Greenhill & Co. Management Discusses Q4 2013 Results - Earnings Call Transcript

Jan.28.14 | About: Greenhill & (GHL)

Greenhill & Co. (NYSE:GHL)

Q4 2013 Earnings Call

January 28, 2014 4:30 pm ET

Executives

Christopher Thomas Grubb - Chief Financial Officer

Scott L. Bok - Chief Executive Officer, President and Executive Director

Analysts

Ashley N. Serrao - Crédit Suisse AG, Research Division

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division

Brennan Hawken - UBS Investment Bank, Research Division

Devin P. Ryan - JMP Securities LLC, Research Division

Michael Wong - Morningstar Inc., Research Division

Douglas Sipkin - Susquehanna Financial Group, LLLP, Research Division

Jeffrey Harte - Sandler O'Neill + Partners, L.P., Research Division

Operator

Good afternoon, and welcome to the Greenhill & Co. Fourth Quarter and Year-End Earnings Conference Call. [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.

Christopher Thomas Grubb

Thank you. Good afternoon, and thank you, all, for joining us today for Greenhill's fourth quarter and full year 2013 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 L. Bok

Thank you, Chris. We're pleased to say that despite what continues to be a relatively quiet period for transaction completions globally, 2013 was another year in which we achieved the 4 main objectives for our firm: one, we again gained market share in the global pool of advisory fees; two, we again achieved the highest profit margin among our closest peers with a repeat of last year's 25% pretax margin, resulting from a decline in non-compensation expenses that offset a small increase in compensation costs; three, we maintained a strong dividend policy; and four, we repurchased sufficient shares to slightly reduce our share counts since last year end.

On top of that, a larger non-U.S. contribution of revenue and earnings for the year led to our full year tax rate declining to what we view as a more normal level. In sum, this all led to a 12% increase in earnings per share for the year. As we turn to the detail behind these highlights, I will focus on advisory revenue and market share and then turn it back over to Chris for the other items.

Let me start with a look at the market environment for transactions, generally. The fourth quarter and full year 2013 aggregate statistics demonstrate the continued relatively slow pace of activity in the market. For 2013, the total volume of completed transactions was only down a couple of percentage points from last year due to a few large transactions supporting the year's total. But the number of completed transactions was down 9% with a number of $1 billion or larger deals down 10%. The announced transactions statistics are similar with full year global announced transaction volume down 4%, even with the support of a few large transactions, and the number of total announced deals and the number of announced deals of $1 billion or greater in size, both down by 10% compared to 2012.

And consistent with the low level of corporate defaults reported in 2013, restructuring activity in the U.S. was very light as a result of central bank action that led to very accommodating credit markets.

Against this backdrop, we are pleased with what we accomplished in 2013. The most important indicator of the long-term health of our business is client relationships. And in 2013, we advised for the first time on transaction announcements for such leading global companies as Actavis, Ameren, Danone, Dentsu, Hitachi, Japan Tobacco and SUPERVALU. Equally important, we announced new transactions for an equally impressive list of past transaction clients: AT&T, Elders, GlaxoSmithKline, Inchcape, Inergy, Kinder Morgan, LINN, Lion, Meadwestvaco, Suncorp and Tesco.

In total, our full year advisory revenue performance was down only 2% compared to 2012, which is considerably better than the decline in overall market activity. A significant factor in our achieving this result was that we had a larger number of major transaction roles [ph] with large fees, which offset the fact that we, like the market as a whole, had fewer transaction announcements. Thus, an increase in M&A completion fees largely offset a reduction in retainers and announcement fees.

Looking at our relative performance in advisory revenue, in the first 3 quarters of 2013, our 9 large bank competitors showed a 10% decline in aggregate advisory revenue. And based on year-end and earnings announcements so far, we expect they will likewise show a larger full year aggregate decline than us. That would make 2013 the fifth consecutive year in which we have grown market share versus this group, with the cumulative results of that period showing a 33% increase in advisory revenue for us versus a significant decline for the big bank group.

When we look at what is driving our relative outperformance, and more importantly, what we believe will drive relative and absolute growth for years to come, it is the strength and breadth of our client relationships and the fact that we are developing a business that is diversified by geography, by industry sector and by type of advice.

In terms of geographic diversity, North America, and specifically, the U.S. M&A business continues to perform well for us. And we are particularly pleased that our European business showed a significant improvement in 2013 compared to the past few years, up around 50% in the face of what continues to be a difficult economic and transaction environment in that market.

