Q2 2019 Earnings Call
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Good morning Me only hobby conference I'd number.
Yep, it's 349 or 894.
Before nine for late night for spinning off your first and last thing.
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Oh, a strong enough. So thank you all the candy roster.
Our first question comes from the line of Alex Paris from Barrington Research. Your line is now open.
Good morning, guys.
Hey, <unk>.
Got a couple of questions you know first of all you've done a lot.
Over the last six to nine months to simplify the story.
Returning capital to shareholders retired that yet the environment is really tough for both banking and brokerage what gives you you.
Optimist optimism regarding the second half I think you said that June investment banking was more in line with plan and your pipeline is attractive.
Well you know.
I think that.
We have a number of ipos that we did six in the <unk>.
First or in the second quarter up from two.
And.
You know there are some were.
At that level or higher expected in Q3, assuming market conditions stay like they are right now so I think in it we have a higher percentage of economics I think in those deals than we did in the second quarter. So I think that's one thing that we're there we're hopeful to happen if they don't happen in Q3.
Hopefully will happen by year end.
We also.
Mentioning in the second quarter, even though we did over close to five and a half million of revenues and the advisory business. It was only three deals.
Well.
M&A is difficult to gauge.
Closings layers lots of factors that can push these things out a month or two and you know we have a reasonably good pipeline to close we are we think.
This quarter and year out and I think you may remember last year, our record M&A year was heavily weighted to the second half of the year or two.
The.
Sure the for M&A bankers that we hired last year.
For instance, you know it takes a while to.
We made an investment in hiring those people is roughly 20% of our pre tax earnings last year as a firm and you know it takes a while they walk away from an engaged pipeline. It takes six to 12 months to rebuild the pipeline on our platform and then to start to close deals. So.
The.
The one we hire the most recently has been here a little bit more than a year now.
So looking at those four people as a vintage.
They have a pipeline.
Of engaged transactions as roughly $10 million.
And we were hoping that John some of that closes by the end of here and I. Just you know those are the kind of things that now we've hired.
Three more bankers that probably were hoping they contribute to this year's revenues, but we're not counting on it but.
A year from now maybe by the second quarter of next year they'll have a similar type of pipeline you know they can be accretive in the second half of the year. So we have made those investments and we're hopeful that.
Things are looking like we've made for the most part pretty good decisions on the hires and were looking at building that business. Alex. So hopefully that gives you some sense of why we think there will be a stronger second half.
Definitely definitely appreciate that.
So if I have the numbers straight here strategic advisory produced revenue of $10.5 million in the first half and you said you have engaged transactions on the M&A side of another $10 million that could potentially close in the second half.
No no. That's just the four people that we hired last year Oh, okay. Okay.
We don't want to we normally don't get into into the actual details of that but our pipeline is quite a bit higher than that.
Got you you think you've got a shot at last year's number I think you did 22 deals producing revenue of $33.4 million of strategic advisory based on your pipeline last year was a record. Thanks last year was a record year.
You know I think that.
Our our.
Budget for this year was to be in line or maybe a little better obviously the first half has had less closings than we expected, but we haven't lost any of that pipeline. So we'll see what happens, but I think that.
We haven't.
Given up the.
The goal of besting last year's number.
Okay, Great and then.
I guess just one other question brokerage revenue down 14.5%.
In the quarter and that appears to be kind of the worst quarterly.
Decline year over year decline in some time.
In fact in the first quarter it was down it.
2% rate or so two or 3%.
What are your thoughts regarding the second quarter institutional equities business and then your outlook for the rest of the year.
I think it was a tough comparison year over year I think last year's second quarter, if you recall.
You know had a pretty high VIX that occurred you now there was lot of market volatility in the first and second quarter and I think that.
Just general institutional trading active trading was higher I think it was a difficult year over year comparison.
You know just for the compare and I think that.
The underlying trend.
Based on kind of a normal typical secular decline has been going on for a while in the industry and the more recent method two impacts that are kind of lapping year. One now so we're continuing as the industry to see negative pressure from that into your too, but you know we would expect for the year or we did at the beginning of the year that brokerage revenues might decline in the high single digit to 10% range. So still year to date in line without any is down 9% year to date, but particularly the year over year compare was easier in Q1 and harder in Q2.
Fair enough. Thank you very much good luck on the balance of the year.
Thanks, Alex.
I don't see any more questions as the operator on there.
There are no further questions you may proceed.
Yes. Thank you guys for your interest and we'll look forward to giving you an update in three months.
Yes.
This concludes today's conference call. Thank you for your participation you may now disconnect.