Q4 2020 Earnings Call
Fourth quarter 2020 earnings conference call at this time, all participants are in listen only mode.
A question answer session will follow the formal presentation.
Please note that this conference call is being recorded today May 12 2020.
Now I'll turn the call over to Christopher Crane Houlihan Lokey is general counsel. Thank you Mr. Craig you may begin.
Thank you operator, and Hello, everyone.
By now everyone should have access to our fourth quarter in fiscal year 2020 earnings release, which can be found on the houlihan Lokey website www dot dot com any investor Relations section.
Before we begin our.
Next we need to remind everyone that the discussion today will include forward looking statements. These forward looking statements are usually identified by use words, such as well expect anticipate sure or other similar phrases are not guarantees of future performance.
These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
And therefore, you should exercise caution in interpreting and relying on them.
We refer all due to our recent FCC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition.
We encourage investors to review, our regulatory filings, including the form 10-K for the year ended March 31020, when it as filed with the FCC.
During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the companys financial performance.
These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with gap.
A reconciliation of these measures to the most directly comparable GAAP measures is available in our earnings release, and our investor presentation on the HL Dot Com website.
Who call today, we have Scott Pfizer Houlihan, Lokey, Chief Executive Officer, and Lindsay <unk>, Chief Financial Officer of the company.
They will provide some of my remarks, and then we will open the call the questions with that I'll turn the call over to Scott.
Thank you Christopher welcome everyone to our fourth quarter and fiscal year Twentytwenty earnings call I'd like to start by thanking our incredible employees around the world. They have worked tirelessly to last couple of months a difficult operating environment. They have done so from their living rooms kitchens and home offices.
Their safety and health is our firm's utmost concern and we're blessed that very few of our employees have been afflicted with Covidien 19.
Next we would like to thank all the workers continued to provide us with their medical needs food and other essential services without their dedication in sacrifice our world would simply be less safe.
I'm pleased to announce that Houlihan lokey and its senior management team have contributed approximately $2 million to first responder causes thus far.
And with our ongoing employer matching program, we anticipate the firm and our employees will continue to contribute as we all get through this together.
Moving onto our operations and financial results I will provide my remarks in three sections. One a brief overview of our fourth quarter in fiscal year 2020 results.
A summary of the firm's activity and how we believe we are positioned in the current business environment and three an overview of potential opportunities that this pandemic creates for us over the next year or two.
Our fourth quarter fiscal 2020 revenues were 303 million up 4% year over year. This was the firm's second highest quarterly revenues surpassed only by our third quarter this fiscal year.
For the full fiscal year, we achieved record revenues of 1.16 billion up 7% with year over year growth recorded in all three business segments, corporate finance and financial evaluation Advisory achieved record results and financial restructuring had its second best year ever.
Adjusted earnings for the quarter were 96 cents per share up 12% and for the full year adjusted earnings were $3.20 per share up 11%.
Let's see will provide more details on our fiscal quarter and full year financial results, including some favorable tax results that benefited our earnings per share later in this call.
Today, we operate in a completely different business environment than last quarter. Since we went public nearly five years ago. We have worked hard to explain to where investors clients employees in acquisition targets why we believe our sickle clean balance business model is unique and why we are well positioned to operate in challenging.
Environments like the one we are in today. It is far too early to tell what the next few quarters for years hold for us our industry or economy, we have never seen disruption like we are seem today and we cannot predict what our economy will look like when all is set in dot having said that let me describe the changes we are.
Seen at Houlihan Lokey as well as remind you of the key tenets of our business model.
Activity in our restructuring business has increased significantly in the last two months and the size and complexity of transactions have increased as well.
Engagement activity is running at almost double our recent monthly run rate as a pandemic has greatly increase the number of troubled situations and the speed at which solutions are needed.
Prior to the crisis, we believe our financial restructuring revenues, which substantially increase in a normal economic downturn in light of the sizable amount of leverage in the marketplace Needless to say the ramifications of the pandemic have exceeded those of a normal downturn and the activity levels have increased faster than we expected.
Nevertheless, as the largest restructuring from in the world with nearly 250 dedicated restructuring bankers. We believed that we are better position than anyone to operate in this environment.
Through collaboration with our capital markets team industry bankers and valuation professionals, we have several hundred additional colleagues assisting with liability management advisory distressed M&A and traditional restructuring mandates simply put we are prepared for this market.