We also saw some important contributions from Japan with several cross-border transactions. Our Australian revenue declined year-over-year, consistent with what has become a more challenging environment in that region than in recent years. An important aspect of our approach to geographic diversity is our ability to not only have strong domestic businesses in each region, but also, collaborate across geographies on meaningful cross-border advisory opportunities.

For the full year, our cross-border transaction revenue was up approximately 50% compared to 2012 and represents many of our largest transaction assignments. While domestic transactions in the various markets remain the majority of global transaction activity and the majority of our revenue opportunity, we believe our close and collaborative culture across offices and our track record of success in high-profile cross-border transactions position us well to continue our strength in cross-border transaction advisory.

By industry, we are continuing to show good breadth and diversity. As listed in our press release, we completed 10 transactions in the fourth quarter across a range of industries. For the full year, health care was the strongest industry for us, with consumer retail also showing a high level of activity. Looking at our pipeline of transaction activity, we expect to see continued strong diversity of revenue by industry in 2014.

Our Capital Advisory, or fund placement business, achieved a 20% revenue increase for the year and a variety of factors lead us to believe there is considerable further upside potential in that business.

Looking forward, it is far too early to predict what, in terms of transaction activity and the resulting revenue opportunity, is in store for 2014. What we can say is this: The opportunity for independent advisors continues to grow. The quality of our brand and of our team has never been stronger, and we are seeing some modest economic improvement in many parts of the world that should, over time, enhance corporate confidence and drive increased transaction activity.

As and when that happens, we are very well positioned to benefit. However, focusing on the very near-term revenue opportunity, the fact is that the number of transaction announcements in the fourth quarter, and again in the first month of this year, showed declines from the prior year. And that will constrain the near-term revenue opportunity.

At the same time, we currently have a significant number of large transaction assignments in-house, many of which came to life just in the opening weeks of this year. So we are hopeful that 2014 will be another year of both market share gains and strong financial performance for our firm.

Regardless of the pace of recovery in transaction activity, we will remain focused on what we can control: attracting and retaining great talent, expanding both our geographic footprint and our industry sector expertise and building relationships with leading companies around world. All, while maintaining a discipline around expenses and capital management, that has differentiated us for a full decade as a public company.

Now I'll turn it back to Chris.

Christopher Thomas Grubb

Thank you, Scott. I will cover the financial updates for the quarter and the full year other than advisory revenue, which was covered by Scott.

In summary, while our advisory revenue for the full year was slightly below last year's result, our total revenue was up 1% as we benefited from a small gain on our principal investments compared to a small loss last year. Our pretax profit margin for the fourth quarter was 28%, and we had earnings per share of $0.53, which was an improvement from last year, despite the lower revenue results in the quarter due to a much lower tax rate, which I'll discuss in more detail later.

On a full year basis, our pretax profit margin was 25%, the same as we achieved in 2012, and we had earnings per share of $1.55, which was up 12% compared to 2012.

Now I'll go into a bit more detail on compensation costs, non-compensation costs, our tax rate, dividends and share repurchases. And finally, I will provide an update on the continuing liquidation of our remaining principal investments.

Starting with compensation. As we've commented previously, our goal is to achieve a compensation ratio that is the lowest among our close peers. And even with a slightly higher ratio in 2013, there is no doubt we're on track to achieve this objective again this year.

In addition, when the general level of market activity is such that our revenue productivity per employee rebounds toward the levels achieved during our first several years as a public company, our goal is to return to a ratio below 50%.

For the fourth quarter, we achieved a 53% ratio of compensation to revenue, consistent with the first 2 quarters of the year and which brought our full year ratio down to 54%, a slight improvement compared to our ratio through the first 3 quarters. Note that it's always important to remember that, unlike for our peers, our reported compensation costs are GAAP figures without adjustment. So they include all costs such as hiring, severance and the cost of new initiatives like opening an office in Brazil.

As we look at compensation costs going forward, which had similar fixed compensation costs, which we define as the sum of base salaries, benefits and RSU amortization in 2014 as we had in 2013, which means in the $130 million range. And as always, the full year compensation ratio, [indiscernible] will be driven by the level of market activity, our productivity and our resulting revenue outcome.

Turning to our non-compensation costs. Our fourth quarter non-comp costs were $14.7 million, similar to a level achieved in the third quarter, an improvement compared to the fourth quarter of 2012. On a full year basis, we had non-compensation costs of $60.3 million, an improvement of $2.5 million or 4% compared to 2012 despite opening an office in Brazil.

