- Largest revenue and net income quarter since third quarter 2007;
year to date revenues up 37% and already exceed full year 2008
revenues - Year to date financial advisory revenues down only 2%
despite 46%(1) decline in global completed M&A volume - Pre-tax
profit margin of 44% for quarter and 39% year to date - GHL
Acquisition Corp., a special purpose company formed by the Firm,
completed its planned acquisition of Iridium Holdings, LLC to form
Iridium Communications Inc. (Nasdaq: IRDM), which resulted in the
recognition of a large unrealized investment gain by the Firm -
Recruited a London based Managing Director to join the Firm's
Financing Advisory and Restructuring Group - Recruited Senior
Advisor for the Firm's San Francisco office NEW YORK, Oct. 22
/PRNewswire-FirstCall/ -- Greenhill & Co., Inc. (NYSE: GHL)
today reported revenues of $116.3 million and net income of $30.1
million for the quarter ended September 30, 2009. Diluted earnings
per share were $1.01 per share for the quarter. The Firm's third
quarter revenues compare with negative revenues of ($14.9) million
for the third quarter of 2008, which represents an increase of
$131.2 million. Revenues for the third quarter of 2008 included the
reversal of unrealized mark-to-market merchant banking gains
recognized in the prior quarter on publicly traded energy
investments that resulted from a sharp decline in energy prices
during the quarter. On a year to date basis, revenues for the nine
months ended September 30, 2009 were $232.2 million, compared to
$169.1 million for the comparable period in 2008, representing an
increase of $63.1 million or 37%. The Firm's third quarter 2009 net
income and diluted earnings per share compare with net loss of
$12.2 million, or $0.42 per diluted share, in the third quarter of
2008. On a year to date basis, net income was $54.1 million through
September 30, 2009 compared to net income of $36.3 million for the
nine months ended September 30, 2008, which represents an increase
of $17.8 million or 49%. Diluted earnings per share for the nine
months ended September 30, 2009 were $1.83, compared to $1.30 for
the same period in 2008, representing an increase of $0.53 per
share, or 41%. The Firm's quarterly revenues and net income can
fluctuate materially depending on the number and size of completed
transactions on which it advised, the number and size of merchant
banking gains (or losses) and other factors. Accordingly, the
revenues and net income in any particular period may not be
indicative of future results. "We are pleased with our quarterly
results, which were strengthened by the investment gain resulting
from the successful completion of the acquisition of Iridium
Communications by our special purpose acquisition company. In terms
of our Advisory business, we view our 2% year to date decline in
revenue as a strong accomplishment given the 46% decline in global
completed transactions in the year to date period and the
significant declines in advisory revenues reported for that period
by our large competitors. We agree with the many market
participants and observers who have said we may now be seeing the
beginning of an upturn in transaction activity, and we are
heartened by the important recent transactions on which we have
advised as well as by increased strategic dialogue behind the
scenes. Depending on transaction timing, we believe this increased
activity is likely to impact our revenue more in 2010 and beyond
than in the final quarter of 2009. As overall transaction activity
does increase, the fact that we used the financial crisis to nearly
double the number of Managing Directors in our Advisory business,
as well double our number of offices and substantially increase our
industry sector coverage, should position us well to benefit from
that activity," Robert F. Greenhill, Chairman, said. "We view the
success of our special purpose acquisition company (SPAC) in
completing its acquisition of Iridium Communications as a major
accomplishment relative to the less favorable history of most other
SPACs. That completion resulted in a substantial unrealized
investment gain for the quarter and a significant stake in Iridium
shares and warrants going forward. We will work over a significant
period of time to maximize the value of what we believe is an
attractive investment in Iridium, but fluctuations in its market
value could increase the volatility of our quarterly revenue and
earnings until the value of that investment is finally realized. In
the fourth quarter to date, Iridium shares have declined, which
would, if that value prevailed at the end of the fourth quarter,
result in a reversal of a portion of the third quarter investment
gain that related to Iridium. Elsewhere in our Merchant Banking
business, we also showed investment gains this quarter resulting
from increases in market valuations generally. While we believe the
funds we manage have performed well relative to their peers and
have further upside potential, the timing of the fund lives and
their results to date would suggest that we are unlikely in the
next few years to achieve the necessary hurdle rates of return to
benefit from profit overrides (or carried interest), which in past
years have been a major source of Merchant Banking revenue," Scott
L. Bok, Co-Chief Executive Officer, added. "One of the hallmarks of
Greenhill relative to both its larger and smaller competitors has
been its focus on containing costs and maximizing returns to our
