Greenhill & Co Inc (GHL) 2017 Q1 法說會逐字稿

Good day, and welcome to the Greenhill & Co. Inc. First Quarter Earnings Call and Webcast. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Mr. David Trone, Director of Investor Relations. Sir, please go ahead.

Thanks, Stephen. Good afternoon, and thank you all for joining us today for Greenhill's First Quarter 2017 Financial Results Conference Call. I'm David Trone, Greenhill's Director of Investor Relations. And joining me today on the call 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 of 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 our firm's future results, please see our filings with the Securities and Exchange Commission, including our annual report on Form 10-Q -- 10-K, excuse me, quarterly reports on Form 10-Q and current reports on Form 8-K.

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

I will now turn the call over to Scott Bok.

Thank you, David. We reported first quarter revenue of $56.9 million and a GAAP loss of $0.02 per share, which was negatively impacted by new accounting requirement, which I will describe shortly.

We've noted in every quarterly earnings release that our quarterly revenue and net income can vary materially depending on the number, size and timing of completed transactions and other factors, and this quarter illustrates that in a variety of ways.

Our revenue outcome was light as a result of the fact that our transaction completion piece for the quarter related to relatively smaller transaction and transaction timing was also a major factor in our results, as our year-to-date revenue, cost and earnings would all have looked satisfactory if measured as of a week in the April rather than at the end of March.

Our shareholders will recall that last year started similarly for us, with lower than typical first quarter revenue, resulting in an unusually high compensation ratio and an unusually low profit margin. Yet our compensation ratio moved back to a normal level already by midyear, and over the course of the full year, we achieved both the fastest advisory revenue growth of any of the 15 major firms that disclose that figure and the very attractive 26% pretax profit margin that was our best in several years.

Given the number of unusual factors this quarter, I will walk through each of the relevant items briefly. With respect to revenue, during the quarter, we closed a fairly typical number of transactions for us, but as noted above, no large M&A deals came to completion during the quarter.

Relative to most of our close peers, our work has always skewed more towards larger transactions, and that strategy has served well over time in terms of high profit margins, strong cash flow, a large dividend, and sufficient share repurchases to maintain a roughly flat share count for 13 years. But that strategy could also result in a volatility in quarterly revenue that has led to occasional quarters like the one we just finished. Thus, our focus has always been on delivering strong results on an annual basis and over longer term periods, although we also aim to reduce quarterly volatility over time by expanding the firm in ways that increase the diversity of our revenue sources.

In the capital advisory business, it was also a slow quarter, in both the primary and secondary businesses, though again we believe that was simply a matter of transaction timing, and we continue to expect improved results for the year, driven by an increase in large transaction assignments.

In our financing and restructuring advisory business, the first quarter was a good one, though our team focused on that business is smaller than that in most of our peers, so this wasn't enough to offset a lack of large M&A transaction closings.

Looking at revenue on a regional basis, the quarter's revenue was heavily weighted to the U.S. market, with fairly modest contributions from other regions.

Turning to compensation costs, while our expense for the quarter was almost identical in absolute terms to that of last year's first quarter, the low quarterly revenue resulted in an usually high compensation ratio. Our objective is to bring that ratio down significantly in the quarters to come, just as we did last year.

Our non-compensation costs were very much in line with last year, apart from the fact that we recorded a $6 million benefit, resulting from an adjustment to the value of the earnout liability related to our 2015 acquisition of Cogent Partners.

For the first 2 years earnout period that ended March 31, 2017, the revenue target was narrowly missed, a potential outcome that we signaled on our last quarterly investor call. As a result, for accounting purposes, we needed to remeasure, as we do each quarter, the fair value of the contingent cash consideration based on the probability-weighted present value that the revenue target will be achieved on the second 2-year earnout opportunity provided for in our acquisition agreement.

We continue to estimate that it is likely that the earnout will ultimately be achieved, and have, therefore, retained the same probability factor for the second earnout as in prior periods.

The adjustment in this quarter is therefore related entirely to the present value impact of deferring any payment to the end of the second earnout period.

