Greenhill & Co Inc (GHL) 2013 Q2 法說會逐字稿

Good afternoon and welcome to the Greenhill second-quarter 2013 conference call. All participants will be in a listen-only mode. (Operator Instructions). After today's presentation there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded. I would now like to turn the conference over to Chris Grubb, Chief Financial Officer, please go ahead.

Thank you. Good afternoon and thank you all for joining us today for Greenhill's second-quarter 2013 financial results conference call. I am Chris Grubb, Greenhill's Chief Financial Officer, and joining 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. Earlier this year we were a bit of an outlier in articulating a fairly cautious view of the state of the M&A market. At this point there is no doubt that that was an accurate view, at least for the year today.

However there's equally no doubt that our Firm is continuing to differentiate itself relative to our peers in terms of market share, productivity, profitability and cash flow generation.

Today we'll discuss our quarterly and year to date results as well as give you our updated view of how we are doing and how we expect to do for the full year in both absolute and relative terms.

Focusing on our second quarter and year-to-date results we are pleased with our performance, given the challenging transaction environment. Our advisory revenue for the quarter was up very significantly compared to last year with growth of 84%. More meaningfully on a year-to-date basis our advisory revenue was also up significantly, with growth of 39%. While our year-to-date growth in total revenue was impacted by a smaller gain on our stake in iridium compared to last year total revenue's also up substantially, showing growth of 28% compared to the first half of 2012.

As quarterly results can be difficult to evaluate in isolation, on a rolling fourth-quarter basis our advisory revenue was just under $340 million, which is our highest rolling four-quarter total in over five years. Our pretax profit margin for the second quarter is 29% and we had earnings-per-share of $0.52. On a year-to-date basis our pretax profit margin was 28% and we had earnings-per-share of $0.96. For both the quarter and on a year-to-date basis our pretax profit margin and earnings-per-share were up very significantly compared to 2012.

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 of 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'll focus on the first of those and then turn it back to Chris for the others. In order to put our year-to-date 39% increase and 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 nine large banks that are our primary competitors. Later in the call, I will discuss how we see these comparisons developing over the balance of the year.

During the first half of 2013, global completed M&A volume was up 4%. However as was the case in the first quarter, much of this year's volume relates to a small number of very large transactions. 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 half, including a decrease of 14% per transactions of $1 billion or greater in size.

The announced transaction statistics are more consistent year to date between deal volume and number of transactions, with global announced transaction volume down by 15%, the number of total deals down by 14% and the number of announced transactions of $1 billion or greater in size down by 18% compared to 2012. However you analyze these metrics, it's clear that the pace of M&A activity has declined materially from 2012 which was itself a relatively slow period for transaction activity.

Looking back a bit longer, despite regular discussions in the media and elsewhere where we are in the M&A cycle, it's clear that there hasn't yet been any meaningful recovery. And the good news is that that means all the upside associated with cyclical recovery is still to come for us. Global announced transaction volume looks on track to be the lowest since 2004, with the six years since the peak of 2007 all looking fairly similar. Transaction volume per deals with the US acquirer or target look particularly flat with announced volume fluctuating between $900 billion and $1.3 trillion in each of the last six years.

Europe brings down the global statistics with 2013 if the current pace continues, looking on track to be the worst for announced transaction volume since 1997. The impact of the current market statistics is evident in the year-to-date advisory revenue reported by our nine large bank competitors. In the first quarter of 2013 results, this group showed a 10% decline in aggregate advisory revenue. Based on data from the four banks that are reported second-quarter results so far, year-to-date advisory revenue comparisons for the first half looks set to show an even larger decline for this group.

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 without -- not a single bank showing again. For the year to date, it looks like our advisory revenue improvement will exceed that of our peers even more than it has in recent years, thus indicating further significant market share gains.

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 to attract new clients 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 that are negatively impacting their client advisory businesses.

