Greenhill & Co Inc (GHL) 2015 Q3 法說會逐字稿

Good afternoon, and welcome to the Greenhill third-quarter earnings conference call.

(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 third-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 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 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.

This year has continued to be a good one for us in terms of important M&A announcements. Such that as of a few days ago our announced year-to-date transaction volume, the sum of all deal sizes, for the Thomson data source we typically cite, is up 69% from the same period last year, to its highest level since 2008.

However, very few transaction completions fell in our third quarter, resulting in lower than typical advisory revenue. And that lower revenue level, resulted in higher than typical cost ratios. There were three primary factors that constrained our revenue outcome in the quarter and the year to date, each of which should, in due course, turn in a much more favorable direction on its own. I will speak to each of those of those now, followed by a few comments on the overall M&A environment and then followed by a discussion of our capital advisory business. After that, Chris will speak to our cost, balance sheet matters, and dividend.

The key factor in our quarterly revenue outcome was simply the somewhat random timing of transaction completions. Something that's obviously far out of our control. Fortunately, this year we've been centrally involved in more large deals than was the case in recent years. But unfortunately, the nature of those larger deals is such that they can take longer to close.

Specifically, as we note in our press release, last year, a large majority of our most important announced deals, as measure by total expected fees, also made it to completion in the same year, while this year is just the opposite. A large majority of this year's most important announced transactions, particularly this year's several largest as measured by expected fees, look likely to get to completion beyond this year end.

While that substantial difference in transaction timing will obviously impact this year's results negatively, it also means that for 2016, we already have the largest backlog of fees from announced transactions that we have had at the start of any of the past several years. And we have more than two months left in the year to grow that backlog further. A second factor in our results this quarter, and throughout this year is, that we continue to be in a market where improvement in M&A activity is heavily focused on the US market.

Our US M&A business is performing well. And this year, the portion of our advisory revenue coming from clients in North America, looks likely to be the second highest since before our IPO. Exceeded only by 2009, when we were in the depths of the financial crisis.

However, we've always prided ourselves in being a truly global firm. And thus, we have very substantial resources deployed in other markets where M&A activity has been stagnant or even continued to decline. For example, in Europe, the number of deals $500 million or greater is on track to be slightly worse than in four of the past five years. At a level of about half of where it was at the 2007 peak.

With respect to M&A activity, Europe has increasingly seemed to be made up of multiple separate regions, with very different market characteristics. And fortunately, the UK, where we have a long-standing strong market position, has been a positive exception to the overall European trend. Several important deal announcements this year by our team in that market reflect that.

In Australia, given the smaller market size, we focus on a number of deals $200 million or greater. And that figure has continued to decline in the past few years to a level 30% below where it was in 2010 and roughly half of what it was at the 2007 peak.

For Brazil, and other emerging markets, the general news flow makes clear the multitude of reasons for there being little M&A activity. Not withstanding, the recent years of unusual relative strength in the US market, we continue to believe in the necessity of having a truly global footprint for long-term success. And in the quality of our advisory teams, and the regions that have seen less activity of late.

The third and last fact worth noting is one that has also applied for some time. That is the fact that improvement in M&A activity has been heavily focused on mega-transactions of $10 billion or greater size.

Market data as of a few days ago shows that we are on track to have 8% percent fewer transactions globally in the sub $500 million category this year. Only 3% more in the important $500 million to $5 billion category. Only in deals north of $10 billion in size has there been really dramatic improvement. But if you look at the number of deals in these various categories, you see that what this means is hundreds fewer smaller deals offset by only a few dozen more very large deals globally.

Just as we expect improvement in M&A activity to spread over time to other regions beyond US and UK, it also seems logical to expect it to spread to the full range of deal sizes. I know some market commentators are starting to declare that we are at or near our peak of the M&A cycle. But the data cited above in relation to Europe, Austria, Brazil and elsewhere, as well as the data in relation to deals sub $5 billion in size, would suggest that for many parts of the M&A market, the post-financial crisis upturn has barely begun.

