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Edited Transcript of GHL earnings conference call or presentation 30-Jan-19 9:30pm GMT

Q4 2018 Greenhill & Co Inc Earnings Call

NEW YORK Feb 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Greenhill & Co Inc earnings conference call or presentation Wednesday, January 30, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Patrick J. Suehnholz

Greenhill & Co., Inc. - Director of IR and COO of Investment Banking & Principal

* Scott Lee Bok

Greenhill & Co., Inc. - CEO & Executive Director

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Conference Call Participants

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* Brennan Hawken

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Financials

* Devin Patrick Ryan

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* James Edwin Yaro

Goldman Sachs Group Inc., Research Division - Research Analyst

* James Francis Mitchell

The Buckingham Research Group Incorporated - Research Analyst

* Michael Anthony Needham

BofA Merrill Lynch, Research Division - Associate

* Michael C. Brown

Keefe, Bruyette, & Woods, Inc., Research Division - Associate

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Presentation

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Operator [1]

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Good day, and welcome to the Greenhill Fourth Quarter 2018 Earnings Call and Webcast. (Operator Instructions) Please also note, today's event is being recorded.

At this time, I'd like to turn the conference call over to Mr. Patrick Suehnholz, Director, Investor Relations. Sir, please go ahead.

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Patrick J. Suehnholz, Greenhill & Co., Inc. - Director of IR and COO of Investment Banking & Principal [2]

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Thank you. Good afternoon, and thank you all for joining us today for Greenhill's Fourth Quarter 2018 Financial Results Conference Call. I am Patrick Suehnholz, Greenhill's Head 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 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 turn the call over to Scott Bok.

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [3]

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Thank you, Patrick. We reported fourth quarter revenue of $89.1 million, which is 33% above last year's level, and operating profit margin of 24% and earnings per share of $0.45. Earnings per share would be $0.48 if you adjust for a tax charge on the vesting of restricted stock award, pursuant to new accounting rules that took effect at the beginning of last year and certain other nonrecurring tax adjustments related to changes made in the Tax Cuts and Jobs Act of 2017.

For the full year, we had revenue of $352 million, which is up 47% relative to last year. Our operating margin for the year was 23%, which was negatively impacted by $4.5 million of noncash costs related to the accounting for the earnout on our 2015 acquisition of Cogent Partners. And our earnings per share was $1.42. That figure would be $1.61 if you adjust for the vesting of restricted stock awards and certain other nonrecurring tax adjustments discussed above.

Focusing first on our top line, the fourth quarter was the fourth consecutive period of substantially increased revenue in comparison to last year. In a year when advisory revenue growth for our broad competitor group appears to be at much less meaningfully versus last year, we are pleased that nearly every metric for our business is indicating significant improvement.

In fact, as noted in our press release, we set a number of records for the year. We had our highest ever level of total fee paying clients, $1-million-or-greater clients, corporate advisory transaction announcements, capital advisory, number of transactions, volume and revenue from secondary transactions as well as records for Canadian revenue, European revenue in local currency terms and global advisory revenue in local currency terms.

While market volatility in the fourth quarter undoubtedly impacted progress on some transactions, it continues to be our view that conditions are generally favorable for M&A activity globally, particularly for the larger transactions that have historically been our primary focus. Based on what we see in public data and hearing client dialogues, it does not feel to us like we're anywhere close to a peak in terms of deal activity.

For example, the number of deals $500 million or greater in size with the European buyer or seller in 2018 was similar to the level of the past 8 years and more than 40% below the peak level of 2007. And as many analysts have commented, the level of global M&A activity relative to stock market capitalizations remains well below peak levels.

Apart from M&A, we are also seeing continued favorable conditions for capital advisory transactions. Restructuring activity was light in 2018 but we've seen a notable uptick in recent activity, likely as a result of a slowing economy and somewhat weaker credit market conditions. Last year, we made great progress in our objective of building a substantially larger team in that area, which had already start to pay off this year.

