Greenhill & Co Inc (GHL) 2015 Q2 法說會逐字稿

Good afternoon and welcome to the Greenhill second-quarter earnings conference call. All participants will be in listen-only mode. 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 2015 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 Financial 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 conditions 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 findings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports and current reports on Form 8-K.

Neither we nor any other person assumes responsibilities 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. The second quarter continued for our firm and the market generally, many of the key themes that we discussed during our first quarter call. For Greenhill, that meant continued advisory revenue growth cared to last year increased transaction announcements of generally larger transactions, and additional hiring and personnel moves to strengthen and best position the firm for continued success globally.

For the market, that meant continued extraordinary strength in transaction activity for deals $10 billion and greater in size, while activity and deals below that size range was essentially unchanged in an M&A market heavily driven by activity in the U.S. with Europe remaining much less active. Starting with our financial results for the second quarter, we achieved advisory revenue of $73 million, a 14% increase over the second quarter of 2014, bringing our year-to-date advisory revenue growth to 20%.

Our year-to-date total revenue growth was 27%. The first half of the year was not a particularly strong period in terms of large completed transaction revenue, but we are showing growth in that category relative to last year, and more importantly are showing growth in both announcement and opinion fees and retainer fees, which are more correlated with the level of current and future activity in our business.

Our improved revenue outcome resulted in cost ratios below last year's first half levels with our compensation ratio at 54.4%, the same as last year's full year results, and our noncompensation costs lower as a ratio of revenue, even as the absolute dollar of amount of noncompensation costs grew to the acquisition of the Cogent Partners business and related expenses, some of which are either one time or should be eliminated shortly.

Even after those nonrecurring costs, which had a negative impact of about two points of margin and three pennies of earnings-per-share in the quarter, we achieved a 22% pre tax profit margin and EPS of $0.30 from the second quarter. For the first half, even including nonrecurring Cogent-related costs that had a year negative impact of about $0.05 of per earning per share, we achieved a 21% pre tax profit margin and EPS of $0.55, more than double that of the first half of 2014.

We again paid a strong quarterly dividend, and as signaled on our last quarterly call, directed the bulk of our cash flow to paying down debt related to our Cogent acquisition versus our usual share repurchase activity. In the quarter, the first since acquiring the Cogent business, we already retired half of the first traunch of debt incurred with that acquisition, while continuing our practice of maintaining a cash balance in excess of the outstanding balance on the revolver that we use to manage cash globally.

We continue to see an unusually large share of our revenue by historic standards coming from U.S. clients. In the first quarter we highlighted the diverse regional participation in our announcement activity, but the second quarter saw results more in line with the current market statistics. Transaction announcements heavily weighted toward the North American market with the U.K. market, an area of long-term strength for us, being the other region of significant success in the year-to-date.

Looking ahead, we expect our improved flow, significant deal announcements in those markets to continue. Given the low level of activity outside those regions in recent years, and the strength of our teams in those markets, we continue to see a lot of upside potential for incremental revenue from those regions as in when they catch up to increase levels of transaction activity in the U.S. market.

By sector, communications and media, healthcare and industrials continue to be the most productive for us largely in line with overall market activity. By type of advice we continue to generate the majority of our advisory revenue from M&A transactions. Within M&A, completion fees, as always, were the biggest driver, but revenue from announcement and opinion fees continues to be up meaningfully compared to a year ago.

It is also worth noting that our announced transaction volume or lead table credit is up meaningfully in 2015, similarly skewed like overall market activity by our role on larger, higher profile transactions to start the year. Our financing and restructuring advisory business is finding interesting financing advisory opportunities and involved in some of the larger current bankruptcies in the market, but a very favorable credit environment continues to constrain the level of traditional bankruptcy and restructuring activity in the market.

Our capital advisor business is off to a strong start again this year with a very active real estate fundraising environment and Cogent, the business we acquired that advises on secondary market transactions for alternative assets benefiting from another quarter of robust market activity, it's first quarter as part of our firm. Before I comment further on Cogent, let me briefly make some observations on the market environment for M&A activity. As discussed during our first quarter call, the market statistics for the first half of 2015 continue to be skewed toward larger transactions versus a broader increase in the number of transactions.

Specifically, for the first half of the year, the number of announced transactions was up only 6% versus a year ago, while the volume of transaction announcements is up about 34% compared to the prior year, driven by large percentage increases in very large transactions. If you annualize the first half level of activity, the result would be a doubling in the number of global deals at $10 billion or greater in size, but no increase at all in the $500 million to $5 billion size range, which is where the bulk of significant advisory fees are usually generated, and which has history clips been a very important part of our business.

