Q4 2021 Houlihan Lokey Inc Earnings Call
Good day, ladies and gentlemen, thank you for standing by welcome to Houlihan Lokey fourth quarter and fiscal year 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note that this conference call is being recorded today may 11th 2021 I will now turn the call over to Christopher.
Wayne Houlihan Lokey as general counsel.
Thank you operator, and Hello, everyone by now everyone should have access to our fourth quarter and fiscal year 2021 earnings release, which can be found on the houlihan Lokey website at www Dot H L Dot com in the Investor Relations section.
Before we begin our formal remarks, we need to remind everyone that the discussion today will include forward looking statements.
These forward looking statements, which are usually identified by use of words, such as will expect anticipate should 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 when interpreting and relying on them.
We refer all of you to our recent SEC 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 31, 2021, when it is filed with the SEC.
During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance.
These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.
A reconciliation of these measures to the most directly comparable GAAP measures is available in our earnings release, and our investor presentation on the H L Dot com website.
Hosting the call today, we have Scott Beiser, Houlihan Lokey, as Chief Executive Officer, and Lindsey Alley treat financials financial officer of the company.
They will provide some opening remarks, and then we will open the call to questions.
With that I'll turn the call over to Scott.
Thank you Christopher and welcome everyone to our fourth quarter and fiscal year 2021 earnings call.
2021 was a roller coaster on a year that brought up the best and Houlihan Lokey as employees and highlighted the strength of our balanced business model.
In the spring of 2020 with the rapid impact of the global pandemic activity levels in our financial restructuring practice significantly increased mitigating the reduction in M&A activity by early fall of 2020, these trends reversed with similar speed as new financial restructuring opportunities return to.
A more normal pace and our corporate finance business began to spring back from an almost complete pause in new business activity and activity levels in our valuation business in Peru by.
By the end of the fiscal year, we had produced a record $1 billion of 525 million in revenues an increase of 32% over last year fiscal 'twenty 'twenty. One is our ninth consecutive year of annual revenue growth and a 14% compounded annual growth rate over that nine year period, we are especially proud that on.
All three of our business segments achieved record results for fiscal 2020, one financial restructuring revenues grew 52% corporate finance revenues grew 24% over last year's record level in financial and valuation advisory revenues grew 17% against last year's record level. We also.
Achieved $4.62 and adjusted earnings per share an increase of 44% over last year's results.
For the fourth quarter, we reported 501 million in revenues up 65% over last year and.
And adjusted earnings per share was $1 51 up 57% over last year.
F Yea achieved another record quarter in corporate finance was up 93% over last year.
Actual restructuring revenues were down from last quarter's peak, but still up 38% over last year.
Our results were strong across all industry groups, most of which are operating at record levels and almost all of our sub product lines and F. D. A achieved records this year.
Furthermore, our investments outside the U S are paying dividends as our international revenues grew faster than our U S revenues.
We enter fiscal 2022 with one of the most bullish market environments for our M&A capital markets and valuation businesses in the firm's history.
We were at record levels for new business activity mandated engagements transaction size and estimated transaction and project fees.
We have seen this business environment improve consistently since summer of 2020, and we remain cautiously optimistic that it will continue through at least the balance of this calendar year.
While the bullish elements of our firm are operating at record levels, our financial restructuring practice as highlighted in previous quarters has slowed from its toward pace in early fiscal 2021.
The current business environment for restructuring is now at pre pandemic levels and we expect revenues in fiscal 2022 to return to those levels. We continue to remain optimistic about the restructuring outlook over the medium and long term. There are several themes that we believe support our optimism including record levels of company Levered.
<unk> continued technology disruption across most major industries. The eventual end of pandemic related government support programs. The continued global expansion of the restructuring product and finally, but likely challenges that exist as companies adjust to society is new norm.
Although our restructuring revenues can be volatile during economic cycles like the one we just experienced we have experienced consistent revenue growth for this business through the cycles and believe this growth will continue over the next decade or so as a frame of reference from calendar year 2007, just prior to the great.
Recession to calendar year 2019, just prior to the pandemic revenues for the financial restructuring business grew at a compound annual growth rate of almost 10% punctuated by outsized activity during periods of financial dislocation, including the great recession, the oil and gas crisis in the Pan.
<unk>.
Throughout this successful and challenging year, we've continued to invest in our people and we promoted 16 employees to managing director in April our largest and most capable class ever since.
Since April one we've announced the addition of three new Mds in both our healthcare and oil and gas groups. We remain very active in senior and junior employee recruiting while noting that the cost of recruiting has risen recently.
On the acquisition front, we are in dialogue with several firms and remain confident that we will continue to use M&A to effectively drive shareholder value.
And our goal to deploy our excess cash we repurchased over $60 million of stock in our fourth fiscal quarter and expect to continue to repurchase more shares than we issue in order to manage our cash position.
