Greenhill & Co Inc (GHL) 2013 Q1 法說會逐字稿

Good afternoon, and welcome to the Greenhill 2013 first-quarter earnings call. All participants will be in listen-only mode.

(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.

Thank you. Good afternoon, and thank you all for joining us today for Greenhill's first-quarter 2013 financial results conference call. I am Chris Grubb, Greenhill's Chief Financial Officer, and joining me on the call today is Scott Bok, our Chief Executive Officer.

Today's call may include forward-looking statements. These statements are based on our current expectations regarding future events that by their nature are outside the Firm's control and are subject to known and unknown risks, uncertainties, and assumptions. The Firm's actual results and financial condition may differ, possibly materially, from what is indicated in those forward-looking statements. For a discussion of some of the risks and factors that could affect the Firm's future results, please see our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K.

Neither we, nor any other person, assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date on which they are made.

I would now like to turn the call over to Scott Bok.

Thank you, Chris. While I want to start by discussing our first-quarter results, I recognize that many of you will be equally, if not more focused on our views on the first-quarter transaction environment and where the market may be headed from here. In addition to commenting on the market environment, I'll speak to how Greenhill is positioned for continued success this year and beyond.

Focusing on our first-quarter results, we are pleased with our performance in what's continued to be a challenging transaction environment, which was quite different from the fairly robust environment that characterized the last quarter of 2012. Our advisory revenue for the quarter was up 11% compared to 2012, while our total revenue declined modestly due to a large gain in our stake in Iridium in the first quarter of 2012, compared to a small decline in the most recent quarter. For the first quarter, our pretax profit margin was 27%; our tax rate returned to a more typical 37% as we suggested it would in our last quarterly call, and we had earnings per share of $0.45.

As quarterly results can be difficult to evaluate in isolation, on a rolling four-quarter basis, our advisory revenue was approximately $300 million, which is our third best following any quarter over the last four years. You will recall that we have consistently talked about having four main objectives for the Firm. One, to increase our market share of the global pool advisory fees. Two, to consistently achieve the highest profit margin among our closest peers. Three, to maintain a strong dividend policy. And four, to maintain a flat, or even declining share count. I will focus on the first of those and then turn it back to Chris for the others.

In order to put our first-quarter 11% increase in advisory revenue in context as it relates to continued market share gains, let me make a few observations on the global market statistics and the results of the large banks that have reported first-quarter results to date. Taken at face value, global completed M&A volume for the first quarter was up 22% versus last year's first quarter. However, 25% of the total reported completed volume in the first quarter relates to only two large, but somewhat unusual transactions, neither of which are the type that typically generates particularly large advisory fees. What is probably more indicative of the broader level of activity is the number of completed transactions, which actually fell by 18% versus last year's first quarter. And you'll recall that early last year was not seen as a particularly strong period for deal activity.

The announced transaction statistic tell a similar story, with global announced transaction activity up by 6%, but inflated by misleading data such as the potential Dell transaction, listed once for each of three competing bids, and that is not the only anomaly in that data. If we again look at the total number of announced transactions as an indicator of activity levels, that is similar to the data for completed activity, with announcements down 12% compared to last year's first quarter. While the databases always have some noise in their statistics, we felt this quarter's summary statistics were particularly misleading when evaluating both our results and the health of the broader M&A market, and therefore that this was worth highlighting.

With only four of our nine global large bank competitors having reported first-quarter results, so far the results are mixed. In aggregate, advisory revenue was up in line with our results at 11%. Another major firm outside those nine reported weaker advisory results. Coming into 2013, we had grown our advisory revenue 34% over the preceding four years, while the advisory revenue of the big bank group actually fell 27% in aggregate, with not a single bank showing a gain. Based on first-quarter results announced to date, and our current backlog of announced transactions and active assignments, we feel good about our ability to grow our share of the global pool advisory fees by meaningful margin again this year.