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 by type of advice. In terms of geographic diversity, North America and specifically the US M&A business continues to be the strongest performing area for us consistent with the global market statistics by region. Our European business showed modest improvement in the first half of the year compared to 2012 in the face of what continues to be a difficult economic and transaction environment in that market.

Our Australian revenue was flat year over year in what has become a more challenging environment then in recent years. During the second half of the year we expect continued relative strength in the North American business, but also some very important transaction announcements in the other regions.

By industry we are showing very good breadth and diversity, and as listed in our press release we completed 10 transactions in the second quarter across a range of industries. In the year to date, seven of our eight industry classifications contributed 10% or more of our aggregate revenue, with healthcare being the strongest industry for us. Looking at our pipeline of transaction activity and moving forward we expect to see continued strong 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.

In contrast, year-to-date 2013 results continue to be driven by higher proportion of M&A revenue compared to other sources of revenue with restructuring and financing advisory and fund placement fees both lower during the first half of the year. Within M&A, a particularly large portion of the revenue was driven by completion fees with announcement fees lower consistent with the level of market activity noted earlier.

Touching further on our capital advisory business, as we commented during our first-quarter call we are seeing encouraging signs that after relatively flat results for the last two years and a slightly slower start to this year, we should see growth in that business for the full year 2013. And we expect to see increased restructuring activity if the recent trend toward higher interest rate and tighter financing markets continues.

Notably retainer revenue was approximately flat compared to the first half of last year, indicating that we remain as actively engaged with clients as we were last year, even if there have been fewer transaction announcements to show for that. Importantly we've been able to achieve better results despite fewer transaction announcements because we've had more leading roles on major transactions with commensurately higher fees.

Let me close with a few thoughts on our expectations for the full year for us as well as the market as a whole. First of all it's almost certainly unavoidable that significant year-to-date declines and announced transactions and transaction volume will lead to reduced advisory revenue in the second half of the year for the industry as a whole. Accordingly for the full year, we expect double-digit declines in advisory revenue for the nine large banks that are our primary competitors with year-to-date declines growing somewhat larger during the second half.

By comparison, our current expectations for our firm's full-year advisory revenue to be up modestly compared to the full year 2012 with our performance for the second half of the year likely to be weighted more heavily to the fourth quarter. This suggests that our revenue outperformance, relative to our main competitors, should be in the middle to high end of the range of 8 percentage points to 26 percentage points that we have outperformed in each of the prior four years.

As a caveat let me state the obvious, that the pace of transaction announcements and timing of completions are uncertain by their nature and can change suddenly. So what I have said represents only our best current view of the outlook for us and our competitors.

While we feel very good about our prospects for attractive relative performance again in the current year we feel even more confident in our market share gains at our absolute level of performance in the medium and long term. We continue to believe the advisory business is an attractive business with long-term growth and we believe we can continue to expand our share of this business over an extended period. Our brand and global team have never been stronger and the demand by management teams and boards for independent advice continues to grow. The building blocks for recovery in the M&A business have been in place for some time now and many of the factors delaying a recovery appear to have stabilized or abated. In a market where buyers continue to be generally 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 have not more quickly accelerated 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.

In fact, given the length of the current period of weakness and transaction activity, and given continuing improvement in economic conditions, corporate balance sheets and equity valuations, it would be surprising if transaction activity did not increase meaningfully next year.

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 continue to stay very focused on the elements of the business that we are able to impact, to help us achieve these objectives and thereby drive shareholder value.

Specifically, I'm going to address compensation costs, non-compensation costs, dividends and share repurchases, and finally I will provide an update on the continuing liquidation of our remaining principal investments.

Starting with compensation. As we've commented previously, our goal is to achieve compensation ratio that is the lowest among our close peers, and there is no doubt we've done that again in the year to date. 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 continues to be easily the highest among our peer group. For the year to date, we had a 53% ratio of compensation to revenue, consistent with our full-year ratio for 2012. We expect this will be by far the lowest GAAP compensation ratio among our closest peers.