Finally, consistent with their performance and our desire to return excess cash to our shareholders. We are pleased to announce a 30% increase in our quarterly dividend from 333 cents per share to <unk> 43 per share payable on June 15th to shareholders of record as of June 2nd in closing we are pleased.
With our success during this incredibly difficult year, we are proud of the women and men at Houlihan Lokey, who work so hard to achieve these results and are thrilled with the continued support we receive from our clients and shareholders. While there are always new challenges ahead. We believe we are well positioned for fiscal 2022 and <unk>.
With that I'll turn the call over to Lindsey. Thank you Scott.
Revenues in corporate finance were $301 million per the quarter up 93% when compared to the same quarter last year. We closed 151 transactions this quarter compared to 84 in the same period last year and our average transaction fee unclosed deals increased this quarter when compared to the same period last year.
As Scott suggested we continue to see very strong momentum in our corporate finance business heading into fiscal 2022.
Financial restructuring revenues were $143 million per the quarter, a 38% increase from the same period last year.
Closed 35 transactions this quarter compared to 29 in the same period last year and our average transaction fee on closed deals was significantly higher this quarter when compared to the same period last year.
As Scott stated restructuring activity has returned to more normal pre pandemic levels and unless something changes, we expect to see solid but significantly lower restructuring revenues in fiscal 2022.
In financial and valuation advisory revenues were $57 million per the quarter, a 32% increase from the same period last year, we had 765 day events during the quarter compared to $6 24 in the same period last year and we continue to see an increase in revenue per fee events as our business mix continues continues to evolve.
For fiscal 2021, FBA business grew 17% and the momentum that drove its growth continues as we enter 2022 fiscal 2022.
Turning to expenses, our adjusted compensation expenses were $312 million for the fourth quarter versus $184 million per the same period last year are only adjustment was for deferred payments related to certain acquisitions. Our adjusted compensation expense ratio was 62, 2% for the quarter and we ended fiscal 2012.
One with an adjusted compensation expense ratio of 62, 5%.
As we have discussed on previous calls our compensation ratio is slightly higher than our long term target primarily as a result of lower revenue attributable to reimbursable expenses.
For fiscal 2021 due to impacts from the pandemic for.
For fiscal 2022, we expect to return to our long term target for the adjusted compensation ratio expense ratio of between 65 and 61, 5%. Although based on continued lower reimbursable expenses, we expect to be towards the higher end of the range.
Our adjusted non compensation expenses were $42 million per the quarter versus $45 million per the same period last year a decline of 6%.
This resulted in an adjusted non compensation expense ratio of $8 four per cent for the quarter versus 14.9% in the same quarter last year. This quarter, we adjusted out of our non compensation expenses $1 1 million in acquisition related amortization.
We ended fiscal 2021 with a non compensation expense ratio of nine 1% versus 15, 2% in fiscal 2020, we.
We expect to see a significant increase in non compensation expenses in fiscal 2022, as we begin to return to more normalized travel and operations, especially in the latter part of the fiscal year.
As a reminder, our long term range for the adjusted non compensation expense ratio is between 14 and 15% of revenues. We believe it is likely that we will end up below that range in fiscal 2022.
Our adjusted other income and expense decreased for the quarter to an expense of approximately 473000 versus income of approximately $1 million in the same period last year.
This was primarily a result from lower interest earned on our cash and investment balances and an increase in the expected value of future earn out payments related to acquisitions.
Our adjusted effective tax rate for the quarter was 29% compared to <unk> 15 per 1% during the same period last year and for the fiscal year. Our adjusted effective tax rate was 26, 9% compared to 25, 2% per the prior fiscal year.
For future years, we anticipate an effective tax rate at our long term targeted range of between 27% and 29%.
For fiscal 2020, one we ended up slightly below this long term range as a result of COVID-19 related doctors that I have discussed in previous quarters.
Turning to the balance sheet and uses of cash as of quarter end, we had over $1 billion of unrestricted cash and equivalents and investment securities. As a reminder, a significant portion of this cash earmarked to cover accrued but unpaid bonuses for fiscal 2020. One then that will be paid this month and in the <unk>.
From November.
In addition to our cash bonuses to be paid this month, we expect to issue approximately 2 million shares to employees as part of their compensation for fiscal 2021.
Similar to previous years, we intend to offset these new shares with share repurchases throughout fiscal 2022, and it is likely given our excess cash position that our repurchases for fiscal 2022 will exceed what we plan to issue this month.
And our first fourth quarter, we purchased we repurchased 907000 shares at an average price of $66 58 per share as part of our share repurchase program and with that operator, we can open the line for questions.
Okay.
At this time will be had.
At this time well be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is on the question queue. You May press star two if he would like to remove your question from the queue.
Using speaker equipment, it may be necessary to pick up your handset before pressing the stacking one moment please poll for questions.
Our first question is from Manhattan go Cilia of Morgan Stanley. Please state your question.