As we think about the key drivers of our strong relative performance compared to the nine large global investment banks, we believe our client-focused and conflict-free advisory model continues to differentiate us and to enable us both to attract new clients and talented bankers away from our large competitors. The structural challenges and regulatory constraints faced by our large bank competitors are only becoming more intense, and none of the restrictions proposed have mitigated the inherent conflicts impacting their client advisory businesses.

As a result, we see our simple business model as a long-term sustainable advantage. Building on this advantage, we continue to focus on developing the strength and breadth of our client relationships, and on developing a business that is diversified by geography, by industry sector, and type of advice.

In terms of geographic diversity, North America and specifically the US M&A business, continues to be the strongest performing region for us. Our European and Australian revenue was down slightly compared to the prior year, but one quarter is a short period for comparisons, and as we look forward, both regions have an improving level of activity relative to what was evident in the first quarter.

By industry, we are showing good breadth. As listed in our press release, we completed 11 transactions in the first quarter across a range of industries, in one of the more balanced quarters we've had in this regard. A quarter is a very short period, but interestingly, industrials, healthcare, and energy were all down after a very robust level of activity last year, while media, retail, financials, and technology were all up. Looking forward, we expect to see continued diversity of revenue by industry.

As we commented on the last call, 2012 highlighted our ability to generate significant revenue from sources other than traditional M&A completion fees, with financing and restructuring advisory, special committee assignments, fund placement assignments, and a record level of retainer fees all contributing meaningfully. The first-quarter results were an exception to this trend, with a significantly higher portion of our revenue generated in M&A advisory than in prior periods, and a particularly large part of that driven by completion fees, with announcement fees down largely due to the lack of activity noted above, and restructuring, financing, advisory, and fund placement fees all fairly soft as well.

On a positive note, retainer revenue was up slightly from the first quarter of last year, and hopefully that is a precursor to increased transaction announcements and fee opportunities over quarters to come. And in our capital advisory business, we are seeing encouraging signs that after a relatively flat year-over-year result in 2012, we could see growth in that business in 2013.

Let me now say a few words on current market conditions. Almost exactly a year ago, I made the following statement on our call. Quote -- it has been a couple of years now, two steps forward, and almost two steps back in the transaction environment. In the last few months have reinforced that it will not be a straight line recovery. That quote feels equally appropriate, relative to the strong finish to 2012 followed by the slower start in 2013.

Obviously, the improved level of activity in the fourth quarter translated into very high expectations for a robust recovery in the M&A market this year, and these expectations were reinforced in the middle of the quarter by several high profile announcements. However it, is clear when looking at the market statistics that I discussed earlier that the first quarter reflected a continuation of the fairly difficult transaction environment that we've been in for the last five or so years.

Despite all that, we continue to believe the advisory business is an attractive business for the long term, and we believe we can continue to expand our share of this business over an extended period. Our brand and global teams have never been stronger and the demand by management teams and boards for independent advice continues to grow. The building blocks for a recovery in the M&A business have been in place for sometime now, and many of the factors delaying recovery appear to have stabilized or abated.

Despite those encouraging factors, though, in a market where buyers continue to be conservative and sellers' expectations have risen with their improved market valuations following recent strength in the equity markets, it's not surprising that activity levels do not immediately accelerate to more robust levels. But over time, we do expect buyer confidence to trend upward as economies and markets continue the healing process, and corporations inevitably look to the M&A market to achieve some of their strategic objectives.

As we saw starting in about June last year, and many times in the past, transaction activity generally, as well as at Greenhill specifically, is capable of accelerating very quickly. Now I'll turn it over to Chris.

Thank you. As Scott introduced early in the call, we remain focused on four main objectives for the Firm. While we can't control the overall level of market activity, we can continue to stay very focused on the elements of the business that we are able to impact to help us achieve these objectives. Specifically, I'm going to address compensation costs, non-compensation costs, dividend and share repurchases, and finally, I will provide an update on the continuing liquidation of our remaining principle investments.