shareholders. With a 39% year to date pre-tax profit margin despite
a further sharp decline in transaction activity and year to date
revenue that is weak by historic standards, that discipline was
evident again this quarter. Depending on advisory transaction
timing and the year end market values of our investments, we may
end the year with a somewhat higher compensation ratio than we have
had historically, but if that does occur our objective will be to
revert to our historic compensation ratio as soon as practicable as
advisory activity increases," Simon A. Borrows, Co-Chief Executive
Officer, said. (1) Global M&A completed transaction volume for
the nine months ended September 30, 2009 as compared to the nine
months ended September 30, 2008. Source: Thomson Financial as of
October 12, 2009 Revenues Revenues By Source The following provides
a breakdown of total revenues by source for the three month and
nine month periods ended September 30, 2009 and 2008, respectively:
For the Three Months Ended September 30, 2009 September 30, 2008
---------------------- ----------------------- Amount % of Total
Amount % of Total ------ ---------- ------- ---------- (in
millions, unaudited) Financial advisory fees $42.4 36% $37.0 NM
Merchant banking & other revenues 73.9 64% (51.9) NM ------
------ ------ ------ Total revenues $116.3 100% $(14.9) 100% For
the Nine Months Ended September 30, 2009 September 30, 2008
---------------------- ----------------------- Amount % of Total
Amount % of Total ------ ---------- ------ ---------- (in millions,
unaudited) Financial advisory fees $153.0 66% $156.3 92% Merchant
banking & other revenues 79.2 34% 12.8 8% ------ ------ ------
------ Total revenues $232.2 100% $169.1 100% Financial Advisory
Revenues Financial advisory revenues were $42.4 million in the
third quarter of 2009 compared to $37.0 million in the third
quarter of 2008, which represents an increase of 15%. For the nine
months ended September 30, 2009, advisory revenues were $153.0
million compared to $156.3 million for the comparable period in
2008, representing a decrease of 2%. Completed assignments in the
third quarter of 2009 included: -- the acquisition by Barnes &
Noble, Inc. of Barnes & Noble College Booksellers, Inc.; -- the
representation of Groupe Aeroplan Inc. on its participation in a
credit facility for Air Canada; -- the acquisition by Laboratory
Corporation of America of Monogram Biosciences, Inc.; -- the
representation of Quebecor World Inc in connection with its
restructuring under Canada's Companies' Creditors Arrangement Act
and Chapter 11 of the U.S. Bankruptcy code; -- the representation
of Rexam plc on its rights issue; and -- the acquisition by Validus
Holdings Ltd. of IPC Holdings Ltd. The increase in our financial
advisory fees in the third quarter of 2009 as compared to the same
period in 2008 generally reflected an increase in the volume of
transaction activity offset in part by a decrease in the scale of
the completed assignments. The Firm recently announced the
recruitment of Gareth Davies (former Managing Director at Close
Brothers) as Managing Director. Mr. Davies will join our Financing
Advisory and Restructuring Group and be based in London. In
addition, the Firm announced in the third quarter the recruitment
of Samuel L. Ginn as a Senior Advisor focused on building
Greenhill's advisory relationships with leading companies around
the world. Mr. Ginn will work closely with Greenhill's San
Francisco office. Merchant Banking & Other Revenues The
following table sets forth additional information relating to our
merchant banking and other revenues for the three month and nine
month periods ended September 30, 2009 and 2008: For the Three
Months For the Nine Months Ended September 30, Ended September 30,
-------------------- ------------------- 2009 2008 2009 2008 ----
---- ---- ---- (in millions, unaudited) Management fees $4.2 $5.1
$13.2 $14.7 Net realized and unrealized gains (losses) on
investments in merchant banking funds 4.5 (21.8) (1.8) (2.5) Net
realized and unrealized merchant banking profit overrides (0.7)
(35.5) (0.3) (0.9) Other realized and unrealized investment income
(loss) 65.9 (0.5) 67.8 (1.8) Interest income 0.0 0.8 0.3 3.3 ---
--- --- --- Total merchant banking & other revenues $73.9
$(51.9) $79.2 $12.8 ----- ------ ----- ----- The Firm earned $73.9
million in merchant banking and other revenues in the third quarter
of 2009 compared to negative ($51.9) million in the third quarter
of 2008. During the third quarter of 2009 we announced that GHL
Acquisition Corp., the special purpose acquisition company
sponsored by the Firm, had completed its acquisition of Iridium
Holdings LLC. The combined company has been renamed Iridium
Communications Inc. (NASDAQ:IRDM) ("Iridium"). As a result of the
completion of the acquisition of Iridium Holdings LLC by GHL
Acquisition Corp. we recognized an unrealized investment gain of
approximately $66.0 million during the quarter. Following the
planned conversion of the Firm's convertible note in Iridium
Holding LLC, we will own 8,924,016 shares of Iridium common stock
and warrants to purchase 4,000,000 additional shares of common
stock of Iridium at $11.50 per share, each of which are restricted
from sale for one year from the acquisition date (or six months in
the case of a registered offering). We also recognized investment
gains during the quarter from an increase in the fair market value