Our dialogs with CEOs and boards validate the view that M&A activity feels a long way from slowing down. The fundamental drivers of modest organic growth opportunities, low cost of capital, and dynamic technological and regulatory change within many industry verticals, all remain in place. It still is not easy to get deals done, especially in the occasional periods of market volatility that come along. But corporate interest in M&A opportunities remains high.

Now let me turn to our capital advisory business. Their market conditions for both primary fundraising, and secondary transactions have been robust. Except for some delay in transaction completions, as we saw significant volatility in public equity market valuations in the latter part of the quarter.

However, the near-term outlook continues to look strong for this business. For secondary transactions in particular, we believe the market remains in a growth phase where high valuations mean more transactions, which in turn leads to greater liquidity in a still fairly young market, which in turn drives more transactions. In short, we believe there is a bit of a [virtual] circle in place in this market. And having become the market leader through the acquisition of Cogent earlier this year, we are very well placed to benefit from that.

Now I'll turn it over to Chris.

Thank you.

I'll go into bit more detail on compensation costs, noncompensation costs, tax rates and capital management and balance sheet matters. Starting with compensation costs.

Our compensation expense ratio for the third quarter was elevated 61% due to the revenue outcomes Scott discussed earlier on the call. Which brings our year-to-date composition ratio to 56%, slightly higher than the 55% compensation ratio we achieved through the first nine month of last year.

Consistent with our historical approach, we include all GAAP compensation costs in these figures. Which means that, unlike many of our peers, we include all recruiting, acquisition, and related personnel expenses when discussing our compensation ratio. While our full year 2015 competition ratio will be dependent on the fourth quarter, and resulting full year revenue outcome, our goal remains to have a GAAP compensation ratio that is the lowest among our close peers, which we have achieved every year, while also being able to compensate our people competitively, and continue to reward high level productivity.

Moving to our noncompensation costs. Our non-comp costs were $18.8 million for the quarter and $53.1 million on a year-to-date basis, with both figures elevated by a variety of unusual items. These unusual items include transaction expenses related to the acquisition of Cogent, foreign exchange losses related to the way we finance our investment and our start-up in Brazil. And duplicative lease costs in transitioning to new office space in Sydney.

For the quarter, these non-core expenses added approximately $1.6 million of additional expense, and on a year-to-date basis, the total impact was approximately $4.6 million. Excluding these expenses are core non-comp costs. Including the additional ongoing core expenses for the Cogent business, are $17.2 million for the third quarter and $48.5 million for the year-to-date period. And remain well under control.

With respect to the non-core cost noted above, there will be no further acquisition costs related to Cogent. The transition of office space in Sydney is now complete. And the Brazilian currency hit a 20 year in the third quarter suggesting the negative FX expense there should be largely behind us. On prior calls, we commented that we expected the Cogent transaction to take our non-comp cost from a run rate of below $60 million, to high $60 millions on an annual basis and we continue to believe that is a good estimate.

Touching briefly on tax rates. As discussed today's earnings release, our third-quarter tax rate was 40%. And our year-to-date tax rate was 39%. This higher than usual tax rate is driven by a greater proportion than usual of our earnings being in the US, 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 US having the highest tax rate of any region where we operate. As and when the regional mix of our revenue returns to our historic norms, our tax rate should decline to historic levels as well.

Looking at our capital management activity, our dividend this quarter was again $0.45 per share consistent with the quarterly distribution made over the last several years. And as Scott mentioned in the press release, an indication of our confidence in the current pipeline announced transactions and other deal activity.

During the third quarter, we repurchased a small number of shares due to employee restricted [stock testing] and for the year to date have repurchased approximately 340,000 shares for a total cost of $11.9 million as a result of such vesting. As we said when we acquired Cogent earlier this year, our near-term focus is on repaying the modest amount of acquisition debt we incurred. Once that is behind us, and as to revenue pictures evolves as [note] earlier, we expect to return to our historic share repurchase program.

With the Cogent acquisition our share count has picked up very slightly (technical difficulties) our 2004 IPO. But our long-term track record for avoiding dilution of shareholders remains very strong relative to our peers, and maintaining that position remains a core object of the firm.

We ended this quarter with cash at $35.3 million. Investments of $3.5 million, and revolver balance of $44.9 million. While we ended the quarter with a revolver balance a bit larger than our cash balance as of today, we're already back in our usual position of having a global cash balance in excess of our revolver balance.

