Greenhill & Co Inc (GHL) 2017 Q2 法說會逐字稿

Good day, and welcome to the Greenhill & Co., Inc. Second 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. Please go ahead.

Thank you, Brendan. Good afternoon, and thank you all for joining us today for Greenhill's Second Quarter 2017 Financial Results Conference Call. I am David Trone, Greenhill's Director of Investor Relations, 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 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 the firm's future results, please see our filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date on which they are made.

I will now turn the call over to Scott Bok.

Thank you, David. We reported second quarter revenue of $67.3 million and earnings per share of $0.20. For the year-to-date, our revenue was $124.2 million, down 21% versus last year, and our earnings per share were $0.17 as the reduced level of revenue resulted in higher-than-normal cost ratios and lower-than-usual earnings.

Our level of engagement with clients has remained high, as indicated by a good flow of new assignments and increased year-to-date retainer revenue. But our pace of deal announcements and transaction revenue has been slower than expected, and that has adversely impacted our cost ratios and profitability. As of this week, industry data for the year-to-date indicates that global announced deal volume is on pace to be down 12% compared to last year, with that decline almost entirely a result of fewer large transactions. To put that decline in context, it is important to remember that last year's industry-wide deal activity was fairly tepid as well, with the global advisory fee pool declining slightly from the prior year, although our advisory revenue was up 29% last year in spite of that.

On a regional basis, industry data shows that the U.S. has continued to be the best market, although we believe that even in that region, larger deal activity has been adversely affected by uncertainty around tax reform and other government initiatives that had been expected to drive increased economic growth.

European deal activity has continued to be weaker, with both the total deal volume and the number of deals $500 million or greater in size on pace to be very similar to the rate of the past several years, which means still at roughly half of the 2007 peak level. While the number of European deals of that size prior to the financial crisis was typically about the same as the number of such deals in the U.S. market, the number of European transactions of that size would need to increase 45% from the year-to-date pace to get back to being equivalent to the U.S. market in size. Similarly, industry data indicates that Australia deal activity is a bit weaker than it has been the past few years and also was still at roughly half of the peak level.

This industry-wide data on transaction activity provides a useful context for our year-to-date results. Throughout our history, we have defined our business in 3 fundamental ways. First, we are global, with typically around half our revenue coming from clients outside the U.S. Second, we are primarily focused on M&A, with strong restructuring capabilities but a much smaller team focused in that area than many of our closest peers. And third, we are weighted toward larger-sized transactions.

While those fundamental focuses of our business strategy have been a source of strength over time and we believe will be for the long term, in the current environment, they have been a headwind. For example, our year-to-date revenue from U.S. clients has shown significant improvement over last year, but that increase has been outweighed by a more significant decline in revenue from clients elsewhere. We knew there was potential for some decline in European client revenue this year after a very strong revenue there -- year there in 2016, but the decline has been more significant.

In our most important European market, the U.K., uncertainty caused by Brexit, the unexpected calling of a general election and the surprising outcome to that election has likely been a key factor on the level of deal activity year-to-date. Meanwhile, we had expected improved results from international markets other than Europe, but those markets, which have also been impacted by geopolitical factors, have continued to be challenging as they were last year.

Apart from this unfavorable mix of business by region, the fact that our work is historically more skewed to large transactions than of many of our closest peers has also been a headwind. As the data shows, the deal activity has shown most weakness at larger deal sizes.

In addition, while our financing and restructuring advisory team has performed well this year, our group is not large enough to offset the impact of a quieter M&A market.

Finally, our capital advisory business got off to a slow start in the first half, likely for reasons similar to those impacting the M&A market, although we expect a strong third quarter and a solid result for the year in that business.

