Greenhill & Co Inc (GHL) 2011 Q2 法說會逐字稿

Good day, and welcome to the Greenhill & Company LLC Second Quarter Earnings Conference Call and Webcast. All participants will be in a listen only mode. After today's presentation there will be an opportunity to ask questions.(Operators Instructions) I would now like to turn the conference over to Richard Lieb, Chief Financial Officer. Mr. Lieb, the floor is yours, Sir.

Thank you. Good morning, and thank you all for joining us for Greenhill's Second Quarter 2011 Financial Results Conference Call. I am Richard Lieb, Greenhill's Chief Financial Officer, and joining me on the call today is Scott Bok, our Chief Executive Officer. Today's call may contain 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, are subject to known and unknown risks, uncertainties, and assumptions. The Firm's actual results and financial consult 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 SEC, 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.

Thank you, Richard. Let me start with the comment on the fact that we are having this call, which is our first quarterly conference call after seven years as a public company. Previously we relied on detailed quarterly Press Releases, and about eight to ten investor conference a year as our primary means of communicating with Investors. Going forward, following the suggestion of some of our some of our Investors and Analysts, we will also be doing a quarterly call. Our goal is to try to give investors a better sense of the state of our business, but without having any kind of forward guidance or projections. Also, given the confidential nature of our business, we will talk about the business generally rather than say much about specific clients or transactions.

Turning to the second quarter results that we just announced, we are pleased with what we achieved in a number of respects. We always caution not to read too much into any one quarter, but for the second quarter, our advisory revenue was up 38% versus the prior year. Our total revenue was up 9%, and our earnings per share was up 21% versus last year. The total revenue and EPS figures were all less than the advisory revenue figure, because last year, we were still, to some extent, in the Merchant Banking business, and therefore had more revenue in that area that we did this year.

Looking at the year-to-date information which is more meaningful given quarterly volatility, our advisory revenue was up 36%, total revenue was up 5%, and EPS was up 8% versus last year. I think it's worth commenting on the fact that we again achieved considerably more revenue than was expected, based on transaction headlines or league tables. This level of revenue was not from one big undisclosed fund placement assignment, nor was it from one big hidden M&A or restructuring revenue event the data bases or analysts missed. Our revenue this quarter essentially all came from our historic core business, which is advising major corporations around the world on important transactions and related matters. We simply do more of that, than is apparent in newspaper headlines.

Our quarterly revenue result reflects well the current state of our business, which is that it has improved quite considerably from the depths of the M&A downturn, and that it has developed quite expansive breadth. For example, our number of million-dollar revenue clients for the first half increased 80% compared to last year. And you may recall that for the full year last year, it was up 33% from the year before. We are clearly covering a lot more clients than we used to, and more sectors and regions around the world, and doing so successfully. In achieving what has been a strong first half in the advisory business, we have seen good contributions from each of North America, Europe and Australia. We list in our Press Release, eleven transactions that were completed during the quarter, including two quite large ones. But it is also increasingly clear that we earning a significant portion of our revenue in ways that are not apparent from M&A announcements or completions, or from the league table data, which we have warned many times can be quite misleading for the firm of our size. On the transactions that you do see is associated with publicly, I am pleased to say that we have had a major advisory role in pretty much every situation we have been involved in.

In terms of the current level activity, we are pleased with the breadth of our business. With respect to the quality of our current assignment list, you would have to go back multiple years to find as good a breadth of large, important, and high probability assignments. On the corporate advisory side, business remains strong in Australia. We are seeing more activity in Canada and Germany than has been the case for a while. The UK and Europe generally are finally seeing the beginning of a rebound in activity, and given our historic strength in that market, that bodes very well for us. Lastly, where we are probably seeing the most significant increase in activity is in the US, where half of our managing directors are based. But it is also noteworthy as how much of our business is cross border, including the two largest transactions listed in our Press Release, and many of the others.

We have built a seamless organization, all wholly owned and operating under the Greenhill brand, that covers nearly all the geographic markets where transaction activity typically runs at a fairly high level. As we go forward, we will look to continue to expand that global network of Greenhill managing directors. Apart from the corporate advisory business, it is worth mentioning our private Capital Advisory business. This business, which operates globally and consists of the real estate side and a private equity side, does fund placement for private funds, handles secondary transactions and private funds, and provides other related advisory services. This business was a very modest contributor the last couple of years, in part because the real estate side only arrived at the firm mid year last year, but it looks set to make a meaningful contribution this year. Over time we think this can be a major business for us with productivity levels comparable to our corporate advisory business. However given security flaw issues related to private capital raising, our involvement in transactions in this area will be less visible to the public than our role in M&A transactions.