Now let me turn it back to Scott.

Let me close with a thought that the difference between the quarter we had and a strong quarter is really quite modest. Our business has minimal capital requirements and our costs, apart from compensation, are largely fixed. So for us, the real story is always all about revenue.

Given how much of any incremental revenue drops to the bottom line, it would not have taken much in additional transactions fees being realized to lead to very different and better financial results. And you only have to look at our 10 year history to see that we have an unparalleled track record of converting revenue into profits, and capital returns to shareholders, including more than $500 million of dividends paid out since our IPO.

Looking ahead, much of what would lead to dramatically different and better results should happen naturally, with little action on our part. First, transaction timing is obviously out of our control, the large transactions with long time tables can generally be expected to work their way to the finish line. History shows that very few deals get blocked by regulators, and even the largest transactions really take more than around a year to get to completion. More typical, transaction timing alone would have led to very different and reasonably satisfactory results for us for the year to date.

Second, we have a strong and long established team stationed in key markets around the world, and thus are very well positioned to benefit as improved M&A activity broadens to other regions beyond the US and UK and to deal sizes other than mega transactions. That also should happen naturally, as regents and companies of all sizes continue to heal from the financial crisis and companies face the imperative to grow their businesses despite economic growth that generally remains tepid. And that would also lead to dramatically improved results for us.

Lastly, on top of waiting for those two factors to turn in our favor, I want to be clear that we continue to be laser focused on the things that are within our control to create a business that drives strong and growing revenue over the long term. Like any great sports team or other professional services firm, our primary management focus is on acquiring and in developing talent. While at the same time, not be reluctant to occasionally part ways with bankers, whose skills or relationships have proven to be insufficiently effective on an independent advisory platform like ours.

As we look to expand and upgrade our talent pool, we focus on two strategies. One is adding new senior talent from outside the firm, and we've done a lot of that this year. Both in M&A and capital advisory. And both by recruitment and by acquisition.

We're very pleased with the new client activity generated both from this year's MD recruits and from the team acquired in the acquisition of Cogent. Looking ahead, we continue to see good opportunities to recruit additional senior talent. An equally important part of our talent strategy is growing our own senior talent. And we have numerous examples of people who joined our firm 10 or more years ago, very early in their career, and have since about into important revenue contributors, as well as leaders within the firm.

The early progress of those more recently promoted to managing director, as well as the strong pipeline of talent still coming up through the ranks, suggests this strategy of internal personnel development will become an increasingly important part of our talent strategy alongside external recruiting.

With that we're happy to take questions.

(Operator Instructions)

Devin Ryan, JMP Securities.

Looking at results year-to-date, and trying to parse through some of the commentary, so it's clearly maybe a tougher year, and hopefully next year is off on a better note just based on the backlog you noted. If that is the backdrop, how do you balance compensating people that really produced at a high level this year, but still continuing to invest in people that maybe this wasn't a great year of production? I know that you have to be balanced, but when revenues are spread thinner, how do you think about that balance?

Comp every year, whether you're at the absolute peak of 2007 or at the trough of a period like 2009. It's never easy in our business. People obviously have high expectations -- even when it seems like revenue is very high. You work through it. I think our history has been and will continue to be that rewarded people who have performed well. That doesn't mean we completely cut off those who haven't, but who we believe in for the future. You have to go case-by-case, person by person. I think our track record of a very high retention rate over the last almost 20 years now, would suggest we know how to do that in an effective way.

Appreciate the commentary around the M&A cycle and where we are from a data perspective. But are there any anecdotes or things you would point to where you'd say, based on the conversations with boards and these specific examples where you feel like this cycle still has a long runway to go. I know the data may suggest then and we hope that's the case. But is there anything where you're getting a sense from your conversations with Board members that they are just now starting to think about growth again?