Our other financial metrics are largely a function of the revenue outcome. Compensation costs for the quarter were slightly lower than last year in absolute terms but resulted in increased compensation ratio as a result of lower revenue. Non-compensation costs for the quarter were a couple of million dollars higher in absolute terms but would have been about flat versus last year if not for some nonrecurring items enumerated in our press release. And our underlying tax rate is higher than last year as a result of revenue and profitability being heavily weighted to the higher-tax rate U.S. jurisdiction, in addition to being impacted by the mandatory accounting change we discussed last quarter.

With respect to capital management. During the quarter, we repurchased a token amount of share equivalent through tax withholding and vesting restricted stock units. And we paid our usual $0.45 quarterly dividend. This brings us to $1.25 billion in cash returned to shareholders since our IPO, with more than $600 million of that paid in dividends, and the remainder spent in share repurchases. Notwithstanding the soft revenue and profitability figures for the year-to-date, we were able to make those payments and still end the quarter with a cash balance essentially equal to the amount drawn in our revolver.

It is important to remember that ours is a business with fairly modest quarterly cash needs, typically consisting of roughly $20 million in salaries and $15 million in non-compensation costs. And that gives us a lot of flexibility to work through quiet periods in terms of deal announcements and revenue. While some of our cash sits overseas, the fact that we are always able to bring funds back to the U.S. as needed at relatively modest cost and at no cost at all if U.S. corporate tax rates are meaningfully reduced adds to our flexibility. Meanwhile, there's substantial operating leverage inherent in our cost and capital structure, which means substantial upside potential in profitability and cash flow at higher revenue levels.

Looking ahead, our backlog of announced pending transactions indicates that the third quarter will be a difficult one as analysts are already expecting, but our backlog of announced and earlier-stage assignments lead us to expect to show significant improvement before year-end and into 2018. The fact that we have brought in an usually large class of 9 managing director recruits this year, along with 6 internal MD promotions at the start of the year, gives us further optimism for next year and beyond. Notwithstanding a challenging period year-to-date, ours is a business with a long history of high profitability and very significant return of capital to shareholders. And we believe we are well positioned to demonstrate those attractive characteristics in quarters and years to come.

With that, we're ready to take questions.

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

Just want to come back to the -- your commentary that you made on the backlog and to try to kind of parse through that a little bit and just make sure I understand. So I hear you loud and clear on the third quarter. Is the expectation based on kind of what you see now in timing that things could roll through so that they impact the fourth quarter? Or is it that based on where we are in the year, to the extent -- some of the assignments that you're working on, to the extent they get to kind of a successful announcement, we'll see that activity this year, and so therefore, you think that kind of sets up next year to be kind of a different year than maybe how this year started?

Look, I certainly expect next year to be a very different year than how this year started. But it's not too late that I'm also saying -- I'm kind of saying both things you just indicated there in that I think we'll -- at least the backlog of what we're working on would suggest that later in the year will be different and going into next year will be different.

Got it. And then just with respect to some of the larger assignments, I mean, it seems that the expectation was that maybe certain deals that were moving along behind the scenes would come through, and maybe they haven't yet or not at all. I mean, what has been the biggest factor to it? Is it just uncertainty in D.C.? Or is it large firms are now more conscious of doing a transaction because of all the political rhetoric that they receive or just the attention? I mean, what's kind of the 1 or 2 biggest hangups to these deals moving through?

Well, as you know, I mean, every single transaction has its own story, has its own risks, its own timetable, its own sort of negotiating dynamic between the 2 parties. So you can never really identify what caused something to slow down or what caused something to be put on hold or to go away for a period of time. I think trying to read between the lines and trying to pick up some broader themes, I think clearly, the fact that there's a fair amount of uncertainty -- certainly much more than was expected, around taxes, regulation, infrastructure spending, growth rates, I think has undoubtedly had a meaningful impact. I think as businesspeople and boards sort of adjust to what's probably a new reality, which is a lot like the old reality in that maybe not expecting so much in terms of change and maybe not expecting much of a different growth rate than we've had and maybe not expecting very different interest rates than we had, I think activity will return to more typical levels. But I think there's been a lot of change in terms of expectation. Obviously, people had high hopes right after the election, probably uncertainty for a while after that. And now I would guess that people are coming around to the point of view, as I said, where there's just not -- there's probably not going to be dramatic change in terms of things that would impact businesses.