In M&A, new business activity levels have declined significantly in the last few months as our clients have pulled back to await better clarity in the economy and understand what the ramifications maybe as the world begins to lift stay at home orders deals have died even more had been put on temporary hold and most have seen their timing slow.
Notwithstanding the current negative economic town, we continued to be hired on numerous new engagements, albeit at a much slower pace than level experienced this time last year.
Until we and our clients are through the initial stages that the pandemic and are able to travel is difficult to tell when M&A activity will resemble anything approaching normal.
Nonetheless, our industry bankers and corporate finance remain active on existing M&A transactions capital market mandates and working with our restructuring colleagues to provide integrated solutions for our clients dealing with distressed situations.
This work for shift is a hallmark of our business adaptability and sophistication, which has historically allowed us to keep our industry bankers operating efficiently through the cycle.
Furthermore, the substantial involvement ever industry bankers and restructuring deals bodes well for post restructuring corporate finance and valuation work.
Our capital markets bankers pivoted from financing healthy acquisitions to liability management debt advisory rescue financing and bridge financing.
Although the number of new financing opportunities has declined the size and complexity has increased as many borrowers who historically relied on traditional financing financing sources now find themselves in need of more flexible financing options.
As traditional capital source has become less available for certain sectors of the market. We fully expect this group to remain busy throughout the year.
And our assay a business each of our sub product lines are affected differently. Our portfolio valuation group is extremely busy as the volatility in the marketplace is putting pressure on clients as they mark to market. Their investments. However, as we see fewer clients pursuing deals are transaction opinion and transaction advisory.
Work has been slower than usual.
Our financial sponsors coverage bankers have been a focal point for the sponsor community and understanding what their current needs are.
We continue to provide advice to these important clients, making introductions to our various industry capital markets restructuring and valuation bankers.
Also important to highlight some timing results in expectations about our business model. We saw a significant decline in M&A revenues in March and continue to see lower revenues in April.
For restructuring the new business activity levels picked up as quickly as the levels declined in M&A and although our restructuring transaction engagements have monthly retainers. The larger success fees won't begin to significantly impact revenues for several quarters and into our next fiscal year as a result of this dynamic in previous.
Cycles, you're a few quarters, where are you experienced a decline in total revenues before a leveling off and ultimate growth of the business.
It's too early to predict how the economic downturn will behave but it is important to understand history.
Similar trends that I just described occurred in our business in 2008 and before that in 2001 and both of those recessions, we outperformed the industry and exited the bottom of the cycle stronger than we entered today once again, our business model is performing the way we hadn't vision our execution.
And the depth and breadth of the pandemic aftermath over the next 24 months will be critical to our performance during this crisis and thereafter.
Now I'd like to highlight a couple of strategic opportunities that exist because of the dislocation in the market.
Firstly any dislocation of this size puts a significant strain on many industries, including the one in which Houlihan Lokey operates many of our corporate finance competitors are small boutiques or mid sized middle market investment banking firms many of them offer only the M&A product or in one industry sector or geography.
Some of our competitors may struggle significantly over the next several quarters or wish they had a more diverse product offering this highlights to our competitors the strength of our platform and spots like some of their own limitations.
The last few months, our dialogue with firms interesting in partnering with or being acquired by Houlihan Lokey has significantly increased. Furthermore, the size of these opportunities are somewhat larger than what we have historically encountered.
Secondly, the potential the higher talented bankers, who might be looking for a more stable and diversified organization should increase in previous cycles. We have found very talented bankers out of work or it institutions that had less balance in their business models.
Finally, our capital markets business should significantly benefit during and after this crisis as the value proposition of capital markets advice increases there's now a growing set of opportunities for our firm to participate in and expand our capital market services.
In closing we are fortunate to have healthy employees are pleased about our fiscal year Twentytwenty financial results and are realistic about the challenges that lie ahead.
However, we also fully expect to see opportunities in the near future that will drive value to our shareholders and we believe we are very well position to capitalize on those opportunities with that I'll turn the call over the lenzi [noise].
Thank you Scott [noise].
Revenues in corporate finance were 156 million for the quarter up 8% when compared to the same quarter last year.
We closed 84 transactions compared to 64 in the same period last year and our average transaction fee on close deals with slightly lower this quarter when compared to the same period last year.