Finally, on top of the fact that we believe market conditions for advisory services continue to be reasonably favorable for all market participants, we believe that the trend toward increased use of independent financial advisers like our firm, still has a long way to go.

Turning to compensation costs, absolute dollars of compensation expense increased significantly for the year along with revenue, but our compensation ratio declined to 55%, back within its historic range for the years prior to 2017.

With respect to non-compensation operating costs, the quarterly and annual figures versus last year were impacted by noncash accounting adjustments in the 2 periods, relating to the earnout on our acquisition of Cogent. There's also a difference between the 2 periods relating to the fact that under new accounting standards, which became effective in 2018, we now include expenses that are reimbursed by clients as revenue rather than as an offset to operating expenses.

Our non-compensation operating costs for the year were $75.9 million, which includes $4.5 million in noncash charges related to the earnout adjustment noted earlier. Adjusting for the impact of the Cogent earnout in both 2018 and 2017 and the aforementioned accounting change for reimbursements, our non-compensation operating expenses would have been $64.4 million for the year as compared to $73.4 million for last year or down about 12%.

With respect to interest expense, we incurred $5.9 million for the quarter and $22.4 million for the year, up from last year, given the large borrowing we did as part of our recapitalization plan we announced a year ago, September. Going forward, interest expense should decline as we continue to pay down that debt.

With respect to taxes, our rate for the quarter was 30%, which was impacted by a $400,000 charge related to the tax effect of restricted stock unit awards, vesting at a value less than the grant price value and a nonrecurring charge of $500,000 for certain expenses, which are nondeductible based on recent guidance pertaining to the Tax Cuts and Jobs Act signed into law in December 2017.

For the year, our tax rate is 33%, which was impacted by a charge for RSU vesting of $4.7 million and other nonrecurring charges discussed above of $500,000. Excluding those charges, the rate for both the quarter and the full year would have been 24%, which is consistent with our expectations going forward.

Turning now to capital returns to shareholders, we declared a dividend of $0.05 per share, consistent with last quarter. Also in regard to return of capital, in the fourth quarter, we repurchased approximately 692,000 shares and share equivalents at an average price of $25.32 per share. As of year-end, we had accomplished 89% of our original $285 million share repurchase goal and had $32.6 million remaining under the share repurchase plan we announced as part of our recapitalization plan. During the month of January, we have repurchased an additional 303,000 shares in open market transactions at an average price of $27.29 per share for a total cost of $8.5 million. That means that as of yesterday, we had purchased a total of 11.6 million shares since our September 2017 recapitalization announcement at an average cost of $22.52 per share for a total cost of $261 million. This represents 92% of the $285 million in planned share repurchases and leaves us with $24 million remaining to be spent on repurchases.

Going forward, we will be opportunistic about the use of our remaining funds, aiming to maximize the benefit for long-term shareholders. Given the reduced share count resulting from our repurchase activity, our employees collectively own today approximately 41% of the equity economics of our firm through their holdings of common stock and restricted stock.

At year-end, we had a cash balance of $156.4 million and term loan debt principal of $328.1 million, meaning we had net debt of $171.7 million. As we noted in our press release, the pace of our share repurchases has meant we've never gotten close to the level of net leverage that our recapitalization plan initially contemplated. And we should soon start to deleverage further from the current level by means of scheduled debt repayments and the continued generation of cash flow. While focusing on deleveraging, we will also pursue further opportunistic share repurchases and dividend increases as our leverage declines.

I will close on an update on recruiting the longer-term potential that creates for us. Including 2 managing director promotions we made as of January 1, we added 15 managing directors last year. Currently, we have 76 client-facing managing directors globally compared to 71 at the start of last year. Our recruiting pipeline remains strong and we remain intensely focused on continuing to expand our capabilities and increase our scale in order to further enhance the revenue generating potential of our firm. We are excited about the quality of bankers we are attracting and we are doubly excited about the way our recapitalization plan has leveraged the upside potential for both our shareholders and our senior team.

