Greenhill & Co., Inc.

Hello, and welcome to the Greenhill & Company, Inc. Second Quarter 2022 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please seek the one conference specialist for 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 1 on your touch-tone phone. To withdraw your question, please press star, then 2. Please note, today's event is being recorded. I now turn the conference over to Patrick Soonholtz. Mr. Soonholtz, please go ahead.

Thank you. Good afternoon and thank you all for joining us today for Greenhill's second quarter 2022 financial results conference call. I am Patrick Soonholtz, 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 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. We 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 have a high level of client engagement, but in revenue terms had a light second quarter and first half given a relative lack of large transaction completions. Our revenue for the quarter was $36 million and for the first half was $81.5 million. Our backlog continues to suggest that this year is likely to play out very much like the three years before it when we had a weak first half followed by a better second half and particularly a strong fourth quarter resulting in a respectable full year outcome. While many of our competitors have spoken of a more challenging second half environment, our firm is of a size where our revenue is not closely tied to the ups and downs of the global M&A market. Indeed, it is noteworthy that in the past three years, we generated 79% more revenue in the second half than we did in the first half, and our backlog suggests another strong finish to 2022. Meanwhile, we continue to remain disciplined on expenses, with our year-to-date operating costs only slightly higher than last year. If revenue materializes as we expect, this should be another year of generating strong cash flow, which we will continue to direct towards share repurchases so long as our market valuation remains attractive. As to where we see revenue coming from, recent economic and market developments are impacting our expected sources of revenue in varying ways. By sector, we expect relatively good performances in consumer, energy, mining, and telecom infrastructure. By region, we expect significant improvement in Europe relative to a weak performance last year, and we expect a second year of strong performances in Australia and Canada given higher commodity prices. By type of advice, the restructuring business is relatively quiet given low default rates. Financing advisory is slower given tighter credit markets, but M&A remains active even if overall global deal activity is well below last year's level. While our historic focus on M&A advice for public companies is serving us well this year, we remain committed to the three strategic initiatives I have spoken of frequently in recent quarters. First is expanding our coverage of financial sponsors. That client type is one that can make use of all of our services from M&A to financing and restructuring, to capital raising and secondary sales of fund limited partner interest. We believe we made good progress on this initiative over the past 18 months. Second is winning more financing advisory roles. This activity is highly complementary to our restructuring advisory business for companies that are in financial distress. We made some progress in this area last year but believe that the tremendous growth in the direct lending market creates a very large opportunity worth pursuing. Third is our private capital advisory business, where in the past 18 months we've built out a global team to raise primary capital for private funds of many types, including private equity, infrastructure, credit, and others. That team is already in the market with a number of high-quality fund offerings, and we expect that area to be a significant contributor to firm revenue in years to come. At the same time, we continue to develop the secondary aspect of this business globally. Turning to our costs, our compensation expense for the quarter was $43.2 million and for the first half was $90 million, slightly higher than last year primarily as a result of higher salary levels in our industry. The year-to-date compensation ratio is well above normal given our relatively low revenue. But just as we did in the past few years, we expect to bring that ratio down toward our target range for the full year as more revenue materializes in the second half. Our non-compensation costs were up about $1 million in the quarter versus last year, but for the year to date are just slightly below last year's level. Our balance sheet remains in good shape with $64.5 million in cash at mid-year despite the fact that most of our revenue should come in the second half. Our terminal imbalance remains at $271.9 million. It's worth noting that a few years ago, we comfortably carried debt in an amount $100 million greater than the current level, so obviously we've paid down quite a lot of that debt in the past couple of years, and we remain committed to a strong credit profile. The remaining balance of our loan matures in April 2024, and we aim to refinance that well in advance of maturity, most likely in the first half of next year. During the quarter, we repurchased 851,000 shares and share equivalents at an aggregate cost of $10.4 million. Year-to-date, we repurchased 1.9 million shares and share equivalents at a total cost of $30.2 million. We had $44.6 million of remaining share repurchase authority as of the quarter end. We continue to see our shares as significantly undervalued relative to our proven ability to generate strong cash flow in a wide variety of market conditions. Separately, our Board declared a dividend of 10 cents per share consistent with last quarter. In closing, I note that we added another managing director just this past week. She's a longtime credit Swiss banker who was most recently at Solomon Partners. She will focus primarily on telecom infrastructure, one of our key sectors, as well as some media clients. We currently have 80 managing directors worldwide, and we remain focused on recruiting additional talent. Given the state of the markets and some of the challenges faced by our large bank competitors, we are expecting 2023 to be a big recruiting year for us. With that, I'm happy to take any questions.