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Greenhill & Co., Inc. (NYSE:GHL)

Q2 2014 Earnings Conference Call

July 28, 2014 04:30 PM ET

Executives

Chris Grubb - Chief Financial Officer

Scott Bok - Chief Executive Officer

Analysts

Devin Ryan - JMP Securities

Ashley Serrao - Credit Suisse

Brennan Hawken - UBS

Joel Jeffrey - KBW

Alex Blostein - Goldman Sachs

John Dunn - Sidoti

Michael Wong - Morningstar

Operator

Good day. Welcome to the Greenhill Second 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, sir.

Chris Grubb

Thank you. Good afternoon, and thank you all for joining us today for Greenhill's second quarter 2014 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 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 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. Our comments today will echo all the key points we made last quarter as transaction activity both in the market generally and in our firm has continued to develop largely in line with our expectations a quarter ago.

Looking at the market generally, it's important to start with completed transaction activity as that is the primary driver of revenue for transaction advisors like Greenhill.

As of mid-year, there were 3% fewer transactions completed year-to-date, and aggregate completed deal volume was down 7%. If the first half run rate continues for the full-year, which is quite possible given that many of this year's largest announced deals are contested situations or face considerable regulatory delays both the number and volume of completed transactions will likewise be down for the full year versus last year and slightly below the average level of the past four years.

Announced transaction data provides a much more positive perspective, one that is indicative of an increasingly active market and bodes well for the near to medium-term outlook. As of mid-year, the number of announced transaction was up 7%, and if that run rate continues that figure will be basically flat for the full year versus last year. However, announced deal volume at mid-year was up 66%, driven by an increase in the number of very large transactions.

For example, there were two-and-a-half times the number of $5 billion or greater transactions announced in the first half relative to the same period last year, and that activity was heavily strategic as opposed to involving private equity, heavily focused in a few sectors like healthcare, media and telecom and primarily focused on the U.S. market, but also were some encouraging activity in Europe particularly on tax inversion transactions.

While this is not what one would yet call a broad-based recovery in transaction activity, we do believe this could be the beginning of a sustained recovery in M&A activity as industries are transformed by major strategic transactions, which in turn forces competitors in those industries to respond with strategic transactions of their own.

I should also add from a macro perspective that we believe the long-running trend of clients increasingly turning to firms like ours for strategic advice remains intact. A large majority of the major transactions announced this year have had at least one firm like ours involved and we expect that the strengthening of our brands or brands like ours and weakening of the brands for the major banks will cause that trend to remain in place for the foreseeable future.

When I refer to our brand, I am referring to our reputation for a single-minded focus on advising clients, a lack of conflict of interest, a better ability to protect confidentiality given our size relative to the big banks, and a growing list of credentials across industry sectors and regions.

Our first-half results are a fair reflection of the current market reality that I just described. Our year-to-date advisory revenue was down 32% relative to a particularly strong first half last year when it was up 39% from the year before while our large bank peer group was then down.

Particularly late in the second quarter this year, we began to see the increase in our significant transaction announcements that we signaled in our comments a quarter ago. Our pipeline would suggest that this trend of significant transaction announcements should continue in the weeks and months to come.

As our investors have seen repeatedly over the past decades since our IPO, our particularly strong period like we had in the first half last year, or a particularly weak period like our first half the year before that has tended the balance out over the course of the year as the random timing of transaction completions is less impactful over longer periods.

For instance, our largest transaction of this year today closed on the first day of the third quarter, while last year our largest deal of the year closed several weeks earlier in the second quarter. Looking at our sources of revenue through the second quarter, M&A completion fees are down meaningfully, but announcement fees are higher.

Restructuring has continued to be slow given highly accommodating credit markets, but we have more than offset that with some significant equity financing advisory roles. We had a large increase in fund placement revenue in the first half, largely attributable to multiple big successes in the real estate area.

Looking at activity regionally, we are particularly pleased to have an increase in first-half revenue from European clients on top of an increase last year. In recent months, we have been involved in some major transactions for leading European companies, demonstrating the longstanding strength of our brand in that market, which should pay significant dividends for us as activity there continues to rebound from a multi-year soft period.