Starting with compensation. As we have commented previously, our goal is to achieve a compensation ratio that is the lowest among our close peers. In addition, in absolute terms, we aim to be below 50%, consistent with our first several years as a public Company, and driven by revenue productivity per employee that is the best among our peer group. Given the challenging transaction environment, we had a 53% ratio of compensation to revenue in the first quarter, consistent with our full-year ratio for 2012. While this is above our target, we expect it will be by far the lowest GAAP compensation ratio among our closest peers.

Our full-year compensation ratio will be dependent on our results over the remainder of the year, balancing our target of the compensation ratio below 50%, with the need to pay our employees competitively, both of which we aim to accomplish through high productivity per employee as we've demonstrated historically. Suffice it to say that we wanted to start the year cautiously; given the slowdown in activity, we were hopeful to bring the ratio down some over the rest of the year.

Turning to our non-compensation costs. Our first-quarter non-comp costs were $15.7 million, a slight increase from the run rate over the last three quarters, but down by a good margin compared to the first quarter of 2012. There are obviously some differences each quarter, but as we commented on the last call, we do not expect the full year of 2013 non-comp costs to be up meaningfully over 2012 levels.

Moving to dividends and share repurchases. Our dividend held steady this quarter at $0.45 per share, consistent with the last few years. During the quarter, we repurchased almost 350,000 shares at an average price of $58.90 per share for a total cost of $20.5 million. These repurchases were almost evenly split between the cash settlement of vesting employee RSUs and open market repurchases.

Our dividend and share repurchases, as well as payment of annual bonuses, we again ended the quarter in a net cash position with cash of $34 million and debt of $26.5 million. Our Board of Directors has authorized the repurchases of up to $100 million of our common stock through the end of 2013, of which approximately $80 million remains available. It's too early to comment on where repurchases will come out for the full year, but they will be driven primarily by cash generated in the advisory business, and our continuing sale of our shares of Iridium. As we have highlighted on previous calls, it's important to note in connection with our share repurchase activities that we continue to maintain a share count that is effectively flat with our 2004 IPO, despite stock-based compensation and stock acquisition, which compares very favorably to both our large and small competitors.

Finally, let me comment on our remaining principle investments. We ended the first quarter with investments valued at $42.2 million, which includes both our LP investments and our previously sponsored and other merchant banking funds of $16.6 million, and our remaining Iridium stake valued at approximately $25.6 million. Our principle investments generated a first-quarter loss of $1.9 million, resulting from a decline in the share price of Iridium.

We continue to methodically sell our Iridium shares. During the first quarter, we sold 840,000 shares at an average price of $6.69 per share, for a total proceeds of $5.6 million. As we have stated before, it is our intention that proceeds from these sales will be returned to shareholders in the form of dividends and/or additional share repurchases. Now, let me turn it back to Scott.

Let me close with an update on personnel and recruiting opportunities. First of all, our existing team remains focused on clients and highly motivated, despite the market challenges. I can't think of a single significant personnel loss globally following either of the last two annual bonus rounds. In terms of recruiting, we continue to see a flow of strong candidates who are seeking to lead the large universal bank model to join us. We recently added senior bankers in US insurance, European financial services in US industrials, as well as a senior advisor for the French market. We continue to be cautious about expanding our headcount too rapidly in a market environment that still seems challenging, but we expect to continue to add talented and experienced bankers who fit our culture of team work, collegiately, and excellence.

Finally, I want to comment briefly on our European business. As you know, we focused from the start on building a truly global business. While we still see ourselves as a relatively young Firm with its best days far ahead of us, last night we celebrated the 15th anniversary of our London office with a client-focused event for several hundred people at the British museum. Many of the leading companies in London and even across Europe were represented by their chairman, CEOs, or other senior officers. We were founded in the US, but worked hard from the start to ensure that whether you were in London, or Sydney, or in fact across all the world's developed markets, we are seen as having all the strengths of a locally-based Firm, while also delivering the benefits of a truly unified global network. That sense of being both local and global was very much in evidence last night in London. With that, we're happy to take any questions.