On taxes, our results were impacted by a new mandatory accounting requirement that changes the way we record the tax effect at the time of vesting of restrict stock awards. Prior to this accounting change, we reported the tax effect of the vesting of restricted stock awards as an adjustment to equity rather than to the provision for income taxes on our income statement as we did this quarter and will going forward.

Excluding this accounting change, which does not impact the amount of the cash taxes that we pay, our tax rate would have been 37%. That figure is higher than last year's level as a result of the fact that our income was more heavily weighted to the U.S. market than was the case last year.

We continue to be hopeful for corporate tax reform in the U.S., particularly in periods like this when activity is weighted toward the U.S., a lower U.S. corporate tax rate would have a substantial positive impact on our earnings and cash flow.

With respect to capital management, on top of paying our normal $0.45 per share quarterly dividend, we repurchased more than 423,000 share equivalents in the quarter as part of the annual share settlement payment for withholding taxes on restricted stocks invested.

With respect to our balance sheet, we ended the quarter with more net debt than typical, but by the end of the first week of April, we were back in our targeted position of having global clash in excess of the amount drawn on our revolver. As our press release notes, since quarter end, we also made the term loan payment on the Cogent acquisition debt that was due at the end of April, and there is now only $11.25 million that remaining outstanding on that term loan. And we also completed the annual renewal of our revolving credit agreement and increased the size of our credit line to $80 million.

This increases our flexibility to hold cash overseas offset by domestic borrowing until a change in the U.S. corporate income tax rate makes that unnecessary.

Now let me comment on the transaction environment and outlook. First, while we see our quarterly revenue result as largely a function of transaction timing, it is also true for the market as a whole that the year has had a relatively weak start in terms of transaction activity. Both the number and volume of completed transactions were down meaningfully in the first quarter as compared to the first quarter last year, and the 5 largest U.S. investment banks have already reported an aggregate decline in advisory revenue for the quarter relative to last year. And that's on top of that same group having reported a full year decline in advisory revenue in 2016 compared to our 29% full year increase.

In terms of announced deal activity, the number of transactions is down and the volume is about flat versus the first quarter of last year, but it's worth remembering that last year also started slowly, amid steep equity market declines.

Notwithstanding the slow start to market activity this year, we remained positive on the outlook for deal activity going forward. Clearly, there was a degree of market euphoria following the U.S. presidential election as investors came to expect tax cuts, regulatory relief and infrastructure spending, which together, were expected to drive higher economic growth.

As more clarity develops on the potential for such business-friendly government policies, which we are hopeful for in the near term, we believe more of the ongoing strategic transaction dialogues we are seeing will convert into actual transaction announcements and related advisory revenue for firms like ours.

Finally, I will close with a brief comment on recruiting. We said last quarter that we thought the recruiting environment was quite favorable, and that we expected to recruit at least as many managing directors as the 6 we did last year. We are pleased to say that we've already announced the addition of 6 new managing directors in the year-to-date, including 2 who will open an office in Spain, once we complete the regulatory process for that, 1 in Australia and 3 in North America. And we continue to be in dialogue with other candidates as well. Going forward, we believe that our pure advisory business model combined with our culture of teamwork will continue to make our firm an attractive destination for talented bankers.

With that, I'm happy to take any questions.

(Operator Instructions) And our first question comes from Devin Ryan with JMP Securities.

Maybe to start here, just trying to reconcile the actual result this quarter relative, obviously, to the hope that the year would've started a little bit stronger. I'm just curious, is it as simple as timing deals that just maybe thought when you were looking out, couple months back, and thinking about the first quarter coming together, deals that seem likely to be closed in 1Q, and they just ended up happening to close during the first couple of days of the second quarter? Or are there some deals maybe just didn't come to fruition and seemed like they were going to, and so that's a disappointment?

It's pretty much the former. I mean, as I indicated, I mean I think you would say it was a good start to the year, if you measured it as of a week in the April and it's less than a good the start to the year if you measured it as of the end of March, it really is about as simple as that.

Got it. Okay. And then, maybe just a million dollar question. So -- you obviously, started last year kind of in a similar spot and then ended up battling back and putting together a pretty nice year, and so when you sit here today and kind of having a little bit of a slow start, at least for the first quarter, how do you feel today relative to one year ago? Do you think that outlook for this year feels better, where we can maybe still have a good year like last year or even better? Or is there something that maybe gives you pause relative to how you're feeling a year ago?