If we can achieve full-year total revenue materially above last year, we may increase our outperformance in this regard by bringing the ratio somewhat lower, but that decision is one we will make in the fourth quarter. For now, suffice it to say that we want to be conservative in the current environment.

One thing that's helped us keep our compensation ratio so much lower than our peers is that following a period of rapid expansion in the earliest years of the financial crisis, we have very intentionally kept headcount essentially flat for about three years now, given our view that the transaction environment remained quite difficult.

We believe we have significantly upgraded our team in this period and we believe our continuing market share gains demonstrate that. But we have accomplished those gains without adding to overall headcount in a way that would drive our cost ratio higher.

Turning to our noncompetition costs, our second-quarter non-comp costs were $15.3 million, a slight decrease from the first quarter and consistent with the run rate achieved over the last several quarters of 2012. There are obviously some differences each quarter, but as we commented on the last call we do not expect the full-year 2013 non-comp costs to be up meaningfully, if at all, over 2012 levels. And on a year-to-date basis we are actually showing a slight decline.

Moving to dividends and share repurchases. Our dividend this quarter was again $0.45 per share consistent with a quarterly distribution, made over the last several years. As many of you will have seen in our recent investor presentations, our annual dividend only requires approximately half of our cash flow generated from operations.

Given the very modest capital needs inherent in our business model, we use much of the remainder our cash flow to repurchase shares. During the second quarter we repurchased approximately 530,000 shares at an average cost of $47.07 per share for a total cost of $25.1 million. On a year-to-date basis we have repurchased almost 880,000 shares at an average cost of $51.73 per share for a total cost of $45.6 million.

Looking at the impact of our recent share repurchase activity, you'll note that our second-quarter 2013 average diluted shares outstanding are approximately 600,000 shares lower than a year ago despite the amortization of stock-based compensation and the dilutive impact of the issuance of nearly 660,000 shares related to the first tranche of the earnout from our Australian acquisition being achieved over the same period. We continue to maintain a share count that is effectively flat with our 2004 IPO, despite stock-based compensation and the acquisition in Australia which compares very favorably to both our large and small competitors.

After our dividend share repurchases, we again ended the quarter with a net cash position, with cash of $33.5 million exceeding debt of $32.3 million. Our Board of Directors is authorized to repurchase of up to $100 million of our common stock through the end of 2013 of which approximately $54 million remains available. We plan to continue our open market repurchases in the second half of the year with the amount of these purchases dependent on our earnings as well as the results of the continuing liquidation of our investment portfolio.

Next let me comment on our remaining principal investments. We ended the second quarter with investments valued at $39.2 million which includes both our limited partner investments and our previously sponsored and other merchant banking funds of $13.1 million and our remaining Iridium stake valued at approximately $26.1 million. Our principal investments generated a second-quarter gain of $3.6 million resulting from an increase in the share price of Iridium being partially offset by a loss on our merchant banking fund investments.

We continue to methodically sell our Iridium shares. During the second quarter we sold 885,000 shares at an average price of $6.93 per share for total proceeds of $6.1 million. As we've 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.

In addition, in our continuing effort to accelerate the realization of value from our exit several years ago, from the merchant banking business, we sold our small interest in Greenhill Capital Partners III in early July for $2 million, representing the current book value of the investment. Importantly the sale also eliminated our last remaining commitment to fund merchant banking investments going forward.

As part of that sale process we also booked a small loss, but obtained some immediate tax benefits by selling for a nominal amount and investment we retained in Greenhill Capital Partners II.

Finally, given that this is a quarter when analysts' estimates were generally close to the mark, it seems like an opportune time to comment briefly on a topic we are often asked about, which is how to forecast our earnings.