(Operator Instructions)

And our first question is from Howard Chen of Credit Suisse.

Hi, Scott; hi, Chris.

Hi, Howard.

Thanks for hosting the call. Scott, I was hoping to get a sense of the specific drivers that make you hopeful as you look forward. How much of that commentary is driven by the broader market factors that you noted versus your confidence level around specific pending deals and project that you all might have a high visibility on?

It's a little bit of both, clearly. I mean, I think we -- as I think others have said on their calls, there are a lot of dialogues out there. There's a lot of interest in strategic activity; for whatever reason, there just weren't as many things that got to the announcement stage in the first quarter, whether for us or certainly for the market more broadly, as noted by the actual statistics.

So, it feels to us like markets perhaps need a little more time to heal to get back to what's really a robust M&A environment. But frankly, we still feel like we're making progress in turning the corner to more of an up cycle, and just was a bit of a pause after a couple strong quarters.

Okay, great. And then, sorry if I missed this, but you made the comment last quarter that your revenue backlog from announced and pending deals was significantly stronger than the same point of last year. Given that evolving backdrop that you just laid out in that data, how has that progressed since the beginning of '13?

I probably don't want to be too specific on that. I think what I said specifically last time was that our backlog of announced transactions and pending transactions for the first half of the year was significantly higher than it was for last year. That remains the case. I mean, we obviously had some improvement of revenue this quarter. We have a number of quite significant things still in the hopper that should close fairly soon, if all goes as planned. So, I think my old statement rings true. But I wouldn't want to officially give sort of quarterly updates on exactly what the backlog measures up to.

Understood. And then just last one for me -- what do you attribute to relative improvement in activity in Europe and Australia, specifically?

I think there's no question things are getting somewhat better there as well. Australia has been a more robust market throughout the entire downturn than even the US, let alone in Europe. So, it was a little bit of a slowdown last year against a very robust level the few years before for them, and just -- it's a small -- it's not a huge business obviously. Only one part of Greenhill's -- probably call it 20%, 25% of our Firm. So, the fact that they didn't have that many things that got done this quarter doesn't really mean much of anything. We still feel very confident about that business for the full year and beyond.

Okay. Great. Thanks so much.

Thank you.

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

Great, thanks. Hey, everybody. Thanks, Scott, for broader M&A comments. I think those are super helpful.

If we focus a little more on the Firm, from the data that we could see, it feels like the back half of the year is really what is most folks are concerned about, just given the fact that we've seen some deals that you've announced, and the second quarter feels a little bit better. But help us maybe understand a little bit more from the conversation -- the dialogues you guys are having, maybe a little more level of confidence on how the second half of the year could evolve for you guys.

I think you'll see that in the coming couple of, call it, three months because those will be the deals that we'll end up closing before the year is over. What's nice for us last year is it was very, very back-end loaded. I mean, this year, we're off to a strong start. I think it will be even stronger as we go through the second quarter. And so, there's a lot of time left in the year, so I still feel very good about where things will develop to. But only time will tell as we get more deals announced.

Understood. And then, when you talk about the recruiting pipeline, it sounds like things are still progressing quite well, and you are still having lots of dialogues with folks. When you talk to your prospects to bring them on board to Greenhill, what are some of the more compelling arguments that you hear for people wanting to make the switch? Is it the culture, competition level, compensation structure, maybe all of the above. But curious to hear a little bit more flavor on why -- on the recruiting pipeline and the reasons.

Sure. First of all, I think last time I said we thought, if we had to guess, we would say we would maybe add sort of 5 to 10 MDs. I think that's still right. It could be anywhere in that range, just depending on the number of quality people we see, and bring all the way to the finish line.