Okay. All right, great. And then just on expenses, a couple here quickly. Just all the recruiting that you've done year-to-date, and it sounds like still kind of active dialogue, how does that impact the compensation on the year? You don't have to speak on a comp ratio basis but kind of just like the aggregate level of kind of amortization and the structures of those deals. How much upward pressure is that putting on compensation? Or just how do we really think about that?

Look, I don't think it's -- I mean, we don't quantify it. I don't think it's all that material. I mean, some of the people we recruited haven't even started yet. Some have just started. So some won't start for a while yet. So it's -- they're not here for a full year in most cases. And it's not a huge number. I mean, even though -- look, 9 is a very substantial number to recruit in a year. It's not like it's an extraordinary number relative to the number of MDs we have, and it's not the same level of growth at all levels below that. So I don't think that's a huge factor for people like yourselves really to need to focus on.

Got it, okay. And then last one, on expenses. On the other expense item, just for modeling purposes, that was a little bit higher. How should we think about that going forward in that line item?

As we noted in the release, there were a few sort of unusual items related to the currency, related to the -- a write-off in a situation and some legal expense. And that essentially means that there would have been effectively no change at all. In other words, we're a couple of million dollars higher versus last year in noncomp, and we would have been just about exactly flat were it not for those unusual items.

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

Can you expand a little bit on the press release comments about current client dialogues suggesting things kind of tick up? And I guess I'm wondering, is this kind of actual kind of what you're seeing dialogues versus what you hope to see? And maybe how does that compare to the first half of this year or, like, the back part of last year? I mean, was there a slowdown that it's recovered from?

Look, I don't -- from an internal point of view, from the point of view of teams in different sectors and regions and things like that, I don't think our business felt differently the second half of last year when we were hugely outperforming expectations and having very, very strong quarters versus the first half of this year when obviously, we've not had a lot of things come to announcement and completion or what the second half of this year looks like. In other words, it's kind of a steady pace of winning new business, progressing new projects, et cetera, throughout that period. But you do go through periods, and we can say this after almost 14 years of being a public company, you go through periods where suddenly, you get a long -- what seems like a hot streak of a lot of deals getting announced. And certainly, that happened toward the end of last year. When expectations were very low for us in the fourth quarter, we ended up having our best quarter of the year. And likewise, you go through periods for equally sort of random reasons where it seems like not a lot is getting done. So I think what you've seen year-to-date is certainly an aberration relative to our history. But we've had situations like this before where things get particularly active, with a whole bunch of announcements kind of clustering together or a bunched knot. So I think what we're expecting is almost what you could call sort of a reversion to the mean in terms of the longer the period is of below normal announcements, it's very, very likely it's going to be followed by a period, one that's over -- of above-normal announcements. So that's kind of how we see things playing forward.

Okay. And can you talk a little bit about kind of the recruiting conversations? And I'm looking and saying that there's been some really good resume and pedigree hires this year. But apparently, they're seeing something that the stock market's missing as the stock has kind of gone down and announcements have been weak. How do those conversations go as far as bringing in some of the -- what seemed to be the high-caliber people you've hired?

