Greenhill & Co., Inc.

Good day and welcome to the Greenhill first quarter 2023 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. 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, Director of Investor Relations. Please go ahead.

Thank you. Good afternoon and thank you all for joining us today for Greenhill's first quarter 2023 financial results conference call. I am Patrick Suenholtz, Greenhill's Head of Investor Relations. 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.

Our revenue is $49.7 million for the first quarter, 9% better than last year's first quarter, but considerably lower than we would like as a result of what was obviously a very difficult operating environment. While the pace of transactions has been slower than usual the past couple of quarters given volatile markets, difficult credit conditions, and economic uncertainty, we are encouraged by the level of engagement we are seeing, particularly with regard to M&A interest from our corporate clients. It's worth noting that our firm is of a relatively small size where our revenue trajectory can differ meaningfully from either results of competitors or overall changes in market activity. Accordingly, consistent with what I said in our last call, we expect our revenue improvement over last year to grow significantly in the second quarter, leading to our best first half in recent years. There's always less visibility for quarters further out, but as markets continue to stabilize, credit conditions improve, and global deal activity rebounds, From what are very low year-to-date levels, we are well positioned to benefit in quarters to come. On the cost side, our compensation costs were elevated to just over $60 million for the quarter, largely as a result of the timing of the recognition of an accounting charge related to incentive compensation. However, already in the second quarter, our absolute dollars of compensation expense will decline significantly back to a normal level. And as those costs decline and greater revenue materializes, our objective is to bring our compensation ratio down toward our target range by year-end, just as we've done in the past few years. Meanwhile, our non-compensation costs at just under $15 million were higher than last year's as a result of higher travel expenses as client travel has continued to normalize post the pandemic and some one-off costs related to relocating our London office. Even with these, the level of non-compensation expense remained within our target range. Looking ahead, the London relocation expenses are now behind us, and we will not be burdened by the duplicate of rent we had as we made major office moves in London and in New York over the past few years. It is early in the year to draw many conclusions about our business performance by region, sector, or type of device, but I can make a few points based on our early results and current pipeline. By region, we expect strong performances in Australia, Canada, and Spain, as well as improved performances in the US and UK. By sector, industrials is our largest focus area, and that should be a productive area this year. Mining and energy is another very active area for us, including newer green energy technologies. And our healthcare and consumer teams are also quite busy. By type of advice, corporate M&A is where we see the most opportunity. Relative to most of our competitors, we should benefit in the current market from having less of a reliance on financial sponsors than most. We are also seeing restructuring activity pick up from the low level last year when credit conditions were favorable for much of the year. While we don't expect anything like the pandemic period boom in restructurings, we believe we could be at the beginning of a longer period of robust restructuring activity given the current market economic circumstances than was the case in the brief pandemic era restructuring boom. Our capital advisory team continues to take on attractive new fund placement projects amid what is a challenging fundraising environment. and should generate increased revenue as the year goes on. Notwithstanding that financial sponsors are not a particularly large portion of the M&A market at the moment, given challenging credit market conditions, winning more business from this client group, which has enormous dry powder to be deployed once market conditions have stabilized, continues to be our central strategic initiative for the future growth of our business. We believe our industry sector expertise, our cross-border capabilities, and our ability to access public companies are all advantages as we work to build this business. Turning to our balance sheet, we ended the quarter with $58.8 million in cash and debt of $270.1 million. The end of the first quarter usually marks our low point in terms of liquidity given the timing of bonuses, deferred compensation payments, and tax withholding on restricted stock vesting. During the quarter, we repaid $1.8 million in principal reduction on our debt pursuant to a contractually required excess cash flow payment. During the quarter, we also repurchased 577,349 shares and share equivalents, mostly the latter in the form of tax withholding on the vesting of restricted stock, and that was for a total of $7.9 million. And our board of directors also approved our usual quarterly dividend of 10 cents per share. Our term loan matures in just under one year from today. Our plan is to refinance or extend that loan in the relatively near term at such time as we believe market conditions are optimal for that. As I said last quarter, our primary focus is now on deleveraging, given the increased cost of debt. We may pay down some principal at the time of refinancing or extending our loan, and in any event, aim to deleverage significantly over the next few years. I will end with a brief note on recruiting. We've recruited two new managing directors for the year to date, including one mentioned in our press release today. We remain in dialogue with many other candidates in what appears to be an active market for senior banking talent, and we aim to add several more managing directors in the weeks and months to come. With that, I'm happy to take any questions.