But I think this is just part of a very long-term trend that really started heavily in 2008, and has really continued ever since then. I mean, it's a big bank. You're obviously seeing very substantial layoffs, even in recent weeks. You still have a lot of regulatory overhang. There's still questions about what kind of ROE the banks are ever going to really be able to get back to. JPMorgan puts out a report saying big banks are uninvestable, which has been much commented on.

I think from an employee's point of view, if you're not in a business that requires a big balance sheet, which is the case with M&A advisors, I think you have to ask yourself -- do you want to work in a sector where some people think it's so bad it's uninvestable in terms of returns? Or do you want to come to a place like ours that it is really a very simple business, where there's a lot of continuity, a very collegial structure, frankly, no politics, just people focused on clients. It's pretty appealing from almost any perspective.

Got you. I was just trying to get to the bigger emphasis that I think some of the larger banks might have on non-capital-intensive businesses like advisory could maybe create a little bit more competition for talent? I don't know if you guys are seeing the same, or is it just because you're in a bigger bank, you're all part of the same pool, so it doesn't really matter?

Yes, I'm glad you clarified that. I don't see that as an issue. What I've said many times to investors that ask that question -- why won't you have more competition because the big banks want to go to non-capital-intensive businesses? My answer has always been -- I don't think you can try harder than the big banks have been trying for the last five years. [They have] absolutely massive resources pointed at this market, not just to win M&A, but to win equity mandates and debt financing and all the rest. So, they are not building up those businesses. They may be trying to do some upgrading, but they are still net shrinking those businesses in terms of the number of people focused on them, and I think there's just no doubt that fewer clients will get coverage. They will get coverage in a less thorough way. I mean, we hear lots of things out of big banks from people recruiting, saying that big banks are focusing very much on the very biggest clients -- the clients who buy lots of different products from them. And frankly, the more they leave behind -- companies in the several hundred million to a few billion dollar category, which maybe don't need financing and derivatives and hedging and all of those things, who aren't that appealing to them -- we love clients like that because they tend to be quite active strategically.

Got it. Cool. Thanks so much for all the color.

Sure.

And our next question comes from Brennan Hawken of UBS.

Hi, guys.

Hi, Brennan.

I guess just a question here. When we were looking at the public data, and I know that that's not always indicative of actual revenue, but closed transaction volume for you guys actually was tracking really, really strong for the quarter. And so, I guess maybe could you give a little color to help us understand why, even though the volumes were up so much, revenues were -- didn't show nearly as much relative strength sequentially and year over year?

Sure. Yes, I think what that -- and that's why we tried to give the color about sort of different types of fees and announcements versus closings, and all that kind of thing. The history -- and again, I don't subscribe to all the databases that a lot of you do. But the history has been that we have achieved results that are far, far above what the databases are predicting. I think we've averaged something like 100% above, is at least what I've seen quoted in various analyst reports.

The reason we so frequently did that -- of course, it varies quarter to quarter, but the reason we so frequently did that is because there's a lot of kind of hidden revenue. I think they don't try to track deal announcement fees. There's financing, advisory, restructuring, government advisory, all of those other kinds of things that typically have had us exceeding the -- whatever a database may calculate as our M&A revenue by a substantial margin.

This quarter, with just very few announcements, obviously fewer in the whole industry, and certainly fewer for us, and with fewer financing, restructuring, the government's a fun place and all -- all that kind of Other category that usually gets us to a big margin over what the database is saying, we just didn't have that much of that this quarter. We certainly don't think that's any kind of a trend or anything, which is why I pointed out that our retainers are actually up. We're certainly as busy as ever, and so I think that was kind of a one-quarter phenomenon. But this was a quarter where the bulk of the money came in very visible ways that you can all see from M&A completions, and some of the other stuff that's not as visible to you typically just didn't happen this quarter.