Hi, good afternoon I'm on.
And on.
Hi, So Scott.
28% pretax margins.
Sure.
30%, if we look at the last six months.
And even if I normalize for travelers returning to a you know maybe you say 75% of what it used to be you know I might go down only one percentage point ourselves. So I guess the question is do you think that pretax margin will stay in this range for the foreseeable future on until the M&A cycle is done or.
Is that something that we're not thinking about.
No look I think debt certainly while you have.
Tim any at levels below where we were pre pandemic youre going to have elevated.
Slightly elevated pre tax margins and it's a little too early for us to tell where we're going to settle on our non compensation expense kind of once were out of all of this before we went into the pandemic we were right around 15%.
Hard to tell where we're going to settle our business has grown quite a bit.
So I do expect some upside.
On a pre tax margins.
Versus pre pandemic, but I think it's we need to understand kind of what T M and how team and he is going to come back on.
At what levels and kind of where we ended up settling on our non comp expense.
Yeah.
Got it.
And then I guess on.
On the M&A side.
Just based on your conversations with clients.
Your line do you think the current level of activity is on the fact that share prices have been near their highs for for a while.
So if we were to get some sort of market correction here without there being some big shock on the system.
Is there still enough momentum for activity to continue at these levels.
I mean, the momentum has been building as we said really for probably the last six months in each months seems to be better than the previous months. So there is quite a bit of momentum that being said day, you're right all things being equal when asset values are rising typically that's more positive for M&A activity in and when they decline it's more negative.
Whether that's a week or a month decline is a different than if we actually entered into a couple of quarters or a year's worth of decline, but right now everything we see.
It is still very positive and M&A capital markets and the valuation side of our our practice I would tell you as a reminder, though you know 80% or so of our M&A business is private.
20% is public and.
As a result, we are probably a little bit less susceptible to swings in the stock markets I think to Scott's point, if they're longer term if they start to have fundamental effects on valuation we will see an effect. If it is monthly swings, we just tend to be a little bit more insulated from that because of our mix.
Got it thank you.
Our next question is from Devin Ryan of JMP Securities. Please state your question.
Hey, great good evening guys.
Kevin.
Maybe staying on the court.
Devin you are cutting out a little.
Kevin.
Why don't we circle up to the next caller.
Alright, Devin if you can hear us.
Dial back into the queue.
Our next question is from Ken Worthington of J P. Morgan. Please state your question.
Hi, good afternoon.
So thank you for your comments on restructuring as we think about the outlook you talked about returning to pre pandemic levels.
I'm trying to get a better idea of what this might look like does either fiscal 2020 or 19 represents sort of a a better outlook here and are you still working through some of the elevated pipeline, whereas houlihan already at the point, where the pipeline is balanced with the.
Replenishment rate.
Yeah, what you know what we've clearly seen is like I said, a long term growth rate in our restructuring business and continue to expect it to have a long term growth profile based upon many of the factors we described.
There are always periods that seem and whether these periods last a couple of quarters or two years, we've seen really over the last several decades, we're not right now on one of those periods that escalates the results above I'll call. It that normal upward trend line. So I think our best example for people to think about it is to look at that trend.
Line assume it continues to increase but it's not going to punch meaningfully above that trend line unless there's a dramatic change out on the marketplace.
But we would still expect business like I said, whether you look at fiscal 19 or fiscal 'twenty. Those are clearly levels that we saw on the pre pandemic environment and we think there's many good reasons why we can continue to grow from that.
Just short term don't expect another fiscal 'twenty one to occur in fiscal 'twenty two.
And when we talk about pre pandemic, we're talking about activity levels I mean, it's not.
Hard to put numbers on revenues or product mix does change sorry on our client mix does change and restructuring and we have outsized fee. Some some years and some years, we don't so but activity levels are a pre pandemic, where revenue fallout are going to depend a little bit on the nature of the transactions were working on.
Okay. Okay, great. Thank you and I know, we've talked about you know tax.
On prior calls, but it feels like changes to capital gains rates, a little bit more real than maybe it was following elections.
Hum.
What extent is the tax environment.
Having an impact on the discussions in middle market M&A and to what extent does it seem tangible that you'll get a pull forward from maybe future years into current years or does it not feel like that.
Both from your business perspective, and then from your own you know sort of companies you know growth through M&A perspective might you participate in more deals because you've got more willing sellers looking to get in you know prior to you know, possibly a year end deadline.
I think I'd, rather like eight questions into that yet.
Just to be clear, so I think theres really two core questions as it pertains to our clients and their desire to do transactions in todays tax environment and a pending change in the tax environment. I think we noted back in probably summer of 2020, we thought there would be some amount of if you might pull.
Forward in terms of doing transactions to beat a potential change that might occur ultimately we saw a little of that but not a whole lot. Obviously now the calendar year has moved on the <unk>.