There are plenty of them, but I will not name names on a call, obviously. All of that stuff is confidential. And it's hard to give no names anecdotes. But I'd say this, over the recent weeks, the pace of flow of new assignments and bake offs that we have been invited to, and other situations where you're invited at a high level to talk to a company, and maybe in a more serious way about a possible transaction; that hasn't declined at all. As a matter of fact, I would say the last few weeks feel really quite good in that sense. So I'm not seen anything that would indicate the little state of market volatility we have had has derailed M&A at all. I think you're seeing that in some announcements, and certainly behind the scenes. We're seeing that in terms of the early stage pipeline being filled with bake offs some of which you win, some of which you lose. Even the ones you're getting invited to an end up losing are suggesting there's a lot of activity out there. As long as we have a reasonable batting average in winning those, will continue to do fine, I think.

On that point, you have been around longer than a number of some of the newer advisory firms that are starting up. Are you seeing more firms today in bake offs, the independent model, it seems that there's more firms with a critical mass and a bigger brand today than there were five years ago or 10 years ago. Is that a dynamic is it playing in a competitive environment that you think is impacting business at all? Or is it still do you feel more head-to-head with the bulge brackets?

We still compete with the bulge brackets more than anybody else. I think overall the competitive picture is, again you have to look at it pretty carefully. It won't surprise you to hear that I think the European banks continue to get weaker. You've seen some announcements even in recent days here that suggest that there's probably going to be more turmoil and strategic developments of those places that probably at the margin help us win business against them, probably hurt them in keeping good people. So that's one category. The American banks are doing pretty well. They've always been tough competitors and they are still the people we run into most often when we are competing for a piece of business. With the so-called independent advisers, like ourselves, clearly there are more of them. There probably aren't as many more as you may be thinking. For example, the two most recent to go public are both at least 10 years older than we are. They weren't public for the whole period we were, but they have certainly been around for very long period of time. There are some new ones, there's some tiny ones, as you know. Who may pick off one or two or three pieces of business in a whole year. And there are some others that are much more comparable to us. Overall, it's always been a competitive business. It's a little more like it was when I started my career where there were lots of small, medium, and large competitors. As compared to, say 10 years ago when there was the -- really the bulge brackets owned everything in the early days of our firm's formation and develop and the formation and development of some of the other firms like us.

Dan Paris, Goldman Sachs.

From a high-level perspective, the delay in some closings this quarter, would you attribute any of that to the volatility that we've seen in the markets and corporate's intentionally delaying it? Or was is all normal course regulation taking longer, things of that nature?

It certainly wasn't the former, I didn't see, maybe if we -- again, we don't do a lot of work in the private equity world, maybe in that world the ability to do a junk bond offering and finance a deal may have become more difficult for some people. The phenomenon I am more talking about, clearly you can see we've announced bigger and more significant transactions than we did last year, probably the last number of years. When you do those bigger things, they tend, for whatever reason, to have a little longer regulatory review. It can be because they're being reviewed, not in one country, but in 5 or 10 countries in some cases. And it can be because it's bigger, and so bigger market shares are involved. It takes longer to get through the process. I'm sure that is a phenomenon that other firms will see with large transactions. I don't think any of it had anything to do with the market volatility. I am not going to talk about individual transactions, but if you did look at company commentary about their own transactions, you can see the expectations they are setting for closings, which in many cases people are talking about a year on the larger ones. The very large beer transaction which we're not involved in, they're quite open about the fact it will take more than a year to close. And there are lots of transactions that aren't that big but they're still very large that are in the same boat.

Understanding that completions are near impossible to predict, you seem to allude that most of these transactions would spill over into next year. Does that set up risk that in a 4Q revenue number could look something similar to this quarter? Is anything you can point us to and trying to size that?

Obviously, I don't want to be predicting a quarter's revenue because that is impossible to do. I would say even apart from the larger phenomenon I'm talking about, where we've announced more, bigger deals this year, but they're just the type that are going to take longer to close. And they're going to close next year. Even apart from that, the third quarter was a very unusual quarter in terms of the sheer number of transactions that we closed. We always list on our press release pretty much every M&A transaction that we have closed during the quarter. Occasionally there will be something that's confidential that we won't list. But we almost always list pretty much everything. I can't remember the time we ever had as few as four. And of the four that are listed in there, you can see the relative sizes; they're not all significant ones. Certainly none of them are really large ones. I would say the third quarter feels like very much an outlier in terms of not only big transactions, that are taking a lot longer. But even the normal run of smaller deals. And I'm sure, -- when you look at your data sources, which you guys all look at, but we typically don't. You could probably have seen coming into this there are about four transactions that closed for us during the third quarter. I think when you look for quarters to come, I think you're going to see quite different numbers and scale of transactions.