Meanwhile, our Australian business was down, but we are seeing increased cross-border opportunities into that market from elsewhere and it is still early days for us in Brazil, but we like what we see from our new team and the assignments they are winning. Finally by sector, we are seeing increased activity across most sectors, including consumer retail, energy healthcare and industrials.

In closing, we are encouraged by the increasing number of deal announcements and behind-the-scenes activity, pleased with the assignments we are winning across industry sectors and geographic regions and continue to have a positive outlook for this year and beyond.

Given our discipline around cost and very limited need for capital both, of which Chris will now speak to, we are well-positioned to return to our historic sector-leading metrics in relation to productivity, profitability and return of capital to shareholders as M&A completions and advisory revenue rebound.

Now, over to Chris.

Chris Grubb

Thank you, Scott. I will address compensation costs, non-compensation costs, dividends and share repurchases and I will briefly touch on our remaining principal investments. Starting with compensation costs, similar to the first quarter, our absolute dollar amount of compensation costs year-to-date was lower due to our lower accrual of cash bonuses compared to the prior year as well lower amortization cost from restricted stock units.

Increased ratio of compensation revenue is a function of the lower revenue result in the first half compared to a year ago. As we have commented previously, we have consistently achieved our annual goal of a GAAP compensation ratio that is the lowest among our peer group and we expect to maintain that position for the full-year, even as we increase the absolute dollar amount of compensation going forward.

Moving to our non-compensation costs. Our second quarter non-comp costs were $15.4 million comparable to the second quarter of 2013. On a year-to-date basis, our non-comp costs are well under control and total $29.7 million, down slightly from $31.1 million in 2013.

Our non-compensation costs have been fairly flat the past two years and we continue to expect fairly stable non-compensation costs for the foreseeable future. Putting our two categories of costs together, our costs year-to-date are down in absolute terms, but obviously the ratios are higher given the reduced completed transaction volume and related advisory revenue.

Our pre-tax profit margin is 12% year-to-date, but our cost structure is such that there is significant operating leverage for that margin to improve significantly at higher revenue levels.

Looking at our dividends and share repurchases. Our dividend this quarter was again $0.45 per share, consistent with the quarterly distribution made in recent years. During the second quarter, we repurchased a small number of share equivalents for tax settlement purposes on the vesting of RSUs.

On a year-to-date basis, the firm has repurchased approximately 350,000 share equivalents at an average cost of $51.85 per share for a total cost of $18.2 million. We ended the quarter with a share count similar to a year ago and we continue to maintain the share count that is effectively flat with our 2004 IPO despite significant annual stock based compensation and the acquisition in Australia, which compares very favorably to both our large and small competitors.

We ended the quarter with cash of $29.2 million and debt of $37.5 million. Our Board of Directors has authorized to repurchase of up to $75 million of our common stock through the end of 2014, of which approximately $57 million remains available. The level and timing of stock repurchase activity going forward will primarily be driven by the timing of cash generated in our advisory business over the remainder of the year.

Let me finish with our remaining principal investments. During the second quarter, we realized a bit of cash in the portfolio and had net investment loss of $1 million, leaving us with the remaining principal investment balance of only $4.5 million. We are very near our goal of fully exiting our historic merchant banking investments. Since we don't expect any material movement going forward, we don't expect to provide much in the way of further updates.

Now, let me turn it back to Scott.

Scott Bok

Before we take questions, let me briefly reiterate. While data for completed transactions has barely moved since his precipitous decline in 2008 and 2009, we are optimistic about the market outlook given the strong improvement in announced transaction volume this year. While so far the gains have been driven by a small number of very large transactions, we are hopeful that this is the precursor to a broader rebound in transaction activity, and Greenhill is better positioned than ever to take advantage of such a recovery.

We expand our capabilities substantially by sector and region in the early days of the financial crisis, and in the past few years have significantly upgraded the team while leaving overall headcount in our cost structure roughly flat.

Our brand is increasingly well-known in many regions around the world and stands for pure client advisory, lack of conflicts and the kind of quality that comes from a senior team that has deep expertise and no job other than helping clients achieve their strategic goals.