Presidential and congressional elections are done we all read the same thing in the newspapers I would say it is clearly a discussion point amongst our clients.
But it's not a driving force I believe right now that.
Convincing clients do something today in case, if there is a change in when that change might occur. So right now I'd say, it's a decent talking point, but it's not a significant component of why people are doing deals and not sure it's going to be driving net deal flow as you get closer to usually at December 31, maybe that occurs but right.
Now, it's not something that we would say is you know a top a handful of reasons people are participating in M&A activity as it pertains to houlihan lokey.
Ability to do acquisitions of companies same thing in all of the companies that we're talking to there are very specific reasons, why we might want to do a deal with them a name on it do a deal with us, but there really is almost nothing out there that people are specifically talking to us or urgently wanting to close something in the next quarter.
Before this calendar year and anticipation you're concerned about tax rate changes debt.
Net debt also just not a driving force that we think is going to influence the outcome of our M&A activity when we're looking to acquire businesses.
Awesome. Thank you so much.
Yeah.
Our next question is from Richard Ramsden of Goldman Sachs. Please state your question.
Hey.
Good afternoon, guys, so perhaps I can on par.
If I can ask a question on productivity, you've obviously seen this scott.
Very significant improvement in productivity on the corporate finance business in particular on.
And I wondered if you could just help us break it down into factors that you think are cyclical such as the improvement in the environment. The fact that people are working remotely. So they can just get more done in a day versus perhaps more structural factors that you think are likely to stack such as having a broader product set the fact people go to more recognizable.
Brian you called a broader client base and so on.
Yeah, I would mentioned a few things one I think our brand continues to improve and as you know on notoriety as our results as our brand improves we are able to work on more transactions and bigger transactions with bigger fees.
And that I think it's just been part of the DNA for for years.
Two as asset values have increased the size of businesses that we're selling today are just bigger than they were six months ago, a year ago five years ago. So part of that is just the escalation of asset valuations.
In terms of the productivity per se as it comes down to whether you do this per MD per employee, yes, I think we and others have clearly benefited by the lack of travel you just get a lot more done effectively once the marketplace is willing to do transactions remotely.
Then our bankers were able to do everything remotely and they didn't have to go to the airport. They didn't have to be on the planes. They werent going to meetings and we do expect some of that is going to come back. So all other things being equal it will eat a little bit into productivity when that occurs but I do think theres, probably some longer term fundamental shift where the.
Method in types of in person meetings are needed we may never come back completely to where we were pre pandemic, but hard to believe that fiscal 'twenty. Two 'twenty three 'twenty four et cetera is going to look like it was in in 'twenty one.
So I think some of those things.
Are still positive to our productivity level the efficiency level of people you have to assume at some point.
We will start traveling again, which is a negative and then the last thing I'd say is as the <unk>.
Last class of new hires that we had especially with the junior level, we train them as best we could but training them on remotely is never as good as an in person. So I actually think the most junior of our team members will get much better once we're all back in the office and once they can more easily work with their colleague.
And that probably has an improvement in productivity.
I just wanted to add a couple of things to it. The first is given the age of our European corporate finance operations, which is much younger than our U S operations. The productivity of the average banker there has tended to be lower than the productivity in the U S. We saw very strong financial performance from that group.
In Europe. This year, there's been a little bit of a drag European economies over the last couple of years and we saw some really strong results, which helped drive our productivity, which we think are sustainable.
And then the second thing I'd note is middle market is the mid cap space is a bit different than the large cap space and that we see a fair amount of.
Origination from our director class and so when you look at just the productivity per M D.
Quite a bit of business has generated and houlihan lokey from those folks that are just about to become M D and youll see Richard.
You'll see a pretty big promote class across all three product lines because those directors this year really on <unk>.
Delivered for us and a lot of them have made their way to managing director and so you have and Houlihan Lokey, we do have a.
Kind of a group below the MD class debt.
That does quite a bit of business for us, but it's not picked up on these numbers.
That's really really helpful. Secondly, can we just spend a couple of minutes just talking about the cash on the balance sheet, because I think as you mentioned, it's over $1 billion.
I just wanted to kind of think through.
What the steady state cash level looks like in the business on I guess look as far as things that have changed the business. Obviously, a lot bigger I guess you learned some stuff through the pandemic around what the appropriate level of cash is so what do you think the steady state level of cash looks like today and then what do you think is a realistic time.
Line to get to that level of cash.
I'm not sure what you mean by steady state, but let me let me answer the question and then maybe you can tell me if I if I captured it. So we have excess cash on the balance sheet, we did last quarter.
And we are addressing and I think in a couple of ways. The first is through an increase on our quarterly dividend, which we announced or we picked up at the last board meeting and we announced today and then the second is we have been.
Increasing our share repurchases over and above the amount of shares that we issue as regular way compensation. We do believe this will start to address and has started to address our excess cash position. We do think it will take.
Several quarters of increased cash repurchases to address it.