Our corporate finance revenues were meaningfully impacted beginning in March as a result of cobot 19.
And that's restructuring revenues were strong this quarter and 103 million, 3% increase from the same period last year driven by higher transaction volume, we closed 29 transactions compared to 27 transactions in the same period last year and our average transaction fee I'm close deals was relatively flat.
As Scott mentioned, our financial restructuring activity has significantly increased.
But there was no impact related to cobot 19 on our financial restructuring or bolt result, this last quarter.
Well this quarter was one of our strongest ever in financial restructuring, our restructuring business can be lumpy across quarters, depending on the timing of certain large transaction fees.
And financial and valuation advisory revenues were 44 million put a quarter.
And 8% decrease from the same period last year, we had six earned 24 feet events during the quarter compared to 605 in the same period last year. However, RFP a revenues were negatively impacted beginning in March.
Turning to expenses.
Our adjusted compensation expenses were 184 million for the fourth quarter versus 177 million for the same period last year.
The adjusted for pre IPO grants and for deferred payments primarily related to certain acquisitions.
The adjusted compensation ratio was 60.9% for the quarter within our targeted range of between 60.5 and 61.5%.
As a reminder, the last tranche of our pre IPO grants have vested and as a result. These adjustments will go away beginning next quarter. We will continue to adjust for acquisition related expenses as they occur the adjustment for acquisition related compensation expenses was positive this quarter as we reevaluated certain contingent compensation given.
The new operating environment.
Our adjusted non compensation expenses during the fourth quarter were 45 million versus 39 million for the same period last year, our adjusted non compensation expense ratio increased to 14.9% from 13.3% in the same quarter last year.
And our year to date adjusted non compensation ratio is 15.2% versus 15.1% for the same period last year.
For fiscal year 2021, we expect to see our Noncompensation expenses declined on an absolute basis as result of Love's travel and marketing related expenses. However, the vast majority of our non compensation expenses are fixed and will not very with revenue.
This quarter, we adjusted one item out of our non compensation expenses of approximately 2.3 million and acquisition related amortization, we will continue to adjust for similar types of expenses when they occur.
Our adjusted other income and expense resulted in a gain for the quarter of approximately 1 million versus a gain during the same period last year of 1.9 million. This was primarily a result of interest income earned on our cash and investment balances.
This quarter, we adjusted out of our other income and expenses, approximately 1.2 million and reduction of acquisition earn out liabilities.
Our adjusted effective tax rate for the quarter was 15.1%.
For the fiscal year, our adjusted effective tax rate was 25.2%.
The decrease in our adjusted effective tax rate. This year was the result of decreased state tax expense driven by favorable shift in the geographical makeup of our client base.
We do not expect to see future benefits from state apportionment has there has been no structural change in our business for future years, we're still anticipating an effective tax rate at our long term targeted range of between 27 and 29%.
Turning to the balance sheet and use of cash.
As of the quarter end, we had 516 million about unrestricted cash and equivalents and investment securities.
We expect our unrestricted cash and equivalents investment securities to declined significantly in the first quarter fiscal 2021, as we pay the majority of our cash bonuses to our employees in may.
And we will need to continue to maintain a significant amount of cash in order to pay the cash deferred part of our bonus in December in November.
In the fourth quarter, we repurchased approximately 39000 shares at an average price of $46.66 per share as part of our share repurchase program.
In addition to having adequate liquidity in our business to weather the challenges caused by the crisis, we have effectively no debt and an undrawn revolver balance of $100 million.
Finally, we are pleased to announce the we're paying at 31 cents per share dividend on June 15 to shareholders of record as of June.
And with that operator, we can open the line for questions.
Thank you.
Now be conducting a question answer session. If you would like to ask a question. Please press star one of your telephone keypad.
Confirmation Tony will indicate your lines and the question Q.
They also press star too if you would like to remove your question from the Q.
Participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys.
One moment, please while we now poll for questions.
Our first question comes from Ken Worthington with JP Morgan. Please proceed with your question.
Hi, Good afternoon. Thank you for taking my question I'm curious in the compare and contrast between today's cobot 19 crisis, and the 2018 financial crisis as it relates to the restructuring business.