Being the most globally diverse of our closest peers as the M&A recovery spreads across regions, we should capture an outsized benefit from that.

With that, we are happy to take any questions.

Question-and-Answer Session

Operator

Thank you. Will now begin the question-and-answer session, (Operator Instructions) Our first question will come from Devin Ryan of JMP Securities. Please go ahead.

Devin Ryan - JMP Securities

Thank you. Hi, Scott. Hi, Chris. How are you?

Scott Bok

Very well.

Devin Ryan - JMP Securities

Good. Appreciate the commentary around expectations for the year and that revenues are going to be more back-end weighted, so I guess just a two-part question there. First, do you think that the year for Greenhill is shaping up more like this because a random timing I guess as you put it or has there really been a noticeable pickup in activity internally over the past six months, which is driving the revenue towards the back half? I am just trying to understand the dynamics there.

Secondly, as you guys have done maybe the past couple of years, you have given some additional context around how you see the year shaping up relative to revenues from the prior year, couple of years and so I don't know if it's reasonable to think that this could be another year that looks similar to where we have been over the past couple or really over the past handful of years for you guys?

Scott Bok

I think, I will start with the first part of your question. Look, I think it's both random transaction timing and I think it's also the market is picking up. There is no question about that.

The randomness, what I mean by that is had one particular deal closed one day earlier things would looking a little smoother, but we just don't worry about that. Obviously we would prefer to have things not fall in January 1, but frankly fall in between quarters of the year, we really don't worry about it at all, so there is some randomness. Of course, there always is, but I think fundamentally things are picking up pretty materially.

You can see that announcements, we have seen in our pipeline, in terms of giving any sort of guidance or projection, you know we have never really done that specifically. I think, what's clear this year is that as we said in the release, it is going to be a back-half weighted year in revenue sense.

Exactly where that comes out is just hard to say, because we have had a fair number of substantial announcements this summer. We expect quite a few this summer and fair amounts in the summertime that's going to raise the question with some situations depending on regulatory approvals and so on whether it closes late in the year or beginning of next year, but the important thing from our point of view is that the second half looks a lot stronger and the pipeline is certainly building for beyond that as well.

Devin Ryan - JMP Securities

Got it, so even with respect to the backlog, the backlog which we have seen over the past few months for you guys, you have been on a number of deals, but the backlog is also accelerating which could start to actually impact 2015 as well I am assuming.

Scott Bok

For sure, I mean, we feel very good about not only sort of the pipeline or backlog of things that are very close to announcement, but also very interesting new things that are just entering that pipeline of backlog which should come to fruition in the coming months as well.

Devin Ryan - JMP Securities

Okay. Great. Appreciate the color. Then just with respect to the hiring outlook. Should we expect anything else for the rest of the year here or is it kind of you are quieting down.

Just with respect to the fund placement area specifically, are you guys looking to scale back up that business or do you really see the real estate area being the bigger focus for the time being there?

Scott Bok

We have always had a more, as you all know, more opportunistic view towards hiring. We like to hire when really good people are available to fill important roles and not worry about hiring when we aren't coming across such people.

I don't know how the rest of the year will pan out. There still are some very active dialogues we have in some cases relating even to multiple people, so time will tell whether they get done over the next few months or whether they drift forward and happen after the end of the year, but certainly we are still very active in the recruiting market.

As far as fund placement, we have essentially made our money in the real estate side certainly this year that's been true more than ever although it's really always been the case and as some of the reports have indicated you can you can see that in the numbers we reported over the years.

As to what we do there specifically? I would again say, we are going to fairly opportunistic. We have the capability certainly to do lot more than real estate. Even as we sit here today, whether we make a bigger bet in other areas, whether it's broadly across private equity or certain issues and so on will just depend on the opportunities we see as we look what's out there.

Devin Ryan - JMP Securities

Okay. Great. Thank you.

Scott Bok

Thank you.

Operator

The next question will come from Ashley Serrao of Credit Suisse. Please go ahead.

Ashley Serrao - Credit Suisse

Good afternoon, guys.