In conclusion, we see strong potential to generate considerably more revenue over time than we did in 2018. We added a lot of new senior talent during the year and that group was too new to have made any meaningful contribution toward our strong 2018 results. In addition, for many parts of our firm, 2018 was not a particularly strong year relative to either their history or their potential. Particularly in certain industry sectors and in the restructuring area, we see the potential for much stronger performance. More broadly, global M&A activity remains well below peak levels relative to market capitalizations and European deal activity continues to lag significantly behind the U.S. relative to its scale before the financial crisis.

Lastly, a strong U.S. dollar throughout last year reduced the benefit of our very strong revenue and other currencies. Each of these factors represents further potential revenue upside for us going forward.

In closing, I note that we just posted on our website a new investor presentation that summarizes much of what I've just said, while also reviewing our overall position and strategy. And with that, we're happy to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question today comes from Devin Ryan from JMP Securities.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [2]

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First question here, kind of heard the pipeline comments and just kind of the overall backdrop today but just love to dig into that a little bit more and maybe get a sense of where you feel like the pipeline is today relative to heading into last year where the tone of conversations are strong? And then Europe obviously, you have a pretty large footprint there and there's a lot of uncertainty right now just with kind of the ongoing Brexit saga. So I'm just curious, kind of your view on the European opportunity in 2019 with some of those moving parts.

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [3]

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Look, I would say we feel pretty good about the level of client dialogue and the pace of winning new assignments and progressing those assignments, pretty much everywhere. There are -- a lot of parts of them are starting easiest, with the parts of the world that had good but not their best kind of performance as last year. I think we feel really quite confident about the potential to do better in those places. Europe, we had a particularly strong year last year, a record year in terms of local currency values and there was uncertainty about Brexit for the last 2 years now and notwithstanding that, we had our best year ever there last year. So we feel very good about what's going on in our business over there and I think notwithstanding the uncertainty around Brexit, at least feels like, unless there's some big surprise to come along that companies are focused on their strategies and consolidating and growing through acquisition. So we do feel good about Europe and likewise, about the U.S. and Canada, I noted, was a record year for us. And we feel very good about that as well. So it's pretty evenly distributed, frankly. I mean, I think all parts of our firm are feeling like they've got a good opportunity and the parts that were probably the weakest last year, I think they felt particularly good. And the ones that had extraordinary year last year, I think feel well positioned to continue to build on that.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [4]

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Okay, great. A question on capital, so in the buyback, it was relatively small compared to what we would've thought, just given the stock pullback during the quarter. So if at all possible, just a little more explanation on why kind of the slow pace, given kind of the dislocation in the stock, if there's anything else going on there. And then just to clarify as well, on April, once the debt can be repaid in full, how should we be kind of thinking about that? Would you look to refinance the debt? Or just look for additional stock buyback capacity? Or kind of what should we be expecting as we're moving closer to that period?

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [5]

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First on the buyback, I think we -- look, our stock was volatile throughout last year and I think we, frankly, we played it very well in retrospect, in terms of buying when at low and buying less when it was high. That average repurchase price, I feel extremely good about how inexpensive we've been able to buying the shares we acquired. We've slowed down kind of more recently when the share price got toward the higher end of its recent range and obviously, in December, there was a lot of somewhat extreme market volatility, not just in our stock but across all markets and so we kept a little bit of dry powder in case things got even worse and we could get the stock even cheaper. So really, nothing more to read into it than that. We're kind of amateur stock traders here on our own stock but I think we did a decent job over the last 18 months or so -- or almost 18 months of buying in the stock at good prices. As far as our debt arrangements, we do have the ability to potentially refinance as early as sometime in April. And I think we'll wait and see what market conditions are like. I mean, until a couple of months ago, they looked terrific. In December, they looked terrible and today, they look a lot better again. So what it looks like in April, who knows. Clearly, at some point, we think there could well be an opportunity to refinance and bring down the rate because as a first-time issuer, one tends to pay a premium rate. And secondly there is probably an ability to gain more flexibility in terms of capital management going forward. So we'll think about that. Clearly, the net debt level we're at today is a lot lower than we thought it would be when we launched our recapitalization plan. We just had a -- we had a very good year and we're able to pay down a lot of debt. We were judicious and somewhat patient about our buybacks. So as we see that leverage come down, we'll look for -- and again, it's already at a fairly comfortable level. We'll look for opportunities for other ways to return capital to shareholders in due course.