So how are you seeing the magnitude other restructuring the opportunity today versus a decade ago and what are the factors that we should consider in terms of evaluating both the size of the restructuring opportunity as well is the timing of the restructuring opportunity versus a decade ago, and then I'll sneak one last one and you talked.
Got it being a big opportunity how are you evaluating your capacity at this point you mentioned all the bankers, but anyway, it's still capacity is something I'm interested in.
Hi.
Ken.
So in terms of the opportunity you said call it today versus what we experienced a in the great recession, you know a little over a decade ago.
One we we would point to the fact that on an absolute basis total amount of leverage indebtedness is just much larger today than it was a decade ago spread out and more come a companies in more different countries. So we always thought that eventually whenever that downturn would occur.
We'd all experienced some increased activity what we probably didn't expect in the next downturn was once again something that impacted a effectively probably almost every country and it may not have impacted every single industry, but this obviously is a very widespread type of a downturn versus what we had seen also.
You know 10 years ago was also widespread, albeit it was a different kind of a crisis, but usually we have found in different countries in different industries impacted at different times. So this is a rapid a you know negative impact to lots and lots of businesses I don't think anybody knows exactly how it will all fold out.
And the next coming months quarters et cetera.
From a timing standpoint, I'm not sure we see it much different than what we'd experienced before you do get a certain amount of ramp up I'll call. It in phase one of getting some work.
We would expect there's probably subsequent you know increases the business opportunities not only for ourselves, but our appears as well and as we've always tried to describe some of this stuff does take time before the revenues will actually come in.
And the transaction fees or something that takes obviously longer than the the monthly or quarterly retainers that we might get in terms of capacity.
I think you know we have gone is good job is any too.
Ill take the core sizable restructuring team that we've had for really decades, which is in fact.
More experienced and talented today than it was 10 years ago, and very little turnover in that group in and therefore, they just have tenures of more experience than they did before and we continue to supplement it well, where we can and appropriate with our capital markets bankers industry bankers sponsor bankers and valuation bankers as I mentioned.
That we can continue to flex with the size of the opportunity.
Great. Thank you I'm just going to follow up on the on the difference is my understanding for Oh wait we really had a.
You know it was a financial crisis and that the I see see may have pushed through bankruptcies, maybe more quickly than would have otherwise been the case there was more of a sense of urgency to get things resolved that may have.
Contributed to a maybe more of a quick resolution to restructuring versus what we might expect now or in a more a typical recession is there any merit to it that comment or is that.
There are too small or just incorrect.
You know that the world continues to change so rapidly and we might have told you one thing at the end of March different than in the middle of May. So I think initially everybody was really just worried about did they have enough cash to have survived. The next day next week next month, I think people, taking a little bit of pause in that and our are still lots of companies.
In trouble, but they may not be in the same crisis mode that they were six or eight weeks ago, which gets to a point that there could be a few waves of this the other difference I would say is the last crisis in theory, you could continue to provide money to try to solve the problem.
This has a lot to do with the human psyche and you know a certain amount of money will not change People's fear to go outside and to go do certain things once again, it and there isn't that paradigm. We can all compare it to so I think you know this is gonna be is broad based of a kinda downturn out I think there's enough significant comments that we would a you know make.
Say that kind of the the speed of what the government is doing causing it to be quicker or slower. This time versus last time. We also know the fed you know have come in and if you talked about purchasing certain kinds of bonds that can also has some impact on the pacing of all of this.
But right now I think you just assume it say you know rather busy time and the restructuring world.
Okay, great. Thanks very much.
Thank you.
Our next question comes from Devin Ryan with JMP Securities. Please proceed with your question.
[noise] great a it's got a lindsay.
Kevin.
[noise]. Its first question here just on the M&A backdrop, you know obviously appreciate that activity has slowed and there's quite a bit of uncertainty out there and markets.
Typically don't like uncertainty I'm, just trying to think about the M&A activity that you are seeing so it sounds like you're still winning some mandates is the nature of the deals already changing too maybe more distressed or or activity that that's tied to co bid or supply chain et cetera, or I'm just trying to.
About the type of M&A, that's occurring right now I'm, even a maybe a bit more modest pace and whether that starts to shift to kind of a different.
And tenor and then.
Our the financing markets open and do sponsors or other companies have access to financing right now.
So a couple of responses yeah, clearly, there's some work and the distressed M&A environment. As you described we also have to remember that in this particular downturn. There are some industries that are doing fine and some actually or even growing and obviously some industries are just getting decimated. So you do have a mix and match between.