Speaking of productivity, it is important note that while our advisor revenue was up very substantially from last year, and last year as a whole was up 17% compared from the year before, we continue to be at much lower productivity levels than we enjoyed for most years of our history. Based on what we can see with respect to our relationships and client dialogs at our various businesses, regions and industry sectors, we see no reason why we can get back to the productivity levels consistent with our history, as and when M&A activity rebounds, continues to rebound from a level that continues to be well below the historic norms and as our private capital advisory business continues to mature. And when we talk about productivity, is important to note that while revenue per managing director is a useful statistic, we have also always looked closely at revenue per person. That figure was typically $1.5 million to $2 million per employee before falling to about $1 million when M&A activity plummeted during the financial crisis.

Before I turn it back over to Richard, let me say that over our seven years as a public company, we have sought to achieve more things, and I think we've succeeded in each. Growing market share, lower costs than our peers, a flat share count, and a strong dividend. We've achieved each of those consistently during that time and this quarter's results speak well to each those needs again. With respect to market share, we focused on our share of the global fee pool rather than a league table ranking that we see as largely irrelevant. Investors will see for themselves how our 36% year-to-date advisory revenue increase compares to that of other firms. Last year our nine large bank competitors saw about an aggregate 2% increase in advisory revenue, while ours rose 17%, and the year before, that group saw a 27% decline, versus only a 1% decline for us.

Clearly we are continuing to gain share of the global fee pool, and you can find all the details of that data in our latest investor presentation on our website. As to what is driving that share gain, I think it is multiple factors. One is that there is a general trend of major companies looking to firms like us for advice, rather than on large banks, which are really more focused on investing, lending, and trading. Second is that we have clearly added a lot of geographic and industry sector capabilities in recent years, which is serving us well. And third is that our brand continues to grow with each new transaction, and each year of continued success. Now let me turn it back over to our CFO Richard Lieb, who will speak to the themes I referred to, along with some other highlights. Richard?

Thank you, Scott. I want to touch on four broad topics. The first, compensation cost, second non-comp costs, third balance sheet issues, including a discussion of the recent sale of some of our principal investment positions, and finally, I want to talk about investor relations. Let's start by talking about the comp ratio, and I want to first step back and discuss our philosophy, and our history. The philosophy that we laid out at the time of the IPO was to strive to keep the comp ratio below 50%.It is obviously good for shareholders, and it is also good for employees, as we believe it leads to a stronger stock valuation over time, which is critical, and because employees have meaningful stock and RSU positions, and will continue to receive meaningful levels of RSU's as part of compensation going forward. Stock price performance is very important to us.

For our first six years as a public company, we came even lower than our stated objective, with a comp ratio right around 46% every year. Last year, we were not able to do that. After three years of meaningful expansion of our professional staff, and three very difficult business years in terms of general market transaction activity, our comp ratio came in at 57%. This was still better than our direct competitors, and in some cases meaningfully better, it was inconsistent with our objective, and did not in any way represent a change in our long-term philosophy.

But now let's turn to the 2011 comp ratio. For the second quarter, we were at 46%, consistent with our historical ratio. The first half, the comp ratio was 56%, so the obvious question is where will we be for the full year. The answer is, it's going to depend on how the year plays out, and you have already heard our comments about our current level of client activity. Let me make one final comment on compensation, which is that we need to pay our people competitively in order to maintain a strong franchise. Based on what we can already see about this year, there is no question we will do that. It will be a good year to be a Greenhill employee. In order to pay well, while also achieving high profit margins, we need to be very productive particularly in the revenue per employee metric that Scott talked about earlier. This quarter's results are indicative of our ability to accomplish that and thereby to reward both shareholders and employees as transaction activity rebounds and our market share continues to grow.

Let's move on to talk about non-comp. The non-comp expense had a bit of noise in it this quarter that the recent range still holds. Stepping back when thinking about our non-comp, it is important to start by looking at the second quarter of 2010, which is the first full quarter with caliber in our Australian acquisition in the numbers. The five quarters, starting then, the non-comp expenses have been $14.9 million, $15.9 million, $15.1 million, $14.7 million, and for this quarter, $15.9 million. While this quarter was at the high end of the previous four, we believe that the range in the past five quarters represents the current non-comp run rate reflecting the hiring and the office build out for the past few years, and we would not expect that range to change much by any future growth initiative.