As it relates to transaction completions, the trends are very similar with total transaction completion volume increasing 35% year-over-year, driven by a small number of large transaction completions, while the total number of transaction completions was essentially flat compared to last year. Thinking through all those market statistics, as well as what we are seeing with our clients, we have no doubt that the M&A market has improved and we expect that improvement to continue.

We are simply making the obvious point that the improvement to date is fairly narrowly focused on mega-deals and in the U.S. market. We think there is much more to come if and when that improvement in activity broadens. During the first quarter call I went into quite a lot of detail on the Cogent business, and while I won't repeat that here, it is worth highlighting that we continue to be very pleased with the Cogent acquisition, which we announced earlier this year and closed on April 1.

The integration is going very smoothly with the cultural fit we anticipated playing at even better than expected and leading to much collaboration across teams on new business opportunities. The secondary market for alternative assets for the Greenhill-Cogent Team focuses is showing robust levels of activity, and our team is continuing their market-leading share of that activity both in deal volume and by a considerable margin in number of deals. We remain optimistic about the contribution the Greenhill-Cogent Team will make to our business in the quarters in the years to come.

We won't be breaking out secondary market revenue each quarter, but I can say that this group is performing well in terms of deal volume, revenue and new assignment wins, while still early days in this regard it looks well on track to well exceed the revenue requirements of the earn out arrangement we agreed as part of the acquisition. Now, I'll turn it back to Chris.

Thank you. I will now go into a bit more detail on compensation costs, noncompensation costs, tax rates, and dividends, share repurchases, and balance sheet matters. Starting with compensation costs, we achieved a compensation ratio of 54% for the second quarter in the first half of 2015, consistent with our full year compensation ratio over the last two years.

And remember that unlike our pierce, we include all GAAP compensation costs in the figures we highlight. As our investors know, we have consistently achieved our goal of a GAAP compensation ratio that is the lowest among our close peers, while also being able to compensate our people competitively given their high productivity relative to peer firms.

Moving to our noncompensation costs, our second quarter noncomp costs were $18 million, inclusive of transaction-related expenses incurred during the quarter. Including an increase in professional fees, redundant operating expenses that we expect to eliminate over time, and interest expense in transaction-related amortization that will naturally be reduced over time. Excluding these transaction-related expenses, our core noncomp costs, including the additional expected run rate from the Cogent business, were $16.5 million for the second quarter and remained well under control.

On our prior call, we commented that we expect the Cogent transaction to take our noncomp cost from a run rate of below $60 million per year to the high $60 million on an annual basis, and we continue to believe that is a good estimate. Touching briefly on the tax rate. As discussed in today's earnings release, our second quarter tax rate was 40%, bringing our year-to-date tax rate to 39%.

This higher than usually tax rate is driven by a greater proportion than usual of our earnings being in the U.S. relative to other jurisdictions where we operate with lower tax rates. Going forward, our tax rate will, as always, be a function of the jurisdictions in which we generate earnings, with the U.S. having the highest tax rates of any region where we operate. As and when the regional mix of our revenues return to our historic norms, our tax rates should decline to historic levels as well within our dividend share repurchases and debt paid on activity.

Our dividend this quarter was again $0.45 since this per share, consistent with the quarterly distribution made over the last several years. On April 1st we acquired Cogent and financed the up front portion of the transaction with the issuance of approximately 780,000 shares of common stock and a debt issuance of $45 million. The impact of the transaction financing can be seen in our increased fully diluted share count for the quarter and our increased interest expense as noted above.

Also at the time of the acquisition we signaled that we would direct a meaningful portion of our near term excess cash flow to paying down acquisition debt before returning to our historical focus on share repurchases. The transaction-related debt was structured in two equal traunches of $22.5 million each with the first traunch due April 2016.

During the second quarter, the first quarter since completing the acquisition, we paid down $11.25 million or half of the first traunch of the debt. Notwithstanding the repayment, we ended the quarter in a strong cash position with cash of $47.3 million and a revolver balance of $38.8 million. On a year-to-date basis, we have repurchased approximately 313,000 share equivalents for a total cost of $10.8 million.

Our Board of Directors has authorized the repurchase of up to $75 million of our common stock through the end of 2015, of which approximately $64 million remains available. The level and timing of stock repurchase activity going forward will be driven by the timing of excess cash generated in our advisory business over the course of the year and our timing of paying down the transaction-related debt associated with the Cogent acquisition.

Looking a bit ahead, it remains our expectation that while the share count is up, a very small amount as a result of the acquisition, we will get back to both a net cash position on our balance sheet and a flat share count relative to the time of our IPO just as we did not long after our Australian acquisition a couple of years ago. Now let me turn it back to Scott.