We would note that we continue to invest in travel and related expenses, associated with business development activities, where there is an increase compared to last year, while achieving savings in other areas. Looking forward, there will continue to be some variance each quarter, but we do not expect our 2014 full year non-comp costs to be up meaningfully above 2013 levels.

Now let me touch briefly on our tax rate, which declined significantly compared to the prior year, back in the range of what we see as a more normal level and was 34% for the full year. The primary factor in this outcome was an increase in revenue and profitability in regions outside the United States. In the fourth quarter, we had an effective tax rate of only 25% because by coincidence, our non-U.S. revenue and profitability from each of Europe, Australia and Japan for the year was very heavily concentrated in the fourth quarter. As we've commented previously, the United States has, by far, the highest tax rate of any jurisdiction in which we operate. And while our business is more dispersed geographically as it was for most of the years of our history, we expect to realize a benefit in our effective tax rate. And that's exactly what happened in 2013.

Looking forward, we expect our annual effective tax rate to be in the range of 33% to 37% depending on the jurisdictions in which we generate profits.

I can also add that we look forward to, and we expect to benefit from, the long awaited corporate tax reform in the U.S.

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. As many of you will have seen in our recent investor presentation that can be found on our website, even at the low level of transaction activity over the past couple of years, our annual dividend only requires approximately half of our cash flow generated from operations.

Given the very modest capital needs inherent in our business model, we use much of the remainder of our cash flow to repurchase shares. For 2013, we repurchased over 1 million shares at an average cost of $51.28 per share for a total cost of $55.4 million, which more than offset any dilution from stock-based compensation in 2013. As a result of our share repurchase activities, we continue to maintain a share count that is effectively flat with our 2004 IPO, despite much stock-based compensation and our 2010 acquisition in Australia. And this lack of dilution compares very favorably to both our large and small competitors.

We ended the year in a net cash position with cash of $42.7 million and debt of $30.8 million. Our Board of Directors has authorized the repurchase of up to $75 million of our common stock through the end of 2014.

Turning to our remaining principal investments. As previewed on our third quarter call, we fully exited our Iridium investment in the fourth quarter by selling 1.6 million shares of Iridium at an average price of $6.05 per share for a total proceeds of $9.6 million. Over the life of our investment in Iridium, we realized total proceeds of $70.5 million and achieved an aggregate gain, net of some losses over time, of approximately $40 million. Since exiting the merchant banking business in 2010, we have sold a substantial portion of our other principal investments as well, resulting in $63 million in net proceeds from our investments in previously sponsored and other merchant banking funds.

In aggregate, since announcing our exit from the merchant banking business, we have realized net proceeds of more than $130 million and returned essentially all of that capital to shareholders. Our principal investments, including Iridium, generated a fourth quarter gain of $900,000 and a gain for the full year of $200,000. These compare very favorably to losses in the fourth quarter and for the full year 2012 of $8.1 million and $6.4 million, respectively.

We ended the year with investments valued at only $11.7 million, which consist of limited partner investments in our previously sponsored and other merchant banking funds. We expect to realize value from these remaining investments in several steps over a period of years as determined by the managers of the various relevant funds. But the remaining amounts involved are small enough that they should now be viewed as immaterial to shareholders.

Now let me turn it back to Scott.

Scott L. Bok

Before we take questions, I want to touch just briefly on the personnel matters discussed in our earnings release today. Over the course of 2013, you saw us recruit 6 highly experienced managing directors across 5 offices and several industry sectors. Earlier this month, we announced the promotion of 5 new managing directors, consistent with our goal of developing talent internally in addition to being a destination for some of the top senior bankers in our industry. We expect you will see additional hires in the year to come as we build out our effort in Brazil and further develop our industry sector coverage globally.

Finally, our press release mentioned that we have expanded our Australian management team. The financial crisis had a much delayed impact on Australia, as growth in China and strong commodity prices drove continued deal activity and strong regional revenue for us. More recently, activity in that market has declined. Despite that, we are encouraged by our recent success in Australian cross-border activity and, with the changes announced today, are looking to build on that.

With that, we're happy to take any questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Ashley Serrao of Crédit Suisse.

Ashley N. Serrao - Crédit Suisse AG, Research Division

Scott, so if we can first hone in on Europe, what are you hearing from clients today? And what do you think will be the key catalyst to close the gap to historical levels of productivity?