I mean.
The financial Wherewithal of different a industries. We're also getting hired in certain situations, where people say, we know we'll get through this we don't know exactly when so go ahead and get started you know go perhaps put together information build your book, but they're not ready to have us actually go out and talk to you know prospective buyers I think the real.
Issue some of it is financing, but as much as an Intel people are able and willing to actually go and physically meet with management and talk with management, there's only so much that or at least buyers and sellers have done are willing to do you know via zoom or some other form of Telo and video conferencing. So I think that's one of the game.
In issues I think initially on the financing side it really stemmed from people trying to deal with rescue financing and its you know clearly improved on the financing marketplace today versus where it was six or eight weeks ago, but it's clearly not nearly as healthy as it. Obviously was you know 306 months ago I think it's really the.
Uncertainty where people do not know exactly how this will end and when it will end and they do by ordinary course, and whether you're a private equity firm for whether you're a strategic.
The ordinary course is eventually you do need to get to meet the the business the management team to where the factories. All those things there are certain things that they still want to do and at this juncture fighting difficulties and doing it.
Okay, Great color. Thanks, Scott and then just follow up here Lindsay you gave a little bit of detail on how to think about expenses and appreciate the maybe some of that especially your travel et cetera is more temporary I'm just trying to think about if the the business mix is shifting.
Yeah, maybe for the next couple of years, what the implications are on operating margins if any.
I'm not sure that a business shift to has a significant impact on the operating margins I think that what we expect to see is a reduction in travel and entertainment and a reduction in marketing expenses, but as you suggested that will be a short term next couple of quarters favorable benefit too.
Yes, I think after that regardless of whether corporate finance is up or down or restructuring is up or down it won't have much of an impact on our non comp expense nor will have an impact on our comp expense.
Okay. Okay, great. Thank you very much guys.
Thank you.
Next question comes from Brennan Hawken with you'll be US. Please proceed with your question.
Good afternoon, guys. Thanks for taking my question.
I was hoping you could maybe help us frame the situation through the lens of let's see prior cycles and Scott I know you made some comments on that as far as timing earlier, but thinking about it from a productivity perspective can you talk to us about typically kind of order of magnitude increase.
You see in a normal cyclical downturn from your restructuring bankers and.
Correspondingly what kind of it typically decline do you see in the productivity metrics for a year.
For your M&A bankers. Thanks.
So one we gotta go a little back in our memory you know you've got what a lemon 12 years since the last downturn in any gotta go back another seven.
So a lot of this is almost ancient history in todays financial World, having said that I would say that the timeframe to complete restructuring deals seems to have shrunk.
Cycled the cycle, so things do get done on a little quicker basis, but how you get paid when you get paid this whole retainer amount versus transaction fee amount I don't think is changed theres always a delay between getting hired.
Getting started getting retainer fees and then eventually getting that transaction fees.
So initially the common is gonna be your bankers are incredibly busy.
But if your definition of porting productivity measure is you know revenues divided by people, there's always going to be a lag in the revenue build up on the restructuring side.
Conversely on the M&A side is you have a large number of deals at any given time as I mentioned earlier in my comments, there's a subset of them that died we don't think we'll come back there was any minute larger amount better on whole. We believe you know the vast majority of those will come back and just a matter of wins. So those are.
Available to assist the productivity and then as I mentioned, you've got new deals coming in less than what we've seen in a normal time period.
But while we are processing and moving forward on them well eventually hit a hurdle on how far we can go with some of these new engagements until like I said, the world kind of frees up to allow people to travel and interact a bit more.
No I appreciate all that I I guess, what I was just trying to think about is when we think about trough to peak restructuring cycle.
Does the and.
Putting timing aside right.
The next few quarters, who knows right all that stuff is very uncertain I was just more trying to think about from a frame of reference of you do you see.
The productivity as measured by revenue per M. D double as it does it go up 150% like what kind of Oh, the quantum of increase do you typically seen restructuring and then correspondingly when you look at the decline.
In the M&A.
At least during a a.
Timeframe of a few years you know how much of a decline do you typically see from your your peak levels of activity down too.
Yes, more familiarity err on the restructuring side, where I think in the last cycle. You know, we probably came close to doubling productivity clearly a a reduction in corporate finance.