Moving on to the balance sheet, first let's talk about our principal investments. Just to review, in June we sold substantially all of our limited partnership interests in GCP2 and GSAB for approximately $48.5 million, right in line with the March 31 carrying value. To remind everyone, these were our LP positions in two of the four funds we had originally sponsored in which the GCP management team took over in a deal that closed at the end of 2010. The proceeds from these sales were used for exactly what we said over time they would be. First, we returned some of the money to shareholders for share repurchase. As I'm sure you saw in the Press Release, we bought nearly 372,000 shares at an average price of $51.63 for a total cost of approximately $19.2 million. The remainder of the cash was used to pay on the credit line. So at the end of the quarter, we have $59 million in cash and $25 million to run on our line. Given our line was in place historically mainly to fund capital calls and are now mostly exited the fund business, we would expect to continue to maintain a strong net cash position globally.

Now that we are no longer in the investing business, there is simply no reason for us to carry that much debt. We've extended the term of the revolving debt facility until April 30, 2012. The principal amount available under the facility is currently $60 million, and effective of September 30, 2011 reduces to $50 million, for the duration of the facilities term. Finally, I would note that we still have investments on our balance sheet well in excess of $100 million of which Iridium accounts for $85 million, with most of the remainder being our LP investments in GCP Europe. These investments will also be liquidated over time, with net proceeds mostly returned to shareholders.

Just to clear up any confusion, let me give a few details on our Iridium position. Originally we had 8.9 million shares and four million warrants at a strike price of $11.50. This past June, those four million warrants were converted at a rate of 0.22 shares per warrant into common shares, giving us an additional 880,000 shares. Where we stand right now is very simple. We own 9.8 million shares of Iridium, and we have no warrants. The math going forward is therefore also quite simple. For every $0.10 per share move in Iridium stock on our 10 million shares in Iridium, our value changes of approximately $1 million.

Lastly, I want to touch briefly on investor relations. We spent a lot of time meeting with investors recently, whether in sponsored conferences in New York and Chicago, or analyst led days in Boston and San Francisco. We plan to continue these types of meetings in the future, and going forward we will also do these quarterly conference calls. Let me turn it back to Scott for some final comments.

Mr. Lieb? Mr. Bok?

Yes, I'm sorry. I accidentally had it on mute. Thanks, Richard. Given that we are in a people business, it is probably appropriate to always make a comment on people issues. In a couple cases recently, the loss of a Greenhill partner received news coverage, so let me comment on that. First of all, it is probably inevitable, but when you have people who have been in at a firm for 15 years you will have some of them leave. And when you have added forty plus managing directors in just three years, you can probably also expect some departures over time. But it is wrong to assume that every departure is unplanned or unwelcome, or that even the ones that are unplanned will have a material impact on a firm of our size. No well-managed business is or should be static. When you see the people leave Greenhill, it can mean one of several things. In some cases senior people leave as part of a normal, well-planned and healthy transfer of responsibility and opportunity to the next generation. And other cases, we ask senior people to leave because they were not successful with us.

In still others, they leave without being asked, because they realize themselves that they were not successful for us. And in other cases, given the size that we have achieved, it is inevitable that we will occasionally lose someone we wanted to keep, simply because a competitor offered him or her materially more than his or her productivity for us merits. It is simply not appropriate for a variety of obvious reasons for us to explain publicly what category each departure that occurs falls into, and we won't be commenting on future departures, other than those of the executive officers of the firm, none of which are certainly currently anticipated. What I can tell you is this, we have had a very good retention of key people over time, and we expect that will continue to be the case. And that the quality of our business is much improved, and is even quite strong today despite any departures, and we expect that will continue to be the case. I can also remind you that our compensation system is designed such that when we do lose a senior person, whether by his choice, ours or a combination of that, we typically recapture significant RSU's, which enhances our ability to achieve a low current compensation ration, to pay our people well, and or to recruit new senior talent to the firm.