Don't feel any.
We don't feel like we are in a rush to do so I think we're going to do it methodically.
And I think we need to because we continue to have dialogue with a number of very interesting M&A targets and at any at any stage one of those could become a bit more material than they are now and we would need some excess cash and we would need some cash to effectuate. The transaction. So it's a little bit of a balancing act in terms of rushing it and ending up with a steady.
Net of cash and acquisitions during your on the face versus share repurchases that address the cash situation, while continuing dialog on the M&A side. So.
I'm, hoping that answers your question, but as a reminder, a big chunk of that $1 billion is going out the door in the next week.
Up to two weeks and and so next quarter, you'll have a better sense of kind of where we are what we're looking at from an excess cash standpoint.
Okay No no you answered it perfectly thanks a lot.
Yeah.
Yes.
Our next question is from Steven <unk> of Wolfe Research. Please state your question.
Hey, good afternoon.
Hey, Steven.
So wanted to just start off with a question with regards to the revenue outlook Green Scott you did note that the corporate finance backdrop is quite favorable it will likely remain constructive for the remainder of the calendar year at the same time you are lapping these tougher restructuring comps, which based on your earlier remarks implies about $200 million headwind.
Relative to this last fiscal year and you noted you've delivered nine straight years of revenue growth I was hoping you might speak to just given all of those different puts and takes your confidence level around your ability to grow revenues in this coming fiscal year.
We always had that in our business start to look at it quarter by quarter or even year by year I have obviously a lot of confidence I think in all of the reasons. We can continue to grow the business over the years, obviously, we're not expecting 32% increases year over year.
We haven't had a decline as we noted in.
10 years.
Right now I'd say a couple of things we have noted clearly on the restructuring side. We believe at this moment. We peaked in revenue so expect them to continue to come down.
Either that headwind is $200 million or some different number you know ultimately time will tell on the flip side. If you look at our corporate finance business.
We clearly had two very good.
Can have quarters and you could argue the first half of the year, we're kind of block from the pandemic and if we're not in that you would think that also there is some more positives than what corporate finance can do and on the valuation side I think it's been on a roll actually now for the last couple of years and clearly the last couple of quarters and we've.
Noted over many quarters, we don't think theres, some aberrational issues going on.
With the valuation business that says you should not assume that we will continue to repeat itself for growth. So we think there are many elements that have both very positive components, but duly note that the restructuring business so will shrink.
We don't really give ever a particular, one year forecast and I think we've said for some time assume through organic and acquisition matters thinking of our business growing by 7% to 10% as a target is not an unrealistic assumption and we've as noted earlier.
<unk> exceeded that for quite many years I think that's the best guidance that we can probably give you on what to expect for the next day, you're a couple of years.
That's great color and just for my follow up on I want to touch on the SBA business you did allude to the fact that.
There's been some really nice momentum there, particularly over the last couple of quarters.
In the prepared remarks, you had alluded to the fact that there've been some mixed benefits and higher fee mandates had been won and I'm just was hoping to get some perspective on how we should be thinking about the new normal run rate here. It does sound like there's been a step function higher in that particular business and just wanted to make sure we're thinking about it appropriately from a mall.
<unk> perspective.
I think theres a couple of things one that part of our business does have some true kind of contractual repeat components to it and as long as we live in a world that's desiring or some form of <unk>.
Transparency.
Taxation litigation environment, all of which we think exists and in fact, it always seems to be getting more versus less those are all positive signs on.
The valuation business, it's still predominantly a U S focused business, but it continues to have some elements outside of the U S. Debt. We think can and will continue to grow and we have added many I'll call. It sub services that we're now doing over the last 135 years that we didn't do five or 10 years ago, and I think the totality.
<unk> of the bench and whether it's at the MD level or at the analyst level. We just have more F. Eight folks that have more talent and more skills than we ever have and we've clearly been a recipient of hiring I think some mid and senior level people relative to you know what.
Departures that we had so we think it's all stacked up for some ongoing growth over the next day a handful of years.
That's great. Thanks, so much for taking my questions.
Thanks Steven.
Our next question comes from Brennan Hawken of UBS. Please state your question.
Thanks, Thanks for taking my questions.
Just curious when.
When you talk about restructuring and I'm on I'm not trying to split this too carefully but.
You're talking about getting back to the pre pandemic range.
Is that.
On a suggestion about the run rate for the full year or is it more an idea that you expect in the coming year to get back to a sort of pace that would be more in line with the pre pandemic. Initially when you made.
Your comments I thought it was the latter but.
Just wanted to make sure.
Yeah look I think you are splitting hairs a little bit.
So I think we started seeing pre pandemic levels and restructuring the second half of fiscal 'twenty, one which will have a direct impact on first half revenues of this year.
So I think it's not the latter its the former.
Got it he went on when on the fifth question on restructuring.
Some areas.
Alright fair enough.