Scott Bok

Hi, Ashley.

Ashley Serrao - Credit Suisse

I was hoping maybe you could size the benefit through compensation from the [inaudible] this quarter. Then you spoken about $130 million in fixed cost is a good place to be. Is that still the case?

Chris Grubb

Why don't - we want to try to sort of size specifically, I don't think it was particularly large this quarter in terms of RSU forfeitures. I mean, the fixed cost maybe a little bit below for the year from where they been, but I wouldn't expect a big change there. I think the way we think of our compensation, the way we would like our shareholders to think of it, is we manage each year to a GAAP compensation ratio that includes absolutely everything, the cost of new hires, the cost of severance and obviously the offset against that if somebody for example leaves the firm when they have invested stock and we manage historically to the lowest ratio among our peers. I think, you know, we feel like we are going to do that again this year as we have indicated in our comments.

Ashley Serrao - Credit Suisse

Okay. Then just switching gears more broadly to Europe. You made a lot of comments, lot of people are talking about the resurgence there, but it fee feels like it's really dominated by a handful of transactions, lot of tax inversion-related deals. When do you think the deal counts will start to catch up?

Scott Bok

You know, there is no question that Europe is probably more lumpy than the U.S. right now. I don't think it's just limited to tax inversion transactions. We worked on some of those in the past, but none so far this year and yet are having quite a good year in Europe, so I think that's interesting new part of the European business, but it's not a predominant part of it.

I think we see maybe a little more in our pipeline than what you read in terms of the press that Europe is improving, but I would agree that it's kind of little lumpy. I mean, the things we are doing there, tend to be really quite large and there probably are fewer of them, but you make up for by them being more significant.

Ashley Serrao - Credit Suisse

All right. Thanks for taking my question.

Scott Bok

Sure.

Operator

The next question will come from Brennan Hawken of UBS. Please go ahead.

Brennan Hawken - UBS

Good afternoon, guys.

Scott Bok

Hello.

Brennan Hawken - UBS

Did the 2Q revenue include any portion of the [Forest Lodge] [ph] deal?

Scott Bok

Well, we never comment at all on the specifics of any client arrangements that we have on specific engagement letters. I would say that very typically our engagements involve very often some kind of retainer, almost always some kind of a transaction announcement or opinion fee and almost always the bulk of the fee due on completion, but that a general comment. Just for obvious reasons, we have never commented on a specific client.

Brennan Hawken - UBS

Okay. That particular deal closed after the quarter, right, so if we think about the typical layout or the profile as you just walked through then we would expect the bulk of those revenues to come in 3Q. Wouldn't that be right?

Scott Bok

That would be correct.

Brennan Hawken - UBS

Okay. Then thinking about maybe some of the elevated turnover recently it has drawn a lot of investors' attention, we get a lot of questions in-bound on it. I don't know whether or not there is anything that maybe you would like to point out or go on the record on that front. It might be helpful to hear your comments.

Scott Bok

Sure. I mean, I don't actually view it as all that elevated. In the sense, I mean, we still have a remarkably stable team. I think, recently in an investor presentation, we put in lot of data about how old - one of the demographics of our team, how old are they, how many years of experience, how many years with Greenhill and I think those numbers look like a very stable, very senior team over time.

Clearly, I alluded to the fact that we've done a lot of upgrading over the last few years and that's kind of a nice way of saying that a very large percentage of departures were really at our decision as opposed to the employees' decision. That's not the case in every case, but in some cases like I was very clear and I think the press story picked us up some analyzed that with our private equity portion of our fund placement team that that's not a dilutive loss in the sense that we essentially have been making all of our money in real estate side and that team is now like fully intact for growing.

I think, as I have said many times, this business is like managing a sports team. You know, you try to win every day, but you also try to constantly improve the roster. That means, some people can be upgraded. Occasionally, you are going to lose somebody you may care about, but we really haven't lost anybody who I would worry about in a kind of a revenue or earnings accretion sense for quite a long time.