First of all, we think that quarterly estimates are always going to be very difficult given the fact that publish transaction statistics don't accurately reflect all the ways we can generate revenue and also given the transaction timing is out of our control and can be highly unpredictable. And in any event, we don't believe quarterly results are a good measure of the quality and growth of our business.

However, if our results are viewed on an annual basis we believe our 9 plus years as a public company provide useful guidance and forecasting results. Our largest cost is compensation. And the annual ratio of compensation to revenue has varied in a fairly narrow range from a few points below 50% in periods of robust transaction activity to a few points above 50% in less active transaction markets like we have seen for the last several years.

Our other costs have been more predictable and are roughly flat over the past several years in absolute dollar terms. Importantly we do not eliminate any kind of costs in a pro forma adjustment to our reported GAAP financials and our capitalized expenditures have been fairly trivial.

Our tax rate has also been generally in a fairly narrow range, a bit higher in years like this when revenue is more heavily weighted to the US with its high relative corporate tax rates, and a bit lower when revenue is more balanced globally. And as mentioned previously, our share count has been flat to slightly declining for several years now. That leaves our annual revenue as the only line item that has been more unpredictable and in recent years, anyone who could forecast the pool of global advisory fees could have forecast of our advisory revenue reasonably well.

As noted earlier, our annual advisory revenue growth each year has been between eight and 26 percentage points better than the aggregate advisory revenue growth of the nine large banks; and we've indicated we are on track for another year of similar outperformance this year.

So in sum, we believe the only really challenging part of forecasting our annual results has been forecasting the size of the global pool of advisory fees for which we compete. Now let me turn it back to Scott.

Let me close with a very brief update on personnel and recruiting opportunities. As I commented on in our first-quarter call our team remains focused on clients, and highly motivated despite the market challenges, and our very high rate of employee retention demonstrates that. In terms of recruiting, we continue to see a flow of strong candidates from the large banks and we believe that will continue for a long time to come, but we are being cautious about expanding our headcount too much in the current environment. However we do expect to continue to add talented and experienced bankers who fit our culture of teamwork, collegiality and excellence and you'll likely see some news on that in the remainder of the year.

With that we are happy to take some questions.

(Operator Instructions). Howard Chen, Credit Suisse.

Good afternoon, Scott. Hi, Chris. Scott, you've been appropriately measured about the current year and now you were speaking a bit about growth into next year. So could you just remind us what exactly do you think changes into 2014, and are you doing anything incremental, whether it be on the client front, compensation, hiring, to really just best position the franchise so that you maximize this when the up cycle comes?

I don't think we are changing much about what we do. We just think the passage of time is going to inevitably lead to the rebound in M&A activity. We can all debate when exactly, and we have debated that for a number of years already. But it will happen.

As you often hear there's a good degree of dialogue between our clients and potential counterparties including on very substantial transactions. So we think by the time we get to this year we are going to look very good certainly in relative terms and okay in absolute terms. And we are hopeful that next year we will see a stronger market. And if it does, we just think all the market share gains we've had and continue to show will be enough to ensure that we get more than our share of that rebound.

Okay, thanks. And I know the output is off of a lower than base -- lower base you would hope, but I was hoping you could just provide us a sense of progress of -- on traction of recent years' hires and maybe the balance of revenue contribution of newer versus more seasoned partners at the firm.

No, it's obviously very granular data to sort of really discuss that in a matter of a few sentences. But I would say this. We have absolutely the highest confidence in the people we have hired over the last few years. And some of our biggest wins in the client sense and a revenue sense have come from people who have joined us literally in the last 12 months. And I don't think there's really -- if you really analyze that, I don't think there's really any difference on productivity between people who joined us the last two or three years versus during the early days of the financial crisis versus even pre our IPO. I think it's a pretty consistent group across the whole set of managing directors.