Yes. Okay. That actually helps. Thanks.

And is there -- when we look at the -- we tend to look for pending revenue as announced but not yet closed, and a lot of that has shrunk here as you closed a lot of deals in the quarter. Is there anything that's -- number one, is there anything in that pipe that we can see that would lead you to believe it's either similar or dissimilar to the experience we had in this quarter? And then, given that we've seen that pipe, the visible pipe shrink, can you maybe help us gauge your confidence level in periods that are a bit further out?

I don't think anything has changed about the business in the sense that it's always a little bit hard to see further out. I mean, last year, if you -- I think we had pretty neutral to -- commentary on the first-quarter call. And I mean, our entire year, which was quite a good one, was driven by deals that got announced in June or later. We had just a remarkable streak for about seven months. So, that kind of thing can happen in this business, and frequently does. We feel like we've got a lot of stuff that's very near-term visible, and we've got a bunch of other things that we hope to see announced in coming weeks and months, and you'll see them as we get them on the tape.

Okay. And then last one for me -- in the past, you've given an expectation for fixed compensation costs -- salaries plus RSUs. Do you have any visibility or expectation around that for 2013 at this point?

Basically, the same range we gave last year would be accurate. There's no meaningful change to that. Since headcount didn't change much year over year, so it's basically the same.

Great. Thanks.

Okay, thank you.

And next we have a question from Joel Jeffrey of KBW.

Hi, guys. How are you?

Good. How are you, Joel?

Good. Just to kind of follow up on one of the last questions -- is there any way we can think about how retainer fees tend to typically turn into announcement fees, just to get a gauge for how quickly, or the percentage of which actually turn into announced fees?

I don't think you can do that in any sort of precise way. I mean, clearly, we've seen the retainer part of our business grow, just as the number of clients we serve and earn fees from has grown pretty consistently over the last few years. And there aren't a huge number of things where you earn some retainers and then the thing goes away forever. Typically, there is some transaction that comes out of it, even if there are false starts along the way, and it ends up happening a year later or something like that. So, I think retainers are a good measure of the activity level. They are a good measure of the long-term growth of our business, but I don't think there's a way you can use that data to sort of predict one or two or three quarters out, what the revenue might be.

Okay, and then just, appreciate the color you guys gave on certainly the buybacks and the dividends, but I mean, you guys said that you've got about $34 million in cash right now. And I guess my math may be off a little bit here, but if I kind of run the numbers here, it looks like you might have spent about that much in the past quarter in dividends and repurchases. I'm just wondering, given that cash position, how you feel about potential buybacks going forward or the dividend?

I mean, I certainly feel great about the dividend, and I feel good about continuing to buy back shares. I think it's just a matter of how many. I mean, we have -- you really can't, in a Firm like ours, look just at the earnings per share and sort of say -- what's the dividend payout ratio? And certainly, I think you'll see it's kind of the same amount of cash on our balance sheet at the end of each quarter. It's not like we're going to spend that money to buy back shares and pay our dividend; we're going to continue to generate revenue, and that's what's going to go to pay a dividend and buy back shares.

So, if you look at our EPS and add to it quite significant noncash compensation, you get to a pretty substantial cash flow, which is way beyond what's needed to pay the dividend. And that's why it's not a matter of whether we'll buy back shares. Every year it's just a matter of how much. Last year, we did about $80 million, I think, and this year we did 25% of $80 million in the first quarter. So, I think we feel good about continuing those two trends, given just the high cash flow generative nature of our business.

Great. Thanks for taking my questions.

Okay.

And the next question is from Michael Wong of Morningstar.

Hello.

Hi, Michael.

In your commentary, a disconnect between buyer and seller price expectations was specifically mentioned. Have you found that to be the second-largest obstacle recently to M&A, after general executive confidence regarding the economy?