Brennan Hawken - UBS

Okay. Somewhat related to that, if we look at and the headcount and run some of the numbers, there is roughly about a quarter of our guys that have been promoted since 2011, when we think about modeling your firm that I would think that that would weigh on productivity numbers at least somewhat until those new newly minted MDs can come up, ramp up scale. Is the right way to think about it or should we think about it in a different way?

Scott Bok

I think, when you say promoted since 2011, I think you would mean promoted or recruited. We certainly haven't promoted that many people internally at that bigger percentage, but look there are a fair number of new arrivals which is which is a good thing. Some of them were internally promoted, a lot of them probably, I think, a majority were recruited as senior experienced MDs from outside.

Yes. I think, it's fair to say that that in the near-term of course that weighs to some degree in productivity and therefore you would expect to pick up going forward. I mean, I would even add. I mean, I know we and others in our little sector have talked many times about sort of the ramp up period and that, but was that 18 month, is it two years, what is it? I mean, having being this for quite a long time, I see a lot of cases where we are getting meaningfully more productivity out of somebody who has been with us say five years instead of two years or know somebody who is a terrific banker in their early 40s and is way beyond that in their late 40s, so I do think there is a lot of upside left just in terms of the productivity of the people we have let alone other ones we may bring on board.

Brennan Hawken - UBS

Cool. Then last question just on the balance sheet. You guys have a minimum level of cash you need to run the business. Just because cash sort of took a big step down here this quarter, I think it's about $7 million from last quarter even though the buybacks were pretty small.

Chris Grubb

I think that we are certainly comfortable with where our cash has been at the worst point. I can tell you it does swing a little bit sort of quarter-to-quarter. It's materially higher today than it was even at the time of our 30 June announcement, so we don't pay too much attention to the small short-term gyrations, but we're completely comfortable with our cash position, our dividend and in our ability to continue buying back stock based on everything we can see today at least in terms of the pipeline and the outlook for the business.

Brennan Hawken - UBS

Okay. Thanks for answering my questions.

Chris Grubb

Sure.

Operator

The next question will come will come from Joel Jeffrey of KBW. Please go ahead.

Joel Jeffrey - KBW

Hi. Good afternoon, guys.

Scott Bok

Hi, Joel.

Joel Jeffrey - KBW

Hey, just to follow-up on one of the last questions, just wondering about the revenue breakdown a little bit and just the amount. Do you see sort of outside announcement fees during this quarter just because of the stuff that looked like it was coming to the public pipeline, would lead you to believe that the revenue line would be a lot soft than it was.

Scott Bok

Yes. There were some significant announcement fees and of course some of that picked up pretty meaningfully. I mean, we had a lot of announcements right towards not only in June, but even in the last week of June, so we did have a significant increase in some sizable announcement fees, but we have always been reasonably good at making money in ways that aren't that easy for analysts like you to figure out and there are more of these things in sort of financing advisory area that have had a meaningful impact so far this year as well and those are always transparently to the outside and certainly not picked up by for the standard databases.

Joel Jeffrey - KBW

Okay. Great. Then just speaking about the decline in the diluted share count, just wondering if that had more to do with the decline in the stock price and how that has account for or was it just more the timing of the buyback that led to the decline?

Scott Bok

It is just nothing, but buybacks. Buybacks are obviously a negative shares coming into the share count from stock that we granted to employees as an additive and when people forfeit RSUs it's a negative. There's nothing else that impacts our results. We don't have any warrants or converts or anything like that outstanding where the share price makes any difference at all to our share count.

Obviously when share prices are cheaper, you can buyback back more with the given amount of cash, but there is no sort of swings in our share count as a result of share price movements.

Joel Jeffrey - KBW

Okay. Then just lastly form me. Just in terms of the general outlook. You have commented that a lot of the deals would have been driving the market volumes of the larger size. Just wondering from a regulatory perspective, is there any specific industries you think are sort of more risks from these deals being held up than others?

Scott Bok

I think you can look at it really on an almost a deal-by-deal basis. It's really the only way to. I mean, obviously, we have our antitrust rules in this country and similar rules around the world and they look at all industry sectors.