We don't, obviously, make forecast for a full year ahead, but I -- look, I think, in many ways the interest among companies in transactions is higher than it has been in a long time. I think the presidential election, as I noted, had a big impact on that, but I think if you look at the data, it just hasn't translated into a significant pickup in announced deals activity yet. So I think as more clarity develops, which I think it could, maybe it even started to this week, I think you'll see a lot more of those kind of transaction dialogues lead to more speedily to transaction announcements. But, obviously, there's uncertainty as to that as there always is, particularly at a time of what could be significant change in terms of various government policies.

Sure. Okay. Just last one here. Obviously, a lot of dynamics impact both U.S. and abroad, but it does seemed like we're maybe getting a little bit better tone out of Europe and some of the elections have been going smoother than kind of worst case. And so I'm just curious how business in Europe is feeling. And if it feels kind of similar where we might be moving into a little bit better backdrop?

I think I would make a very similar comment, I think, about Europe. I mean I don't doubt that, and again if you look at the data, there's not been a big surge on transaction activity. You're looking an awful lot like last year looked and like the several years before it looked, but I do think the French election sort of removes some uncertainty. I think that British election, I think everybody probably knows how that one is likely to come out, but it still will provide some more certainty about what Brexit might look like when that election is completed very shortly, so I think getting things like those 2 elections out of the way will lead to more kind of stability in Europe, less uncertainty and therefore, more transaction activity. So kind of like here the run -- the brink run, that runs sort of the threshold of a fair amount of change in terms of political leaders and how Brexit's going to play out and how Donald Trump's changes in economic policy are going to play but those things are starting to become clear, and that should lead to more activity on both sides of the Atlantic.

Our next question comes from Jim Mitchell with Buckingham Research.

Just with the number of hires, quite a few high-profile number of MDs. How do we -- how should we think about that in impacting, I guess, net MD growth, and I guess secondarily, what that might do to the comp ratio, where you can still hold the line on the comp ratio if revenues can kind of come in where we were last year?

I don't think the pace of hiring is such that it's going to have a dramatic impact on the comp ratio. I mean 6 is a meaningful number, but it's not huge relative to number of an MDs we've got. I do think certainly as I've suggested, there are other dialogues going on. We could end up with more, if we end up with a lot more it could have some impact on the comp ratio, but I wouldn't leap to any conclusions on that. I think the main driver of comp ratio is always revenue. It can have some impact on the margin to do more or less recruiting. But, as I said, 3 quarters ago, we feel like there's some good talent out there that was interested in joining us, and we've talked to lots and lots of people and came away with 6 so far. And I think we'll probably come away with others who should have a meaningful impact on the firm's revenue in 2018 and beyond.

Right. At any -- can you help us with the number of MD's currently? Have we seen a increase?

It's essentially no change since year-end in terms of sort of attrition of any kind. So no change there. Some of these people haven't started yet of course but it's essentially there's no meaningful change since last year -- or last quarter, rather.

You feel like this recruiting class has -- think has significantly more or better prospects? You feel good about the prospects of their ramping up over the next 1 year or 2? Does it feel better than what you've had in the past? It seems like the activity levels around recruiting for all your peers seems to be higher.

I don't want to offend the people who came last year and the year before by saying this class is better, so I'll refrain from that. But look I think we've had some very senior people, I mean, people who are very far along in their careers then, including in Australia and Canada, and I think we got -- Spain is not a huge M&A market, but it's, we think a growing one I think we got 2 people -- 2 of the top people out of the top domestic firm in that market, so I'm excited about who we brought on and I'm excited about some of the ones we're still talking to today.

Our next question comes from Christian Bolu with Crédit Suisse.

So a question on the competitive landscape, I'm not sure why you used the large investment banks as the competitive set in your remarks. I guess it's 2 independent banks that reported so far have posted the 1Q results to the 42% up in average year-over-year versus down for you guys. So stepping back a little bit here, if I think about the growth momentum in 2016, which was pretty good after 3 or 4 years they were a bit lackluster, give us your confidence level that 2016 was an exception and kind of you're back into kind of growth mode again here?