Thanks and just final broader question for me. We just continue to see more stringent rules and proposals for the large global banks, the latest round being on tightening leverage standards. I realize this is something you've been talking about for a few years, but just curious if you can comment -- have you seen any changes in terms of financing markets and financing role on large transactions when you compete with more of the large dealers? Thanks.

I would say not. We continue to find our lack of a balance sheet to be kind of a nonissue, really. Clearly there are deals out, where big banks win business because they offer full-stop shopping. Frankly we think the trend is even more in the other direction, where clients choose different bankers for different roles. And one for financing, one for who knows, hedging or currency or interest rate, or whatever kind of hedging they're going to do and somebody else for advice. So I don't think -- really we've seen all kinds of financing markets in recent years. We've seen the depths of the financial crisis when you might have thought clients would become incredibly beholden to their lending banks, but in fact they became very concerned about conflicts. We've seen much better financing markets recently, and I think we've proven we have gained market share in both of those periods.

Makes sense. Thanks, Scott.

Alex Blaustein, Goldman Sachs.

Thanks, good afternoon, guys. So just to pick up on where we left off the discussion with a broader M&A environment, Scott, curious to hear how you guys are thinking the impact of higher interest rates will -- what kind of impact it's going to have on activity. Granted, I guess on the one hand I guess we been in the low-rate environment for some time, and that didn't really help M&A volumes, so maybe it won't matter at all, but curious to hear does that -- how does that play into your thinking for 2014 than the comments you made about broader environment?

I think our view is we really don't expect much of an impact from that. It's kind of like the same issue you have sometimes with currencies. For years, people waited for the Japanese corporates to get more active in M&A when the yen was very strong, are they going to be less active now that it's the end of the week? I really don't think so. I think likewise with interest rates.

Maybe the only group that might be somewhat impacted would be the private equity buyers. But frankly they've been very quiet throughout the whole period, a very strong financing market, at least quiet on the buy side anyway. So I don't think we expect a big impact.

Remember most of our clients, just given the nature of our client base, tend to be the bigger better capitalized companies, where frankly very often they have the cash on the balance sheet or certainly they can borrow it, what are still very, very low rates.

Got it. And then, on the recruiting environment, you mentioned you guys might add a couple more senior folks that haven't been announced yet. But again thinking about this space probably over the last few years we've obviously seen significant changes to deferrals at a lot of the larger banks, and a lot of those banks with more stringent deferrals had a more significant stock price appreciation. I guess on one hand it is getting more expensive to lift out folks from those institutions.

Can you talk us through how your ability, I guess willingness to take on higher deferred packages, given the moves you've seen in prices?

I don't think that's going to be a big obstacle for us. Certainly there are some firms that have done that. Sometimes we'll hire people who are fully vested, just based on how many years they've spent. A lot of the people we tend to hire laterally are very, very senior and they've spent -- they are well beyond any requirement of a full career where you vest and everything.

We find enough special situations where we've always been fine in that regard, and I think we'll continue to be. We are certainly not one that sort of writes huge checks to try to cover very, very large unvested amounts people have. But we found plenty of opportunities where that's not the case, and I think we'll continue to see that.

Got you. And just last question, just kind of on numbers. You mentioned the Capital Advisory business potentially growing. I don't recall if you guys sized the business. So I was wondering if you could help us understand how big of a contributor this is to you guys.

I think each of the last years I believe we've said in our year-end release when we give a little more detail that it was 9% of our revenue. So call that roughly $300 million of revenue, so call it basically $27 million roughly of revenue each year. And we are hopeful for a materially higher number this year. And then, frankly, much more as time goes on, we think it's a very good business, we've just been through a period where just like the M&A market was fairly slow, institutions were reluctant to make very large long-term private equity and real estate commitments. But we do see that improving quite a bit right now.

Got you. Thanks a lot.

Joel Jeffrey, KBW.

Good afternoon, guys. I appreciate all the color you gave particularly on the repurchase activity. Just wondering again with the share count now below sort of where it was at the end of the year, is there any scenario you guys could foresee where you sort of slow the repurchase activity and either accumulate the cash or look to do something else with it?

