Greenhill's (GHL) CEO Scott Bok on Q3 2016 Results - Earnings Call Transcript

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Greenhill & Co., Inc. (NYSE:GHL) Q3 2016 Earnings Conference Call October 24, 2016 4:30 PM ET

Executives

David Trone - Director, Investor Relations

Scott Bok - Chief Executive Officer

Analysts

Devin Ryan - JMP Securities

Conor Fitzgerald - Goldman Sachs

Jim Mitchell - Buckingham Research

Jeff Harte - Sandler O’Neill

Brennan Hawken - UBS

Ashley Serrao - Credit Suisse

Vincent Hung - Autonomous

Operator

Good day, everyone and welcome to the Greenhill Third Quarter Earnings Call and Webcast. [Operator Instructions] Please also note today’s event is being recorded. At this time, I would like to turn the conference call over to Mr. David Trone, Director of Investor Relations. Sir, please go ahead.

David Trone

Thank you, Jamie. Good afternoon and thank you all for joining us today for Greenhill’s third quarter 2016 financial results conference call. I am David Trone, Greenhill’s Director of Investor Relations. 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 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 on – 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 will now turn the call over to Scott Bok.

Scott Bok

Thank you, David. In the third quarter, we achieved revenue of $76.6 million, up 51% from last year’s levels. For the year-to-date, our revenue was $234 million, up 26% versus last year. Our compensation ratio was 53% for the quarter and 55% for the year-to-date, in both cases lower than last year’s levels even as the absolute dollars of compensation available for our team rose significantly. Our non-compensation costs were down in absolute terms versus last year for both the quarter and the year-to-date. Together, higher revenue combined with lower costs resulted in a pre-tax profit margin of 25% for the quarter and 24% for the year-to-date. As is typical with us and in contrast to our peer group, all those figures reflect all GAAP compensation and other costs with no pro forma exclusions.

Our effective tax rate was 32% for the quarter and 33% for the year-to-date, in both cases, well below last year’s levels, reflecting the diverse regional sources of our earnings. Our earnings per share for the quarter was far higher than last year’s low level, and for the year-to-date, our earnings per share has more than doubled. And our strong cash flow allowed us to repurchase some stock in addition to making a payment on our acquisition related term loan and paying our attractive dividend. I believe everything I have just said in that summary is consistent with what we have been signaling all year, much improved revenue, lower cost ratios and taxes, higher profit margin and some share repurchases on top of comfortably paying our substantial dividend.

Now, we will go into a bit more detail on both our results and our outlook with respect to revenue, cost and capital management. In terms of market environment, industry-wide transaction activity has continued to be relatively slow. If you annualize today’s year-to-date data for announced transactions, the global number of deals, $500 million or greater in size is on pace to be down around 20% relative to last year, while aggregate deal volume is on track to be down 24% despite a couple of very large deal announcements in recent days. The U.S. market remains the healthiest with annualized volume and the number of $500 million deals, both on track to be down materially from the level of the past 2 years, but still above levels in the several years before that.

Europe continues to be much weaker, with the number of $500 million deals on track to be down 22% versus last year to the lowest level since deal activity bottomed in 2009. Against that challenging market backdrop, we are very pleased with what we have achieved. We have benefited from strong revenue performance in U.S. and European M&A and some improvement in restructuring, which together have more than offset a very difficult period in other regions around the world. Industrials and healthcare continued to be the strongest sectors for us though several other sectors have also achieved solid results.

In capital advisory, our year-to-date revenue continues to show improvement from last year, but the third quarter was quite soft as fundraising activity appeared to slow down as a result of market volatility post the Brexit vote. Despite the difficult environment, it is now clear that this year will be a very strong one for us. Based on earnings announcements to-date, aggregate advisory revenue for the large banks and independent advisory firms with which we compete is on track to be lower than last year, while our percentage increase will likely be at or near the highest among the many firms in that group. It is the diversity of our revenue sources that are key to that success. Based on the expectations for a number of important M&A and restructuring completions as well as a strong rebound in capital advisory, our fourth quarter is likely to be our strongest of the year. This further demonstrates the breadth and diversity of our business and suggests that we are not overly dependent on a few large transaction assignments. While sometimes a single large transaction is talked about as an outsized part of our pipeline, from a revenue perspective, we have not seen for a number of years a single transaction that contributed even 10% of the year’s revenue.