Scott L. Bok

I think it's just that there, clearly, is some stability over there. I mean, at the same time, it's clearly not anywhere near back to sort of normal levels of growth. But you certainly don't hear people worrying about anymore, the EU coming apart in some way or countries dropping out of the euro. So I just think with the passage of time, things have gotten a little more stable there. And obviously, I'm sure there's some coincidence as well, but we got a lot of things done in Europe. They happen to be concentrated toward the end of the year, but they were for great clients in a variety of situations.

Ashley N. Serrao - Crédit Suisse AG, Research Division

Okay. And then, now with Iridium now completely monetized, would it be fair to expect a little bit of share count creep if revenues don't improve materially from here? And in -- with respect to that, what's your appetite to increase the usage of the revolver to buy back shares?

Scott L. Bok

Well, we like, first of all, being -- taking the end of your question first, we like being in a net cash, i.e. no net debt position. So I don't see us changing that, really, maybe occasionally from a quarter-to-quarter. I think with the end of the third quarter, we might have had a slight net debt figure. But I think, even at the current level of revenue, and let's all hope it gets a lot better in terms of M&A activity generally, at the current level of revenue, I think we have enough cash flow to both pay our full dividend and to essentially keep our share count flat. What we've done in recent years -- remember, is do effectively a lot more than keep it flat, because we've bought back all the shares we issued for our Australian acquisition along the way. So yes, you're right, merchant banking assets are pretty well liquidated at this point. But I think, even at kind of roughly current levels of revenue, we would still keep a flat share count.

Ashley N. Serrao - Crédit Suisse AG, Research Division

Great. And just finally on that note, like, how are you thinking about monetizing the remainder of your legacy merchant banking investments? Maybe particularly, some color on GCP II would be appreciated.

Scott L. Bok

GCP II we're effectively out of -- we really -- and we were kind of hoping this would now be viewed as immaterial. Really, it's only $11 million. That's a whole bunch of different things in the $11 million. So nothing sort of terribly enormous. And we really have no control from here forward. We did some big transactions to realize the $60 million or so that Chris referred to in terms of former fund assets and a couple of big secondary transactions, and we obviously had total control on selling the Iridium shares. And now we're just down to, frankly, a few odds and ends that as the various partnerships that constitute those investments liquidate them, we'll get our share of the proceeds. But we don't have a lot of control over when that would take place.

Operator

And the next question is from Alex Blostein of Goldman Sachs.

Alexander Blostein - Goldman Sachs Group Inc., Research Division

The larger banks that reported so far expressed kind of a new level of enthusiasm about M&A environment, and I guess, the backlogs. Maybe you can talk a little bit about, aside from deals that have been already announced, how do your backlogs compare to, call it, the end of September quarter? And then, Scott, if you guys could provide any sort of granularity by region as well, where you see the most relative improvement, would be helpful. And [indiscernible] to think about the revenue but also, I guess, the tax consequences?

Scott L. Bok

I've always -- let me answer the last part of that, first, because that's probably the easiest. I mean, I think if we had to guess right now, I think we would probably see a fairly similar distribution of revenue to what we had this year. I mean, I continue to be hopeful, fund placement will be higher. I think the relative U.S. versus Europe versus Australia versus the rest of the world, I think, at least as we sit here today, I don't foresee any really any dramatic changes. As to pipeline, we've always kind of avoided that question, I mean, frankly, for the simple reason that it's defined in so many different ways by different firms. And I'd just tried to shy away from it for the simple reason, if you look back for the last few years, so often, people have said things that didn't come to fruition in the coming quarters. And so we did perhaps go a little bit out on a limb about a year ago by being pretty clear with people that we did not see the big rebound in M&A that people were seeing then. And I think that turned out to be right. Now for this year, like everybody else, I'm hopeful that stabilizing economies and a bit more growth in the U.S. and maybe not worrying about things like the debt ceiling and so on will lead to more activity. But I don't really feel comfortable, trying to get too granular and trying to measure what that pipeline looks like versus 3 or 12 months ago.

Alexander Blostein - Goldman Sachs Group Inc., Research Division

Got it. That's fair enough. And then maybe just a little bit more color on the advisory business itself. Sounds like you guys have obviously seen a pretty nice uptick in capital raising parts of the business. I think you said up 20% year-over-year. Any way to break down, I guess, kind of even ballpark numbers what kind of revenues you saw in more traditional M&A restructuring versus the fund placement business?