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Devin Patrick Ryan, JMP Securities LLC, Research Division - MD and Senior Research Analyst [6]

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Got it. Okay, great. And then just last one here. Just -- obviously, 2018 was a good year for recruiting. As you sit here today and based on kind of the conversations you're having, would you expect that you could do something similar in 2019? And you touched on restructuring, for example, where you added some senior people. Are there other areas whether it be restructuring where you want to get even larger because of the opportunity that's likely coming? Or how should we think about kind of the areas that make the most sense to be focused on for recruiting this year?

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [7]

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We certainly are in talks with a lot of parties already and it's a diverse group. Certainly, we would like to grow more in restructuring. We feel great about what we built last year but certainly, we'd like to get even bigger. There are certain industry sectors where I think we're really underrepresented where we like to grow, but frankly, some of the ones where we're very heavily represented, we see opportunities to add people focused on additional subsectors in those areas. We're talking to some people in Europe, we're talking to some in Australia, a lot in the U.S., as we also did last year. So I wouldn't necessarily predict a 15 number class of MDs this year, but could we get possibly there? Sure, we could. Would I feel more comfortable saying we might get to 10 or so? Yes, I'd really feel reasonably comfortable with that. I mean, each recruitment is something we do very carefully and thoughtfully and it's always impossible until you get to the finish line and we decide and they decide to know how many you'll get but I do think it will be another strong year for recruiting based on the dialogues we have in progress right now.

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Operator [8]

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Our next question comes from Michael Brown from KBW.

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Michael C. Brown, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [9]

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So just a quick follow-up on the recapitalization, so with the buyback now 89% complete, so assuming the margin conditions are favorable, would you expect to complete that this quarter?

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [10]

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We've never predicted along the way what we'll do. And it's so small, what's left is not even really all that relevant. But look, I think odds are we'll be doing it fairly quickly but I think by keeping flexible and not forecasting too close to the market what we're going to do, I think we've done a terrific job getting the stock in cheap. So that's our main objective, it's to get the stock in at the cheapest possible prices and we've done that so far. And we'd like to do that to the extent we can with the last portion of it but again, it's not big enough to make a huge difference.

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Michael C. Brown, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [11]

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Okay. And then just on the comp ratios, so 55% for the full year, good solid ratio. You had call out, in the past, that the reason the comp ratio was so low is because people were leaving and leaving the unvested comp on the table and that was kind of offset by some new hires. So as we look to 2019, how should we think about what's the right jumping off point? And then when we look at 2018, how many percentage points of the comp ratio were really due to some of those departures?

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [12]

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Look, I think that's more detail than is probably really worthwhile getting into. I mean, I certainly have not said that our comp ratio was where it is because of departures. We probably were able to do such an extraordinary amount of recruiting, 15 MDs in 1 year, in part -- and at the same time, keep a relatively attractive compensation ratio because we did have a few departures that happened early last year and we've talked about in prior calls. Going forward, as we put in our investor presentation today, we think the ratio will be just kind of broadly comparable to where it's been and the two factors that can swing it one way or another are recruiting. I mean, if there's -- if you had a huge number of recruits, obviously, that can impact the comp ratio a bit on the high side but hopefully lead to a lot faster growth. And on the other side, you're just monitoring what's going on in the market and what it takes to attract and retain people. So we'll continue to do that as we have in the past. But I wouldn't read anything into a particular number of people who left or were exited at some point. Our comp ratio, other than in 2017, has been in a pretty consistent range over recent years.

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Michael C. Brown, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [13]

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Okay. And just one last one, on the tax rate, I think the guidance have generally been in the low 20% ZIP code. Is that still relevant for 2019?