I focused on the large investment banks only as it illustrate the points at the market, I think the pool of advisory fees actually shrank in the year-to-date. I mean there are 2 European banks have announced, and they're both down as well first quarter versus last year's first quarter, so I think the pool shrank some. I think what has probably helped some of our peers relative to us is really 2 things, and both hinted at in my script, one is that there is a lot of talk on the transcripts I read about small and mid-cap M&A in a market where there wasn't as much large-cap activity. And I think some firms have very intentionally gone for a strategy that kind of builds out that part of the business in a way that we've not focused on. And the other is that while we have an outstanding restructuring team, and we've had a great first quarter on restructuring, and we have a good business in restructuring, we have also not made that as big a part of our firm as others. So I think the beginning of this year was one where a focus on small -- smaller-cap deals, and then a focus on restructuring paid off in terms of revenue and I think that's probably why you're seeing the firms that focus on those 2 areas do really so dramatically better than the 7 big banks that have announced so far because they obviously don't really do restructuring and they certainly tend to skew toward much larger focus on M&A deals.

Okay, got it. And then in the hiring front, absolutely impressive into the 6 MDs, some of them look pretty interesting, but I'm just curious what exactly your pitch is to the very best bankers? I guess from a very high, very simple level, if you're a top banker at a bulge bracket and you look at Greenhill's share price, revenue growth, accomplished over the last 5 years, my guess is you would've -- you would probably assume other boutiques are more attractive destinations, just my guess here. So maybe just help me understand what exactly is the unique or -- the unique selling points you are -- you offer to these banks as you pitch them?

I think a few things. I think one is kind of the point I just made, which is that we tend to focus more on larger transactions. And there are a lot of bankers out there, particularly at some bulge bracket firms that, that's their history. They'd rather focus on a few home runs than a lot of singles and they prefer a firm that has that strategy. I think, secondly, I would still argue that we're the most global of the independent firms. Putting aside Lazard, which is 150 years older than us, but I would still say we're actually very, very similar to Lazard in terms of if you look at how much revenue comes from clients outside the U.S. besides us and Lazard, the other firms are all really quite significantly lower, so if you're in a sector where cross-border, global activity is critical to what you do, I think you're going to be drawn to us. Third, I think we're known to have a really collegial team-oriented culture, so it's important for you to work in teams to do complex cross-border things. I think that's a positive for joining us. And fourthly, I think frankly a big one, is that we're smaller. I mean some other firms have grown really dramatically in the last few years, so they've just got less white space. And people who kind of have had a 20-year career somewhere and they look at Greenhill, and depending on what their niche is, what their focus is with the clients, they might see an awful lot of white space here where it becomes quite interesting, whereas slotting into be the fifth MD covering your space at a firm that's built out a lot more, on a personal level it's not nearly that interesting, so that's fundamentally my pitch, and I hope some -- a few recruits are listening to that and they'll give me a call tomorrow.

Okay. And just lastly, just on your commentary that if the quarter was 1 week later, you'd had a good quarter, can you, in any way, just help us quantify? Does that mean you would've been better than last year? Would've been better than consensus? Just trying to get a sense, just again given the -- and I absolutely appreciate that 1 quarter is a not a way to look at the business, but just given the scale of the miss, I think it'd be helpful just to understand how 1 week could have changed the results of the firm.

Look, we can't quantify that thing because, obviously, when you put out specific numbers, they have to be audited and all that so I wouldn't be able to do that. But look, I'll put it this way I mean it may seem like a big miss, but if you look at it on a revenue sense I think we're like $10 million or $11 million below consensus. You can work on one $1 billion M&A transaction, and earn a fee of about that amount, so you can have pretty random timing of transactions and you can have deals accelerate and slow down, and you can have deals die of course, in some cases, as well can drive things or new things can get announced and suddenly you've got a big announcement fee. So I would just say, as we've said in the commentary, that if you look at this a week later, we and you, I think, would be feeling very good about the year-to-date 1 quarter and 1 week in, in terms of all the key metrics. And I think that kind of says it all that in terms of what, yes, I know in sort of percentage terms may seem like a big miss but it's really the movement of 1 fee makes all the difference and in 2 fees and suddenly you're well above expectation. So pretty modest really in the scheme of things.