Look, I think when recruits -- this has been true throughout our history. I don't think when your stock is up a lot, it's a lot easier to recruit people, and frankly, I don't think when your stock is weaker, that it's a lot harder to recruit people. I mean, bankers tend to be making a long-term decision, not necessarily sort of making -- sort of trying to time the stock market, if you will. So they try to find, is it a place that has a culture that fits me? Is it a place where my relationships and my experience is complementary? Or do they have people who are already covering my space such that I would be redundant? Is it a firm I think that's got a platform that I can thrive on? And for us, that means is this typically somebody who really needs a broad geographic reach for their client base, who needs a brand name like ours to reach their -- and work with their clients and so on. And so I mean, there's been a lot of interest this year. I think part of it may come from the fact that a number of our peers have really chosen to grow very dramatically in terms of numbers, and there's just going to be less interesting spaces to fill, frankly. So if you choose your sort of random banker out there who plays a particular sector role, a particular regional role, a type of advice, he's more likely to find that he would fit in here and be really complementary and additive than at a firm that has grown to be several times our size. So that may have something to do with it. And the other part is just perhaps we're devoting more time to it. I think that's probably fair to say, is that we felt like it's a good moment to add a lot of talent. And so we've been spending a lot of time on it and obviously achieving a fair amount of success. And I expect that will continue. I think we'll -- we've got a lot of dialogue that I think we're sort of -- we're continuing sort of on the back burner, if you will, maybe until beginning of next year. It's getting, obviously, late in the season to do a lot of recruiting at this point. But we feel like the momentum we had in recruiting this year is something that we ought to be able to continue next year and beyond.

Our next question comes from Ann Dai with KBW.

I wanted to go back to the comp ratio real quickly and just think about what that might look like for the rest of the year. If we're thinking, let's say, second half, maybe third quarter's a little light, but fourth quarter comes back, and second half looks kind of similar to first half, would looking at the blended ratio for the first half be somewhat of a reasonable proxy for the rest of the year? We may be ignoring some of the fixed costs in doing so.

Look, I wouldn't want -- I mean, you could have a different -- the comp ratio will be largely a function of revenue outcome, of course. So I wouldn't want to necessarily speculate. I don't know where exactly it ends up. I think we've got quite a long history of where comp ratio has come out for us in a wide range of scenarios, and our policies haven't really changed that much. Obviously, we're going to do what it takes to incentivize and properly compensate our people based on their performance. So I wouldn't make a prediction other than the point of the history of where our comp ratio has been over time.

Okay, understood. And quick follow-up on covenants and, I guess, around the debt. Are there any covenants on your revolver? Is there any kind of overall limits to those revolvers that might impact what you can end up borrowing on them and maybe impact the dividend at some point if you have a period of lower generation?

I mean, there are -- sure, there are covenants always in bank agreements, but there's nothing we're particularly concerned about. As a matter of fact, we -- as I alluded to in the script, we believe we have the ability to increase our access to some degree if we chose to and needed to do that. So no, that's not an area of significant concern for us at this point.

Our next question comes from Conor Fitzgerald with Goldman Sachs.

Just wanted to ask kind of what you're seeing on the European M&A front. Looks like we've gotten a couple of the data points from that market recently. Any change in the tone of conversations you're having with management teams? Or do you think uncertainty is kind of overwhelming some of the economic momentum we're seeing there?

It's a good question. Obviously, it's an extremely important question for us. I mean, if I look at the run rate of deal volume or of number of $500 million deals, as I often do, I mean, it looks an awful lot like the last several years, which is still obviously disappointing relative to longer-term history. And I don't -- the data certainly doesn't show, I don't think, any meaningful uptick this year. And -- but I think it's been -- there's been extraordinary change there. I mean, the -- obviously, we had Brexit in the middle of last year. And I think everyone's expectation, certainly our expectation, was that this year would be a much sort of quieter year on the political and uncertainty front, and therefore, you're to see a lot more M&A. And the U.K. had a surprise call of an election, and then they -- a surprising outcome to that election. And that's created some increased uncertainty about what Brexit looks like. And so I think there are all kinds of reasons why this year looks like another year, an awful lot like last year. But look, I still am optimistic that we're not that far away from a meaningful improvement in the European M&A market. I mean, the fact that you now are seeing much stronger economic growth there, I mean, by some measures, things are looking better there than in the U.S. now, and you're seeing a lot of recovering in a number of the countries that have been the weakest through the financial crisis, I mean, that ought to lead to an increase in confidence and an increase in deal activity. So data -- bottom line, I guess, is that data doesn't show a big change over there yet, but at some point, we'll be through all these political issues, and just the economic growth drivers should lead to more transaction activity.