of investments held through our merchant banking funds. In the
third quarter of 2008 we reversed previously recognized unrealized
merchant banking gains and related accrued profit overrides of
approximately $53.8 million principally resulting from
mark-to-market gains on two publicly traded energy companies which
had been recorded in the second quarter of 2008. During the third
quarter of 2009 our merchant banking funds (and the Firm)
recognized gains from eight of our portfolio companies and recorded
losses on two of our portfolio companies. For the nine months ended
September 30, 2009, the Firm earned $79.2 million in merchant
banking and other revenues compared to $12.8 million in the nine
months ended September 30, 2008, an increase of $66.4 million. The
increase in merchant banking and other revenues in the first nine
months of 2009 compared with the same period in 2008 resulted
primarily from the unrealized gain on the Firm's investment in
Iridium offset by lower interest earned on cash balances and a
slight reduction in management fee revenue. On a year to date basis
in 2009, our merchant banking funds (and the Firm) recognized gains
from ten of our portfolio companies and recorded losses on nine of
our portfolio companies. At September 30, 2009, the Firm had
principal investments of $178.5 million, including our investment
in Iridium of $102.7 million, which reflects a 10% discount to
market due to certain restrictions on the sale of our Iridium
interests. Of that amount, 17% of our investments related to the
financial services sector, 8% to the energy sector, 17% to other
industry sectors and 58% to the investment in Iridium. We held
approximately 96% of our total principal investments in North
American companies, with the remainder in European companies. Our
investments in merchant banking companies that became publicly
traded after we first invested in them, including Iridium,
represented 66% of our total principal investments. In terms of new
investment activity in our merchant banking funds, during the third
quarter of 2009, our funds invested $5.5 million, 11% of which was
Firm capital. In the same period in 2008, our funds invested $106.0
million, 11% of which was Firm capital. On a year to date basis in
2009, our funds invested $14.3 million, 11% of which was Firm
capital. In the same period in 2008 our funds invested $134.1
million, 11% of which was Firm capital. The investment gains or
losses in our merchant banking and other investment portfolio may
fluctuate significantly over time due to factors beyond our
control, such as performance of each company in our portfolio,
equity market valuations, commodity prices and merger and
acquisition opportunities. Revenue recognized from gains (or
losses) recorded in any particular period are not necessarily
indicative of revenue that may be realized and/or recognized in
future periods. "In addition to the large gain from the Iridium
transaction, this quarter saw an improvement in both underlying
portfolio company performance and in the values of investments held
in our three active merchant banking funds. We have significant
funds still available to invest in all three funds, and as the
economy and credit markets stabilize we will more aggressively seek
opportunities to deploy that capital," Robert H. Niehaus, Chairman
of Greenhill Capital Partners, commented. Expenses Operating
Expenses Our total operating expenses for the third quarter of 2009
were $65.0 million, compared to $4.0 million of total operating
expenses for the third quarter of 2008. Total operating expenses in
the third quarter of 2008 were significantly lower than in the same
period in 2009 as a result of a reduction in accrued compensation
due to the negative revenue reported in the third quarter of 2008
and is more fully described below. The pre-tax income margin for
the quarter ended September 30, 2009 was 44%. For the nine months
ended September 30, 2009, total operating expenses were $141.3
million, compared to $111.0 million of total operating expenses for
the same period in 2008. The increase of $30.3 million, or 27%,
relates principally to an increase in compensation expense
described in more detail below. The pre-tax income margin for the
nine months ended September 30, 2009 was 39% compared to 34% for
the comparable period in 2008. The following table sets forth
information relating to our operating expenses, which are reported
net of reimbursements: For the Three Months For the Nine Months
Ended September 30, Ended September 30, --------------------
------------------- 2009 2008 2009 2008 ---- ---- ---- ---- (in
millions, unaudited) Employee compensation & benefits expense
$53.2 $(6.6) $106.8 $77.9 % of revenues 46% NM 46% 46%
Non-compensation expense 11.8 10.6 34.5 33.1 % of revenues 10% NM
15% 20% Total operating expense 65.0 4.0 141.3 111.0 % of revenues
56% NM 61% 66% Total income before tax 51.4 (18.9) 90.9 58.2
Pre-tax income margin. 44% NM 39% 34% "We are pleased with our very
modest increase in non-compensation expense, which is up only 4%
year to date despite significant recruiting and office expansion,"
Richard J. Lieb, Chief Financial Officer, commented. Compensation
and Benefits Expenses Our employee compensation and benefits
expenses in the third quarter of 2009 were $53.2 million, which
reflects a 46% ratio of compensation to revenues. This amount
compares to negative ($6.6) million for the third quarter of 2008.