Finally, let me say categorically that none of the personnel departures or changes this year have caused us to make any adjustments to the lengthy list of assignments and related revenue in our pipeline, which we expect will play out over the coming four or more quarters. Please note the unqualified use of the word any. And while I have said we see no measurable impact from our large pipeline of assignments, we do see a measurable and substantial impact on our cost. Based on where we are now, we estimate that our fixed compensation costs which are the sum of that base salaries and RSU amortization for the full year 2011 will be about $120 million, considerably lower than last year despite many new managing directors and others added since the beginning of 2010. That obviously gives us a significantly improved ability to both pay our people well and produce profit margins like we generated this quarter. At the beginning of the year we said we would seek to return to our historically very high profit margins both by increasing advisory revenue which we have done to a very substantial degree in the year-to-date and by creating more flexibility in our compensation cost structure, which we clearly have also done to a significant degree. Thank you and now let me throw it open for questions.

Thank you gentlemen. We will now begin the question-and-answer session.

(Operator Instructions)

Our first question comes from Daniel Harris of Goldman Sachs. Please go ahead sir.

Good morning guys. How are you?

Good.

I wanted to touch on what you had said, Scott, with regards to the divergence from the publicly available deal statistics. I completely understand how your business is much more diverse and broad that it has been. But there has been a real divergence over the last two quarters, and I think what I'm just trying to get my arms around is, we can all look at what that has been historically and rush to our own conclusions about why that was that way in the past. But what do you think is driving that change more recently? And most notably over the last two quarters, where there has been real divergence over what we've seen historically.

That's a little bit of a hard one for us to figure out, but certainly there is, you're right, an incredible divergence. I mean, I've never seen a Dealogic report, I don't know what they look like, but I did read in one of analyst reports that we beat their number by about 300 percentages the last two quarters. I know, just to prove how crazy the reliance on that source is, the Wall Street Journal article this week, which on the whole I thought was a positive article for us, actually has a graph, a chart, that says Greenhill M&A revenue advising and in 2007 they showed what looked like about $250 million. The real number was $370 million that year and year-to-date it shows more like $40 million something, the real number was more like three to 3.5 times that. People slavishly rely on that Dealogic data, which obviously doesn't fit what we do at all.

I guess I would say this. We do certainly have a growing list of retainer clients who pay us apart from transactions. Restructuring historically has been a business that you earn a fair amount of revenue without it showing up in the league table and announcements. But overall that is a fairly quiet business right now. We are doing more things that are more financing related advise. I think everyone knows we are advising that US Treasury in relation to AIG.

We have actually three different assignments right now, all related to the infrastructure with New York City. We have other projects that involve financing advice around the world, advising governments in New Zealand and Norway and Australia, and a lot of that does not show up. Frankly, I will admit that it feels to me that 90% of what we do is what I would call M&A, what I would have called M&A even when I was at Morgan Stanley as well. It's obviously a broad definition of corporate advise. Clearly it is adding up to a lot more than what a simple sort of the league table check can show people on the outside.

Okay. Thanks. Appreciate that. And then just following up on that, one of the other metrics that we look at which is both based on your historical revenues is the efficiency per bank, which you did touch on as well, Scott.

How should we think about getting back to a historical level where you guys had been prior to the expansion over the last few years where north of $10 million per advisor was something that seemed pretty in line for a few years. We are less than half of that now. Is that the way you think about where we are in the cycle? That we are less than half way to peak levels? Or that the expansion into new areas, people and geography is likely to depress the number from where it has been historically close to $13 million.

$13 million is more like the peak, and there were a number of years that were $10 million or higher, and I think over time if you look, and I think we put the data into some presentations at $7.5 million or $8 million, is more of an average figure for us. Which is still, as you said, well below where we are at today. I think you would be probably accurate to say that our view is that we are probably half way back to what is a good M&A market clearly has picked up some. We have benefited from that, but it's got a long way to go.

I think another way to look at it is if you broke our business down into various segments, I would say we are at a very good level of productivity in Australia. I think we are probably pretty close to a very good level of M&A, MD productivity in North America. We are certainly not there in Europe.

It has been a much tougher market for reasons we are all familiar with. Likewise the private capital advisory business which is fairly new to us has been an area that has been less productive.

So, you can get there two ways, back to the historic level. One is just rising title lifts all boats, there is a lot more M&A activity, and we continue to grow our market share some. The other say is just to take frankly where we are now, and say well what of North America and Australia stayed about as they are today, what if Europe that back to a norm, not even the peak, and what if fund placement private capital business got to where it is capable of, that would get us there as well. It's not like we need to get dramatically better in the US, the laggards really are, in terms of M&A activity, and really are Europe and of course the product capital business.