Scott L. Bok

Well, it was very heavily an M&A year. I mean, we did have a nice uptick, obviously off not huge base in fund placement and, as I said, I still see lots more potential there. But other than that, it really was heavily an M&A-oriented year. As Chris noted, restructuring -- or maybe I did, restructuring with the credit markets being so accommodating in the U.S., was very, very quiet. We had a few, big successes in restructuring in Europe, where credit markets were a little tighter, but it was very tough in the U.S. We didn't -- for a good while during the financial crisis, we had a lot of government work as governments owned a lot of assets and were somewhat distressed themselves, and that largely dissipated as well. So really, where we made our money this year, there were fewer deals, and there was maybe a smaller variety of deals, but there was a lot of -- a fair amount of good old-fashioned M&A, typically quite large transactions with lead roles. We didn't do a lot of fairness opinions-type stuff this year. Most things you saw us on were really solid, important roles with significant fees, and that made up for the fact that some of these things like restructuring and announcement fees and retainers were a bit lighter.

Operator

The next question is from Joel Jeffrey of KBW.

Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division

Just a question to follow up on the buyback authorization. It looks like, and correct me if I'm wrong, it came down to $75 million from $100 million last year. Just wondering: is that solely due to the fact that you've basically run through the investment portfolio, or are there any other thinking that's going on at the board level about the level of buybacks for this year?

Scott L. Bok

No, it's all about the principal investments. I mean, clearly, at today's market activity and today's revenue, we can't pay the dividend we pay and buy back $100 million of stock a year. We were able to -- well, we were able to get pretty close to that in the last couple of years and I think even exceed it one year because we had some really extraordinary liquidations of all these principal investments. And now, as was our goal, we are now down to essentially a pure advisory firm where it's not even worth thinking about the remaining investment. So it's down to operating cash flow, and so for that reason, with not a lot more liquidate, we just tweaked the buyback authorization down from $100 million to $75 million.

Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division

Okay, great. And then just -- appreciate your comments about the sort of slow deal announcements that were made in the fourth quarter and kind of earlier this year. Are you kind of saying that you're playing out as more of a second half of the year weighted revenue story, or is it -- do you think it could be relatively consistent throughout the year?

Scott L. Bok

I think if you want to be optimistic about a rebound in M&A, which I think a lot of people want to be, they see improving economies and more stability, and so I think if you have that point of view, I think you probably are focused more on a stronger second half than first half. I mean the -- because the first months, really for the whole industry, are, to some degree, baked, right? If there were significantly fewer announced deals and also, announced volume of deals in the fourth quarter versus last year's fourth quarter, I mean, clearly that plays into first quarter closings. We're really early in this year, and there have been a few very big deals, of course. But as the data we see from our source, Thomson, is that there have been fewer transactions announced so far in the first 4 weeks of this year versus last year. So I think it's been a stop-and-start process in the last few years, and I think everybody's hopeful that with a little more stability in the economy, and maybe some of the comments you've heard other of our bigger competitors say that there will be more activities as the year goes on.

Joel Jeffrey - Keefe, Bruyette, & Woods, Inc., Research Division

Okay, great. And then just lastly for me, real quickly, it looks like your short-term debt came down by about $6 million quarter-on-quarter. Is that just a seasonal thing? Or are you guys looking to manage towards sort of smaller debt levels?

Scott L. Bok

No, that's really random. I mean, I think when we have extra cash, if it comes in enough before the end of the quarter that we can pay down debt, we obviously always want to keep our debt as low as possible. And it ebbs and flows a little bit just where receivables are and the timing of collection tends to be very, very short timing of collection for us in our industry. But that's a really trivial thing that I wouldn't read anything into.

Operator

And next, we have a question from Brennan Hawken of UBS.

Brennan Hawken - UBS Investment Bank, Research Division

Could you talk a little bit about the fourth quarter revenue composition, and maybe how that was different -- or differed from a typical fourth quarter for you guys? When I kind of look at the projected, sort of, public revenues, it looks like it was -- the relationship versus what you reported might have been a little bit different. So it would be helpful to get a little color from you guys on that front.

Scott L. Bok

What were -- can I ask what you, from whatever database you were looking at, what you were expecting?

Brennan Hawken - UBS Investment Bank, Research Division

Well, typically, when we look at the public database, the multiple of your reported revenues versus where you guys -- where the -- which public database comes in, the multiple tends to be a bit higher. It sort -- this is sort of imperfect art-meets-science type stuff.