In the third quarter of 2008 we reversed a portion of the annual
bonus accrual recorded earlier in the year consistent with the
negative revenues reported in that quarter. For the nine months
ended September 30, 2009 and 2008, the ratio of compensation to
revenues remained constant at 46%. Our employee compensation and
benefits expenses amounted to $106.8 million for the nine months
ended September 30, 2009 compared to $77.9 million of compensation
and benefits expenses for the same period in the prior year. The
increase of $28.9 million, or 37%, is due to higher revenues in the
first nine months of 2009 compared to the same period in the prior
year. Our compensation expense is generally based upon revenue and
can fluctuate materially in any particular quarter depending upon
the amount of revenue recognized as well as other factors.
Accordingly, the amount of compensation expense recognized in any
particular period may not be indicative of compensation expense in
a future period. Non-Compensation Expenses Our non-compensation
expenses were $11.8 million in the third quarter of 2009, compared
to $10.6 million in the third quarter of 2008, representing an
increase of 11%. The increase is principally related to higher
professional and recruitment fees offset by lower interest expense
due to lower average borrowings outstanding. For the first nine
months of 2009, our non-compensation expenses were $34.5 million,
compared to $33.1 million in the first nine months of 2008,
representing an increase of 4%. The increase is principally related
to higher professional fees, recruitment fees related to the hiring
of new personnel, and the absence of foreign currency gains,
partially offset by decreased interest expense due to lower average
borrowings outstanding and slightly lower borrowing rates.
Non-compensation expenses as a percentage of revenues in the three
months ended September 30, 2009 were 10%. Non-compensation expenses
as a percentage of revenues in the nine months ended September 30,
2009 were 15% compared to 20% for the same period in the prior
year. The decrease in non-compensation expenses as a percentage of
revenues in the nine months ended September 30, 2009 compared to
the same period in the prior year reflects a slightly higher amount
of expenses spread over significantly higher revenues. The Firm's
non-compensation expenses as a percentage of revenue can vary as a
result of a variety of factors including fluctuation in revenue
amounts, the amount of recruiting and business development
activity, the amount of reimbursement of engagement-related
expenses by clients, the amount of short term borrowings, interest
rate and currency movements and other factors. Accordingly, the
non-compensation expenses as a percentage of revenue in any
particular period may not be indicative of the non-compensation
expenses as a percentage of revenue in future periods. Provision
for Income Taxes The provision for taxes in the third quarter of
2009 was $21.3 million, which reflects an effective tax rate of
41%. This compares to an income tax benefit in the third quarter of
2008 of $6.7 million. The effective tax rate for the third quarter
of 2009 is higher than our historical average rate due to a greater
proportion of our income being earned in higher tax rate
jurisdictions during the period. For the nine months ended
September 30, 2009, the provision for taxes was $36.8 million,
which reflects an effective tax rate of 41%. This compares to a
provision for taxes for the nine months ended September 30, 2008 of
$21.9 million, which reflects an effective tax rate of 38% for the
period. The increase in the provision for taxes in the year to date
period in 2009 as compared to the same period in 2008 is due to
higher pre-tax income and a higher effective tax rate due to a
greater proportion of our income being earned in higher tax rate
jurisdictions during 2009. The effective tax rate can fluctuate as
a result of variations in the relative amounts of financial
advisory and merchant banking income earned in the tax
jurisdictions in which the Firm operates and invests. Accordingly,
the effective tax rate in any particular period may not be
indicative of the effective tax rate in future periods. Liquidity
and Capital Resources As of September 30, 2009, our cash totaled
$58.6 million, our investments totaled $178.5 million and we had
$33.6 million in short-term debt. We had total commitments (not
reflected on our balance sheet) relating to future investments in
our merchant banking activities of $47.6 million as of September
30, 2009. These commitments are expected to be drawn on from time
to time over a period of up to five years from the relevant
commitment dates of each fund. Dividend The Board of Directors of
Greenhill & Co., Inc. has declared a dividend of $0.45 per
share to be paid on December 16, 2009 to common stockholders of
record on December 2, 2009. Greenhill & Co., Inc. is a leading
independent investment bank that provides financial advice on
significant mergers, acquisitions and restructurings; assists
private funds in raising capital from investors; and manages
merchant banking funds. It acts for clients located throughout the
world from its offices in New York, London, Frankfurt, Toronto,
Tokyo, Chicago, Dallas, Houston, Los Angeles, and San Francisco.