Okay. And then just last for me, on the environment out there, I think you can point to a couple of reasons why M& A should continue to grow from here. I think we all see some of those, and yet in the past few quarters it seems like there's some pretty big overhangs with regards to what is going on in the US, most notably in Europe. How would you characterize CEO conversations that you're having now, versus a quarter or two quarters ago? Are they incrementally more nervous with regards to growth opportunities, or even what the near term future looks, or are they looking past the near term thinking that there will be solutions and that they will be able to make deals that will be very accretive for shareholders 6 to 12 months out.

I can only speak for us. I can't speak for the whole market, so I don't know necessarily what others are seeing out there. But I would say, and clearly I said it, that we have the best assignment list in terms of size and probability and so on that we have had in multiple years. Last year I would say in sort of a spring, early summer, we definitely got off to a great start last year, and then there was the real sag, and all kinds of worries about European sovereign debts and that obviously is what led to QE II, et cetera, and things finally picked up much later in the year.

I have not seen anything like that so far this year, and in fact, I don't know if people are kind of tired of waiting around or they feel like they have cut their own costs as much as the can, or if they are sitting with a big cash balance and an un-levered balance sheet, and of course most companies are performing quite well right now. They simply want to do something to grow their business. But for whatever reason we are really are seeing a lot of interest among CEO's and boards in doing significant strategic transactions. At least as of yet we have not seen any pull-back in the same way that we saw at the beginning of last summer when the sovereign debt crisis in Europe first hit.

Okay, thanks guys.

Thank you.

And the next question we have comes from Devin Ryan of Sandler O'Neill.

Good morning guys.

Good morning.

Can you give us the number of where headcount ended for the quarter? I didn't see that. And then, if you can, also just talk a little bit about your outlook for adding senior bankers from here, clutch conversations you're having, are there any sectors or geographies that are priorities, and would you look at as additional acquisitions similar to what you did with Caliber to achieve that?

Sure. As far as headcount for the year I think as I have said, or at least I said maybe in the Wall Street Journal article or something, but we are down a single digit percent. We are down very modestly from year-end. Some of the departures, but there have been others at various levels, but it is really very modest in the scheme of things. It truly is. I would bet we will end up finishing this year at roughly the headcount we started this year, which is probably not a bad place to be, given that for the three prior years, we went up by about 2.5 times in terms of the number of MD's and quite substantial in terms of overall personnel as well. I think that was very clear at the beginning of the year.

We've had three extraordinary years. We had 28 management directors the day Bear Stearns failed, and we obviously grew dramatically three years in a row, the third year being through Australian and then through getting more into fund placement. We said at the end of the year, this would be a year of digestion, it's going to be a year of integrating all those people and getting the most we can out of them. We don't think it is going to be as great a recruiting environment for a bunch of reasons as it was during the crisis when the very best people were very anxious to find new homes.

Now, that's not to say we are not still talking to plenty of people. We have said for a long time that Brazil in particular is quite a high priority for us and I do still expect that we would do something in the near term there. I don't think it will be something of the size we did in Australia because I don't take that think really exist in terms of a 10-year-old firm that is highly profitable and would be a perfect fit with us. I think we will do something down there.

We are having selected other conversations with senior bankers, and my guess is just frankly because of continued tribulation at some of the bigger firms that next year will again be quite a significant recruiting year for us. Because I think after maybe a year of seeing how things might get better, I think people will continue to be disenchanted with the bigger firms, and so I think after a one-year integration and consolidation period, I think we will be back to a pretty meaningful level of MD growth next year.

Okay, great. And then just maybe digging into Europe a little bit more. In the UK specifically, it just represented such a big percentage of where your resources are allocated and obviously it was a big tailwind for you in the prior cycle. You noted that things are starting to pick up there but we all know the issues that are over there.

What you see as the potential for activity maybe just in Europe broadly, but also in the UK, just in the cycle? How big do you think Europe could be? Will it be bigger or less than the prior cycle?

I think that the potential there is going to be fitting with history. As I talked to you and many others over time I have lived through three down cycles over the course of my career, and I can tie you that at the bottom of each one and I like you would never get back to the prior cycle peaks, and yet you always do, and the peak always ends up being even higher. I think that is true in Europe. I don't think that the major companies based in Europe can stand by while their competitors in the US, and increasingly in the developing markets are consolidating their industries around the world.