You guys have been talking about being in active discussions with some potential targets for a while.
So.
How.
What can you tell us about those discussions.
How should we think about them.
As far as the likelihood for them to become.
<unk> are actionable.
At some point, it's starting to feel a little bit like waiting for Godot.
Just curious.
How close you are in.
What do you think might be holding progress or the ability to close anything there on that book.
I think Brennan with acquisitions, where we're going to be a lot more conservative in our dialogue about them.
Two parties involved and.
What I will tell you is we have been super consistent on our acquisitions since pre pre IPO when we do one or two a year and we have really since then.
Got it and I don't see any reason why that's going to change and so where we are in discussions whether it's next quarter the quarter. After three quarters from now are we just going to be careful about conversations and regarding acquisitions because things can change.
But I think our history there on our precedent sort of speaks for itself in terms of what we're what we're doing.
Okay.
And then maybe maybe just sneak one last one in here you had mentioned I believe 16 promotions and three recruits were the recruits on the corporate finance business and what was the breakdown of that large promotion class by line of business.
So the three.
Hires at the MD level post April one Raul on corporate finance and within the 16.
These debt we promoted.
Excuse me by one or two up roughly.
A little over a third was in restructuring a little over a third was in corporate financing a little under a third was an FAA. So it was pretty evenly split.
And it may have been something like 606 and.
For somewhere around that the city is my recollection.
Great. Thanks for taking my questions Okay.
Our next question is from Jim Mitchell at Seaport Global Please state your question.
Hey, good afternoon.
Maybe just on on the revenue front with digging into corporate finance a little bit.
We think we were all a little surprised.
That this quarter was almost as strong or as strong as last quarter, which was a blow out for everybody. So you'll see a little unusual versus your peers and.
It seems like Youre very constructive going forward. So if we look at the last two quarters youre about 50% higher than your best ever quarter and it almost seems like youre, implying you can still kind of hang on to that level. So I'm just trying to I'm not trying to put words in your mouth, but can you just sort of maybe talk about what's driving is it just M&A is it sort of non M&A type stuff that we don't see as much.
Just growth indebted visor and stuff like that like what are we seeing or is it just hey, youre getting bigger deals bigger fees.
Just maybe a little more color on the.
The drivers and how confident you feel going forward.
So a couple of comments in our December quarter, I think we we felt and commented that there were probably some unusual fact patterns and maybe there was some catch up type revenues that ex.
Blaine why we had such a great third fiscal quarter, because we were light in the first and second and deals that were put on hold came into play et cetera et cetera.
Obviously as you stated our fourth fiscal quarter was almost right on top of what we did in the third.
Which is.
Different and probably better than most of our competitors have announced so far don't really view that this fourth fiscal quarter had any unusual activity, where we gave you some of that commentary in the third quarter. So.
Most of it is just the improved market environment, the improved efficiency of our staff and it's really all over their warrants a small handful of mega deals or fees that caused this it's really in almost all of our industry sectors in all of our key geographies reasonably spread out between M&A.
And the capital markets.
I wouldn't really highlight a particular sub area that did phenomenally better than others right now were just working on more projects with more talented people.
And a very strong marketplace and sitting here today.
Six weeks once again into a new quarter. This activity continues to be out there.
Yeah, you always worry about what's going to happen on the stock market and what's going to happen with any new regulations or tax changes et cetera, but as we sit here today, it's a very bullish environment and yeah. We feel that we can continue on the pace that we're at and hopefully continue to grow from there yeah. I mean, I would caution you that we do have some season.
And our business in the first two quarters generally are lower than the last two quarters for us just given the the way the calendar falls, but but yes, I think to Scott's point, where.
Relative to same quarter as last year.
We're we're great momentum going into fiscal 2022.
And any thoughts maybe on just the.
The spec market that impact I mean, there's almost a trillion of new buying power of the average size of transactions for specs tend to be.
Smaller.
A couple of billion range is that something that affects you or is that just a little too large.
To have a real impact on your business model.
Well, it's a great new almost if you might describe asset class looking to do deals and there is a host of ways that we are and can continue to participate in.
But.
Since we're not in the underwriting business, which is where I think a lot of fees. So far have come from I wouldn't say that our results are.
Statistically.
<unk> impacted by specs, but we do valuation work on the specs, we will represent specs on the sell side by side.
Times, we can do some of the co underwriting we will participate in pipes, we announced the.
Formation of our spec a couple months ago. So we're very aware of Spacs and it is a brand new class of group of would be buyers and sellers that we can and we will continue to participate in but right now it's not a a large driving.
Financial number within our results that we've posted in the last quarter or two.
Certainly not right. Okay. Thanks, a lot bye.
Okay. Thanks.
Our next.
<unk> is from Devin Ryan of JMP Securities. Please state your question.
Okay, Great let me try again here.
Most of that but I do want to come back on debt refinance in kind of the capital markets Advisory business I mean, it feels like that business was a pretty important contributor to the prior year results 2021.