Problem and describing corporate finance is if we were a much different smaller less diversified organization on the corporate finance side.
In 2007, and eight than where we are today, so I don't think or it would be a a reasonable comparison and then you do get in the way. We report things, we we booked things and the type of the task that it is but then we will move people around to help out. So you're also going to get some skewing, we don't take a corporate finance person and all.
The sudden make them a restructuring person or take a restructuring person and make them a corporate finance person. The revenues will get booked on what the task is but we'll have you know we have a shift of people working on it. So we've always said the better metrics to look at is really a the totality of our revenues divided by our MD headcount and if you focus too much.
Such product by product, there's there's just that skewing because like I said, we move we keep revenues, where they're supposed to the but we don't move the headcount.
We deal with that how we bonus and pay people, but not necessarily from a reporting segment standpoint.
Okay that makes that makes a lot a sense and that's very helpful. Thank you. Yeah. I think you flagged the fact that that you're seeing a lot of mandates come in at a pace. That's picked up a lot is there way to quantify where the the.
Ending mandates stand today versus where they stood two months ago before you saw this this big flurry of activity.
And I assume you're talking about restructuring was your cost structure and yes, sorry, apologies I I Tds Telecom <unk> you know the all the only thing we disclosed the number of close transactions. We have by quarter. We don't really talk about number of active assignments, we have our backlog in to actual stated them out. So I think we should just be consistent with what we provide.
In the past, which is really just a input on number of close transactions like I said I can tell you over the last couple of months post kind of the cobot crisis. We've just seen as has I think you've heard from all of our competitors a significant increase in the number of assignments that we're talking to getting hired on its own.
Right.
Okay Fair enough I mean, maybe since since Oh I can take them all again on that when you had talked Scott I think about the the fact that in the past there was a few quarters lag between when the economic downturn began and restructuring take.
Up but you also have said that this environment is very different and its resulting in mandates coming in at a bar more rapid pace than you've seen in the past and the magnitude of disruption to certain business models being.
Significantly greater <unk> said that result in a environment, where the typical cyclical lag in restructuring revenue actually does not become manifest in this environment are you actually see restructuring revenues start picking up sooner or is.
Not too optimistic to be thinking about given some of the other constraints around meeting with people and such.
Yeah, I think when you blend it all together you know our timing expectations from activity levels getting hired billing occurring revenues collecting I don't think are much different than what we saw in the previous that one or two cycles or they'll be certain projects that obviously I'm going to get more accelerated because of this crisis versus the different.
But no I I don't think you'll see kind of a significant timing difference on kind of of revenue build up.
Heading into this particular downturn.
This is what we saw back in the Oh, eight or 910 I'd frame.
Great. Thanks for taking my questions.
Right. Thanks Brendan.
Thank you.
Next question comes from Jeff Harte with Piper Sandler. Please proceed with your question.
Good afternoon guys.
Most have been hit but one thing I want to touch on is you talked about how much better at worse I guess restructuring.
Corporate finance got leaving the corridor.
I'm trying to get a feel for the magnitude there to kind of get an ideal what are jumping off point would be.
Kind of I thought I heard you say and correct me if I'm wrong that the activity level changes it each have been very similar implying kind of offsetting but that the financial restructuring just has a longer revenue recognition lag I mean, it might getting that correctly.
You know what we saw if your question was about January February March you know is clearly I would say normal looking January and February and an abnormal looking March which impacted you know what ultimately we produced in our fiscal fourth quarter and that's the jumping off point in terms of the comment about activity.
Yeah, I, you know I'm talking about kind of business coming in our business coming out that isn't necessarily the same as revenues.
Where like I said, we saw a lot more business activity coming in restructuring and we saw a lot less business activity coming in and some existing corporate finance activity was either died are put on hold Oh once again from a timing issue you're going to find a relatively quick evaporation.
On a corporate finance revenues at the deals died are put on hold obviously, you're not going to get the revenues add on restructuring Oh, we've got activity. We've got people working we've got a number of assignments. We're beginning revenues on on those but you know the pace of what the how those revenues come in and specifically the transaction fees. You know you don't close deals in winter.
Two months, we've always said you know this could be typically six months to two years of an assignment in restructuring and look some go multiple years and some could go a little shorter, but like I said on a blended basis.