Is there any way you could size any of that for us today? Like i.e. the revenue backlog on completed deals is X, assuming everything closes? Is there any way to think about that? Or you can't give that level of granularity?

I don't think that's wise, because once you start down that path you have to do it. And some of this is difficult to calculate. The point I made in the script about a large majority of last year's major top tier deals getting done during the same year, and a large majority of this year's getting deferred beyond that, including as I said, the several very largest. Obviously, it's a very heavily skewed and that's why we made the point that we have already the best backlog we have had in terms of announced deals, not just general pipelines. In terms of announced deal fees for any January 1 in many years. We've still got two more months to keep increasing that margin versus recent years. Obviously, I'm talking about significant numbers and things here. I think to quantify it doesn't really make sense.

Understood. If the deal timeline completion keeps getting pushed back for whatever reason, is there way to think about what's the minimum level of revenue earnings required to support the current dividend? It seems like repaying some of the debt remains a priority too. So how do we think about that balance there?

I think it's a pretty low figure that would put the dividend into question. Certainly we don't think we are there. If you look at, as obviously we do because we are involved in these deals, but you can see things making progress. It's very rare for deals to take much more than a year to get done. So, it's not like things that may look to the public like they will close in Q1 are going to close in Q1 of 2017 instead of 2016. I don't think that is realistic at all. Just the way deals normally play out, and the announcements companies are making. So, I think we are well out of the range of having to worry at all about the dividend or any other balance sheet related issues. The only question, really, is when do we start repurchasing stock again? We look at this backlog, and when we expect it to come in and turn to revenue, and we think it's not going to be that long. You will see us back to our usual position of net cash like we are today and of repurchasing stock, and getting back to share count hasn't increased in 10 plus years.

Thanks for taking my questions.

Douglas Sipkin, Susquehanna

I wanted to drill down a little bit on Cogent. Maybe if you could update how we should be thinking about it in light of a little bit more of a volatile environment? I know you provided their full year 2014, you guys don't disclose the revenue. Some of the challenges I am having are trying to think about that stuff. Thinking about around the $40 million or so that it did last year and obviously, I don't think that will be for 2015. Any color as to how we should be thinking about that revenue stream? I know you guys started providing the number of transactions they were involved in, I think you said 23. Can you maybe provide us what is the numbers they were doing last year? And how, if at all has that market changed in light of what we have seen volatility-wise in August and September? How do we think about that relative to sort of what they did last year? I feel like, maybe at least from my perspective, some of the problems in terms of modeling right now.

I think I could give you a lot of statistics that would probably would do nothing but confuse you and not have any meaning to them. Because, obviously, you can have some deals that are very small and some deals that are mid-sized and some that are larger. So to give you numbers of deals versus last year wouldn't make much difference. I would just say this. We have been pretty clear; this business is performing well. We think there's a secular growth thing going on because it seems like more institutional investors are managing their portfolios of private investments the same way they manage their portfolios of public investments. So it seems like there is more overall activity. Our guys continue to feel like they've got by far, the leading market share. I would say that business deals as we sit here right now feels better than it did a year ago.

I think the pace of new assignments, the number of new assignments, the number ones that are really quite significant in terms of the fee potential are all looking like this business is doing very well. If I were to model it, that is for you guys to figure out. But look, it's not a huge part of our business. I think to assume something, I mean, we have the earn out which gives you some target of what they were expecting to exceed. I think that team still expects to not just achieve that but to exceed that figure.

In terms of some of the offices where you have highlighted where there is not a lot going on, one thing I have noticed, historically you have done a great job with the non- comp. I know you have done a deal so there's some expenses related to that. It feels like the non-comp is an area where it's a little bit more elevated than normal based on your history of prudently keeping costs low. At what point to some of these territories where nothing is going on, do you evaluate some sort of streamlining? I'm not saying go away, but something where you can manage the business a little bit more effectively. At some point if revenues don't come back for the long period of time, it gets pretty expensive to sit with it. So I'm just curious if that's something you're exploring with certain territories where it doesn't feel like there's a lot going on, and they're probably won't be for some time.