That's helpful color. And then given the choppy period you're in for revenues, I just wanted to get your latest thoughts on the dividend. And then maybe from a bigger picture perspective, given some of the volatility in your earnings, wanted to get your thoughts on the merits of switching to a more or less special dividend model that some of your peers have adopted.

Look, we've obviously had -- for years, we've had a few analysts, fairly vocal analysts who've expressed a lot of skepticism. But the fact is that we've continued to have a very long history of a strong return of capital to shareholders through dividends and share buybacks. It's up to $1.25 billion, like I mentioned in my opening comments. And we've maintained that policy since the financial crisis despite what have been some challenging market conditions at various points and despite, along the way, devoting cash flows needed for compensating people, for funding an acquisition here and there and other initiatives. So in terms of continuing it, look, we've done it for a long, long time. We're big believers in returning cash to shareholders. I noted -- and this is the reason I noted it, that our quarterly cash costs are fairly modest, and on top of that, we could move our debt capacity a bit. We could bring cash back from overseas. So I think there's a lot of options here. I mean, obviously, if you want to assume that what I think has been a very unusual first half for us, that you assume that sort of continued on forever, obviously, at some point, you'd have to reconsider. But that's definitely not our expectation. The history certainly shows that the lumpiness of our revenue profile works in the positive as well as the negative direction. And the aggregate results are running -- kind of medium-term period have always been sufficient to support the capital return policy. So that's maybe a long-winded way of saying that we've always generated a lot of cash despite the occasional period of soft revenue like we're going through. And our expectation is that we're going to continue to generate enough profit and cash flow to support the large returns to shareholders through dividends and share buybacks that we have throughout our history.

That's helpful. And then last one for me, just on the compensation expense. I don't want to get too specific, but is the $39 million of compensation expense you had this quarter a decent way to think about kind of how the outlook for the year would look if revenue remained relatively choppy throughout the back half of the year?

I think that's -- probably something like that's realistic, yes. Again, obviously, it could be more if we -- if revenue's better than that, et cetera. But yes, that's not a bad way to put it.

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

So first, just another question on Europe. Can you give us a sense of how profitable Europe is for you guys? And if it's that part of the business that continues to be the laggard, how long do you want to maintain a big presence there?

Look, it's a core part of our business and our strategy for our entire history. We had -- in the precrisis period, we made just about exactly as much money from European clients as American clients for a 10-year period. So obviously, it's a very significant contributor. There's no doubt that Europe was impacted for a much longer period of time by the financial crisis and recovery than the U.S. market was. But you only have to look back to last year. I mean, last year, we made a lot of money in Europe. We had a lot of very large transactions, both in the U.K. and elsewhere in Europe. We had a lot of cross-border things between the U.S. and Europe that are a very important part of our business. So I'm not worried about Europe turning around. Again, it's not like we have to think back 10 years to think of a really good year in European revenue for us. We have to think back 1 year. And I think this year, for very understandable sort of political reasons, it turned out to be a slower-than-expected period. But I don't have any doubt that Europe will rebound to be an M&A market that's not that different from the U.S. in terms of the aggregate deal volume.

Okay. And then on your new hires and maybe also internal promotes, have new hires been productive? And not just the people this year but maybe the last 2 or 3 years, people you've hired, people you've promoted. I'm just trying to get a sense of whether it's a core group of bankers that are doing most of the things or whether you have a new kind of wave of talent that's coming in and significantly contributing to the bottom line, too.