Before we open up for questions, I want to close with a few comments on the personnel moves we announced today. Essentially, we appointed two people who have been playing very important roles in our firm for a long time, Kevin Costantino and David Wyles, to position of president of the firm. While I'm committed to the firm as ever and our founder and Chairman, Bob Greenhill, remains very actively involved as well, we concluded that it would be beneficial to add to our senior management team a couple of people who will have a global mandate to help us continue to expand our business through client coverage, the recruitment and acquisition of new talent and the development of talent internally.

Kevin and David both, essentially, grew up in our firm. They've been with us 10 and 17 years, respectively. They include the best of the Greenhill culture of collegiality, teamwork and excellence, and they have broad experience in advising clients on a wide range of transactions across industries and regions. It's particularly helpful given the global nature of our business that they each have significant experience in Greenhill offices outside New York.

David in London and other European offices, and Kevin in Chicago, as well as our Australian offices. Their day job, like my day job, will continue to be building client relationships with important companies around the world and advising them on strategic transactions, and in the new capacities I expect it will be even more effective at that. Alongside their day jobs they will play important roles in the management strategy and continue development of our firm.

I've always said that our firm tries to feel like a true partnership, in other words, we want it to feel like a pretty flat, nonhierarchical organization, where many people think and act like owners in trying to build the business. Given that, it's important to have involved in senior management a team of skilled and respected individuals who collectively have many years at the firm and experience across all our key markets. I have the highest confidence that both Kevin and David will make meaningful contributions as part of that team going forward. With that, we're happy to take any questions..

At this time we will pause, momentarily, to assemble our roster. And our first question will come from Dan Paris of goaled man sacks.

Good morning, guys.

Hey, Dan.

How are you?

You spoke a little bit about noncomp costs being elevated, you know, related to some of the Cogent integration, it sounds like something like a $1.5 million in the run rate. Can you -- I was just hoping you could help us frame some of the moving parts there and how quickly some of it might come out of the run rate.

I think it will come out fairly quickly. It's pretty obvious stuff, like essentially, office space, is probably the big -- the big driver, and, you know, it takes a little time to transition leases or subleases over, and so, you know, in addition to the transaction costs you have that kind of thing in there.

Okay. That makes sense. And I know you spent a lot of time on the last call talking about some of the moving parts around the deal, but curious, you know, maybe, how things are tracking relative to expectations, where synergies either on the revenue or expense side have kind of come in better or worse than expected, and any color you can give on kind of the maybe more normalized revenue growth potential in the business now that you've had it in a run rate for a quarter.

Well, you know shall having it for a quarter I don't want to make any about growth rates, but I would say like everything we have seen about the acquisition has made us even more excited about it. The team is terrific. The fit is perfect. I personally have been involved in some of the bake-offs they've had to win business.

They have a very strong market position, you know, more precedence than anybody else, more breadth of business, exposure to more different funds and limited part netter institutional investors than really anybody else out there has. So I feel like on their own, they're a wonderful business. As part of us we're in the early days of this but we certainly have found the kinds of synergies we were hoping for.

We, obviously, have a very strong real estate primary capital raising business. In the secondary business, real estate was almost a nonexistent business just a few years ago, and Cogent was making some real inroads as that business started to develop when there's just more, you know, liquidity and activity in real estate, private equity funds and our team clearly is going to help them do that.

And there are also some other things that I wouldn't quite want to sort of go public with yet, but just for competitive reasons, but I think some of the things we do, you know, around fairness opinions and some of the other things we do and board advisory things are the kinds of activities that we may find more ways to work with institutional investors, as opposed to our usually assignment where we're working for corporations or private equity funds. So, really, in every respect it's kind of exceeded expectations.

And I still believe, as we did at the time we first agreed to the deal, several months ago, that this is a business that's in a long-term growth. I mean, just look at the sheer number of private equity assets held by institutional investors. That's been a growth market for a very long period of time. I think if you think about any sort of markets around the world, the more investors that have access to liquidity, the more they want it.

So, you know, was a time when there wasn't much liquidity at all in these private equity investments, and the more people, portfolio managers, chief investment office of endowments, and so on see the ability to manage their allocations, I think the more they'll take advantage of that.

Got it. And maybe just a last one for me, it looks like MD headcount grew in the quarter if I have these numbers right. I think it was -- you announced 12 new hires in 1Q, and now 17 as of 2Q. If that's right, you know, how many of the five were new hires versus promotes?

I think what you're taking -- there was only one more new hire, you know, besides Cogent, there was only one more new hire. It was a Houston energy fellow in the quarter. When I made the reference to 17, that was about how many, you know, in relation to the management issue and how we had some promotions as well as the 13. So that's the, I think, 13 plus four promotions gets us to the 17 you're reviewing to.