I can't imagine what we would do with it other than -- in any meaningful way other than buyback shares and pay dividends. We are not going to do big cash acquisitions or anything like that, so no, I think the money comes back to shareholders.

Clearly there would come a point when you would shift from buybacks towards dividend increases, and clearly there would be maybe times when you would want to build up a little more of a cash reserve if you were in another 2006 or 2007 period preparing for whatever the next downturn might be. I think for -- certainly it's the kind of share prices we see now and have seen; we still think it's very good value for our shareholders to have us buying back stock with our excess cash.

And in terms of the M&A activity we are seeing, certainly coming out of Europe and it being at relatively depressed levels, it sounds like you may be seeing some signs of life. Is there anything other than just a general improvement in the economy there that's going to get that going?

I think Europe is facing a lot of factors. It's not just the economy, it's the questions around the currency, it's just kind of a general negative view toward risk-taking and high-profile corporate activity and things like that. Clearly there are exceptions to that, but at the same time it's true that if you look at the overall data, it's dramatically lower than it has been for, frankly, most of my career.

Time will heal that. I don't doubt that.

The major companies in Europe don't think of their competitors as being fellow Europeans or fellow countrymen, whatever country they are in, they really are in global businesses and they are not going to stand by and watch American companies and Japanese to some extent and Australian and Chinese to some extent buy up and consolidate their industries only to leave them behind. So we do believe that Europe in due course will come back and be a major contributor to the M&A market again.

Lastly for me I think you mentioned earlier that sort of this year you are seeing more leading roles in terms of M&A activity. Is there anything to account for that other than the specific company relationships you have?

I think it's -- it's probably equally just the maturing of the firm. We have been around 17 years, we've got a lot of partners who are 45, 50 years old, have 25 years of experience, and frankly we have the industry expertise, the transaction expertise and the geographic reach to play a lead role on a very large transaction.

So it seems like we are winning a lot of those. I think we talked at the year end about getting more sell side roles, it seems like again this year we are adding more sell side roles. So I love the quality of the business we are getting, and I think that trend will continue.

Great, thanks for taking my questions.

Brennan Hawken, UBS.

So kind of curious to expand on your comments on the equity market and the impact on deal activity. It seemed like you were implying sort of higher equity market values is basically a constraint. I guess I could see how that would impact private equity activity, but public buyers and strategic buyers basically would have a currency that would bid up as well. So could you maybe walk me through your logic on how that would be a negative for strategic buyers to?

I just think there is a sense. Again, there are exceptions, but trying to speak more generally about the market, I think many companies that we talk to have the sense that their share price is fairly fully valued. I was meeting with one senior executive the other day and congratulated him on his share price performance, and his reaction kind of shrugged it off, thank Ben Bernanke, not us. And certainly in certain sectors in particular you would be familiar the very, very low interest rates, the chasing of yield, etc., has driven share prices very high.

You're right that companies can use that currency, but still the case that most acquisitions are cash acquisitions. A lot of sellers want cash, a lot of buyers are sitting with cash on the balance sheet, they'd prefer to use cash. So I think you have to look at it relative to using cash is a tran -- is a transaction currency. And it's true almost anything is accretive because your yield on the cash is so small even you have to borrow the money it's so low that almost any acquisition is accretive.

But that doesn't move that many companies to do deals. More often they look up fundamental value and they think I love my own share price, I think I'm a little fully valued right now but I'm certainly not going to go out and double down by somebody else who I think is more than fully valued.

Okay. Just a quick one. Is there a meaningful difference or do you expect that there will be a meaningful difference between the GAAP and awarded comp ratios, and how has that relationship worked out over the last couple of years?