You can see in some sectors there are big deals happening, but the resulting companies don't have extraordinary market shares and other industries there are some big deals happening where they will have some very extraordinary market share so you know I think I would not want to count on every one of the sort of the top 10 or 15 deals announced this year happening, but I'm sure people wouldn't be announcing them if they didn't still had a good chance of getting them through.

Joel Jeffrey - KBW

Great. Thanks for taking my questions.

Scott Bok

Sure.

Operator

The next question will come from Alex Blostein of Goldman Sachs. Please go ahead.

Alex Blostein - Goldman Sachs

Hi, guys. Good afternoon.

Scott Bok

Hi, Alex.

Chris Grubb

Hi, Alex.

Alex Blostein - Goldman Sachs

Quick question on Europe, you mentioned a couple of times that you guys obviously have a fairly outsized exposure there and that's probably something that's been weighing on your overall comp productivity that we get to see from the outside. Is it possible to think about the number of MDs you have in Europe, what kind of productivity they have seen over last couple of years and where do you think the opportunity there is?

Scott Bok

It's hard to get too specific on that. I mean, but it is interesting. You know, sort of a high-end example. I mean, in 2007, we had $370 million of advisory revenue and more than half of that came from European client, so it's actually a bigger business to North America that year and we had a considerably smaller European team at that time, so it was very much the U.K. business.

[Fabulous] franchise in the U.K. but it certainly has branched across continental Europe, particularly in Northern Europe a lot since then, so I would say sort of a sky is the limit, but it's very hard to specific metrics around where we think the business can get back to. It really depends on where the cycle gets back to.

Alex Blostein - Goldman Sachs

Got you. Then second question, I guess, around the market share comments. We have heard similar dynamic from the M&A bank's reported earnings so far, but I mean it seems like it has been independent shops gaining market share is still alive, but when you look at the data this year and our market share sometimes is hard to measure, but at least if you look at just the dollar volumes, it looks like the banks have gained a little bit more market share relative to what we have seen over the last couple years.

I guess, the question is why do you guys think that is, is it just the nature of the deal, so larger deals maybe require more financing and that's what's kind of driving that or there's been a shift in the focus here a little bit.

Scott Bok

I think there are a lot of late to measure market share the only way I really think is that legitimate is to look at revenue. I think when we get to the end of the year, I think as a group you will probably see the independent continuing to gain share relative to the big banks.

They can often be named the larger banks, as advisor or some things we are deploying a very small advisory role. Maybe I am getting very small advisory fee, but we are getting lots of other fees on financings and so on, so I think it's really hard to look at sort of transaction data and draw conclusions, particularly for short periods of transaction data and draw conclusions about market share.

Just anecdotally from what we see and from just looking even at deals we are not involved in, but from of our independent peers are involved in, we still feel like the trend towards us - in our favor is very much intact.

Alex Blostein - Goldman Sachs

Got it. Then just quick last one for me. Obviously, we mention inversion deals is a big driver so far this year. Any thoughts at all on this topic, I mean, clearly the [this] continues to get I think a little bit worse on the situation, so I was wondering if you could provide any incremental color and how you think things potentially could shake out.

Chris Grubb

Well, certainly, we don't have any sort of pipeline as to what's actually happening in Washington, I am not sure anybody really does, but I think if you look at sort of this stalemate in Washington on so many issues, there has got to be a reasonable chance that despite lots of people wanting to change the rules, but they won't be able to change the rules in the short-term, so I think that's why a lot of companies continue to look at these transactions and I don't think there will be hundreds of them. There haven't been hundreds of them in their whole history, but I do think there will be more.

I even look at our own situation and the tax rates we pay in different jurisdictions around the world and it's just wildly different what we pay on a European profitability for example to what we plan on U.S. profitability, so I think until the law changes there will be more of these transactions and I'm probably not that optimistic in terms of there being the rapid change in Washington that would stop these.

Alex Blostein - Goldman Sachs

Got it. Thanks, Chris.

Chris Grubb

Thank you.

Operator

Our next question will come from John Dunn of Sidoti. Please go ahead.

John Dunn - Sidoti

Good afternoon, guys.

Scott Bok

Hi, John.