Got it. Okay. Thanks for taking my questions.

Thank you.

And the next question will come from Devin Ryan of JMP Securities.

Hey, thanks. Good afternoon, guys.

Hey, Devin.

Did you give the percentage of revenues in Europe in the quarter? I didn't see that. And it seemed like a small percentage, I guess, given the tax rate. So any color there would be helpful, and how we should think about, you know, Europe contribution the rest of the year. And following on that, just any commentary around the tone in Europe. It seems we've been hearing a little better commentary on some of the earnings calls here, so maybe just the tone between maybe the U.K. and continental Europe as well.

Well, we only tend to break out our sort of regional and industry sector revenue once a year at year end, because as you can imagine, it can be very lumpy based on one or two big deals happening. But if you look at the list of deals we closed during the quarter that's in our press release, obviously, there's not a huge continental European component of that. I mean, we see Europe a little bit right now as sort of a tale of two cities, really. The --

And by the way, their economies mirror this, which is that the U.K. economy is a lot more like the stronger U.S. economy and the continental Europe economy is quite a bit weaker. I think similarly in M&A activity, I mean if you just look at the data, a statistic I've always referred to, Devin, of the number of deals, $500 million or greater in a market, you know, it's still very, very soft in Europe.

And where there is strength within Europe, it tends to be U.K. If you look at the U.S. market, it's, obviously, you know, it still has a long way to go in that sort of $500 million to $5 billion range, but it's quite a different story. I mean, if you go back to just before the financial crisis, there were more $500 million deals that occurred in Europe than occurred in the U.S. And today we're on track for something like [60%] as many.

So the share of Europe as a part of the M&A market has, you know, just undeniably not bounced back the way the U.S. has, but, you know, but we are holding out that the -- you know, it's still a great franchise for us over there. And in the U.K. it's not only a great franchise, it's actually a pretty good business right now, because there's more stuff happening there among these, you know, multi-billion dollar deals and we've been able to get in on a decent number of them.

So we're feeling quite good in -- about the U.S.; although, I think the market will continue to broaden to sort of deals below the $10 billion size, and we're feeling similar pretty good about the U.K.; although, it clearly also has a long way to go to bounce back to historic levels. And, you know, the continent in other parts of the world, I think, will take, obviously, a little more time to fully recover.

Got it. Okay. Great. Maybe a tough question, but what do you think, what do you see getting that kind of sub $10 billion deal activity going and, I guess, what gives you comfort that maybe the prior cycle wasn't the actual aberration and that now you're kind of in an okay period for that activity even though the number deal is down? Just trying to get some additional perspective there.

Yeah. Look, I don't think it's just the prior cycle. I think all past cycles tended to bubble up. After sort of an M&A crash like you had at the, you know, at the end of the '80s or end of the '90s. You tended to have companies reluctant to do M&A, and they started with smaller safer deals and it slowly grew to be really big ones by the time you got back to the next peak of 2000 or 2007. This one has gone a little bit backward. I think there's some reasons for that. I think very big companies have a hard time kind of moving the needle in a growth respect, so they need to do not just an acquisition but a really big one to make a difference.

I think while credit is readily available for anybody, it's just remarkably cheap for the biggest companies. Share prices of the biggest companies have done very well, so they've got strong currency to play with as well. So there are a lot of reasons. I think maybe they were first out of the gate in getting more aggressive this time. What gives me the confidence that you will see it filter down to see greater increases in deals of, you know, the $1 million, $2 billion, $3 billion, which are great deals, by the way, with great opportunities for us, is simply the example these bug deals are setting.

We continue to be a market for maybe the last year and a half or so, where quite unusually the sale price of an acquirer is going up on announcement, and I don't think that's being unnoticed. I mean, I also have seen companies across the market willing to take maybe a little more antitrust risk than they would have taken in the past, where people are settling in for a long review because they think they can find a way to get it done.

So I think, as the companies in the billions, as opposed to the many tens of billions of size, see -- acquirers continue to be rewarded, and they see deals get done, and growth coming out of it and earnings accretion. I think there's very little doubt that they want to follow down that strategic path.

Great. Thanks for all that color, Scott. And then maybe just lastly here, with respect to the comp ratio, you know, 54% exactly the past two quarters. Should we think you guys are maybe starting to accrue more consistently, and so 54% is your view for the year or is that more just a coincidence just based on revenues the first two quarters?