I don't expect really -- I don't think we've had a significant change in policy and I don't expect we'll have one. I think we've been easily able to manage he amortization of our whatever restrictive stock we give out for nine years now without it really driving our compensation ratio to any kind of inappropriate level. So, and I don't see any -- foresee any change in that so I think we'll continue to focus on GAAP numbers and I think we'll have certainly very, very attractive relative GAAP compensation ratio. And I think ours -- as the market finally does rebound, which we are all talking about here, I think you'll see our number become considerably lower.

Okay, thanks.

Steven Schuback, Autonomous Research.

Good afternoon, gentlemen. My first question is regarding your outlook for bank M&A. I know you provided some cautious commentary at investor conference, I believe it was last month which you attributed to at least regulatory headwinds or more specifically the lack of regulatory clarity. And now that the Fed has, I guess, voted through some of the Basel III rules and I guess we have some increased visibility on the regulatory outlook, I don't know if your view had changed on the potential for bank M&A going forward.

I would say not. I would say that is still the sector we are probably the most cautious on in terms of M&A activity. Within financials, we think there'll be other areas like insurance that are active and certainly a lot of the other sectors like healthcare and industrials and energy we see plenty of opportunity.

But in banks there is still a tremendous uncertainty. It was only a matter of days ago that the question of these leverage ratios was raised, and obviously that's been asked on all the conference calls for those banks for whom it matters. And you can see people are both grappling with that but also I think hoping to fend off that notion, at least to some degree. I think that is yet one more rule that is going to cause banks to just stay -- stick to their knitting, stick to the -- operating their existing business rather than trying to buy neighboring banks and things like that.

Thanks, that's very helpful. And I guess one final one from me, I suppose looking at the commentary you provided on your outlook for M&A, both in the second half and in 2014, if I look at the individual components or disaggregate the individual components, it sounds like the building blocks are still there for M&A. But they have been there for some time. The valuations probably since the last update you provided last quarter have only gotten frothier for some of the corporates. And the economic growth outlook, while we are certainly seeing some improvement, it is still fairly slow. Or at least I guess less -- it's not particularly robust.

And I'm trying to reconcile that with the commentary you provided where or at least the guidance you provided on 2014 where you would expect a meaningful ramp in activity. I suppose what's the catalyst for the meaningful ramp versus a more gradual build.

I don't think I was that specific to exactly what we expect for the market as a whole. I would say this, it's been a long quiet period in transactions, literally twice as long as any other period over the last 25 or 30 years. I think time heals the wounds, even something as bad as what the financial crisis was, so I think that's going to pass and people will get back to doing deals.

Interestingly and I think very importantly, a lot of the deals you are seeing announced these days, the acquiror's share price is going up meaningfully on the announcement. That to me is the market voting that these deals in many cases are making a lot of sense, are accretive, they are synergistic, and I think as more companies watch that they're going to realize that it's not only the right thing to do strategically to make the right acquisitions, but their shareholders will reward them almost immediately for doing so.

That's very helpful, thanks for taking my questions.

Douglas Sipkin, Susquehanna Financial Group.

Thanks, good afternoon guys. How are you? So just a couple of questions. First, really just wanted to throw a question out at you, Scott. I think I am going to know your answer, but it seems like based on your conversations with CEOs and stock prices, things like that, almost feels like QE's a real impediment for doing transactions, and if that were to go away, it may actually be positive for M&A. We don't know that for sure, but is that your thought process?

I think it is. We don't have a great firm view on monetary policy certainly, but I do think it has been a negative factor both for the M&A market and probably even more so for the restructuring market. So I think when that does start to wind down, I think frankly we will see restructuring activity pick up and I think we'll have companies have more confidence in the market valuations of their targets and lead to more M&A.

Great. Just want to expand a little on the guidance for 2013. It sounds like you guys are banking on a very strong second half for the front placement to sort of fill the gap the weaker second half closings. Is that correct?