I don't want to give the impression people are sitting on their hands. People are busy, believe me. It's a matter of how hard it is to get transactions done in certain parts of the world. Of all the things you might want to spend a lot of time thinking about modeling, non-comp, in my mind would not be one of them. I think if you take away the things that are really non-core, really non-recurring type things, transitioning a lease, or some foreign exchange losses on the money we put into Brazil and so on. If you take those out, as Chris said, we think we are very much on track for exactly where we said we would be at the beginning of the year. Yes, there are some parts of the world, take Brazil where it's very hard to get deals done, but their non-comp costs have, obviously come down very considerably just for the exchange rate. Likewise in Canada and in Australia and in Tokyo and in Continental Europe. The places, there is the one tiny silver lining really to a very weak exchange rates in some of these markets, there's not a whole lot of activity in some of the non-US, non-UK markets. So it's not really a big factor in hurting revenue. But you do get some savings and non-comp, obviously, as well as in base salaries and things like that. So, I think our non-comp is still very much under control. We've not really changed our philosophy or, I think, our execution in that respect.

I'm trying to put it into context. When you speak about starting January, your is it your trans -- I mean what are you referring to in terms of, is it the fee revenue potential is the strongest in -- I don't know if you said how many years, or is it sort of the deal value is the strongest in how many years?

I am talking fees. So what we are doing is we're taking announced transactions and the fees that we expect to collect, that are still to be collected on completion and other events along the way, if you will. The backlog from those -- and on top of that, obviously, there are things we are working on that haven't gotten to an announcement and so on. There's always a backlog of that kind of thing. The backlog that is obviously, pretty solid because it relates to announced transactions, not just for hoped-for transactions. As of -- that we will enter 2016 with is already very significantly better than we entered 2015 or 2014 or a number of years before that with. As I said, we have two more months to make that differential even bigger.

Thank you for answering all my questions.

Brennan Hawken, UBS.

Just a quick one, maybe a broad one, Scott. We had -- and of course, any single quarter can be really lumpy. Not about this quarter per se. Even if we take a step back and look the last several years, there's been a lack of revenue growth with Greenhill. And a lot of the competitors are doing meaningfully better, have shown substantial revenue growth. Obviously, the market is difficult but others are able to execute in the market. And it includes some [from say] focus on the mid-market and smaller deals. So, is there something that needs to change, is there an approach that needs to be adjusted? Do we need to do something substantially different here? Or do you think it's all just chalked up to bad luck?

I wouldn't say bad luck. I would say this. Look, the firms in general that have had significant revenue growth have had a very significant headcount and cost growth and share count growth. We have made a strategic or policy decision a long time ago. Like when we went public. That we were going to focus very much on real profitability. We did this in 2004 and 2005 when we were the only public form of our type out there and we have continued to do that since then. Which is why while others have taken a different up approach of very aggressive headcount growth, and as we've talked about ad naseum they -- that they'll pro forma out a number of the costs related. If you look at the real costs, and if you'll look at the share count, I think that growth has been pretty [extensive]. We focus on profitable growth. And I think if you look at the way our firm has developed and what we've built out, and you look even in the year-to-date at announcements, look, life would be a lot easier if things were closing in four months instead of 12 among the big things. Then we wouldn't be having this conversation about growth. I think we are very content with where we are. And we think our -- really an, as I said, an unparalleled track record of pretax profit margin that many others have set as a target but have not achieved. Share count, that essentially what it was when we went public 10 and a half years ago and $500 million in dividends paid. I think that's the strategy we are going to stick with going forward, and we think as number one, the obvious thing of just deals that are announced, work their way through the pipeline and get closed. And then beyond that as the M&A activity expands beyond US, UK, I think the chickens will come home to roost in a very positive way in terms of the investments that we've made.

Thank you for that perspective. Where did MD headcount finish up at the end of the quarter?

75 client facing, my CFO tells me here, which is about where it was last quarter. Maybe one plus or minus, I don't remember.