That's more a coincidence. I mean, we try to do it, you know, quarter by quarter but we also try to not send any sort of big signals. I mean say after our first quarter, I think it would be crazy for us to have kind of a way out of line low comp ratio or a way out of line high comp ratio. We look at it on a yearly basis. That's how we really set comp, and so it's kind of just a function of revenue as the quarter -- the first couple of quarters go on and as we approach end of the year, obviously, you get to whatever the full year looks like.

Yes. Okay. Great. Thanks for taking my questions.

Sure. Thank you.

And next we have a question from Douglas Sipkin of Susquehanna.

Thank you. Good afternoon, guys. How are you?

Good. How are you, Doug?

Not too bad. A long day, a lot of earnings. I just want to drill down a little bit more on some of the advisory revenue. So you guys have highlighted a good start for the year for announcements and bigger transactions, but it still feels like more of sort of like the front end type of revenue. So I guess, obviously, it's impossible to predict and I'm not asking you to do that. I'm just trying to get a sense, when do you guys expect maybe a greater percentage of the closing type of revenues to happen? Is it a second half event, or is it even an early '16 event for some of the larger deals that you have, I think, in the pipeline?

That's the kind of thing that's just out of our control. Any given deal, and, obviously, there's no way to sort of lump them altogether and make a general statement, you know. Every transaction is different. You can close a substantial size private deal sometimes in a matter of a month or two. You can close some public deals in the U.K. in a couple of months, in the U.S. in four months if you've got a lot of regulatory review, you know. You've seen some deals take --what? Comcast got shot down after well more than a year. So every deal is different.

And, you know, want we're focused on, and what we're pleased about the year-to-date, is we're seeing a lot more announcements that are tending to be a bigger deal. Eventually, I think deals get done and revenue is generated and that's great for our shareholders. So we're going to focus on what we can control, which is building relationships with clients we think are in need of strategic advice and want to do something, and I don't have a lot of doubts that the revenue will find its way into our coffers, you know, in due course.

Great. And then just shifting gears on Cogent again, and I know you mentioned real estate. I mean, are you actually seeing real secondary transactions in real estate yet develop, or is it still kind of a market that feels like it's probably close but not quite there yet? I mean, you know, I've read some stuff that that market is really starting to develop, so I'm just curious maybe for a little bit more color and perspective, digging a little deeper there.

We absolutely are seeing meaningful activity in real estate private equity transactions, and at a secondary basis, and that really makes us feel great about one of the key synergies, because we really do think we have the top primary real estate capital raising business. If they're not No. 1, it's No. 2. I mean it's a pretty clear who the top firms are. So I think to marry that with the top secondary fund across private equity and alternative assets, I think is a great thing for us. At this moment we're suddenly -- there appears to be a lot more, you know, interest in liquidity in the real estate private equity world.

Great. Thanks for taking my questions, Scott.

Thank you.

And our next question will come from Jeff Harte of Sandler O'Neill.

Good afternoon, guys.

Hey, Jeff.

A couple for me. First, as we're looking at Cogent, and we're looking at the tax rate being up, I mean to the extent that Cogent is more U.S.-based, should we be maybe thinking your tax rate could be higher kind of sustainably going forward as opposed to going back to where it historically was?

No. I wouldn't read anything into the tax rate from Cogent. They have a very international business. As a matter of fact, in some respects it may be more international than our historic business. They do work in all the -- for clients in all the places we work for, but they also do things for clients in the Middle East more than we certainly ever have on the corporate side, for clients in, you know, in Japan and, you know, Asian countries, a number more than we've had a presence in. So -- and they've had a very significant presence in Europe of people on the ground. So it's a very international business, and, you know, I'm sure their mix regionally will ebb and flow just like ours does on the M&A side but I don't -- I wouldn't expect it's going to be any significant difference between them and the rest of the firm.

Okay. And just thinking about kind of share counts, cash went to paying down the debt. You paid down a lot of debt as opposed to buy backs. Looking forward, I'm assuming you're going to try to pay down that first traunch that comes due next year pretty quickly before you dial up a buy back, but the other half of the debt that's got kind of longer life to it and a fairly attractive interest rate, how are you thinking about the need to pay that down versus maybe accelerating buy backs?

I'm not feeling a great need to necessarily pay that down before we start some buy backs. I agree it's very attractive financing and we'll kind of think about that as the quarters and opportunities roll on. But, you know, clearly we signaled when we did the deal that normally we would do a deal like this that's all stock and then you just buy back simply in the market like we did after the Australian deal.

You know, here we did some cash and so we're directing, you know, at least at the first bit to sort of knock off that first term loan that you know, due in a year. So we knocked off half of that just in the first quarter, but certainly we're not so conservative that we would feel we had to pay off all the debt completely before we could buy back stock. We'll try to be, as always, quite opportunistic, both in looking at the, you know, the revenue pipeline and the current balance and what we think the, you know, the near term looks like and try to, you know, be smart about buying back stock as we've tried to be in the past.