I wouldn't necessarily say that. I don't want to sort of try and break down what I think our next six months look like, but I think on the whole it will be as it always is, a package of a wide variety of activities, some of which are going to be obvious to you and some of which aren't but will add up to a good full-year result for us.

Great. And third question, and I appreciate it if you don't want to disclose, but what are some of the areas where you think you can still muscle up? I guess you guys aren't really interested in doing any sort of boutique deals like you did with Caliber. What sort of sectors or geographies do you feel like still maybe you can muscle up in?

To be honest, almost all of them. I think there are a couple of sectors where we have advanced pretty far in terms of having really global coverage and pretty deep coverage. I would say healthcare is one I feel quite good about there. I would say industrial is one I feel quite good about and all the others I think, literally, we've only scratched the surface of how big this Firm can be.

So it's going to be a lot of years of growing our own talent but also recruiting more talent to get where we want to get.

Great. And then, just final one, any update on Bob's tenure? Obviously he continues to play a role. You've expressed that. Any change in that view over the next year or two years, three years? Or is it really just like he is continuing to do it because he loves it and that is sort of where we stand?

Bob's role is largely unchanged from the day I joined this Firm 17 years ago. He still loves the business, still very active, still flies himself to meetings in the US and Europe, and so I certainly don't foresee any change there.

Great, thanks for taking all my questions.

Michael Wong, Morningstar.

Good afternoon. I believe you mentioned that restructuring may pick up after interest rates since interest rates have headed higher, but have you actually been engaged in more restructuring dialogue in the last month or two?

We actually have. I wouldn't want to draw some grand conclusion because it's a few weeks of data and so, maybe, the debt markets got a little bit spooked there. Yes, we actually have seen more inquiries, more bakeoffs, more [fines] looking to hire advisors etc. on the restructuring side. So we are hopeful that is a sign of much more to come if we do see financing markets tightened some more. There is still -- obviously we are still in a wonderful financing market, but clearly over time that will tighten up some and that should lead to more restructuring.

Okay. And in general, I'm sorry if I missed this but I believe you said your second half revenue would be more weighted towards fourth quarter. But in general, did you say if you believe that your second half of 2013 advisory revenue will be stronger than the first half, which has actually held up quite well?

I think what we said was we expect to do better for the full-year 2013 then we did for the full-year 2012 in terms of full-year advisory revenue. And in comparison we think our main competitors as a group will be down well into double digits. So it's going to be a big differential there. And ours as I said will be a modestly higher number. Let's hope for better of course, but I think for now the best way to put it is a modest improvement year over year.

Okay, thank you.

Jeffrey Hart, Sandler O'Neill

Good afternoon, guys. Nice quarter. Can you maybe compare and contrast a bit client attitudes and even conversations in 2013 versus the last couple of years? I'm looking at we got our dose of volatility in the markets this year like we got the last two years. I'm wondering if the reaction you're getting from clients is different now than it was in 2012 or 2011.

No, I think it's hard to draw any particular conclusions from that. I do think the further -- this year's numbers sort of go against this, but I do think companies are more open to M&A ideas the further we get from the financial crisis and the more economic growth we have. But clearly, we've had a bit of a pullback this year which is not that easy to explain, other than perhaps valuation is getting a bit ahead of where acquirors think they should be.

Okay. And as far as activity within sectors, is it kind of as it was last time you talked about it, the kind of areas we are seeing the strength, areas like healthcare, has there been any change kind of in sector directions?

It's pretty broad. As I noted it's pretty remarkable actually that seven of the eight industry classifications we use just for our internal calculations all were more than 10% of our first-half revenue. So it's incredibly widespread. Healthcare being the big standout in the positive side. And I think energy and industrials we still feel really good about, and we'll see with Financial Services. Again I think there's plenty to do outside the bank sector. And over time, hopefully, the regulation will clarify things there as well.

Okay, thank you.

I think that's our final question. Thank you all for your time and we will speak again soon, I'm sure.

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