Last question here, it seems like there might be some timing difficulties which have been hit on extensively. We have got $14 million roughly of dividend payments per quarter. You've got around $35 million on the balance sheet. What are the cash requirements as you approach year-end for bonus payments? How should we think about cash trajectory between now and year end?

I will leave you to do your own modeling for the next 10 weeks of the year, because that's not a very long period of time. But as Chris said, we are back in our normal position of cash well in excess of our drawn revolver. Of the $500 million in dividends that we've paid, probably more than probably half of that has been paid since the first time I was asked on one of these calls whether we would be able to pay the dividend. We continue to have confidence not only in the short term but the pipeline of business we have as we go forward. Leave it to us to sort how we are going spend it, when we will come back to share buybacks, et cetera. We're quite comfortable with the businesses we see playing out over the next to several months.

Even with a $22.5 million debt payment due in April, 2016 that is not an issue as well?

Half of that was repaid already in the second quarter. Your numbers -- should be half of the number you just threw out there.

Thank you for clarifying.

Ashley Serrao, Credit Suisse

Good afternoon. Scott, I heard your comments, and just dovetailing off of Brendan's question. Do you think there is an argument to be made that you should be trading off compensation the share count discipline in favor of building franchise value by hiring people and growing revenues?

As I said, we believe in profitable growth, we've added a lot of people this year. Probably the most we have in any year since maybe the couple years post crisis, when there was a lot of people fleeing the big banks, sort of 2008, 2009, 2010. We have obviously, got the whole Cogent team that came on board. We've added people in Australia and Japan and Houston and San Francisco at the MD level. I think we're making investments at the right pace in order to maintain our historic tilt toward profitability, and returning capital to shareholders while are also investing in the firm to grow.

I guess the skeptic would argue that the past few years being able to hang onto some of your margins really through a lot of benefits from people departing the firm. At the end of the day, also a lot of goodwill on the balance sheet doesn't not really expense through the income statement when you do deals. Curious what your take on that is.

I think you overestimate the importance of people leaving the firm. Every year we give out, obviously, quite a lot of stock as part of our compensation, because we want people to be aligned with shareholders. Sure there are some claw back that comes when people go. And essentially they are [as soon as they] get back get thrown into the pot and given to somebody else as part of incenting and rewarding and retaining them for the future. I don't think there has been anything -- I mean if anything about our firm, you have to say, there's nothing hidden. We do no pro forma, you can see the cash, you see the very substantial dividends have been paid, the share buy backs. And I don't -- I think it's about as simple as that. The fact that we have a very high retention rate over the years of people would suggest that we're obviously, doing something to retain people and we are doing something to reward shareholders.

What do you think the market is missing? It feels like the market has spoken by [rerating] the stock on a multiple basis. What is the market missing? What would you tell the market going forward?

I think we traded at a very long time as you will know, and a very large premium multiple. And right now we traded a very similar multiple to everybody else. I don't think it has gone to a really anomalous level. I think investors, probably more so than analysts, saw what deals were going to close this third quarter, and had their own view as to what earnings were going to be. I don't think our share price would be where it is if people really thought we were going to achieve the revenue numbers that were in some of the analyst reports. I think investors were ready for a volatile quarter where not a lot got done. On the whole, people look at the announcements, the pipeline of that, I think probably feel reasonably good about the business longer-term. We hit a dry patch, there's no question about that. And we had a quarter where as I said, I can't remember a past press release going back many years when we would have had as few as four, we usually have a multiple of that in terms of deals that are announced. I think we'll work our way through this and I think there have been times over the years were our share price seemed very high to me. And there were times over the years when our share price seemed surprisingly low to me. So I think those who are interested in the 6% plus yield and the longer-term benefits of what we've built here, have a chance to buy. And those who want to get out to have a chance everyday to sell.

It feels like the definition of scale has changed. Folks are more invested in building a franchise with a deeper mode and more sector expertise. Do you believe you're at scale? Would you like to quicken the pace in terms of adding expertise? Is there a demand in the marketplace?