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [14]

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Yes. So what we've said consistently is since the new tax law, it's low to mid-20s and what we've said today is other than these one-off things, it would've been 24% for both the quarter and the year. And we still feel like that going forward. I mean, we were somewhat impacted to the negative side by the fact that some RSUs that were granted at higher prices than we're at today flowed -- vested it at lower prices and therefore, you get hit in terms of the tax rate. I think it's very possible that swings in the other direction for us. If you look at how much our stock has moved up relative to last year, for example, the grant price of RSUs when it was a particularly kind of low priced grant that went out, it could very well go in the other direction for us and we maybe sitting here next year where the share price at that time is materially higher than the last few RSU brands and then we're going to net lower than that 24% figure. So the 24% is kind of a base case figure and whether we're a bit higher than that as we were this year or a bit lower than that as we could be next year, really boils down to what price is your stock at relative to where you've granted RSUs over the prior 4 years or so.

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Michael C. Brown, Keefe, Bruyette, & Woods, Inc., Research Division - Associate [15]

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Great. And then just one last one. So as we saw the intense market volatility and the dramatic move up in credit spreads in the quarter, did you notice any real impact on deals or the ability for deals to get financing?

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [16]

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We did not. I mean, our business tends to be more skewed towards public companies and frankly, public companies that have strong credit profiles. So we did not see a lot of things being setback by the credit markets. I mean, clearly, I'm sure, as I noted in, like, comments, I'm sure some deals, progress was setback across all areas of the market because, obviously, there were no high-yield offerings, for example, in the month of December. But other than that kind of brief month, it feels to us like pretty much business as usual in terms of pretty favorable credit market conditions to do M&A.

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Operator [17]

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Our next question comes from Jim Mitchell from Buckingham Research Group.

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James Francis Mitchell, The Buckingham Research Group Incorporated - Research Analyst [18]

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Just a quick question, just back on the capital management strategy from here. As you get -- finish off the buyback program, it sounds to me like you won't ever -- you're comfortable with current debt levels and you want to remain flexible and be able to buy back stock. But why not when that's done and you generate obviously free cash flow, put that towards debt paydown? Why not get net debt down further because that should also be helpful to the stock price just by delevering?

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [19]

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Yes, that absolutely is the plan. And that's highlighted in, hopefully, in my comments. Certainly, in our investor presentation. We absolutely -- we already feel good about how much net debt has reduced since we did this but we're absolutely focused on bringing it down more. All I'm really saying is we're not going to take every penny of cash flow and put it toward that. So we'll have a debate based on credit market opportunities as well as the equity price from time to time as to what the rate of deleveraging should be. In other words, do you apply every penny of cash flow or do you think about some other -- some capital return along the way and not try to pay the debt down in sort of record time. We'll do that, but we are -- overriding objective is to continue to pay on debt and you can be sure that's our focus.

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James Francis Mitchell, The Buckingham Research Group Incorporated - Research Analyst [20]

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Okay. And then when we think about last year, you had a lot of hires but you also had some departures, how do you feel about sort of net MD headcount this year if you can sort of get to that, maybe not quite 15 but if you can get to the high single digits or close to 10 MDs, do you envision that being more of a net headcount increase this year?

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [21]

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Yes. And as we noted on the release, we have 76 now, we've had 71 this time last year. So obviously, a meaningful net increase. I noted in our investor presentation, the first time we really ever got quite this specific, and it's only kind of a general target but we think it's realistic to aim for something like 10% net MD growth. That's a function of 3 things. We're obviously going to do -- continue to do a lot of recruiting and we see a lot of opportunity there. We're going to have some level of promotion, some years it will be few, some years it will be a lot more, just depending on who's up in terms of the queue, in terms of our internal people moving up the organization chart. And then you're going to -- a firm that's 23 years old, it's going to have attrition. You're going to have people retire, we've had a number of people go work for clients over the years. We've had people who didn't work out and we've had to exit them and we've had people who decided that we weren't the best place for them to carry on their careers. So there's going to clearly be some of that but the net of all that, we feel comfortable that we ought to be able to do sort of a 10% net increase. We almost even did that last year but really, last year was -- it was impacted to some degree by the fact that with the recap, as we've said at the time we announced that, we were going to take a hard look at people, we're going to bring in a lot of new talent but we're also going to exit some people who are more in the margins and so I think we're largely through that. So I think between external additions, internal promotions and normal attrition, we think to aim for something like a 10% net MD growth seems about right.