Yes. A good question, and the answer is absolutely yes. I mean, we have -- if you look in any given year, if you look last year, if you look this year, who were the top performers of the firm -- in the firm, you'll find some people who've been here a very long period of time, you'll find some people who came up through the ranks and are still very young and relatively new managing directors, and you'll find some that are more recent recruits. So there really is -- it's certainly not one category that drives everything. And it's -- look, I'm extremely excited about the still young MDs we've promoted over the last few years. And I can see some of the very important client wins they're bringing in, the mandate letters, engagement letters that are getting signed. So we're very excited about that. But I like the looks of our recruits this year as well. And I think it's -- I think you want to have a mix. I mean, to me, it's kind of like a sports team. You want to bring in some people who are at the peak of their career and with a huge amount of experience, but you also want to bring up some talent to the ranks so that you have a broad base that will last for a long number of years on and on in terms of the ability of the firm to perform. So I feel very good about both the recruits and the promotes.

Our next question comes from Brennan Hawken with UBS.

I'd like to circle back to the comment on the dividend and balance sheet leverage. I guess I'm a little confused. It seemed like you were implying that you would think that it would be fine or even a good idea to increase leverage and maybe even expand the revolver in order to just to fund the dividend. Can you walk through the logic of that? I just don't understand it.

I think it's pretty simple. First of all, I don't actually view us as leverage. We have less than $1 million of difference between our cash balance and our revolver. The reason we do that is because we choose not to bring cash back from overseas unless at some point we need to. We could do that at any time and bring down both the revolver and the cash balance if we want to do that. We've chosen not to. And at some point hopefully, there's tax reform in this country and that all becomes a moot point. Beyond that, there's just a token amount of debt left on the borrowing for the Cogent acquisition. So all I'm saying is that there are a lot of -- look, my base case is activity sort of rebounds toward a normal level, and all is well, but I'd like to have a plan B and a plan C and a plan D. And some of those are bringing the cash back from overseas. Some of those are borrowing a little more. And if you get through what could be a difficult stretch, I mean, if you had -- for example, you can't just kind of change accounting practices back and forth. So if you had 1 quarter where you needed to increase your debt by a modest amount and that would allow you to keep the accounting policy in place that lets you keep cash overseas and minimize taxes, then frankly, I think you'd be foolish not to do that. I'm not talking about a lot of leverage. I'm talking about potentially we have no net leverage that I am talking about, we wouldn't worry at all about the flexibility to move that to a modest level of leverage to get through a difficult period. That's all.

Okay. And then the comment about the cost of new hires and not being concerned on that front, of course, because of start dates and the like, is it also that there's a benefit because if there is a commitment for a bonus in the first year, that, that would be done in deferred stock, and therefore, there wouldn't be a cash draw from that?

No, I wouldn't say that. We have different -- you negotiate separately with each recruit you bring in, and there's a mix of cash and restricted stock in every single case. So that varies by person, but no, that's pretty typical. And as you know, with us, unlike for everybody else, we just run it all through our GAAP income statement so you can see it all very clearly. So arguably, we could have done as others did after us, which is to pro forma things like that for new hires. But we just run it all through. And all I'm saying is that's just not -- I just don't think it's a huge factor given the number of hires and the time of year and the commitments made and so on.

Oh, okay. All right, fair enough. But getting back to deferred comp and the shares, it's my understanding that deferred comp -- the employees that have deferred equity are still entitled to receive the dividend as structure for Greenhill. Is that true?

Yes. I think we're actually one of the few that actually pays cash dividend equivalent. So whenever we pay a dividend to shareholders, we pay a dividend equivalent of an equal amount on every restricted stock unit that an employee has. (inaudible) we pay that in firm restricted stock, and -- but we just pay it right at the time.

Yes. Does that, though, impact or inform your view on the dividend? And does that have -- like, increase the desire to maintain that dividend even though the use of free cash generated by the company might be running tight as a percentage of the dividend needs in total?

No. I wouldn't say that's a particular factor. It's not -- look, it's not a huge amount for anything but a small number of employees. So obviously, it's only on the deferred stock that they've got, and it's only a percentage of that, and so no. The whole capital return policy really has to do with just a long-term corporate strategy, a financial strategy we've had for a long period of time. It's resulted in sending $1.25 billion back in dividends and buybacks. And it really doesn't have much at all to do per se with employees. It's really just about a long-term structure that we think has worked and that we're committed to continuing to return a lot of capital to shareholders.