Looking further ahead, our outlook for U.S. M&A activity remains fairly positive and that should mean our strong performance carries over into next year. We also believe there is further upside in restructuring where assignments tend to have a long gestation period. And we continue to like our position in the capital advisory business both in primary fundraising and secondary market transactions. The main source of further potential revenue upside for us relates to deal activity outside the U.S. We are a truly global firm as evidenced by the fact that in the year-to-date, nearly half our revenue came from cross-border transactions. We are clearly very well-positioned to benefit when deal activity in Europe and elsewhere picks up as we believe it inevitably will. On the cost side, there is not much new to say as for the full year, we continue to see slightly lower compensation ratio, lower non-compensation costs in absolute dollar terms and a reduced tax rate relative to last year. In terms of pre-tax profit margin, last year was the only time in the past decade that we were topped by another independent advisory firm and it looks like we are on track this year to return to our historic leadership positions.

Turning to capital management, on top of maintaining our substantial quarterly dividend of $0.45 a share, we repurchased 374,000 shares in share equivalents in the quarter and 946,000 for the year-to-date. Our track record of having a share count almost unchanged from the day after we went public 12 plus years ago continues to sharply differentiate us from other independent advisers as well as almost all of the larger banks. We ended the quarter with a revolver balance slightly above our global cash position, but with some large collections shortly after quarter end, our cash today is again well in excess of the balance on the revolver. Based on the outlook for the fourth quarter described earlier, we expect our strong balance sheet position to remain in place through year end.

I will close by noting that we added one more attractive managing director recruit since our last quarterly call for Latin America. That gets us to 5 for the year-to-date and we expect to announce at least one more in coming weeks. That would get us to a place consistent with my comment early in the year that we were targeting to hire several new MDs in 2016. Next year, we are targeting an even larger number as we think that issues at many of our competitors will make for a good recruiting environment. But I also want to highlight the potential for growth through internal promotions. MDs who rose up through our firm from junior levels have been key to many of our greatest successes this year and we believe they and those who follow them off the ranks will be major contributors to our long-term success.

That concludes my remarks. And we will now open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Devin Ryan from JMP Securities. Please go ahead with your question.

Devin Ryan

Hey, great, Scott. How are you?

Scott Bok

Very well, Devin. How are you?

Devin Ryan

Doing well. And maybe the first one just kind of thinking about the outlook, it sounds like momentum into 2017 feels better. So, I am just trying to get a sense, is that relative to kind of the momentum into 2016 kind of the beginning of ‘16, which was obviously your softest quarter? So, maybe it’s a low bar and that’s not really saying much or would you actually characterize the backdrop for Greenhill is actually improving, whereas you maybe at a better point at this part of 2016 relative maybe where at the same time last year?

Scott Bok

I think it’s – what we are thinking is that the beginning of next year sort of looks broadly consistent with the last three quarters of this year as opposed to the first quarter, which as you say was our softest of the year. It’s been reasonably strong results since then and things at least feel like based on the assignment pipeline like that is likely to continue into next year.

Devin Ryan

Okay, got it. Helpful. And then with respect to the significant closings you highlighted in capital advisory that slipped in the quarter, can you just speak a little bit more to that? It sounds like the backdrop changed a little bit for that business, so are those deals essentially pent-up deals and so they are going to close in 4Q or something used to shift in the backdrop a little bit to hopefully kind of reignite that engine and get things going there again?

Scott Bok

No, I don’t think it needs to be reignited. I think a lot of things just kind of changed a little bit in terms of timing. So we think the fourth quarter will probably be a particularly strong one for that business, whereas the Q3 was a particularly weak one. What happened in that business – unlike M&A, which is kind of a very long tail business that deals can go on for a long time and develop a certain momentum and kind of need to get done for whatever reason, a leak, a regulatory requirement or whatever it may be. On the capital advisory side, if you have a market dislocation with a lot of volatility, often things can move really just one quarter to the next while people wait to determine what – for example, what price they would pay relative to the net asset value of an existing fund or whether they want to invest in a new fund that’s being formed or something like that. So the dislocations tend to be relatively short.