As I said, that every deal is unique. Excuse me, a little froggy voice from my flying back from London this morning. Every deal is unique. I really don't want to be one of those people who claims he's got the magical answer as to why deals are or are not happening. I do think, yes, there clearly is just a leftover, residual conservatism that clearly comes out of the financial crisis, and people being somewhat scarred by that.

I do think that somewhat of a disconnect between what buyers are hoping to get something for, and what sellers are hoping to get has been somewhat of a driver. I mean, there have been a number of deals. Even ones we haven't been involved with at all, that have been reported in the press, where people thought it was headed for an M&A sale, and then the seller pulls it and says -- no, actually, we're going to do an IPO. You're seeing that in some pretty high-profile, very high-quality assets. So, between what we're seeing privately and some of the things we're reading about other deals, I do think there are cases where buyers are struggling to get to a premium, and sellers are not going to sell without a premium.

I think, for example, that's part of why you haven't seen a lot of private equity deals. You've got some unusual sort of deals like a Heinz or a Dell, where there's either a Warren Buffett or there's a big shareholder like a Michael Dell involved. But it's not like you're reading about a lot of big going-private transactions, and I think that's because private equity is among the groups that are looking, and just thinking -- hey, stock prices ran pretty quickly; do I really want to pay a 30% premium on top of where the share price is now?

Okay. That's very interesting. Can you just remind us of the capacity of your Japan office, and if you're seeing more activity there? Thanks.

We have two partners there, and a meaningful-size team of 12 or so professionals that is focused almost entirely on cross-border transactions. They are really an important part of our global network. During the first quarter, we closed a very large deal for Dentsu buying Aegis in the UK, about a $5 billion deal. So, that's the kind of thing we're looking for over there.

And yes, I would say we are seeing a lot of interest out of Japan. It's a little bit counterintuitive for people who always think currency might drive things because the currency is a lot weaker, and yet, I think Japanese companies are clearly coming to realize over time that they do need to become more global. And so, we're seeing a number of different sectors -- companies that are more interested in finding things in -- probably particularly the US, but also Europe.

Okay. Thank you.

Thanks.

And the next question comes from [KC Ambrecht] of IceCap.

Hi, Scott. Thanks for taking the questions. Just a question of clarification. Do you guys -- I'm just trying to figure out, because when you started 2012, you had about -- looking at the model here, you had about $146 million, $135 million in cash, and if you also include some of the investments, and you had about a $29 million in the revolving bank loan. Today, that cash has been -- is down and the investments are down. So, you're kind of down on that -- the way I'm looking at it, you're down to about $51 million-ish, plus the $27 million in debt. But the $51 million is not all liquid, because of the private equity pool. So, adjusted, it's a little bit lower. So, I guess my question is -- how sustainable is the buyback with kind of where we are, what the revenue outlook is today, versus your current, like, net cash position?

As I said a minute ago, I don't think the net cash position really has anything to do with the buyback capacity or the dividend capacity. I think you're comparing our cash and investments to where they were 15 months ago. It is true, and of course, we always said that, that we were liquidating our investments, and the whole plan was to liquidate those over time, and return the money to shareholders with buybacks. That's part of why we had very substantial buybacks last year.

But where we are today, we can run a very efficient balance sheet. We don't really need any net cash on our balance sheet. We have assets that are still being liquidated. We have substantial flow of retainers. We have a constant flow of deals that are getting done that generate cash. And so, we kind of have a certain amount of cash we run the balance sheet on, and essentially everything above that goes back to shareholders, either in dividends and buybacks. So, I would look more at our kind of earnings capacity, and add back to that our noncash compensation expense to figure out what really is the run rate cash flow [that we can] return to shareholders, rather than look at a balance sheet figure.

Okay. That's helpful. Thanks very much for clarifying that.

Sure.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Scott Bok for any closing remarks.

Okay. Well, thank you all for joining, and we look forward to speaking to you again in three months. Bye now.

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