Don't think we'll find a huge timing differences in the ramp up on how it looks in this downturn versus the previous downturns.
Okay, and if we were to look back at that kind of the prior like say video nine which was probably the peak of the last restructuring cycle for some reason I thought you guys had talked about rep restructuring revenues being somewhere the neighborhood of 400 million back then.
Is that right or if not can you size, how big restructuring revenues were back in 2000 <unk>.
Yeah, that's a fair comment we're in the very high three hundreds in the and the last cycle kind of where we picked.
Okay, and finally can you talk a bit more to the virtual client interaction environment. Your operating and I get that you can't really do a lot of due diligence kind of face to face but is the the need to is people are people working from home, having a up beyond just data.
A bigger impact you think on M&A and I guess the question the follow up would be.
Assuming we gradually come back to work I'm, just gonna be kind of longer tailwind kind of half introduce dues things are virtually that maybe we're used to thinking of our normal M&A tailwind or I should say had wouldn't be.
I think that we've all been surprised about how a seamless it's been working from home I think the you know were forced into it I think people have adapted extremely quickly.
Financial restructuring will close transactions and execute these transactions from a computer EFI. A is also you know reasonably set up for that as well I think with respect to the M&A products got hit. It is it is you know you can do a lot of diligence you can create materials, but when you go to market. Most of these firms are gonna.
I want to meet the management team and if it's a strategic acquisition, they're going to want to walk the facility.
So he's very hard to get an M&A transaction done if you're all working from a computer. So I think until we're back to work for lack of a better way to say it. The M&A market is going to be is just going to be very slow in terms of new transactions go into market new transactions getting started unless they are distressed.
Okay. Thank you.
Thank you.
Next question comes from Michael Brown with KBW. Please proceed with your question.
But it's got animals.
Hey, Michael.
So I appreciate all the color on structuring business I guess, we talk a little bit more about some of the near term opportunities that you like in capital markets Advisory liability management, specifically got advisory.
What is kind of the potential that those businesses can provide offset pressure over the next quarter or two and where do those revenues head to those hit corporate finance or to the restructuring line is it somewhat of a mix.
So I guess three comments that one we really do you think you need to think about this whole process is a you know when it to your process and not a one or two quarter process.
And that pertains or whether its capital markets M&A or restructuring.
In terms of what we will do if we are raising debt and it's more probably for a distressed situation. It may in fact into booked and our restructuring business segment. If it is more raising capital for a company that and not necessarily in bankruptcy or heading towards bankruptcy, but needs capital and.
Still maybe to help their business survive, but it's still a business that's got positive equity value Oh, we're going to probably booking in our corporate finance and we use that kind of general same rule of thumb and in that regard.
What we're seeing I think we've always said in capital markets. Our biggest competitive issue was not another namesake investment banking firm, it's a whole host of companies and a whole host a private equity firms, who said we can raise the capital ourselves and partly because there was so much capital available on relatively attract.
The terms it was why would you hire an agent unless that agent can provide you the added value for the cost of that.
We've always said and we still believe in even more so now in tougher times like this we will come out as well our competitors and that's pretty good some product area.
With people appreciating the importance of this kind of advice and the capital markets business will actually improve post cycle and pre cycle.
But it's going to take some time and right now people are primarily raising capital not for historical reasons like I want to raise capital to go buy something they're doing it to shore up their balance sheet improved terms that they have.
Looking at it you know potentially too.
Deal to some level of distress or liquidity issues that they have but it will eventually turn back to once again I'll call. It opportunistic raising of capital instead of probably defensive raising of capital.
Okay. Thank you.
True and I guess, how do we think about you know what you could be considering and you know capital markets sounds like something you know that that you have been interested in in growing I'm talking about that a lot more recently is your opportunities to add for that business or would this be you know focused on a regular way and then today. Thanks.
So the white space that we see today in terms of where we'd like to build out and further industries for the things in capital markets for the things in certain geography, certain things in the business evaluation side.
Regards is the same white space as we saw you know three months ago or three years ago. The issue is they are more companies that are motivated to want to potentially do something.
And therefore, you know just I'll call the volume of potential interested parties and conversations, we're having or greater than what we've seen prior to the crisis and some of the things are a bigger sized companies than what we've seen in the past.
But I, it's it's not that what we're focused on I would say his change today versus three months ago, There's just more opportunities and conversations were having.