And I know you guys had made a concerted effort.
That business, so youre scaling at the same time, it's a very active backdrop. So lumpy, maybe just parse through kind of the outlook for that specifically like how large if you can give us any context that has become in terms of contribution and then the ability to grow in those.
<unk> from here.
So we understood. Your question is it specific to how well our capital markets business is doing within corporate finance.
Yes, correct.
So we've stated for the last I think a couple of years. It's a major piece of our business. It's continued to be a great growth component of corporate finance it had the benefit of being able to straddle what we call. This rollercoaster year in the front half it was doing financing and more distressed or troubled situations.
<unk> and now it's back to doing financing and more healthy and growth situations. The number of deals. We're working on has grown across different industries and different geographies.
Within the the capital structures of clients' itself and we still believe that this is just you know when you look at it from a secular standpoint. This is a area that is going to continue to grow for us and our peers.
I fully expect as we define capital markets to be a growing and meaningful part of not only the affirm corporate financing and important services that we provide to clients.
Okay, Great and then.
A follow up here kind of day, you talked about kind of the debt.
He's our increasing on deals and kind of the deal sizes are increasing your clients are growing.
Are you guys, taking proactive steps to.
Call. It increase your average deal size, whether thats increasing.
On fee that you'll take or.
Just obviously when times are busy.
On the assignments you want to work on and get the best return on time. So I was just on any kind of proactive steps.
Net are having a meaningful impact on kind of the average fees that youre seeing and do you expect to see over the next few yourself the backdrop remains favorable.
All of our.
Businesses, whether you define it on a on a product or an industry or geography standpoint, all have a variety of new business committees and so theyre always looking at.
The potential to take on a new assignment do we think we can complete it what's the probability of complaining on what do we think is the fees what kind of staff, we're going to need it.
More busy times like now youre going to be a little more.
Critical and sharpen your pencil and answering all those questions and in slower times Youre little more lax.
We're never per say focused on the size of the deal probably much more focused on the absolute fee or the probability of achieving.
That fee and we also recognize that probably each industry group for some projects or geography needs to have its own unique discipline.
And so there isn't a one size that fits all for everything on our firm, but yeah I would say that right now we're we're scrutinizing what we take on and whether we think we can complete it and whats the timeframe and the amount of staffing that we need and all of that is helping to improve.
Improved close rates and thus average fees.
Okay great.
Just one more quick one here if I may just on the expenses on the commentary around kind of scaling.
Scaling up over the coming year, and particularly into the back half I mean do you guys have any sense on the absolute like how much of the Delta Delta and the team.
Travel meals and entertainment.
They come back in or kind of any.
Any framework for us to think about how that could trend.
Have evolved once we get maybe into the back half of the year and hopefully people are probably on your meeting again in person.
So first of all I'd put it in two buckets, there's broadly defined the travel meals and entertainment as we describe it and the second is conferences slash marketing within conferences.
On <unk>.
Right now.
It feels like we will eventually once again start doing in person conferences, maybe it.
Half will be in person and have might still be virtual so I expect some incremental cost coming from that and then we are starting to see some increased travel, but I think its still several quarters away before we get back to a new normalized run rate if you might and our expectation is as good as our crystal ball can be is.
We don't think we will be traveling on average per human being if you might at the same amount that we used to pre pandemic because at the moment I don't think our clients are requiring it.
So we do expect an increase in those conference costs and an increase in the travel meals and entertainment.
Not to the level that we saw pre pandemic.
And.
Second quarter of fiscal 'twenty, two should have some more cost in the first.
On those two categories and a third more than the second et cetera. So it's just we're slowly starting to see some traveling and people are talking about doing in person conferences, not pre summer, but probably post summer whether that materializes or not don't know.
That's kind of our best way to look at it and that's why it Lindsey and I have not reestablished target's on non comp because we just don't know where we will land other than I think it is clear we will land, having probably less costs on those two categories and we used to book clearly, we're going to a more cost than what we experienced in fiscal 'twenty one.
Yes.
I appreciate it I'll leave it there thanks guys.
Okay.
Our next question is from Jeff Harte with Piper Sandler. Please state your question.
Hey, good afternoon, guys a couple of book Cleanups for me.
One the same day announcements and completions are somewhat more unique in the middle market space.
How has that performed in this recovery versus kind of past recoveries and can you give us any kind of ideas how much kind of that immediate announcement and completion is.
Tribute to corporate finance here over the last six months since we've been recovering.
I don't know that it's a good question I don't know that the same day announcements and completions as a percentage of our overall completions.
Has changed so I'm not sure that there's a trend there.
In corporate finance theirs.
There's kind of three categories broadly speaking there is the public deals, which you all are able to track, which unfortunately is a sliver of our business. There is the private deals that require Hart, Scott, which can get completed at anywhere from call. It 15% to 25 days. So it's all within the same month and then there is the same.