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James Francis Mitchell, The Buckingham Research Group Incorporated - Research Analyst [22]

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Okay, that's helpful. And then just one ticky-tack question on the tax rate. I mean, given where your stock prices are today, should we expect the '19 to be sort of neutral in terms of the accounting for stock awards? Or should we still expect a little bit of a hit this year? I think you alluded to maybe it's even a positive. I'm just trying to get a sense how do we think about first quarter, where the biggest impact is.

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [23]

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I would say 2019 is being broadly neutral. And I think where I would be probably pretty optimistic about 2020 and beyond is that we're really -- our current share price is quite favorable, relative to the last 3 RSU annual grants, and it's unfavorable relative to the one 4 years ago. So as that one rolls off with this one, we go from about neutral at current share price to something that is a much lower hurdle for next year and so frankly, even if our share prices was exactly where it is today a year from now, we would be looking at a benefit in terms of the RSU vesting impact.

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Operator [24]

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Our next question comes from Richard Ramsden from Goldman Sachs.

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James Edwin Yaro, Goldman Sachs Group Inc., Research Division - Research Analyst [25]

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This is James Yaro filling in for Richard. Could you give us a little more detail on sizing the cash available for debt paydowns and buybacks after setting aside a portion of your $156 million in cash for bonuses?

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [26]

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I don't want to go into that level of detail. Frankly, I don't even really forecast it in that detail. We have meaningful scheduled debt repayments that we'll be making every quarter. We've already started, that's why the debt's down quite a bit from the time we borrowed it. And we're going to continue to make those. So that's not really the way these debt, these leverage loans are structured. There's really not much of an incentive. I'm telling people the disincentive to sort of prepay, so we'll make those significant scheduled payments and then, if and when we get around to refinancing and I alluded to that a few minutes ago with the strategies around that, we'll think then about how much do we want to borrow, at what terms, what pace of repayment, et cetera. But as I was just saying as an answer to one of the other questions, I mean, clearly, the net debt is down a lot. It's down to a much lower level than we had forecasted at the time of the recap it would be at this point. And we're going to continue to work to bring that down to, over time, to a fairly modest level.

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James Edwin Yaro, Goldman Sachs Group Inc., Research Division - Research Analyst [27]

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Okay, that makes sense. And then in light of recent market volatility, could you give us any further clarity on how the restructuring business is performing? And is this an area you expect to provide a larger contribution to revenue, heading into 2019?

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [28]

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Yes, that's a good question. As I alluded to briefly in the remarks, we really have seen an uptick in terms of new restructuring opportunities. And including some that we've won. So that's always a good sign as well. And so yes, 2018, I would characterize as a really rather quiet year in restructuring. It was wonderful that we got to build a big team and get them out in front of a lot of clients and prospective clients, and we're starting to see an increased level of activity with higher rates, tighter credit markets, problems in the oil market, et cetera. And I would certainly hope that we have a much larger contribution in 2019 and frankly, probably a bigger one than that in 2020 from that group, relative to what they did in 2018. It's definitely one of the areas where it's pretty -- we are pretty comfortable that there's going to be a meaningful uptick versus last year and part of what gives us hope for the overall outcome for the firm.

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James Edwin Yaro, Goldman Sachs Group Inc., Research Division - Research Analyst [29]

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Got it. And then finally, could you talk a little bit about how you're thinking about the pace of non-comp growth for 2019?

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [30]

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We don't expect much change there. We -- and I would set aside, of course, the impact of the noncash earnout adjustment because that's essentially over, there's one tiny further impact in Q1 but irrelevant, really. So yes, we're expecting a very similar level of non-comp. So I wouldn't look for much change there at all.

