Greenhill & Co., Inc.

Good day, and welcome to the Greenhill & Company first quarter 2022 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 touch-tone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Patrick Steuernholz, Director of Investor Relations. Please go ahead.

Thank you. Good afternoon, and thank you all for joining us today for Greenhill's first quarter 2022 financial results conference call. I am Patrick Steuernholz, Greenhill's Head of Investor Relations, and joining me on the call today is Scott Bach, our Chairman and 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've continued to see a high level of client activity, and our pipeline is strong, but we had a light first quarter in revenue terms, given relatively few significant transaction completions. Our revenue for the quarter was $45.4 million. Our backlog suggests that this year is likely to play out like the last few, where quarterly revenue ranged from the $40 million to the $140 million. Annual revenue was weighted to the second half, and by year end, we had achieved a respectable full year outcome. For this year, we expect another increase in full-year revenue despite what looks so far like reduced transaction activity in the global market relative to last year. Meanwhile, we continue to remain disciplined on our expenses. That should lead to another year of strong cash flow. Investors may recall that last year we spent $100 million on debt repayment and share repurchases. This year, we plan to focus primarily on share repurchases for so long as we believe, as we do currently, that our stock is significantly undervalued. Now I will go into a little more detail on each of the points I just summarized. In terms of client activity and revenue, recent changes in the economic and market environment should increase opportunities for us in some areas while reducing them elsewhere. The war in Ukraine may be dampening deal activity in Europe, although we still expect an increase in revenue from that market compared to what was a quiet year for us there in 2021. Offsetting that, higher commodity prices should result in more deal activity in Australia and Canada and with energy and mining companies everywhere. And higher interest rates and lower market valuations should lead to more acquisitions by strategic buyers with strong balance sheets while perhaps reducing M&A activity by financial sponsors. With respect to financings, less accommodating credit markets will likely reduce overall activity but should force more borrowers to access the direct lending market for their borrowing needs. In sum, at this point, it looks like 2022 for us will be a year where our historic focus on M&A advice for our historic public client base of public companies will be central to our success. At the same time, we remain focused on our three recent strategic initiatives that I spoke of frequently last year. First is expanding our coverage of financial sponsors. We made good progress on that last year and have an important new managing director hire in this area joining us shortly who will help us build on that. Second is winning more financing advisory roles. We also made good progress on that last year and we believe that increasingly challenging credit markets will drive more clients to the direct lending market where we can both provide access and advice. Third is our private capital advisory business where over the course of last year we built out a global capital raising team for private funds of many types including private equity, infrastructure, credit and others. That team already has a long list of funds in the market seeking to raise capital and we expect it to become a significant ongoing contributor to firm revenue in the next couple of quarters. Meanwhile, we continue to develop the secondary aspect of this business, and we have an important senior recruit set to join us in that area soon. Including him and the other senior recruit I just mentioned, we currently have 80 managing directors. Turning to our costs, our compensation expense for the quarter at $46.8 million was slightly lower than last year's in absolute terms. Obviously, the compensation ratio was higher given the lower revenue outcomes. But just as we did the past few years, we expect to bring that ratio down into our target range for the full year as increasing revenue materializes in the next few quarters. Our non-compensation expense was also slightly lower than was the case last year and at the low end of our target range, which is pleasing given that we are starting to see increased client travel as the pandemic winds down. Our balance sheet is strong with $83.3 million of cash at quarter end, which is usually our seasonal low point in terms of cash given the timing of bonus payments and employee stock vesting. Our debt is unchanged from last quarter at $272 million, and after repaying significant debt last year, we will continue to pause further repayments in order to ensure appropriate liquidity in our loan, which we plan to refinance in coming quarters. We've repurchased $19.8 million worth of shares and share equivalents during the quarter, and we have just under $55 million of share repurchase capacity remaining. We aim to use that authority just as we did last year, given the pause on debt repayment. With that, I'm happy to take any questions.