Okay. And I think finally, sticking with share count, the diluted share count wasn't quite as high as, at least, as I was expecting it to be, and that's even without kind of in a -- much of a buy back impacting it all. To what extent are the Cogent shares factored in? And I'm thinking kind of specifically as some of the earn-off shares as opposed to the out from ones. Is there kind of a delta we're going to see over time?

There shouldn't be. I mean the quarterly number -- we'll take the full (inaudible) into account. If you're looking at the year-to-date fully diluted share count, it's only going to include half that because it's time-weighted. But there's nothing related to the earn out that's going to --

Okay. Thank you.

And there's nothing else that happened in terms of anything else that impacted the share count either, so I think if you look at the quarterly number, you've got the right number and there's nothing you're missing.

Okay. Thanks.

And the next question is from Brennan Hawken of UBS.

Good afternoon.

Hi, Brennan.

Can you let us know where MD headcount stood as of the middle of the year.

79. 77 client [facing.]

Great. Thanks for that. And then a quick one on balance sheet. You know, given the few different calls that you've kind of talked about a little bit here, you know, with the debt and then buy back and such, is there any different way we should think about cash building as we approach year-end this year?

No, I think it's kind of the same for us. I mean, I think you want to think about, our business. We always had the view that we want to have net cash, i.e., we manage cash sort of globally, so we're going to have a bit of a revolver. We're going to have more cash, hopefully, than what's outstanding in that revolver. And we're going take all the rest of the cash flow we have our going to pay it as a dividend. We're going to buy back stock, and that's what we've done for some years. The one kind of, you know, interruption to that effectively is by doing Cogent partly for cash, we're going to have a short-term blip, both in share count just like we did after Australia, because we paid part of Cogent in shares, and in debt by taking on these term loans.

I think, exactly, as happened with Australia, as Chris said in his prepared remarks, you know, we have every objective, and we actually think we will get back to where we were, not long at all after the Australian deal where it was as if it never happened, and we repurchased every single share we spent. And our goal is to, obviously, pay down the term debt to get to that point of net cash again, and to get the share count back to, you know, where it was in May of 2004 when we went public, which has always been our goal.

Okay. All right then. And then last one for me. Is there any kind of seasonality we should think about to the Cogent revenue base?

I I don't think so. Their business -- I mean, if anything, maybe there's a little more at the beginning and the end just because people tend to maybe do some more things around year-end, but it's not worth thinking about in your models, frankly. It's -- they tend to have a lot of their business closes kind of on the last day of the quarter because whoever the fund is likes to take, you know, the seller's name off the book and put the buyer's name on their books as to who owns the fund interest. It can sometimes slip into the first day or days of the next quarter. But I don't think there's a lot of seasonality I would look at there.

Fair enough. Thanks.

All right. Thank you.

And the next question is from Ashley Serrao of Credit Suisse.

Good afternoon.

Hey, Ashley.

I was curious, what was organic growth ex-Cogent?

Well, as I said, we're not going to give a quarter. I mean, Cogent is -- think about what Cogent is. It's a very important piece of one piece of our business. It's part of our capital advisory business. And, you know, and even over time, to separate out, you know, kind of who gets credit for what kind of thing, particularly as we find things to work on between our M&A bankers or our real estate primary fundraising bankers, and them, so, we're not -- we're never got to a point of sort of allocating revenue quite, you know, that publicly because, again, it can be sort of lumpy quarter to quarter. So we're, you know, we won't -- once a year we'll probably go into a lot more detail just like we do about fund placement in general and regions and factors, but not every quarter.

Okay. How big is your European franchise today? How many MDs do you have dedicated to the region?

I don't -- let me just sort of count that as we -- I think it's sort of 17, 18 maybe, you could call it. I mean, no real change from where we've been. We haven't had any MDs leave since sort of bonus time, so it's been a very stable group, but, obviously, with the recruits and the Cogent people being added. But I think we're at 17 people in Europe, probably, you know, a significant group of them focused on the U.K. and some continental and some are in Pan-European because they're industry sector experts.

And how are you thinking about hiring in the region? Because several of your peers are ramming up efforts there.

You know, we feel the same, I think, about Europe that we do everywhere else, which is we have a very opportunistic approach to hiring -- the bulk of our expansion in the early years, post crisis, was kind of in the U.S. or elsewhere. We, obviously, have quite a lot of people. We built out Chicago and L.A. and Houston and the various sector groups and elsewhere, places like Australia and Japan. And that clearly turned out to be the right thing to do because Europe at a -- has had a much slower recovery than the U.S. I think going forward, we're very opportunistic to try to sort of catch the moment when European activity is going to pick up.