Devin Ryan

Okay, great. And then just last one here, just on the buyback, you are going to see a little buybacks in the quarter, a lot of uses of cash moving forward and obviously moving closer to kind of the bonus payout, so just thinking about the outlook for buybacks and something – is it something we should continue to expect just based on the outlook and I guess how should we think about that?

Scott Bok

I don’t want to make a statement as to any particular quarter on what we are going to do just because there is no need to signal that and we decide, obviously just as quarters develop. But I think certainly going forward and for the near-term to medium-term, we absolutely expect that we will – the results continue to play out the way they have and the way we hope they will, then certainly we will continue to buy back some stock.

Devin Ryan

Got it. Okay, great. I will hop back in the queue. Thanks Scott.

Scott Bok

Thank you.

Operator

Our next question comes from Conor Fitzgerald from Goldman Sachs. Please go ahead with your question.

Conor Fitzgerald

Good afternoon.

Scott Bok

Hi.

Conor Fitzgerald

Hi. Just a quick question on the cost leverage you guys are seeing through the first three quarters of the year, assuming your 4Q revenue materializes as you expect, how much additional comp leverage do you think you have?

Scott Bok

What we try to generally do with our compensation is really look at it on an annualized basis and sort of set the ratio as the quarters go on in that way. I know some of the big banks tend to have a big sort of adjustment in the fourth quarter to get where they want to be for year end. I think for us, the better guidance as we have said all year is that we will end up with the comp ratio a bit lower than last year. That’s obviously where we already are. And I think that’s the best guidance for the fourth quarter as opposed to some significant move in either direction, frankly.

Conor Fitzgerald

That’s helpful. And then I think I heard you mention that restructuring was a tailwind for your results, any way you can kind of help us quantify how much of a benefit or a year-over-year improvement you saw. And then just given some of the healing we saw in kind of the capital and credit markets, do you still think the restructuring cycle is that as attractive from a revenue opportunity standpoint as you would have said say six months ago?

Scott Bok

Yes. On the first question, I would say frankly, unfortunately, it’s kind of difficult to quantify. I mean some of the bigger restructuring can be sort of like the bigger M&A deals. They can come in some large lumps and you don’t know exactly which quarter they are going to fall in, but they are quite nice when they come. And certainly, as I look at 2016 as a whole, it looks like a meaningful improvement from what granted has been a very slow restructuring environment for the last several years. As far as going forward, I mean, I am actually reasonably optimistic about both restructuring and M&A. It’s not one of those cycles where you think sort of restructuring is going to boom and M&A is going to be very weak or vice versa. I mean between the two, I am probably more optimistic about M&A because at least in the U.S. market, across a lot of different industry verticals, it seems like there is quite a lot of – and the desire among major companies to continue to consolidate their industries, so really quite optimistic about that, while restructuring continues to be largely, not completely, but largely focused in the energy area. So it’s almost by definition, going to be a bit less of an opportunity in relative terms than M&A.

Conor Fitzgerald

Thanks for answering my questions.

Scott Bok

Sure.

Operator

And our next question comes from Jim Mitchell from Buckingham Research. Please go ahead with your question.

Jim Mitchell

Hey, good afternoon.

Scott Bok

Hello.

Jim Mitchell

Hey, maybe we can just talk a little bit about non-U.S. activity, as you pointed out, it’s been sluggish, you are still more bullish on the U.S., what do you think has to change, is it – is Brexit just going to be an overhang for 1 year or 2 years or do you see something else that could help start to kind of ignite more activity overseas?

Scott Bok

Look, it’s been – obviously, in Europe, in particular, frustrating several years really didn’t have the rebound from the slump in M&A activity in the early days of the financial crisis. Last year was a pretty good one for us in terms of European announcements. And therefore, this year is a pretty good one in terms of European completions and resulting revenue. But still Europe, there is no question that it’s lagging the U.S. in terms of activity. You heard the statistics I have cited and I am sure you have your own. I guess I am still reasonably optimistic things will pick up. I mean this year, I would have thought might have built on last year’s improvement in Europe, but I think the market in the first part of the year was more worried about Brexit than I would have guessed. And by the way, the market turned out to be right and Brexit did happen and there was clearly some anxiety and some volatility that followed that. But it does feel like there is kind of a developing view in Europe that whatever Brexit turns out to be, it’s going to take a very long time to get done. It’s going to clearly involve compromises on all sides and I don’t think companies are going to wait around for years to figure out what exactly it means. I think they are going to continue as their U.S. and other global counterparts do and figure out how to consolidate their industries. So I think this year perhaps was a bit of an aberration and that you are right in the thick of Brexit falling right in the middle of the year, at least the Brexit vote. And I am reasonably hopeful that things will pick up of what’s been a fairly low pace.