Scott L. Bok

Yes, and it's probably more art than science. I think -- that, I think, is simply -- and that's, of course, the flaw in that methodology. I can see why you do it, but there, obviously, is a bit of a flaw in it. I think that's simply because the things that got done in the fourth quarter were very visible, straightforward M&A deals. And there's a bunch of them listed in the press release, and they're generally, fairly large, classic M&A situations where I'm sure the database has picked that up. And probably, on average, they probably did a decent job projecting what the fees were on those various things. There wasn't as much sort of the more hidden retainers, small restructurings, other things that you might have seen. And even -- I guess, people may be getting even a little bit better at projecting fund placement revenue, you can see that a fair amount of that came in the fourth quarter as well. And again, that was from some deals that did seem to get some public coverage, they don't all seem to, but some did this time.

Brennan Hawken - UBS Investment Bank, Research Division

Okay. And when we think about some of the markets that you guys focused on, Australia and Brazil, being two of them, and with emerging markets very much creating -- getting a lot of attention and really a lot of concern and apprehension from investors. Is there at least a component of thought that you might be able to build some of these practices a bit on the cheap, if we see some volatility in the economic outlook there?

Scott L. Bok

I would say, yes, I think that really -- I mean, we do try to build things as cost-effectively as we can. And I think the reason that we, finally, after many years of talking about Brazil, had success in planting a foothold there this year, was that things had calmed down quite a lot down there. And some high-quality people tend to come loose in a situation like that. And we got a fabulous one to kick off our business, and I think we're going to see -- I think he's going to find a much more fertile recruiting environment than he certainly would have seen even 12 or 18 or 24 months ago when people thought Brazil was really going to just continue unabated to just higher and higher levels of activity in piece [ph].

Brennan Hawken - UBS Investment Bank, Research Division

Yes, no, that makes sense. And then last one for me. When you -- we hear a lot about expectations on M&A and it really does feel like it's accelerated in the last few months. At the same time, we've seen your publicly available pipeline, the announced, but not yet closed, really whittle down. I know you referenced that conversations remained robust. Do you -- from your perspective and from what you see, do you believe that the increased optimism for M&A growth is warranted? Or do you feel like some of this might be getting a bit ahead of itself?

Scott L. Bok

I think I sort of joked that I was -- I predicted exactly right a year ago what was happening, I was going to retire as a prognosticator of M&A activity because I think it's a thankless and even impossible task. So I'm going to leave that really to the big firms that obviously have much bigger teams and much bigger pipeline than we always will, right? They're many, many times our size. I would certainly agree that the building blocks are in place in terms of cash on balance sheets, great financing market, a little more stability in terms of Europe, for example. So we're obviously very hopeful for not just the year to come, I mean, for a number of years to come. I feel like really the rebound in M&A hasn't come at all from all the way back to 2008 when it took a really steep fall. It's kind of gone sideways. It's not been terrible, but it's not really rebounded. And we're certainly hopeful that we start to see an upturn from that over the course of this year.

Operator

The next question is from Devin Ryan of JMP Securities.

Devin P. Ryan - JMP Securities LLC, Research Division

I just have a follow-up on Europe and the comment that European revenues increased 50% in a year. I guess, if Japan and Canada were also up a bit, and then even with Australia down, I guess, that would seem to imply that North America was down for the year. So, I'm just trying to think through the performance across regions and -- obviously, it's good to see that we're seeing some signs of life in Europe, just given how important of a region that is for you. But I guess, I'm also a little bit surprised that North America would have been down as if that is the right read-through?

Scott L. Bok

It is. It is a bit, but I mean, I would view that as somewhat random, frankly. I mean, that's obviously our biggest market where most of our revenue has been in certainly since the financial crisis. I mean, before then, we had a European business that was really equal to North America. And it just depends -- and, of course, you can't really even look at my office, right, because we have people in New York who do deals in Europe and people in Europe who sometimes do deals in the U.S. or Japan. So I wouldn't read much into that other than the fact that we're excited after many years of really depressed activity in Europe to see a rebound there. And in the U.S, I would just think of it as kind of the normal ebbing and flowing of activity, and we still feel great about our U.S. business, for sure.

Devin P. Ryan - JMP Securities LLC, Research Division

Okay. Got it. And then just a follow-up on the recruiting. I mean, just where we are today in the year, I mean, do you have any thoughts about what 2014 could look like from a recruiting perspective? You spoke about Brazil and some of the other regions, but just based on the conversations that the firm is already having and maybe what your appetite might be, do you think this could be a year where you really kind of up the additions, maybe to the upper single digits? Or do you think that might be a little bit much?