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Operator [31]

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Our next question comes from Michael Needham from Bank of America Merrill Lynch.

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Michael Anthony Needham, BofA Merrill Lynch, Research Division - Associate [32]

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The first question I have is big picture, what are the main drivers you attribute the strong results to last year? I think your team in Europe did really well. Has that been the primary driver?

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [33]

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You know what, I've talked about this so much in the past. But to be honest, the primary driver in a fantastically better year was people doing the exact same thing they did the year before, just having sort of better luck in terms of timing and outcomes. Take our European, obviously, we did had a very substantial increase in Europe. It was a particularly soft year though the year before and a record year there in 2018 but it's essentially the same team. They were there in 2016 for what was a good year in Europe and 2017 for what was a very low revenue year and for 2018, which was a record revenue year. So a firm our size, it's hard -- you obviously can't smooth everything out completely and we just can't control the pace at which a client's transaction occurs and we can control even less the pace of which that transaction closes after various approvals and other steps before completion. So there's no real magic to what we did to get whatever it was, 52% better or 47% better revenue, for the year. I think what we really demonstrated, I know some people were worried about -- some people were exited earlier in the year, did you lose the rainmakers? Obviously, we didn't lose the rainmakers and that's why we had such a great result from so many parts of the firm. But they're really no matching beyond that, all the new recruits, really, and even some have had a very immaterial impact on these numbers so that's all, hopefully, to provide more upside in the future.

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Michael Anthony Needham, BofA Merrill Lynch, Research Division - Associate [34]

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Okay. And the volatility or difference in results between the 2 years, is that -- can that happen again? I mean, you've been doing this for a long time. I haven't seen that kind of a year-to-year delta. Was it just really unusual? Or would you expect results to continue to be a little bit volatile?

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [35]

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Look, I think there's always going to be some volatility for any firm in our business. I mean, what was unusual this year is we have 4 quarters that were almost identical. I think, literally, a couple of million dollars difference in revenue between the best and the worst, so that was the other extreme. But look, that was a once in 23-year outlier. We had a year that was in the other direction, an outlier like that in 2007, where particularly, in Europe, we had a truly extraordinary year that year and the pound was worth $2 to -- and so when we converted it, it was a really extraordinary year for us, even more so than it was for every other financial institution. So that was -- that was once in a quarter-century outlier on the high end and 2017 was on the low end. I would add that we continue to take a lot of steps, which I think will smooth out volatility over time. I mean, I think having a much larger restructuring business as a hedge against M&A will help. I think the fact that the capital advisory business is grown to be really quite significant and that's a -- kind of a more granular business, with lots and lots of assignments relative to sort of larger M&A deals. We've added more depth in a lot of different regions, whether it's Canada, whether it's Australia, whether it's Spain, that should over time smooth out differences according to where -- which regions there's more M&A in and we've done the same in industry sector groups. So modeling, yes, 2017, I think was a once in a quarter-century kind of negative random volatility on the downside. And so hopefully, it will be nothing like that for another quarter-century and I'll be gone by then. But I think we're also taking a lot of steps to smooth that out to even less than it has been in other years.

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Michael Anthony Needham, BofA Merrill Lynch, Research Division - Associate [36]

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Okay, that makes sense. And then for kind of ongoing competition that you pay in stock, what -- if the buyback's kind of ending and I'm thinking about how to model share count creep apart from any more buybacks that you may do, what's the normal course share dilution from ongoing comp expense?

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [37]

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I would suggest you just try to sort of figure that out from the public disclosure and the detail that will be in the 10-K but don't expect anything sort of dramatic or unusual. I mean, we -- some people sort of overly focused on the awards we made, the 5-year clip vesting awards we made to some key people at the time we announced the recapitalization, but from a shareholder point of view, those are really quite modest. We've not done anything unusual that will sort of change the pace and remember, in addition to the kind of announced recapitalization plan with the $285 million of repurchases, we continue to repurchase share equivalents through the vesting of RSUs. Every time they vest, we get close to half of them back through a repurchase and that will continue apart from the recap plan. So I wouldn't expect any meaningful change in the rate of delusion relative to what you've seen in recent years.