Okay got it thank you for that clarification.
That's it from it.
Hey, Thanks, Michael Thank you.
Oh next question comes from a non 'cause Selia with Morgan Stanley. Please proceed with your question.
[noise] Hi, good afternoon, I was running just sends a follow up to to the last question does he environment change. How you know you think about economics of acquiring you know a whole boutique forms of us is recruiting talent.
This kind of an environment should we see you know more of a preference for recruiting talent rather than acquiring <unk>.
You know I think we've we've always viewed there's three pass in terms of bringing in talent and it can continue to be a promotion of folks internal development it'll continue to be hiring on the opportunistic side and it'll be acquisition. So all of those avenues, we've been open minded about it.
For years, and can do you need to be and in our prepared remarks, I think we expect you know more opportunities on the acquisition side as well as more opportunities on the hiring side, just because I think of the stability of our business. In contrast to some of the other organizations that neither what we're talking to or where employees.
Those organizations, but I don't think it you should view that we are going to lean more so on acquisitions versus hiring or vice versa post covert than pretty Kobe.
Okay got it that maybe if I can sneak into my last one on restructuring you know what we're seeing multiple industry is under stress today and not just in the U.S., but globally as well. So can you talk a little bit about the global opportunity and restructuring and you know how you think your position to take advantage of that.
Yeah, We I think you know last count we've done well over restructuring and I don't 50 different are so countries. So we're all over the globe not only by offices by by presents and while the U.S. restructuring marketplaces still bigger than other parts I mean, we're doing work all over in Europe Middle East.
Asia Latin America, and this particular crisis as I mentioned earlier impacting you know effectively every single you know major countries. So this is not a country specific or even a particular region specific. So this a distress area. I think is going to you know help the restructuring business around the globe and were seen in terms of.
The things that we're talking to do things that we've already been hired on <unk> continues to be a a trend for this is our I probably our most global of our businesses and will continue to I think you know be we will see a lot of business globally above and beyond just the U.S. and I think our comments whether they're in published materials are that we've.
In in the phone about being the leader in restructuring we don't we don't make that common specific to the U.S. I mean, we feel like where leader and restructuring in Europe. We feel like there were a liter a restructuring in the middle East the Asian in Australian <unk> countries and it just you know it is always discounts adjusted been run as a global business. It is a.
You know much bigger percentage of our revenues are overseas in restructuring than they are on corporate finance and and it's we kill fully expect to take advantage of the opportunities regardless of where they end up on the globe.
That sounds will thank you.
Thank you.
Next question comes from Matt Code with Autonomous Research. Please proceed with this question.
Hey, guys. The extra taken a question just just one quick one could you provide some detail on your outlook for the financial evaluation Advisory business.
Given the number businesses that make up that cohort any detail on house sticky you you that revenue base is would be greatly appreciated.
Yeah. So that business is run on a composite between what we'll call some products some elements of industry in some geography out and there are clearly certain elements of the that business have and are experiencing right now probably an improved opportunities set and there's some components that are going.
To not do as well in the current market environment. Yeah. We've always describe you know as examples in the fairness opinion you know good times you do fairness opinions on mergers of an equals in bad times, you're doing various opinions and down round financings and you know bad times or good times, there's a lot of sticking his I think to the portfolio evaluation.
And work, but more marks slip into a a level three categories you tend to do more we'll impairment in this environment than purchase price a allocation litigation tends to usually increase the little during bad times people like to you know pick on each other and disputes. So there is some component of it that.
I think you know as I said will do just fine and maybe even better in some components are going to lag on that's what we've seen really over the decades that we've been in this business. It still is net net a business that does better in a healthy environment and then a distressed environment, but it's got far less volatility than either the corporate finance, which clearly.
Tends to be a heavily bullish oriented and the restructuring business, which is heavily bearish oriented.
Yeah.
Thank you.
No further questions at this time I would now like to turn the floor back over to Mister Blasier for closing comments.
Well, thank you everyone.
And I want to think everybody for participating in our fourth quarter and fiscal year 2020 earnings call. We look for updating everyone on our progress when we discuss our first quarter results for fiscal 2021 this coming summer.
Ladies and gentlemen. This has concluded today's teleconference. You may know disconnect Airlines at this time. Thank you for your participation and have a great thing.
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