I think they will have to step up and participate in this consolidation. I think there is, as I alluded to in my comments, that there is evidence that is starting to happen. We do have quite a number of attractive assignments in Europe, particularly the UK right now. I mentioned Germany is quite strong for us this year, probably considerably stronger than last year.

But the UK is where we really had an extraordinary market position, I still think we have every bit as good, if not better of brand name and set of relationships here. I think over the course of the cycle really been starting in the latter half is year we are going to see an increasing contribution from the UK.

Okay, great. And then just lastly for me, in terms of the remaining merchant banking portfolio, do you guys have a timeline excluding the Iridium position -- do you have a timeline for when you would like to liquidate that and could you potentially do another sale like you did with the other portfolios?

Let me comment on both pieces of that. The non-Iridium it is actually fairly small now. I think it consists of a whole lot of different investments, some of which are quite old, and some of which are much more new. I think that will naturally liquidate as those funds liquidate. I don't expect another transaction like the last two that we did.

I do think we will get cash out of that portfolio, even as soon as this quarter. It will be in lots of smaller transactions as things get liquidated and sold, levered off and recapped, and whatever the fund managers decide to do. I think that will naturally, over the next, probably roughly evenly over the next couple of years, I think we will be completely liquidated to a very large extent.

Iridium we continue to believe is a company that is performing extremely well, and we think is worth a lot more than what it is trading at in the market, so we are not in a hurry there. I think over time obviously it is not a core holding for us, so don't expect us to be holding it five or ten years from now, but we really think there is a lot more upside potential there. So we chose to liquidate some of these other ill-liquid investments, so we that would be able to really hang on to a significant stake in Iridium until more of that value is realized

Okay, great. And then just lastly in terms of your pipeline and you think about your pipeline currently, the stuff that has not been announced. Is there still a runway, you think a deal could close this year, or are you starting to get to the point where we are starting to talk about 2012 deals -- recognition of revenues from deals being announced?

Certainly there are factors in situations where it is a highly regulated situation. Maybe there will be a long antitrust review where if you announced the deal tomorrow it will not close this year, but in the large majority of the cases -- let's put it this way. I think we already have and we keep a rolling four quarter forward pipeline of every assignment we are working on, what that the fee is, what the probability of success is. Our first quarter already is a long, long list. There are many things where the way it will play out, we think it's going to be next year, and that's great, we are building a great pipeline for 2012 and beyond. But there are still plenty of things.

Most of the things probably that we think have a good chance to close in the latter quarter of 2011 are things you have not even heard about yet. And we don't need to have a huge percentage of those closed. We have a lot of them there. In many cases you can announce the deal, if it's a private deal, even as late as October or November and have it close this year.

If it is a public deal, buying a public company and taking it private, that probably has to get announced by something like end of September to have a shot at getting done this year. There is still plenty of time to play for making 2011 a good year.

Great. Thanks a lot guys.

Sure.

The next question I have comes from Doug Sipkin of Ticonderoga.

Thank you and good morning guys. Just had a couple of questions, and then a clarification, maybe just for Rich. I just want to make sure I got the numbers right. It you did indicate that you did roll over the credit line, I guess and now you guys have a $50 million credit line through April 2012?

Actually, just to be clear, the facility goes through April 30, 2012 and the availability is now $60 million effective September 30 of this year, it will be reduced to $50 million for the duration of the facility.

Okay. It goes to $50 million in September?

Correct.

Okay, perfect. And then just a comment about fixed compensation. I definitely appreciate the disclosure, I think Scott, you said it would be about $120 million this year versus $160 million last year?

Yes, I did say $120 million for this year, but I think $160 million sounds considerably high for last year. I don't remember exactly what it was.

You are right. It probably was not $160 million. I'm sorry, go ahead.

It's going to be down meaningfully from last year but it was not $160 million last or so it is not that meaningful.

I got you. That's a fair point. With the employee headcount flat, how is that happening?

Well, it's kind of the comment I made. When people leave us, the point I'm trying to get across really in terms of some of the departures, not only does not every departure have a revenue impact, but they do have quite a significant cost impact in terms of restricted stock that gets forwarded, forfeited, and obviously people stop collecting a salary once they are gone as well. So if you look at the impact of those two things, it is quite substantial. That is what is the main thing that is really reducing considerably our fixed costs for this year.