Jim Mitchell

Okay, fair. But should we take from that that perhaps the tax rate could creep back up a little bit until, I guess the completions in Europe are a big part of this year and maybe a little less of next year, should we not get too carried away in kind of annualizing this tax rate?

Scott Bok

I mean I probably wouldn’t – would be reasonable to annualized them for this year. For next year, I mean it’s obviously early to say. Certainly, the beginning of the year pipeline looks a little more weighted to the U.S. So over time, I guess maybe our tax rate has been maybe in the 36%, 37% kind of rate. It’s a little bit lower this year. If we – if European activity kind of picks up, we will probably be closer to where we are now. If it falls off and we end up with a more predominantly U.S. business, it may be a few points higher than this year.

Jim Mitchell

Alright. Okay, great. Thanks.

Scott Bok

Sure.

Operator

Our next question comes from Steven Chubak from Nomura. Please go ahead with your question.

Unidentified Analyst

Good evening guys. This is actually Julian filling in for Steven.

Scott Bok

Okay. You are welcome.

Unidentified Analyst

Hi. So my first question actually pertains to Scott’s recent remarks around upside of 4Q consensus, how has M&A activity been tracking so far in the quarter for you guys and do you think revenues can match or even surpass your initial expectations from when you made those comments, I know it’s still early days, but any color would be greatly appreciated?

Scott Bok

Well, as I have said in my remarks, I do think it’s likely that the fourth quarter will be our strongest revenue quarter of the year and that is certainly quite a dramatic difference from what at least expectations were some weeks ago when I made the remarks you are referring to. I know expectations moved up a little bit since then, but I think you will find still a fairly meaningful difference between what I said about the fourth quarter and what some of the analysts like your own colleagues are expecting. And there is always some question about which deals will close, so you can never get too precise about this. But when I make a comment that’s on the near-term like that, I mean you are really focused very largely on deals that are – have clear completion dates in the relatively near-term as opposed to new M&A activity that’s just becoming known. So I wouldn’t – clearly, I repeated it today and said it even – maybe even in stronger terms. So clearly, the confidence, if anything has probably increased around the fourth quarter.

Unidentified Analyst

Okay, thank you. And just a quick follow-up on restructuring, I know you reiterated today how you expect restructuring to pick up towards the end of 2016 and early 2017, is that still going to be the case if spreads continue to tighten, just how we saw in the previous quarter and how should we think about the potential fee contribution from restructuring versus M&A, I know that you said that you are more optimistic on M&A, but just wanted to see if restructuring is going to be an even more meaningful part of the revenue pull going into 2017?

Scott Bok

I would say I think it’s going to be fairly similar next year to this year in terms of overall contribution and part of that is that there was a fair amount of confidence in the way the M&A pipeline is developing. Again, it’s hard to sort of give you a specific view as to the breakdown of revenue sources between those two. And as I have said for years as what’s tricky about it is that a lot of restructuring assignments end up in M&A transactions and some M&A transactions relate to restructuring situations. So it’s very hard to sort of draw lines between which is which, but we think we are in a period and we think we are going to continue to be in a period where the structuring team is reasonably busy and the M&A team is at least as busy. If you had things like interest rates come down or spreads tighten to the point where there is less restructuring activity because it’s even easier to finance things, that’s probably a good thing for M&A. So I think we are kind of well covered whichever way kind of credit markets go. If they get tougher for borrowers, I think we will see a little more of a swing towards restructuring. If they get more open for borrowers, then obviously that’s the great thing for the M&A business.

Unidentified Analyst

Alright. Thank you, guys.

Scott Bok

Thank you.