But I think we're not, you know, maybe in as big a hurry as some other firms might be because, you know, frankly, we have a really good franchise there. We're not necessarily trying to sort of get to having a great franchise there. We've been in London for, you know, for something like 18 years now. We just had our 15th anniversary celebration in Frankfort. I mean, we've got pretty deep roots over there. So we're not talking about creating a business. We're talking about just like we are in the U.S., sort of adding on to when we find the right person who can bring something new.

Okay. I guess then based on your current pipeline and what you can see, do you feel that you will be able to deliver year-over-year remedy growth?

Well, I'm not -- we've never been in sort of the business of making predictions. It's, you know, it's a lumpy business. One or two deals can make a significant difference. One or two deals that can still come in the weeks and months to come could make a significant difference for this year. I think if you look at the trends in our business, to meet costs, I'm going to say everything looks positive. We're up in revenue. We're substantially up in announcements. We've told you we think that increased pace of announcements is going to continue and we'll count it all up on December 31 and you'll be among the first to know what it added up to.

Okay. And maybe just a little bit of a tough question, but if I just look at your revenues over the past few years, and I think about the M&A cycle, they've kind of decoupled, so why are you so confident that a recovery in Europe or any pickup in transactions will actually translate into revenue growth?

Well, look, you're asking a long-term question there, but I'll try to give you sort of a long-term answer. I mean, first of all, I don't think the market, if you just look, again, at the stat I talk about a lot, $500 million or greater transactions, you know, really hasn't even come close to recovering in the globe. And if you look at particular regions, it's even more so. I mean, I'll just give you a data point that I look at this figure every Monday morning. When I looked at it last Monday morning, the number of $500 million deals annualizing year-to-date in Europe, you know, all the way through July 20th, we're on track for 329 of those in Europe this year.

In four of the last five years it was between 381 and 411. So it -- the fact that we have a substantial European presence, we just talked about the number of people. We talked about the history and the investment there. We love our business over there. We think it has tremendous long-term value. But if those buys are in a market where even this year they are -- we're on track for 329 of those deals, and in 2007 there were 726 of those deals, you know, obviously, that's going to impact how our revenue evolves over time. And, you know, likewise in some other markets. I mean, Australia had some really boom times when the U.S. and Europe were kind of going into the crisis.

Now that China's pulling back, commodity price is falling. The Aussie dollar falling, etc., it's, obviously, a more difficult market over there. But, you know, I think you have to look at the mix of business regionally. You have to look at the investment that's been made. We have the same number much shares we had outstanding many years ago. We have paid a very large dividend. We have a very high rate of profitability. Obviously, there is a different strategy that some firms have chosen and, you know, you have to measure strategies on short, medium and long-term basis. We could have grown a lot more, hired a lot more people, put out a lot more shares, diluted a lot of near term profitability, and we'd probably have better revenue but worse profitability today.

So we've taken a bit of a difference tack, which we still believe in, which is to build the firm kind of slowly and methodically and opportunistically, as we have over the last almost 20 years now, and try to make it a global firm, even though not every minute of the cycle is it great to be in every market around the world. And to focus very much on profitability and cash generation. And that's why which were able to pay a very full dividend and able to keep our share count low and at the same time that we're investing in growing the business for the long-term.

Thanks for the call and taking my questions.

Thank you.

And the next question comes from Joel Jeffrey of KBW.

(Inaudible), guys.

Hey, Joel.

Most of my questions have been asked, but in thinking about Europe a bit. I know you referenced the fact that the U.K. market has been a bit of the exception there. I mean are there any other markets there that you think are sort of poised for a near term rebound, or ones that are particularly a long way away, I guess outside of Greece?

Well, firstly, we don't have a big presence in Greece. That's probably been a good strategic decision over the time. I mean I would say, historically, here's kind of the way Europe has been. I think the U.K. has always been the most important M&A market within Europe. It was when I lived there 25 years ago and it still is today. It's kind of, you know, there's an Angelo American deal making culture that you see in Australia. You see in the U.S., and you see there, so they're pretty active. And I would the other two historically quite strong markets would be Germany, which is much less oriented toward M&A than the U.K. but still a pretty good market and the Nordic region.

And the Nordic has a lot of big global industrial companies that tend to be, you know, very strategic in how they think about the development of their businesses, so, historically, those have been quite good. I would say in recent years it's been Germany and the Nordic region that's been quieter, quite a bit quieter than usual, and then I think you add to that all southern Europe, which for reasons we can all, you know, guess very easily has been remarkably slow. And you add all that together and so the total European numbers don't look that good at all.