I got you. So you are actually allowed from an accounting standpoint reverse some of the restricted stock expense that you have taken against them? Is that right? Because I was under the understanding it would just have to change a forfeiture assumption.

No, if you given someone a some restricted stock and let's say he's owned it for a while and it is 80% amortized to our share count, and then he leaves and gives all that back to you, I don't know how make sense to account for that other than that you get that money back. It effectively flows back into your compensation pool to get paid to the people who remain at the firm.

Okay, great. And then just can you talk a little bit about maybe the competitive landscape? I know you guys have always talked about the big bulk bracket firms being competitors. I don't know that has changed. It does feel like there is a more small private boutique shops popping up.

What are your view about them being competitors? Is it increasing the competitive landscape? Obviously it is a very competitive business to begin with. I'm just curious, is that is adding more competition or if that's always been this way and that's what it's going to be going forward.

I think it's always been a ferociously competitive business. I think there's no question that the key people from whom we seek to gain more market share continue to be what I call the big nine global banks. They probably still collect well more than 80% of all the advisory fees paid in the world, and I think the evidence is just undeniable that share for them as been shrinking over time. That is the main source of how we are going to gain market share over time.

Certainly it would be great to be the only alternative to those nine firms, and then we would get all of that. Clearly some other boutiques or independent firms, whatever you want to call them, have grown up over the years.

I think very few we would really see as competitors of ours. Some our competitors in a particular industry whether its tax, whether it is consumer, whether its certain other sectors, financial services for example where there are some boutiques that focus just on those areas. But as far as firms that can do really what we do probably 40% of the deals that we announced are cross border deals. I think we are one of the very few firms that have a very strong position not only in the US, but in the UK across Europe, Canada, Australia, Japan. That is going to be tough for other firms to build out in the same way that we have so I feel fine competing with the other independent terms, and frankly I believe some of those firms including ourselves will probably continue to gain share at the expense of the big nine.

Okay, great. Thank you for taking the questions and I do appreciate the conference call.

The next question we have comes from Lauren Smith of KBW.

Good morning.

Good morning.

Scott, you noted that you expect that maybe next year could be another significant year for headcount growth. So where do you see that growth coming from? Is it certain industries you feel you need to be in? Is it adding to your private capital business? Or is that adding another geography like Brazil that you have identified as being a high priority? Or all of the above?

I think that to be honest it probably is a little bit of all of the above. I think we now have a pretty strong base across a lot of different geographies, many of which we have been and are very long time, and across certainly a large majority of the relevant industries out there. When you think about growth of managing director headcount going forward -- and by the way we are growing a lot of our own talent as well, so we certainly expect to continue to see as we have for the last several years, some internal promotions into key and regional sector positions. Sitting with 12 offices now, if each one added one managing director next year that would actually be quite a lot if they added one on average.

I don't think it is that hard to figure out where the growth might come from. I suspect it will be a whole variety of things. It will be some new markets perhaps like Brazil. It will be some new factors that we don't really cover much today. And it will be other sectors that we are trying to build out from having one or two people who do it maybe in one or two markets to having a more global team that covers an industry sector. I am certainly open minded to the big position like we did with Australia or we did with the private capital advisory, but my guess is that next year will be more like a number of individual people filling in individual niches for us.

Great. Thanks for that color. And I guess just lastly for me you re-purchased some stock in the quarter, and then you have a fairly sizable remaining authorization, $60 million plus, given stock price and the there's been a lot of volume, is it fair to say you guys are out there actively buying back your stock?

We are not today because we are always frozen for a couple of days after -- for a few weeks before and a few days after each earnings announcement. But certainly we think that is a good use of some capital, and you can see from our balance sheet that it is really very strong. You can see from our earnings and what I said about the pipeline that we feel good about our cash flow. Certainly we do hope to buy back more stock in the coming period because, as you pointed out, it's at a value that we think is quite attractive for us to be buying it in.

Great, thanks for taking my question.

Sure. I think we should probably wrap it up at with that one. Richard, do you agree with that?

Yes, I agree.

I want to thank everybody for joining our first call and we will look forward to speaking to people again in about three months. Thank you.

Thank you everyone, goodbye.

We thank you gentlemen for your time. The conference has now concluded. We thank you all for attending today's presentation. At this time, you may disconnect your lines.