John Dunn - Sidoti

Just wanted to touch quickly on the restructuring businesses, just given your experience with it, do you think we need to wait until some move from the fed or can that business start to improve in anticipation of that.

Chris Grubb

I think, starts have really improved significantly. I think, you are going to need some increase on rates whether that's driven by a move by the fed or not, I don't think really matters, but you are going to need to some increase in not just in rates, but in just constraining a little bit the very accommodating credit markets that we have had.

I am not saying it's entirely dependent on that, because some of it is just there were a lot of deals done, call it, five years ago that or more where people have kind of various things to postpone the need for refinance. I mean, you can't do that forever. At some point there all need to be a refinancing some of the highly leveraged companies out there, so we think it will get better. For it to get a lot better, clearly you are going to need tighter credit markets.

In the meantime, we are trying to do more things and things like the equity financing advisory area which is obviously at the most that can do a lot better in booming equity markets like we had today.

John Dunn - Sidoti

Got it. Then just on the Capital advisory business, does it feel like it's shaping up to be another seasonally strong 4Q being most strong of the year?

Scott Bok

No. I would not say that. As a matter of fact, that's kind of the flipside of the fact that I said that we are off to off to fabulous start. It's, historically, and I have no idea whether if it's kind of long-term seasonal trend, but historically it did seem like a lot of their revenue came at the end of the year.

For whatever reason, this year we have had some very significant transactions that have closed and some more that have closed even already this quarter, so it looks like it's going to be much more balanced over the course of the year than it was in the past.

John Dunn - Sidoti

Great. Thank you.

Scott Bok

Thank you.

Operator

Our next question will come from Michael Wong of Morningstar. Please go ahead.

Michael Wong - Morningstar

Good afternoon.

Scott Bok

Hello.

Michael Wong - Morningstar

I was wondering if you could give just a quick update on your managing director headcount.

Scott Bok

I think, there 65 or 66, something like that right now.

Michael Wong - Morningstar

Okay. Back to independent advisory market share, would you say that currently independent financial advisory investment banks would have a greater share of strategic transactions or transactions that don't require financing compared to the universal banks?

Scott Bok

I don't actually think that financing drives things that much. I mean, get involved in lots of transactions. Obviously, if you look at them, some of the bigger ones we are involved in, many of them were quite very substantial financing and some actually we had a solid advisory role alone our major advisory role in those, so I don't think financing is not big an issue in terms of our ability to advise.

What I would say is a bit of an issue is, if there were a lot private equity deals which there aren't right now, but if you get to a market when there are a lot of private equity deal, I think those do tend to lean toward the big banks, because they need lots of financing. They are not companies with no access to credit and equity markets. They are sort of newly formed private equity vehicles to buy things, so there is a leaning toward the big banks there, but I feel like everything else, anything in sort of a public company world is completely fair game and a good opportunity for us.

Michael Wong - Morningstar

Okay. Thank you.

Scott Bok

Thanks.

Operator

Our next question will be a follow-up from Devin Ryan of JMP Securities. Please go ahead.

Devin Ryan - JMP Securities

Thanks. Just a quick one, so you mentioned getting pays in ways we can necessarily see, and so I just wanted to maybe touch on ratchets and fee conversations and if you are seeing any pickup there. You know, I know that makes our jobs much more difficult, but just given your strength on sell-side, I would suspected if that trend is move in a direction that could be a positive them for you guys.

Scott Bok

Certainly, we have benefitted from some of those over the years and those are obviously where the fee gets materially bigger as the deal size gets a little bit bigger, but that's not really what I was referring to.

I was referring more to sort of different types of advice and different types of client situations, but clearly we - fees are obviously holding up well. We haven't really sensed any meaningful change in fee policy over the years and certainly not in the current more active period, but as part of that I would say that ratchets have always been attracted thing that we seek to get on sell-side situations, where we think we can perform well for the client, but I don't think there has been a meaningful sort of change in that.

Devin Ryan - JMP Securities

Okay. Great. Appreciation it.

Scott Bok

Okay. Thank you. I think, that was our last question. We will look forward to speaking with you all again in about three months.

Operator

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.

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