Scott L. Bok

That might be a little bit much. I mean, again, we're so opportunistic about this, and by that, I mean really waiting for the right people to come along. But I probably wouldn't go out on a limb and say it's going to be sort of double what we did last year, or something like that. I think we'll continue to see what's out there. I think post the compensation round that's going on, on Wall Street right now, from what we're hearing, very, very heavy deferrals, even at quite remarkably junior levels, and obviously, total comp not great anywhere on Wall Street. I mean, I think we'll -- and with just the continuing challenges for the big banks, probably more than anything, cultural and otherwise. I think we'll continue to see good people come on to the market, and we're going to get as many of them as we can find.

Devin P. Ryan - JMP Securities LLC, Research Division

Okay, great. And then just lastly, with respect to the tax rate, the guidance that you guys gave. Can we just read that as a little more optimism around contribution from regions outside North America? That's -- that'd be the implication, but I just want to make sure that, that's the right read-through?

Scott L. Bok

That's exactly right. I mean, as you can imagine what a heavy or much of heavier concentration of U.S. revenue, you kind of compound that if you start looking at U.S. profitability, right? So you kind of get to an inflection point where, suddenly, you go beyond having more dispersed revenue to having much more dispersed profitability, which still is not back where it was pre-financial crisis for us. So the rate, frankly, could even be easily [indiscernible] low end [ph] of what we're talking about if we got back to that level. But yes, we think we're hopeful certainly that we're in a more normal environment for a broader contribution across the world and, therefore, a better tax rate.

Operator

And the next question is from Michael Wong of Morningstar.

Michael Wong - Morningstar Inc., Research Division

With the strength in the U.S. equity markets, are you seeing any higher amount of disconnect between buyers and sellers on price?

Scott L. Bok

I wouldn't say, specifically, we can spot that. I mean, I've been pretty direct in talking about one of the challenges of the last few years has been volatility in markets, where you have a plunge like the markets had during the financial crisis. And suddenly, nobody wants to sell off those levels, and then, you have a huge rebound like we've had, and nobody wants to buy with premiums off those levels. So my hope has been, as I've expressed it in some presentations, that the winding down of quantitative easing over time will lead to interest rates going back to a more market-driven level and, frankly, probably, stock prices over time to moderate toward lower multiples that would lead to more transactions. And so I wouldn't say there's anything in sort of recent weeks and months that's been a factor there, but I mean, that's been a phenomenon of the last few years.

Michael Wong - Morningstar Inc., Research Division

Okay. And let's say, with the U.S. M&A environment being at least more decent than the rest of the world, would you say there's still a lot of excess capacity with your U.S. employees that would ramp up revenue without increasing head count? Or are they pretty close to normalized productivity?

Scott L. Bok

I think there's a lot of room for more activity, and I don't mean people working longer hours necessarily. What I'm really talking about is in a better M&A market, things will happen faster. Deals won't take 14 months. They'll take 6 months to get to announcement, and then the people will be freed up to work on other things. So that really is the -- maybe somewhat of a peculiar thing about our industry compared to most is that when you're in a good, active market, things happen faster, and people actually get more productive even without working any more hours, right. Sometimes, it seems like you work much harder in slow periods where it's hard to get traction than in periods where companies are in a hurry to get things done.

Operator

The next question is from Doug Sipkin of Susquehanna.

Douglas Sipkin - Susquehanna Financial Group, LLLP, Research Division

So most of my stuff's been answered, but I guess, I'd just drill down on two other points, questions that I had. One, and I apologize if you've talked about it. Any change in sort of the outlook for restructuring or debt advisory? Obviously, tapering in theory would lead to higher rates, but that remains to be seen if that even happens. But are you seeing any signs, maybe more opportunities on credit side to advise restructuring, et cetera, than you have, maybe, over the last year or so? Or is it still too early to see that type of stuff?

Scott L. Bok

I would say that there hasn't been much of a change. You certainly have upgrades around, maybe around the debt ceiling conversation, where credit markets got a little more challenging and you have moments throughout the year where it feels like there is a bit more traction in that business. But overall, we're not yet seeing an increase in rates or a contraction in the credit markets that would drive a lot more activity. And that's really within the United States. We have had some very nice wins in Europe, which has been quite public, and we think in that market we'll have some additional wins. But we could get into a situation where we actually have a rebound in restructuring at the same time you have a rebound in M&A activity. But I wouldn't say we're seeing that yet.

