Greenhill & Co's (GHL) Q3 Results Miss Estimates

Greenhill & Co. (NYSE: GHL) reported Q3 EPS of $0.02, may not compare to the analyst estimate of $0.38. Revenue for the quarter came in at $50.3 million versus the consensus estimate of $77.83 million.

"While few transaction completions for our Firm occurred in the third quarter and that led to a light revenue outcome and a commensurate impact on our cost ratios and earnings, based on our strong pipeline of announced transactions and earlier stage activity, we anticipate significantly improved results to come in future quarters. Looking at the transactions with which we have been involved in the year to date in comparison to last year, we have seen significantly increased transaction sizes, as well as improvement in the importance of our advisory roles and related fee opportunities. A 69% increase in our year to date transaction volume versus last year's, to the highest level in several years, as well as substantially increased year to date transaction announcement fees, are indicative of this improvement.1 However, the likely timetables for this year's larger agreed and announced transactions are such that much of our expected transaction revenue for those will fall into next year. Specifically, last year a large majority of our most important transactions (measured by total fees expected) were both announced and completed during that same year, while this year a large majority of those transactions (including the several largest ones) are expected to have completion delayed beyond this year end. While it is disappointing that longer timetables to transaction completion will negatively impact current year revenue, such delays mean that for next year our backlog of expected fees from agreed transactions is already very substantially higher than it was at the start of this year, and we have two months left in this year for that backlog to continue to grow in comparison to the prior year," Robert F. Greenhill, Chairman, said.

"Apart from the issue of transaction timing, there are two factors that have constrained our revenue for the year to date. First, consistent with general market data, our corporate transaction activity has been heavily focused in the US market, with much less activity in several other markets where we have significant aggregate resources deployed: Australia, Brazil, Canada, Europe and Japan. The one positive exception within Europe has been the UK, where increased general transaction activity and our strong market position have resulted in good transaction announcement activity. Second, general market data continues to show significant improvement in M&A only for the very largest transactions, with the number of global deals under $500 million on track to be down relative to last year, and the number of transactions in the $500 million to $5 billion range on track to be up only slightly. As transaction activity broadens across deal sizes and to markets outside the US and UK, as history suggests it ultimately will, our opportunities for M&A revenue will grow materially. Meanwhile, our capital advisory business, both for primary fund raising and for secondary transactions through the Greenhill Cogent team acquired earlier this year, is expecting a solid full year performance despite a third quarter where closings were negatively impacted by equity market volatility. As and when improved revenue materializes from delayed M&A transaction completions, the broadening of M&A activity and continued strong capital advisory activity, we expect to return to the attractive cost ratios, high profitability and flat share count that have characterized our business for many years. By those important measures, our business has long been unique among our peer group, particularly when looking at GAAP data before pro forma adjustments. Until that increased revenue materializes, our strong dividend continues to provide both attractive current returns to our shareholders and an indication of our confidence in the longer term outlook for our business," Scott L. Bok, Chief Executive Officer, commented.

For earnings history and earnings-related data on Greenhill & Co. (GHL) click here.

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