Operator

Our next question comes from Jeff Harte from Sandler O’Neill. Please go ahead with your question.

Jeff Harte

Hi, good afternoon guys.

Scott Bok

Hi, Jeff.

Jeff Harte

A couple of things for me, one, I don’t want to put words in your mouth, but you may have already actually done it, if you are talking about the fourth quarter potentially being the strongest quarter of the year, you are north of $90 billion revenues in the second quarter, that suggests a lot of potential revenue upside from what you are seeing now in the fourth quarter?

Scott Bok

Your math is correct. The second quarter is what it was and I said we think it’s likely the fourth quarter will be the best of the year.

Jeff Harte

Okay. And then looking at kind of how comp ratio versus revenues are trending in the year, some of your revenues are trending over $300 million on a full year basis through the first nine months, yet your comp ratio is, what a little over 55%, looking back versus history of $300 million revenue, I would typically have thought you would be more in the 50% plus or minus 300% guidance range that you used to give, is it just that Greenhill is now a bigger company, is that kind of the floor on where that comp revenue number can go down to kind of adjusted or maybe I guess more simply put, why are we running so high above kind of what we used to target for comp?

Scott Bok

Well look, we are still below our peer group, because I frankly think we are a more efficient firm in the sense that I think as I know employee numbers are hard to get. But I think if you have them and based on anecdotal evidence, we have some sense that I think our revenue per employee is probably higher than most or all of our competitors. So we are more efficient I think than most. But we are also a bigger firm than we were when – there was a day when $300 million plus of revenue would be a huge outcome and we would have an even lower compensation ratio. That bar has just moved higher. It doesn’t mean it’s stuck at the level it’s at today. It just means that the threshold that which you can have lower compensation ratio is a higher one. So we will see exactly how the fourth quarter turns out and where we set things for the year, but I think we are clearly moving in the right direction. I think we will still be both below our peer group and able to pay our people and reward them for what’s going to be a pretty good year overall.

Jeff Harte

Okay. And finally looking at non-comp, especially if we have a good ‘17 and the fourth quarter is strong, I mean should we be thinking of kind of that $16.5 million a quarter-ish dollar run rate or is that something that maybe if revenues accelerate turns more into a non-comp ratio as far as how we are kind of looking at it going forward?

Scott Bok

No. I really think the best way to look at non-comp is as kind of a fixed number that can move not so much with revenues but with sort of scale of the firm. If you look at it, it obviously went up. When we acquired Cogent, we had lost more people and a few more offices. It went up in 2008, ‘09, ‘10 when we probably more than doubled the number of offices we had and hired a lot of people. So you need more travel, more IT, etcetera. But I think if you looked at next year and a range of outcomes from similar revenues to a bit less to a bit more, I think that the non-comp is going to stay relatively consistent with where it has been in absolute terms. And even if revenue moved up fairly significantly, if the team size was broadly as it is today with some modest growth in that, I don’t think that would have much of an impact on non-comps. So I would think of that more in terms of absolute dollars that can evolve as the team grows and not as a ratio that’s kind of tied to revenue.

Jeff Harte

Okay. Thank you.

Scott Bok

Sure.

Operator

Our next question comes from Brennan Hawken from UBS. Please go ahead with your question.

Brennan Hawken

Thanks for taking the question. I just wanted to ask a follow-up on the – your very constructive comments on the fourth quarter Scott, just so maybe help understand a little bit, obviously you know we are limited in what we can look at and the public pipelines don’t suggest a quarter nearly that robust, I know you hit on restructuring, but can you give some more color to help us understand a little better some of the components that are driving that?

Scott Bok

Sure. I mean I think if I look at even our website and sort of troll through the transactions and look at public announcements about when things are going to close, I mean frankly, I can see a lot of it there. I mean as you all know, if you have a lead advisory role or even better a sole advisory role, you will get more attractive economics than if you are in a lesser role or with a lot of co-advisors. And I think we throughout this year have had quite – a lot of our assignments have fallen into the sole or lead advisor category. So the fee outcomes have been reasonably good even on the deals you can see. From things that you may not be seeing quite as well, I think there probably are some restructuring things going on that may tend not to be quite as tangible and public as sort of a classic M&A announcement. And lastly I would say that while as I know that the capital advisory outcome was fairly weak in the third quarter, we think it’s going to be the opposite of that in the fourth quarter. So that’s I guess just good M&A roles and outcomes and a bit more restructuring and a much better capital advisory and that kind of adds up to our optimism for Q4.