Cautionary Note Regarding Forward-Looking Statements The preceding
discussion should be read in conjunction with our condensed
consolidated financial statements and the related notes that appear
below. We have made statements in this discussion that are
forward-looking statements. In some cases, you can identify these
statements by forward-looking words such as "may", "might", "will",
"should", "expect", "plan", "anticipate", "believe", "estimate",
"predict", "potential" or "continue", the negative of these terms
and other comparable terminology. These forward-looking statements,
which are subject to risks, uncertainties and assumptions about us,
may include projections of our future financial performance, the
level of M&A activity in the market, our growth strategies and
anticipated trends in our business. These statements are only
predictions based on our current expectations and projections about
future events. There are important factors that could cause our
actual results, level of activity, performance or achievements to
differ materially from the results, level of activity, performance
or achievements expressed or implied by the forward-looking
statements. These factors include, but are not limited to, those
discussed in our Report on Form 10-K under the caption "Risk
Factors". Greenhill & Co., Inc. and Subsidiaries Condensed
Consolidated Statements of Income (Unaudited) For the Three Months
Ended For the Nine Months Ended September 30, September 30,
------------- ------------- 2009 2008 2009 2008 ---- ---- ---- ----
Revenues Financial advisory fees $42,372,024 $37,004,234
$153,028,318 $156,346,539 Merchant banking and other revenues
73,891,141 (52,784,104) 78,845,984 9,475,352 Interest income 19,366
842,371 335,644 3,290,670 ------ ------- ------- --------- Total
revenues 116,282,531 (14,937,499) 232,209,946 169,112,561 Expenses
Employee compensation and benefits 53,160,789 (6,645,647)
106,816,575 77,867,522 Occupancy and equipment rental 2,749,011
2,548,104 8,321,841 7,934,040 Depreciation and amortization 906,538
1,174,515 3,338,119 3,426,871 Information services 1,635,444
1,465,913 4,381,438 4,524,917 Professional fees 1,688,432 959,870
4,672,684 3,171,844 Travel related expenses 1,726,584 2,006,562
5,622,752 5,605,677 Interest expense 291,300 858,149 986,904
2,925,490 Other operating expenses 2,761,412 1,582,924 7,163,447
5,490,851 --------- --------- --------- --------- Total expenses
64,919,510 3,950,390 141,303,760 110,947,212 Income (loss) before
taxes 51,363,021 (18,887,889) 90,906,186 58,165,349 Provision
(benefit) for taxes 21,253,312 (6,708,991) 36,784,688 21,887,838
---------- ----------- ---------- ---------- Consolidated net
income (loss) 30,109,709 (12,178,898) 54,121,498 36,277,511 Less:
Net income (loss) allocated to non-controlling interests 65,490
(490,443) (113,644) (164,667) ------ --------- --------- ---------
Net income (loss) allocated to common shareholders $30,044,219
$(11,688,455) $54,235,142 $36,442,178 =========== ============
=========== =========== Average shares outstanding: Basic
29,662,743 27,893,391 29,589,471 27,944,588 Diluted 29,788,164
27,893,391 29,673,149 28,001,482 Earnings (loss) per share: Basic
$1.01 $(0.42) $1.83 $1.30 Diluted $1.01 $(0.42) $1.83 $1.30
Dividends declared and paid per share $0.45 $0.45 $1.35 $1.35
Contact: Richard J. Lieb, Chief Financial Officer Greenhill &
Co., Inc. (212) 389-1800 DATASOURCE: Greenhill & Co., Inc.
CONTACT: Richard J. Lieb, Chief Financial Officer, Greenhill &
Co., Inc., +1-212-389-1800
Copyright