Greenhill & Co., Inc.

Good afternoon and welcome to the Green Hill fourth quarter and full year 2021 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Patrick Suenholtz, Head of Investor Relations. Please go ahead.

Thank you. Good afternoon and thank you all for joining us today for Greenhill's fourth quarter 2021 financial results conference call. I'm Patrick Suenholtz, Greenhill's Head of Investor Relations, and joining me on the call today is Scott Bach, our Chairman, 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 would now like to turn the call over to Scott Bach.

Thank you, Patrick. We have a strong finish to 2021, consistent with our commentary on recent quarterly calls. Our fourth quarter revenue was $116.7 million and we earned $1.21 per share. For the full year, we had revenue of $317.5 million and earnings per share of $1.73. Revenue for the year was up 2% over last year and earnings per share was up 27%. Industry data makes clear that 2021 was a record year for global M&A deal activity. Financing and capital raising activity was also strong. Meanwhile, bankruptcy-related restructuring activity was down materially, given highly accommodating financing markets. At Greenhill, our global team was very busy. We enjoyed a significant increase in new client assignments to a record level. Likewise, we saw a significant increase in the number of transaction announcements, which can be tracked on our website, also to a record level. Momentum continued to build throughout the year, and in the fourth quarter, we played a role in more deal announcements than in any quarter in our history. The number of million-dollar or greater fees we earned for the year was also a record. The only thing that held us back from an even stronger 2021 performance was the fact that we had fewer transactions in the very large fee category than has been the case historically or than we expect going forward. On a regional basis, we saw improvement in the US, had a very strong year in Australia and another good year in Canada. In contrast, European revenue was down materially from a particularly strong result the prior year. By sector, financial services, healthcare, and industrials were the standouts, while consumer and retail was down materially from an outsized performance in 2020. By type of advice, M&A was the primary contributor to our results. Restructuring activity remained relatively low all year following an extraordinary year in 2020, beginning when the pandemic first hit trading markets early in the year. We made good progress in our new initiative to win and execute more financing advisory assignments. Some of our most significant assignments of the year involved our helping clients get funding from the large and growing direct lending market, and we also advised on various types of equity financings. For our private capital business, 2021 was a year of rebuilding and expansion, resulting in a modest decline in revenue. By year end, we had a fully functional global team capable of raising private equity, infrastructure, credit, and other types of funds, and that team had a substantial and growing backlog of capital-raising assignments that had already begun to generate revenue. Meanwhile, we continue to be active in advising institutional investors around the world on sales of interest in such funds. Across all our businesses, we are making good progress in our initiative to provide more services to the financial sponsors that manage private equity and other types of funds. In addition to raising capital for such entities, we advised on buy-side and sell-side M&A projects and worked on financing and restructurings of companies owned by financial sponsors. In total, about 30% of our 2021 revenue related to financial sponsors, and we believe we have only scratched the surface in terms of how important that client base can be to our business. Now turning to costs, we managed our fourth quarter compensation ratio to a level that resulted in a full year ratio that was at the high end of our target range. Meanwhile, our non-compensation costs were materially lower than in the prior year at around the low end of our target range. Our pre-tax operating margin for the year was 22%, significantly better than in the prior year, and our near-term objective remains to get that to at least 25%. Our interest expense continued to trend lower given a declining debt level and continued low short-term interest rates. Our effective tax rate for the year was 28%, higher than we normally expect due to the fact that our profitability was skewed to higher tax rate jurisdictions. In the prior year, our profitability skewed to lower rate jurisdictions. We continue to expect our annual tax rate to be generally in the mid-20% range before adjusting for charges relating to changes in the value of restricted stock when it vests. At our current share price, we would see a tax benefit this year as a restricted stock vests at stock prices higher than which it was granted. We ended the quarter with $134.6 million in cash and $271.9 million in debt, meaning we had net debt of $137.3 million. During the quarter, we made additional voluntary debt payments of $20 million that are reflected in those numbers. Having made $55 million of voluntary debt repayments in 2021, we now plan to pause further debt repayments so that we maintain an appropriate level of trading liquidity in our outstanding debt, which we believe will facilitate a favorable refinancing when the time is right for that. We continue to be focused on deleveraging, but now with an emphasis on increasing our cash flow in a manner that improves our credit statistics. In addition to repaying the $55 million of debt in 2021 and maintaining our usually quarterly dividend of 5 cents per share, we repurchased $45.1 million of stock. During the fourth quarter, we repurchased 677,851 shares and share equivalents for $11.8 million at an average price of $17.33 per share. For the year, we repurchased 2.9 million shares and share equivalents for $45.1 million, at an average price of $15.80 per share. After quarter end, we repurchased an additional 267,945 shares for $4.9 million at an average price of $18.21 per share. For the year ahead through January of 2023, our board has approved share repurchase authority for shares and share equivalents of $70 million. In addition, we are announcing today a doubling of our modest dividend in order to bring it to what we consider a more normal level consistent with most of our peers. I will close with a few thoughts on strategy. We continue to believe in the pure advisory business model where our interests are fully aligned with those of our clients. We believe we have the right geographic footprint in place. In M&A, we aim to continue to expand our industry sector coverage in high potential areas. Apart from M&A, we aim to continue our recent initiative to provide more financing advisory services while also seeking more restructuring advisory opportunities as interest rates rise and credit markets tighten. In our private capital advisory business, we aim to continue to expand both our primary capital raising and our secondary sales businesses. In all these areas, we aim to continue our recent initiative focused on serving financial sponsors, which we believe can be a major source of growth for our firm. In order to meet our growth objectives, we will continue to seek talent externally. 2021 was a productive recruiting year for us with respect to senior bankers, and we also grew overall headcount slightly despite increased turnover that I think every firm in our industry is facing. Looking ahead, we expect a very active recruiting year in 2022. At the same time, we had a record number of internal promotions to managing director at the start of the year. Many of our top anchors around the world are homegrown, and internal talent development will remain an important source of growth for our firm alongside external recruiting. With that, I'm happy to take any questions.