Brennan Hawken

So when we think about Cogent, should we use that 4Q – I know that the quarterly disclosures on the revenue have been limited, but I think it was 4Q ‘14 where they had nearly $30 million of revenue out of Cogent, is that the type of number we should be thinking about with Cogent here as we come into the quarter or can it be even bigger?

Scott Bok

I would not be nearly that optimistic. I think that was a real outlier. Their business as I have said – you are going back a good couple of years here, as I have said a number of times about that business, it’s been sort of remarkably consistent since we acquired it. It had almost like clockwork, sort of very similar revenue outcomes. All I am really saying is that, that part of the capital advisory business was weaker in Q3, but not disastrous in Q4 and likewise will be stronger but not multiple quarters worth of revenue. So there is nothing in that area that sort of solely explain sort of a big discrepancy in revenue. It’s really the mix of things, good M&A outcomes, little more restructuring and both the primary fundraising and the Cogent business making up for a weaker Q3.

Brennan Hawken

Okay. Thanks for putting up with all the questions and helping us walk through that. Couple of quick ones on the balance sheet. So, I think you had said that – sorry, geography first, I think you had said that overseas, activity has been soft, but we had the lower tax rate this quarter. Does that mean that your experiences this quarter were different than what you expect over the coming several quarters, because is it right to assume that the lower tax rate assumes a higher overseas mix of business this quarter?

Scott Bok

And not just this quarter, but really we kind of set the tax rate as I believe you are supposed to on sort of an estimate of where the annual is going to come out. So this year, as I said, it’s a little bit tricky, but it’s actually quite a good year in non-U.S. revenue. It’s not as good a year in non-U.S. announcement. So, a lot of our announcement activity for M&A has been focused on U.S. transactions, but we still have had really quite good revenue from Europe in particular coming out of a lot of announcements last year and early this year. So, I think the tax rate that you see for the year-to-date is kind of broadly our estimate of where we think we will come out at year end, obviously, be tweaked in either direction based on what exactly happens in Q4. And next year if we end up with a bit of a rebound in European activity, we could end up with a very similar rate. If it ends up being a little weaker, so we are more concentrated in the U.S., might be a few points higher as there has been in past history, but that’s probably kind of the range of outcomes. It’s not terribly wide, but we are certainly at the better end of it this year.

Brennan Hawken

Okay. And overseas cash, overall cash decreased $8 million. I want to say that last quarter the overseas cash was $45 million. Should we just – was there – was the overseas cash balances meaningfully changed this quarter?

Scott Bok

Not meaningfully. You don’t see our 10-Q files probably later this week and you will see that, but we continue to, again, like some companies that are much, much larger and more important than ours, we continue to basically, to some degree, fund our needs by letting overseas cash offset domestic borrowing and it’s the kind of interest rates one can borrow these days that, that works fine and we will continue on that path for the foreseeable future until there is maybe some corporate tax reform all along the way that would allow us to just treat cash on a global basis again.

Brennan Hawken

Great. Is that why the revolver went up to be this about $7.5 million this quarter? Just because of sort a...

Scott Bok

Yes, essentially. And as I said, even since quarter ended, we had kind of an unusual degree of early in the quarter receivables. So, we are now with cash well in excess of the revolver again.

Brennan Hawken

Okay, thank you.

Scott Bok

Thank you.

Operator

Our next question comes from Ashley Serrao from Credit Suisse. Please go ahead with your question.

Ashley Serrao

Good afternoon.

Scott Bok

Hey, Ashley.

Ashley Serrao

Scott, I just wanted to just clarify your line of sight into the business right now. Are your comments for strength confined to 1Q ‘17 or is it the entire first half of 2017 being better than the first half of 2016?