And, you know, I just ran through some of the, you know, basically, more than enough halving in terms of number of $500 million deals even today versus 2007. And what's underneath that is a recently good U.K. market, a slower German and Nordic market than usual, and a very quiet southern European market, which only makes me glad that we never opened an office in places like Spain and Italy, let alone Greece.

Great. Thanks for taking my question.

Sure.

And the next question is from Vincent Hung of Autonomous.

Hi. Has it going?

Good. How are you?

Very well. The first question is what's the main pushback you get from corporate over why they're not going to pull the trigger on a transaction? Is there any sort of distinction between buy side and sell side?

No, I would say -- I mean, every -- it's a good question and I understand why an investor and analyst wants to understand that question, but, you know, each -- when you're in the business, as I have been for a long time, I mean, you come to realize that every deal is just unique. You need really to have the stars aligned, whether it's personalities at the CEO or Chairman level, whether it's financing markets, whether it's relative valuation of buyer and seller and how they feel about that. You can go there's dislocations, like right now energy prices fell a lot, so I think, you know, nobody's going to be excited about selling an energy asset today. Probably a lot of people would be excited about buying an energy asset at depressed prices, so there's no one thing you can point to.

I think, you know, you can always be more conservative and say, I'm not going to do a deal. But I think today, most particularly American companies, and I think, hopefully, over time the rest of the world, you know, looks at an economy that's fairly benign. It's not growing fast but no recession is really in sight. I think most CEOs would say financing markets are great, stock prices are up. It's hard to get organic growth, so it's a good time to buy something. I think that's what's pushing the buyers to do something, and I think over time those same reasons will drive more people to buy.

Okay. And just on your hiring process. A few of your peers are having another good year in terms of hiring. There's some impressive hires there. Do you compete with these firms for the same talent?

You know, I mean, in very kind of vague and general terms, yes, and we've hired, you know, 13 people this year, eight through Cogent, and five in various industry and regional specialties around the world. But, you know, historically, I would say that it's quite rare that we interview and hire somebody who is also interviewing with some of our main competitors who you'll be very familiar with. It's equally unusual for me to see them hire somebody that we were talking to.

I mean, I would say -- I'm sure it's hard to see this from a shareholder or analyst point of view, but from a personnel point of view, all these firms have a little bit different personality. And very often a person will come here not just because he wants to leave a big bang to work for an independent firm. He'll come here because he's worked with some of us. He probably knows some of us, maybe he used to work with one of us when we were sitting at Morgan Stanley or Goldman Sacks or Credit Suisse or whatever -- wherever his friend, you know, his friend at the former firm came from.

And so there's kind of an affinity that develops where people make a decision, you know, No. 1, do I want to leave my big bang, and No. 2, which firm would I remember would I rather go to? It's not like they go to three firms and say who's going to pay me the most money. I think that's pretty unusual. So it tends to be more of a very selective recruiting process that's really about somebody who already has an affinity and a relationship with our firm saying, I'd like to take the next step and actually join that firm, not just put myself out for bid for whoever wants to buy me.

Okay. Thanks a lot.

Thank you.

The next question is from Michael Wong of Morningstar.

Good afternoon.

Hey, Michael.

So we generally I guess contemplate a rebound in European M&A activity to kind of add a little more activity to the globe in general,, but how much more growth do you think the U.S. market can sustain before maybe peaking out?

Look, I believe we're in the very early days of an M&A cycle. I mean, you know, again, the volume numbers look terrific, because you're seeing deals that are $25 billion and $35 billion, occasionally, getting done, and so that -- it won't surprise me in the slightest. As a matter of fact, I expect that the U.S. market will have higher deal volume this year than any year in history, but if you look at the number of, again, $500 million deals, to sort of keep it to the similar theme, if I look at what's happened in the U.S. we're on track for about 515 of those. And when I say that, I mean either the target or the acquirer is American.

Just like when I talked about Europe, I mean either the target or the acquirer was European, so there's a bit of double counting, obviously. You know, that number is on track for 515 as of a few days ago. It was for fours years a sort of 4 to 450. Last year it went to 555. This year it's on track to be down to sort of 515. So it's not been, you know, huge growth. It's still down considerably from 2007. The, again, the kind of earliest rebound at M&A is these very, very large deals. But I think there's a lot of rooms in deals of $500 million, $1 billion, $2 billion $3 billion, $4 billion that can provide a lot more growth in the U.S., as well, obviously in Europe and elsewhere in the world.

Okay. Thanks for taking the question.

Okay. And I think that's our last question. Had a lot of them today. So thank you all for your time and I wish you a happy end of summer and we'll speak end of quarter. Bye now.

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