Our next question comes from Michael Needham with Bank of America Merrill Lynch.

Just first, want to follow-up on the hiring. It looks like you're starting the year off clearly very strong. I was hoping you might be able to comment on how productive do you think these people will be versus, say, the average banker already at the firm? I know it can take time for them to ramp, and you may not look at average productivity as a hurdle for hiring someone, but I'm trying to gauge how additive the people are going to be.

I mean we don't hire people who we think are worse than our median, so I think they are -- I feel as I mentioned a minute ago very positively about who we've recruited. I've look at this over time though and it's interesting, when you look can at sort of your highest-paid people or something and it's a pretty random mix of people who've been here forever, like myself and some others who have been here for almost 20 years. People who came up through the system and joined us out of business school or something like that and many years later have grown into being prominent producers or came here 5 years ago, 2 years ago or 1 year ago. So it's always hard to predict this, it's not all about the quality of the person. If you're somebody focused in a sector that suddenly gets very active or you've got a set of clients who were particularly loyal to you and suddenly after you move, they do a big deal then as opposed to doing 1 year earlier or a year later, you can get a quicker return on the investment. But certainly we feel good about the people we brought in. I think we're -- mining is a sector we obviously never covered really at all, and we've got some really senior people focused on that now. We've made a change in leadership in Canada last year. We've now built that out with a couple of more senior hires, and we're excited about that and as I mentioned about Spain a minute ago, we're quite excited about that as well. We hired a senior industrial person in the U.S. Industrial has been a real big area of success for us and to bring in somebody who is adjacent, to where you've already had a lot of success is kind of a higher probability of success, higher than entering a new area. So we feel good about them, but obviously, time will tell.

Okay, makes sense. And then just second, on policy uncertainty, you guys touched on it on the earnings release, but I was wondering if you could give us a sense of the client behavior that you're witnessing? And whether you think there are a lot of client staying on the sidelines, and which -- the few issues is the biggest impediment for clients?

I just have the sense it is -- what I'm trying to do is reconciled 2 facts. One is that I -- it feels like there is a very strong pace of dot-transaction dialogs and interest in transaction dialogs when you go see clients but at the same time you look at the market deals statistics for the entire market and it looks pretty soft. And that the only way I can reconcile that is people are feeling sort of generally bullish about the future for reasons of tax cuts and deregulation, and so on. And yet, they're not quite seeing that clarity to want to -- to really make a firm commitment, borrow the money, spend the cash, do whatever it takes to do a transaction. So I think, look I think the biggest factor is taxes. There was talk about not letting interest be deductible. That would have a huge impact, not on deal activity overall, but certainly in the kind of deal activity. There would be -- border tax could have a huge impact on some companies, retailers and many others, and so I think once there's some clarity around what's going to happen with taxes and it doesn't have to be some huge miraculous tax bill, I don't think, to really unleash a lot of transaction interest, I think that kind of clarity will make a big difference.

Our next question comes from Brennan Hawken with UBS.

Scott, so I just wanted to circle back to the comments that you made before on 2017 revenue off to a strong start, and I get it that the timing is a bit of an issue, but we had what it was like the WhiteWave deal that closed in the beginning of April, and even if we add that in, it's not like we would've been growing revenue meaningfully. Consensus is sort of a moving target, right? I mean consensus dropped by $0.10 from mid-March into April, so I -- more importantly, rather than talking about timing or anything like that, I just wanted to maybe ask for an update on your optimism on the first half or even strength in 2017 sort of sustaining from what you guys were able to do in '16. Do you still feel good about that? Or do you think that we might be looking at some pause until we have greater policy certainty? Because it just seems like the tone might be a little more reticent here.

