretty much unaffected.
It was a very top heavy group in terms of the numbers of Mds versus supporting cast. So so we've rebuilt a tremendous amount of that group and really having a much broader business than we did a year ago. Because we know we can do primary as well of secondary and we're certainly doing more of a fund general partners as well.
But it won't be as top heavy of group in terms of Mds. So.
We've had some increase in in the head count over the year to date of versus the.
A year ago, but for that 1.
Group that the left but.
I think that will be we'll add some more before the year is over and I still think it will be already has a little bit of a net positive year for us and I think it'll be significantly net positive I mean, we've had a few other departures here and there, but nothing in the slightest bit material just kind of normal.
Around the edges people, who who just didn't have tremendous success with us and thought they might have more success elsewhere. So I think all all very healthy but for the 1 group that we really did have to rebuild which free.
Much done.
Okay, I guess and then as a follow on there have been a lot of significant changes I think you touched on the big 1 there but.
As you've done a lot of hiring over the last couple of years and has been.
The changes.
As far as.
Individuals that have joined in and left.
How would you characterize greenhouse key strength today, obviously that you again, that's evolved over time. So I'm just curious how you would characterize that and where do you where do you kind of see greenhill growing and evolving over the next couple of years.
I think every region and sector.
<unk> is of course different in terms of its development, but if you said you know what are some of our strength today I would I would say we have a great team on Australia I would say we are of great team in Canada, I would say, we have a very long history of working for FTSE 100 type quality companies in the U K Mart.
Particularly on a lot of public transactions.
I'd say on the industrial in the kind of the industry sector space, we have by far our largest team in industrials and I think we have most of the various sub sectors of the many subsectors in that space filled and we do that from Stockholm to Australia to Chicago to Frankfurt and all of the places where industrial companies tend to live.
There are other areas, where we've had a lot of consumer I actually had throw all of that consumer also is an area that's very very.
<unk> for us year on year out and both of the U S and in Europe.
And then there are some areas will look we've had some really notable successes, but we have a lot of potential to get much bigger on those would be things like health care.
Technology media.
We've had some terrific successes, but still have a relatively small team and could could stand to add quite a lot more talent.
Okay, great. Thanks for taking my question Scott Okay. Thank you.
And then on Monday, if you have of Christian. Please press Star then 1 can be joined into the queue.
Our next question is from June <unk> co.
All of them.
Please go ahead.
Good afternoon Scott.
I'll just start with the follow up on your comments around the second half being much stronger than the first.
As part of this due to some of the deals that you might have originally thought we closed on the second quarter slipping into the second half or perhaps there are fewer pull forwards than you would've anticipated or is there something else at play in.
And then.
With that dynamic.
We certainly don't control of course of the timing of transactions. If you. If you had private label, we don't forecast these things, but a few privately asked me at the beginning of the year or even 3 months ago I would've thought things would be a little more.
Kind of smoothed lease spread across years quarters, 2.3 and 4.
And it just it just evolved a little bit it did the same thing last year last year, it evolves and you're really 1 very very big quarter that offset 3 fairly soft ones on got it to a net good results in this year as I was saying a minute ago I think it'll be kind of a.
More smoothly spread across the second half versus the first then again get us to a pretty good place by the end of the year.
Okay, and then perhaps on the outlook for Europe, which obviously has historically been 1 of the stronger areas for you.
Is the weakness in Europe, and driven by the new Covid variance or is there something else going on there and is that something that we could expect could weigh on U S M&A going forward.
I frankly kind of look at it a little bit in the opposite way I would say if you think about places where business sort of got back to something a little more like normal.
I would have said Australia was first I realize they have occasional sort of regional shutdowns, but still there are people, having face to face meeting with clients there a month ago already.
And that market from our perspective seems to be booming in terms of opportunity I think the U S, which clearly despite the delta variant.
Awful lot of positive business activity in this country and that market seems very active now Europe I think has been a little bit behind I mean, they were a little behind the the U S. In terms of vaccination rates and if you look at just 1 we had really robust positive GDP. They still had some negative GDP.
Quarter, So I think as Europe comes out of Covid, more thoroughly which I.
I don't doubt the wells are vaccination of ready to think of is actually even surpass started at this point.
I suspect that the the economic rebound and the transactional rebound will be very similar to the outlook to what we're seeing already in Australia and the U S.
Okay. It makes a lot of sense and then 1 last 1 so you did see record low non comp expenses. This quarter is there any further leverage from here.
Or do you expect.
<unk> of reopening and leading to more travel for your bankers to put upward pressure on on the non comp from here.
I think I think the real leverage for US is that non comp is largely kind of of fixed figure I mean, the S. Travel will pick up some of it already did pick up a little bit it'll pick up some more for sure, but I think the real opportunity for us in terms of operating leverage there is the non comp is pretty sticky and will move up a little bit but as revenue goes up non cash.
Won't go up much at all and should lead to stronger profit margins.
Okay. Thanks for taking my questions.
Okay. Thank you and I think that's our last question. So we thank everybody for joining and we look forward to speaking again next quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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