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Operator [38]

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(Operator Instructions) Our next question comes from Brennan Hawken from UBS.

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Brennan Hawken, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Financials [39]

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Just wanted to follow up on some comments you just made on Cogent. Can you help us think about how to frame that revenue base? I really hear you that this is a different -- it's a -- that the idea that it's a bunch of small transactions, a lot more stable. Clearly, we had the trim below the earnout and then the comeback into the earnout last year, so that helps frame, at least to some degree, but do you feel as though the 2017 performance was weak for certain idiosyncratic reasons? And '18 is really more how you feel that the group is now fully stable and secure and able to achieve and perform at that level? And if you could maybe help us out in understanding those dynamics, that would be great.

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [40]

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Sure. Good question, actually. You know we've bought that business on the assumption that it would be a good acquisition if it made about $40 million a year of revenue. And that's why we set the earnout at that level and frankly, in the first couple of years, they really barely missed the earnout. So they were kind of in that ballpark, but just short of it. The business has grown a lot, really starting in 2017 and significantly more in 2018. I don't think it's as cyclical as the M&A business in terms of when you get into a downturn or recession. I think, arguably, there may be more forced sellers of secondary interest in PE funds and so on. So I do feel like the more recent performance by them is more typical. I don't think it's some unusual period and frankly, I think we can build on it. There are areas of the business where they really are that team, really dominates and have extraordinary market share. There are other aspects of the business where they have a much smaller market share and it should be a lot bigger, if we apply all the resources of our firm to help that team win more in some of those other areas. So we feel like 2017 was a very good year for them, 2018 was another record year for them and we -- we'd be pleased if they did the same in 2019 but frankly, I'm hopeful that they'll do better. So that, hopefully gives you some sense.

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Brennan Hawken, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Financials [41]

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Yes, it does. And then thinking about, you guys haven't always highlighted Europe and the proportion of revs but it looked pretty strong and actually, kind of got back to the level where it was many years ago for you guys. You referenced that you're feeling a lot better about Europe and it could get back and be even stronger, if it's able to get back to how the region has performed in prior cycles. But is there -- do you think that, that's reasonable in the near term? Or were there some particular trends -- obviously, it's a lumpy business, so maybe there's some transactions that could of fallen. How can you help us level-set in thinking about that component of the mix for you? And then was that what had to do with the FX gain being a swing in the positive this quarter versus a year ago?

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Scott Lee Bok, Greenhill & Co., Inc. - CEO & Executive Director [42]

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Yes. First on the FX gain, it really had nothing to do with that. There's kind of random movements between -- frankly, Brazil's been a very kind of volatile currency. There's been some movement back and forth in sterling and euro. And sometimes, just a random timing, when you collect a fee versus -- or I'm sorry, when you earn a fee versus when it's collected. There can be small movements. So I wouldn't read anything particular into the FX move. As far as Europe in general, look, we've always felt like we have a great business there literally for a full 10-year period, from 1998 through 2007, we made as much money from European clients as American clients. Look, I don't think that's probably realistic at this moment because we have kind of a disproportionate number of senior bankers in the U.S. versus Europe but that is a terrific franchise over there. I think it can continue to grow. We have added some resources while a lot of our recruiting last year was U.S. focused. Toward the end of their, we added a senior telecom person in London. We added an industrial banker in Stockholm. Obviously, it wasn't that long ago. We launched a team in Madrid. So we're hopeful that we can build on what's now a 21-year history in that market and continue to grow it. And I think if European M&A activity generally returns to kind of a reasonable relation relative to the scale of U.S. M&A activity, that would be a big move and a big tailwind in our favor and certainly would help firms like ours that have a big European history and footprint.

All right, thank you everybody for dialing in, and we look forward to speaking to you again in about 3 months. Bye now.

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Operator [43]

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Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.