Douglas Sipkin - Susquehanna Financial Group, LLLP, Research Division

Great. And then -- so now that we're pretty much past liquidations, and I mean, can you guys provide a little bit of guidance, maybe, how to think about maybe sort of, like, a total payout ratio? How to think about modeling buybacks and dividends effectively? I guess, the dividend hasn't changed all that much, but how to think about buybacks, thinking it through maybe sort of a payout ratio guidance that you guys sort of think about as a percentage of earnings?

Scott L. Bok

I think you can model that, but it's not a percentage of earnings. It really is a percentage of operating cash flows. So if you just think -- and again, with us, kind of the easiest company in the world to model, so long as you can get the revenue right, the rest is -- and I realize that's not easy. But if you'd look at whatever revenue is there you want to believe, I think you can probably -- especially having covered us as long as you have, you can come up with a cost structure. You get the net income. You add back the noncash compensation. That is our operating cash flow, and essentially, we don't need any of that. Our balance sheet is fine. We have plenty of ongoing cash flow. So we'll pay a dividend out of that, and whatever is left essentially gets used to buy back shares. It doesn't happen like clockwork in precision every single day, but over the course of a year and multiple years, that's what we aim for.

Douglas Sipkin - Susquehanna Financial Group, LLLP, Research Division

But effectively, Scott, I mean, it sounds like it's going to be pretty methodical like that going forward, correct?

Scott L. Bok

I think that's right. Yes, if you want to -- I mean, the way to model us, I think, is essentially 100% of operating cash flow will be paid to shareholders, first, in the form of dividend, and whatever is left, in the form of share buybacks. If ever I feel like our share price is overvalued, we may change that, but that's not today.

Operator

And next, we have a question from Jeff Harte of Sandler O'Neill.

Jeffrey Harte - Sandler O'Neill + Partners, L.P., Research Division

You mentioned 6 new MDs and 5 being promoted. Does that put you to a net increase of 11? Or I guess, maybe, the simpler question would be where does your kind of senior MD count stand at now in investment banking?

Scott L. Bok

It's still -- I would still think of it as around 70. We have -- as we've talked about a number of times in recent months and even the last couple of years, we've done -- we've had some people leave just as we've had some people arrive, and we've really aimed very much at keeping a flat headcount, which is what we've done for the last period, while we -- last few years, really, while we wait for market activity to pick up, but to upgrade the team we have. So I wouldn't at all think of us as a static operation by any means. We have, I think, a much stronger team in more places, in more industries and deeper industry relationships than we did a year ago or 2 years ago. But it's been upgrading rather than just adding.

Jeffrey Harte - Sandler O'Neill + Partners, L.P., Research Division

Okay. And then on the advisory revenue side, with 10 deals closing, I mean, just kind of our -- the stuff we track, we were looking for a few more deals than that to close. Was there any kind of a pushback of deals kind of into the first quarter, maybe things didn't close or are close to closing? I'm trying to get a feel for whether we just missed a few or whether it's a timing issue.

Scott L. Bok

I wouldn't say there's anything really peculiar about this quarter in that sense. I mean, there are always things that slide back and forth and -- but I wouldn't say anything noteworthy for the year-end period.

Operator

And finally, we have a question from Ashley Serrao of Crédit Suisse.

Ashley N. Serrao - Crédit Suisse AG, Research Division

I just had one quick follow-up on Brazil. I've read the positive commentary in the release. I guess, some pundits would argue that activity in the region this year may be constrained just because we have an election, and then you also had the World Cup in the background. So with that in mind, I just wonder, what are your thoughts about the region actually being a positive revenue contributor this year?

Scott L. Bok

What we really like, our team is small, but we think it's really good and we've got a lot of interesting things going on already. I would agree with you that Brazil, the economy is going through a rough patch right now, like a lot of emerging markets are, but to me, in a way, that's the opportunity. Clients need advice. Clients are open-minded to who their advisors are. They are open-minded to a firm like ours arriving there. And I'm certainly not saying we're going to have some huge windfall of revenue in our first full year down there. But I do think over the next few years, we have a big opportunity.

Scott L. Bok

And I think that's our last question. So thank you, all, for dialing in and we'll speak to you again in a few months.

Operator

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

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Greenhill & Co., Inc. (GHL): Q4 EPS of $0.53 beats by $0.01. Revenue of $76.3M (-17.4% Y/Y) misses by $3.99M.