Day completions and I'm not sure that the mix of those three.
Has changed much.
And so I think.
I might understand where your question is coming from I think the data logic.
On the.
The information services that track our deal pipelines are just as bad today as they were pre pandemic.
I don't know that they've got many better.
Yeah.
Okay.
That's clear.
One other on the M&A front, but I guess I'll talk to you guys as acquirers, we've kind of go on from M&A as debt environmentally to all of a sudden M&A is that how big of an impact does that have already filed that average.
Targets potential willingness to say I'm, just kind of trying to get a feel of you know six to eight months ago, they're probably a lot of boutiques looking to sell I'm wondering if there's a lot less looking to sell today.
Yeah, I think we've commented in the past quarters, but if you could contrast may of 2021 to call. It may of 2020, there are probably less companies either anxious or necessarily needing to do a.
And that was needed to sell to somebody like our firm or others and to the price of those companies interested in selling has risen as has the stock market as has our peer stock price et cetera. So we think all of that has caused us to be a little slower than what we would've anticipated a year ago.
Still a lot of activity out there, but it is slower than it was a year ago for the reasons that I've mentioned and in price expectations have risen as well.
Okay. Thank you.
Our next question is from Michael Brown of <unk>. Please state your question.
Great. Thank you.
So I wanted to start off on corporate Finance and then if you just take a bit of a longer term perspective here. So yes.
Scott, we're looking at the data and obviously, we've seen a record.
From a non some perspectives on our record fourth quarter. The first quarter on a global basis came in a little bit about that and <unk> is on track for for another record quarter.
If I play Devil's advocate here and try and look you know a little bit further out and figure out what could cause activity to really.
I hit on it hit a wall.
Just curious what you what you see in that risk snap at risk now because it's certainly not very clear to me at this stage, but I'm curious what may be coming up in conversations and and if you could just characterize what the C. Suites are kind of talking about in terms of top of mind today is it still the lingering effects of the virus or.
Or any.
Any other items kind of taken center stage in terms of key risks.
So I'll take your question and to pass actually I think the conversations we're having in the C suite send or the private equity shops, they're all focused on positive attributes and they're really not fretting over negative attributes. So I won't tell you that if we pulled all of our clients or prospects they'd say oh, here's the top.
Three of five things, they're worried about having said that the host of I'll call. It normal things out there, which could scoop or change negatively marketplace in no particular order is.
A significant rise in interest rates lack of availability of <unk>.
Especially debt capital.
A meaningful drop in a longer timeframe on that drop in the stock market.
The increase in tax rates, some new regulatory changes all of those things I would say are always out there that people.
Consider and worry about I think in the mid cap space and in the private space. We're not is positively impacted by favorable comments and that is negatively impacted by some of those things out there, but right now the client base.
Not overly focused on many negative attributes they're more focused on a very good marketplace, whether theyre buyers sellers.
Lenders or borrowers.
Yeah, that's what I that's.
That's what I suspected I appreciate that.
And then I guess just the second question is kind of along the same day and each other and other restructuring related question, but again I want to take a longer term focus here.
As you as you think out maybe its fiscal 2023, maybe it's beyond that but just curious as you think about the lingering effects of COVID-19.
Do you expect to see another wave of restructuring activity and then what would be the catalyst to see that that happened is it is it possible for it to have a little bit of a sooner pick up on things like stimulus alternately stayed out and.
Or is it kind of a rising rate environment that maybe starts to really put a lot of pressure on those that are over levered.
I'm just curious to hear your take on that.
Yeah, I think if you look at the damage done by the pandemic.
There are going to be and are certain fundamental negative impacts on many businesses and industries.
Many of which we would have thought would have entered into a restructuring in April may June July et cetera, 2020, and for a variety of reasons a lot having to do with the Gulf.
Government intervention and stimulus, which in certain cases, it postponed potentially the inevitable in certain cases companies, probably will survive and do well, but we always look at it as does the business plan that you have.
It's succeed in the go forward World.
And if it won't it's just a matter of time when eventually it'll hit the wall if on the other hand, the business plan can evolve and succeed in today's new world, whether it's because of the pandemic because of its ongoing technology disruptors and relative to the amount of debt you have and interest rates, that's what feeds our restructuring business so to your specific.
Quick question, we do think there is another wave not necessarily the same size that we saw six 912 months ago, but there's still companies out there that we believe have some trouble ahead, they've just been able to at least kick.
The can down the road and we'll see how long that will last.
Okay, great. Thanks for the thoughts there Scott.
Thanks, Mike.
We have reached the end of the question and answer session I will now turn the call back over to Scott Beiser for closing remarks.
I want to thank you all for participating in our fourth quarter and fiscal year 2021 earnings call and we look forward to updating everyone on our progress when we discuss our first quarter results for fiscal 2022. This coming summer. Thank you everyone.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.