I think we want to continue to add people very thoughtfully and carefully. I know that investors love a rapid growth story. I know -- and analysts probably do -- love a story of rapid growth which is easier to sell a story of rapid growth than a reality of actual numbers. I can harken back to almost exactly 10 years ago, when we had, if you look at the peer group today, I think [Abercore] has the highest market cap of the very close peer group at almost $2 billion. We had a larger market cap than that in 2000, almost nine and a half years ago with 7% of the people that Abercore has today. Were investors probably reading too much into our growth story at that point? Yes, I think they probably were to value a firm with just over 100 people at $2 billion. I think, likewise right now, the market is probably giving too much value to other firms that are selling a story. Even some firms that have been around for very long time, but just came public. Give them a lot of credit for a growth story. We are focused on the reality of building a great business where people are here for a long time and generating cash flow. Which we can reward them with and return money to shareholders rather then doing things that investors or analyst may find exciting in a short term. We're much more focused on actual substantive results than trying to do things that we think will trigger a certain market reaction in the short term.

Thank you for all the perspective and taking my questions.

Doug Doucette, KBW

Just had a quick question, I know you mentioned the deal activities have been pushed out to 2016. Seeing as 4Q is typically seasonally strong, keeping that in mind do you anticipate any element of seasonality this year?

I find that question confusing. I definitely have noticed the deal activity is pushed out to 2016. In terms of deal activity measured by announcements, which is what I think of activity. That's what we work on. We work on getting deals signed and announced. It's actually been quite a busy year and continues to be one. What I've said is the approval process is usually regulatory and obviously, shareholders as well take a lot of things into 2016. As far as seasonality, I've never really believed a lot in that. It can be fairly random in the sense that even companies, even principles don't have much influence over when deals get closed. They have a lot of control over when they get signed. And if it's a small and private deal, it's pretty easy for them to control it. But if there's a regulatory process, the best they can do is work their way through that. I don't think companies spend a lot of time worrying about whether a deal closes in late December or early January for example.

That is my only question. Thanks.

Thank you.

Vincent Hung, Autonomous

Do think you need to be more nimble when it comes to chasing opportunities in the M&A space? Because [we've talked] about the lack of M&A opportunities outside of the US. And you're telling shareholders, be patient and wait for activity to come back. But why don't you just try to chase some more narrative opportunities in the US? I know there's going to be some difficulties on deploying bankers, but just want to get your thoughts on that.

Obviously, there's a limit to what you can do in terms of where I'm spending my time, and a lot of our people are spending their time. Obviously we're doing as much as we possibly can in the markets like the US and the UK where there's actually quite a high level of activity. Clearly are not going to a large degree, redeploy a bunch of people sitting in Australia or Brazil to come to the US and do transactions for a year and then go back home. If you want to build a business in those markets, it's all about building relationships with clients and you do that when the time is right. And the environment is right and those relationships turn into revenue opportunities. If you believe in the global model, which certainly we do. All the major banks have spent lots of time and money trying to build a global model. And we have done the same thing. We're not going to for some short-term reasons give up on that and say we're going to just be a US, UK firm. We believe very strongly in the opportunities elsewhere around the world. Except really at the margin, it's hard to move people around, to say we're all going to rush to New York to try to do deals for a year because there is more here.

How would you say your bank is backing the existing strategy? I can't imagine everyone patting themselves on the back at your town hall when your share price is back to the lowest level since 2011. [Pairs keep gaining share] and the newer players have emerged in recent years, and now considered the [circle] winning teams.

People are busy here, as I said it has been a great year in terms of deal announcements. I think people are pleased with what they have gotten done and they have confidence their deals will close, and generate revenue. I think things in that sense are absolutely fine. Are people thrilled that we had a quarter when almost nothing closed, of course not. People are experienced enough to know there is very little influence we can have over that. You have to move onto the next quarter and see what closes then. Most importantly, keep yourself focused on building client relationships and getting deals announced. You can have some influence over when they get done and put into the pipeline, you can really have almost none as to when they cross the finish line for closing. I think our senior people have in this or 20 or 25 or more years and they understand that completely.

Thanks for your insights.

I think that's our last question so thank you everybody. And we'll speak to you in about three months.

The conference is now concluded thank you for attending today's presentation, you may now disconnect.