Our next question comes from Steven Chubak with Nomura Instinet.

Scott, I really appreciate all the color you have given on the revenue backdrop and certainly outlining some of the idiosyncratic factors impacting your business. One of the things that we've spent quite a bit of time on, I know it's been touched on quite a bit on the call, is the issue of the debt covenants. And I recognize that these situations can be very fluid with your lender, but one of the specific covenants that appears to be at risk just given some of your commentary is around the debt service coverage. And I know you talked about some of the mitigating actions you could take. But if you do, in fact, have a softer revenue backdrop in the second half, what are some of the mitigating actions that could enable you to maybe avoid tripping that wire? And have you had any conversations with your lender in terms of what actions you would have to take? And would it require something such as a cut to the dividend?

We've -- I'll go back to my statement earlier that we're not concerned about covenants or we're certainly not concerned about the one you referred to there. I mean, I don't know exactly what your math shows, but it's -- no, it's not something we're -- I'm focused on. It's not something we've talked about. It's really not something we talk to our lender about. So I'm not sure how your math works, but it's not -- our math is not -- is such that we're not concerned about that.

Okay. And then just one more for me. We've heard a lot of -- some of the other independents talk about advice to some -- at least activists or the targets of activism. Wasn't sure if that was a space that given the growth in activist hedge funds, whether you saw significant potential there. And would that be an area where you would look to expand your capabilities?

We don't work for activists in hedge funds, but we do very often advise companies in dealing with activist investors. So it is an important part of our business. I won't say it's a huge revenue generator, and I don't think it is, frankly, for other firms either. It's really more of a relationship builder. I mean, we in our industry have tended to get paid when -- there are exceptions, of course, but when transactions occur. So dealing with an activist investor can be a long dialogue that could lead eventually to a transaction that can result in meaningful revenue or sometimes can just relate to a dialogue and maybe putting somebody on the board and so on, and the revenue impact wouldn't be that meaningful. But certainly, we agree it's an important advisory service to provide to clients, and it helps to strengthen relationships that may lead to revenue opportunities of all kinds down the road.

Our next question comes from Vincent Hung with Autonomous.

What's the run rate of Cogent revenues nowadays?

We don't disclose that as a separate item, but I would say that Cogent's performance has continued to be -- we expect -- let's put it this way. Through the end of this year, which will be almost their third full calendar year with us, we expect their revenue will be very similar kind of throughout that period. So I wouldn't say there's been any meaningful change in either direction. As I noted in the capital advisory business, both primary and secondary things were slow -- got off to somewhat of a slow start in the first half, but we expect, though, that business in particular to have -- I'd just say some things that are now done or very nearly done, to have a strong third quarter and to end up with a solid result for the year. So it's kind of steady as she goes with that business.

Okay. And just lastly, so historically, you've focused more on the larger transactions. Is there any reason why you don't just refocus to become more deal size agnostic?

We -- like everybody, we do a wide range of transaction sizes. You just -- but if you look at the data, as we've done many times and put in various investor presentations, we are skewed a bit more toward larger things. And we continue to think that's the way to maximize value over time. I mean, that's what the biggest collectors of advisory fees in the world do. That's what Goldman Sachs does, JPMorgan, Morgan Stanley. The profitability of larger transactions is higher. I don't deny that there are firms out there that can have success working on smaller things as well. I just think it's hard. If you're trying to focus your people on working on important things that can really be impactful, you can end up kind of diluting their focus if you aim too broadly in terms of the kind of things you're trying to do. So we're going to continue to try to drive our people to build the kind of important corporate relationships that can lead over time to larger transactions, and we think that will pay off over time. It's not going to pay off in every single market environment, but we think over the medium to long term, that's going to be the place to be.

Okay, that was our last question. Thank you all for joining us, and we'll speak to you again in a few months.

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