No. Look, I wouldn't read too much, again, into what is not a really significant difference between the revenue that maybe I and our investors might have expected for the quarter and what it turned out to be. As I've said, it's sort of 1 transaction could make all the difference. By the way, I don't want to comment and never do on any particular transaction, but I will comment that we do not work on the one that you referred to a minute ago, so you must have us confused with another firm on that. So -- but it -- in general, look, we feel -- we do feel like there's a lot of interest in transactions out there, including in quite large transactions of a strategic nature with big public companies doing things. And I think -- I can't tell you the pace at which those will unravel, but I think that the year didn't start off that differently than what we really expected. It just did, as the matter, as I said, of timing and some slower announcement activity, but again, I think as policy clarifies a bit, I think that will remedy itself pretty quickly.

Okay. So the start to the year was in line with your expectations?

I would say, if you -- I mean again, what do you mean by start? I mean I didn't -- we don't predict quarters, and so we never said anything about the first quarter. What I'm saying is essentially I think as of a week into April, we and our investors would've thought that's a strong start to the year. And I think as of the end of the March, obviously, you wouldn't say that and neither would I. But I would say that even only a short period into April.

Okay. And then thinking about leverage. I think you guys indicated that you took up the revolver a bit. So like how should we think about leverage on the balance sheet? I know that you guys generally try to run with the net cash flat type of a deal, but, excluding the Cogent leverage? Is that generally how you're going to try to stick to an operating principle throughout the year?

That's been our standard approach for a long time, we don't really consider ourselves leveraged. As you said, we normally aim for cash in excess of our revolver balance. Yes, we do sort of think of the term loan for the Cogent acquisition differently, but that's not down to $11 million, so that's a pretty trivial thing. And yes, we did take up the revolver size a little bit, but I think we've done that almost every year because our approach is this one hopes the business gets a little bit bigger each year, and we want to have a lot of flexibility, as I said, to not have to bring cash back from overseas to pay higher taxes on it. If we get a tax cut, I mean, forget about the 15%, if we just got want one to 25%, there would effectively be no limitation or even hesitation on our part to move cash around the world. And I think at that point, you would see us with a different kind of balance sheet, rather than having a fair amount of cash but offset kind of a similar amount of debt. I think you'd find us with a simpler balance sheet and less kind of absolute amount of debt.

Okay. And then last one from me, how should we think about the fixed cost base? A few years ago, I think the indication was that it was around $130 million, but you guys have done the Cogent deal and have recently done some hiring, so is that still the right way to think about the fixed cost base of the business?

Without getting too specific, I would say we don't feel like that number's really changed that much in recent years, so I think the number we used back then is still a reasonably good number to use in terms of the fixed costs of the business.

Our next question comes from Jeff Harte with Sandler O'Neill.

A couple of clean-up things. The comp dollar amounts staying up at the $44 million in the quarter with revenues being lighter, should we interpret that as kind of once you start getting close to $40 million, that's kind of as low as comp's going to go depending on revenue -- not dependent or are you already kind of factoring in what you knew that some deals are closed earlier in the second quarter and setting the comp dollar amount that high?

I think you should sort of take some guidance from last year, when in the first quarter, we had a similar situation. And look, there's a point below, which you don't want to take compensation. Obviously, you can do what -- in theory, whatever you want on the quarter-to-quarter basis, but you have to -- you had not only the fixed part of compensation, but you've got -- obviously, you've got to pay people bonuses where that's appropriate and generally it's in our industry. So we thought rather than have it be sort of artificially low, just -- we did the same thing we did last year, which is kind of what we think is the right sort of absolute level, and you saw last year that as revenue evolved the -- we had a lower comp ratio and it kind of netted out on a year-to-date basis to a reasonable place by midyear and a very good place by the end of the year, and so I think that clarifies your question.

Okay. And the Cogent contingent consideration benefit, assuming they get on track to hit the new targets for the second deadline, how and when would we see that come back in? Is that going to be just something in a [deviant] quarter, you'd say we think they'll hit it again, and then we'll see kind of the charge come back in? Does it come in over time? How should we think of that going forward?