Scott Bok

I mean, there is a limit obviously to how precise I can be or want to be. All I can say is that we certainly are ending this year in a more robust way than probably a lot of people thought we would when they thought we were maybe too tied to a couple of key transactions. It’s pretty clear to us that the fair amount of that momentum will carry over into next year. It’s obviously difficult to say what’s going to close in Q1 versus Q2. But we feel reasonably good entering next year that we are going to continue similar momentum to what we have had certainly compare favorably to what was a relatively weak start to 2016 and we will see exactly how it develops as the quarters go on.

Ashley Serrao

Okay. And then I just want to also clarify the tax rate commentary, should we assume that 4Q will be the best EPS quarter as well from this year?

Scott Bok

Well, if it’s the best revenue quarter and non-comp comps are relatively flat, I think that’s probably a reasonable assumption, because our non-comp costs are – as I said, they are best looked at in sort of absolute terms. We certainly don’t expect the huge move in tax rate or we would be adjusting our tax rate differently for the year-to-date. As I have said, you tend to fix that on kind of an estimated basis for the annuals. So yes, I think that’s a fair assumption you are making there with your math.

Ashley Serrao

Okay. And then where are fixed – where is fixed comp running today between basis and salaries on an annual basis?

Scott Bok

I don’t have that handy. I would say this though that I think the kinds of revenue levels we are at now that’s kind of not that much of a relevant question. I mean, it became a relevant question when we had grown some and for example, last year had relatively soft revenue in the year in part because a lot of things rolled over into this year. Then questions like, okay, how much comp is really fixed becomes quite important, because it can impact your comp ratio. We are now at the level of revenue run-rate and profitability where comp is all about upside and discretionary comp to people as opposed to how much do you contractually need to pay them.

Ashley Serrao

Okay. And then just on your recruitment commentary, I was just curious, on a net basis, would you hope to have MD count next year? And also can you remind us how many client-facing MDs you have right now?

Scott Bok

We have about low 70s right now. I wouldn’t want to put a specific number on it for end of next year. I mean, as I said, we are quite hopeful of a significant recruiting year next year, including with maybe even another one or two before this year is out. So, we will have a few promotes. I am sure we will have a few people either retire or move to senior advisor, whatever the status maybe. So, there will be pluses and minuses, but I certainly expect we will see significant net growth next year just based on the recruiting pipeline that we are looking at.

Ashley Serrao

Okay, thank you for taking my questions.

Scott Bok

Alright. Thank you.

Operator

[Operator Instructions] Our next question comes from Vincent Hung from Autonomous. Please go ahead with your question.

Vincent Hung

Hi. Can you talk about whether your new hires this year gained much traction and also how last year’s crop fared as well?

Scott Bok

I wouldn’t want to try to draw a conclusion so quickly. I mean, anybody who joined this year, I mean some of them literally joined in the last several weeks having committed to join us 4 or 5 months ago and then working through their so-called gardening leave or their notice period before they could join. So, we certainly hire people on a long-term basis, not on the expectation that they could agree to join us in April, actually come in July and produce revenue before the year is over. That’s – I wish it was that easy, but it’s not. And I think last year’s recruits are making good progress. Your first measure of that was the quality of client dialogues they have, then you measure it with the ability to get engagement letter signed with assignments, whether or not at least to a transaction. And of course, over time, you want to see those actually turn into assignments and that ultimately to transactions and that ultimately to completion revenue. But you have to go through all of those steps before revenue actually appears on the income statement. And so we can say that we are happy with our recent recruits and we think they are doing all the right things. And hopefully, you are going to have great success here, but it’s not in a way you can sort of measure the revenue so quickly.

Vincent Hung

Okay. And given your constructive comments on the pipeline, do you think you can grow revenues next year?

Scott Bok

Well, I don’t want to make a forecast as to what next year is going to be. We obviously don’t do that and we are still working through this year. We are trying to push this year obviously as far as we can and have all of our efforts focused on that. It’s starting to feel like we have a nice pipeline going into next year. How exactly the year plays out? There is many variables there, but at least as of right now, again, in the U.S. in particular, it feels like the M&A market is reasonably active and we think we are going to get our share of the opportunity.

Vincent Hung

Okay, thanks.

Scott Bok

Alright. Thank you. I think that’s our last question. Thanks everybody for calling in and we will speak to you again in 3 months. Bye now.

Operator

Ladies and gentlemen, that does conclude today’s conference call. We do thank you for attending. You may now disconnect your lines.

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