It probably is going to most likely move in ways that you will almost not notice at this point. This was a big moment, obviously, where you go from -- in this net present value accounting calculation from thinking that the payment could be imminent to -- the payment having to be 2 years out. What we did over those 8 quarters before that, which we'll do for the next 8 quarters as well, is just kind of tweak it each quarter based on the present value movement as we get closer to that date and also our view of the probability. So if there -- if the business is performing very well on pace to achieve or exceed the earnout, we'll kind of tweak it up each quarter appropriately and if it goes the other way, we would tweak it down each quarter appropriately, but I wouldn't expect an abrupt move like we had this quarter, when you obviously switched from a year 2 earnout to a year 4 earnout.

Okay. Finally, with cash and the balance sheet jumping back up again in April, this is less of a concern, but the ASU accounting impact. I get why it would be a charge for you guys with the direction of your share price over the recent years. And I get that it's an accounting, not an economic issue over time, but is there a timing of cash flow impact that would come along with that? I guess I'm just wondering whether it would actually have an impact on the tax -- the actual tax cash flow payment should be making in the given different year?

No. The accounting change that impacts our tax rate in relation to the vesting of stock has no cash impact at all, not in terms of the amount we pay, or the timing we pay or anything like that.

Our next question comes from Steven Chubak with Nomura Instinet.

This is actually Julian Craitar, filling it for Steven. So just going back to the comp ratio. I know that you mentioned that you plan to manage the ratio lower like you did last year, but was wondering if the flat year-over-year guide that you provide at the start -- at the end of the fiscal year is still an achievable target to managed to?

I don't remember giving specific guidance on that, but I think we're -- look, if you look at the recent years, we've been really in a fairly narrow range in terms of comp ratio. It's been certainly at or below our peer group level, but it's within a fairly narrow range. And you can see how a little more or a little less revenue has impacted that, depending on the year you look at. And so I think that gives you some guidance as to what we're -- what our targets is going to be as a go forward.

Okay, and lastly just switching gears to just your perspective on restructuring. Can you just discuss how your outlook for restructuring as energy deals, which had been very active over the past year or so appeared to maybe be in the later innings and there have been -- there's been the emergence of deals in the consumer retail space. While it's facing significant headwinds, it's not as involved as energy deals. Just want to get your thoughts on that and as well as on the fee opportunity in the space?

As I mentioned, we have a very good restructuring business staffed by very good people, but it's not a huge team the way it is that many of our peers and in a quarter like we just went through, that benefits some of those peers who are bigger in restructuring and benefited even more than we did from the kind of energy wave. But look, our team is busy, and we think there will continue to be some good opportunities in energy. I would probably agree that something like retailing, as much as it's under a lot of pressure, is probably not going to create as much restructuring advisory opportunity as energy would. But we're not -- at the same time, we're not going to have very low interest rates forever, and we're not going to have a growing economy forever. And at some point, we'll be facing a higher rate and/or recession and you'll see an increase in broader restructuring activity. I mean, we really have very little for the last several years until the energy price collapsed and that led to a lot of companies defaulting in that space, or coming close to default. But it's not -- what the question you asked was not kind of a huge driver of how we'll do for the next 1 year or 2. Probably of more a questions maybe for some of our peers.

Our next question comes from Vincent Hung with Autonomous.

Factoring in the reversal of the Cogent earn-out, is $16.7 million the right quarterly run rate to the noncomp expense?

I think, broadly, if you look, our noncomp expense has, apart from this one as Cogent has earnout adjustment, has been quite consistent in recent quarters, and we don't foresee a dramatic move in either direction for that. So I think that continues to be a pretty good number.

Okay. And I think you've hired 5 of the 6 MDs announced this year from outside of the U.S. Are you just focusing on non-U. S. hires right now?

No, I wouldn't say that. I mean, first of all, I tend to think more in North America because people work very much across the borders between U.S. and Canada, particularly in some of the sectors like mining. So -- and a number of the people we're still talking to are based in the U.S., so no, I wouldn't say that. We are looking for, what I would describe as sort of great athletes in our business. And when we find them in a particular market, we're going to take them. So at any given time, you could take 2, 3, 4, 5, 6 and have been skewed towards some particular region or type of advice or sector or something like that, but the strategy is certainly a broad one and if anything, we're probably much more involved in recruiting discussions in the U.S. than we are elsewhere right now.

Okay. Thank you, that was our last question, so thank you all for dialing in, and we'll speak to you again in about 3 months from now.

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