Q2 2022 Houlihan Lokey Inc Earnings Call

Waiting ladies and gentlemen. Thank you for standing by. Welcome to Houlihan Lokey, second quarter fiscal year 2022 earnings conference call. At this time. All participants are in a listen-only mode. A question.

Answer session will call the phone presentations. Please note that. This conference call is being recorded today, October 28, 20, 21. I will now turn the call over to Christopher Crain Houlihan. Lokey is general counsel. Thank you, sir. You may begin.

Good. Thank you, operator. And hello, everyone by now everyone should have access to our second quarter fiscal year. 2022 earnings release which can be found on the Houlihan Lokey website at www.hsn.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 well.

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.

Addition, we encourage investors to review our regulatory filings, including the Form 10-Q for the quarter ended September, 30 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, elle.com website, hosting the call today. We have Scott beiser Houlihan, Lokey chief, executive officer and Lindsey alley Chief 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.

Not thank you. Christopher. Welcome everyone to our second quarter earnings call. We are pleased to report another very strong quarter. We achieved five hundred thirty seven million in second quarter revenues of 95 percent. From a year ago. This significant increase was driven by the ongoing robust business environment that we've experienced since the summer of 2020 and the comparison to a relatively weak second quarter last year as a result of the

Hammock, all three of our business, segments performed very well, of course.

Finance and financial and valuation advisory produced record, quarterly results and financial restructuring delivered, solid results during a very challenging restructuring Market environment on the expense side. Although we are starting to see some increases in travel and marketing costs consistent with increased business activity. We are maintaining an adjusted pretext margin of approximately, 30 percent, which is, well above pre-pandemic margins for the second fiscal quarter.

Of 2022. We reported a dollar 71 and adjusted earnings per share up a hundred and twenty eight percent from the same quarter last year.

Our corporate finance business continues to operate at a record Pace with trailing 12-month revenues over 1.2 billion activity levels, remain strong, with both corporate and sponsor clients and all industry sectors are showing growth over previous years. All metrics regarding active, number of engagements, estimated fees in pipeline, visibility. Remain at record levels are non us, business is performing quite well, as we have seen the European m&a market, stapler.

Is and grow over the last few quarters and finally, our Capital markets business continues to be one of the fastest-growing components within our corporate finance business. Although the momentum we have in our corporate finance business sees, no signs of letting up. We recognize that the economy stock market and Global m&a activity, has been in an upward cycle for nearly 12 years. Now that said, we constantly look for ways to further improve our business profile through diversification of clients.

Industry product geography and Banker.

Our FBA, business reached a record, 66 million, in quarterly revenues and deliver. The fifth consecutive quarter of Revenue growth fva has a trailing 12-month Revenue run rate of nearly 250 million with every major sub product area contributing to our growth. Although FAS are least volatile business segments, given the nature of the work. It has produced compound annual revenue growth in excess of 10% of the last five years.

An impressive statistic for this business segment. The FDA business has benefited from a healthy Market environment, exceptional execution, several new senior hires an additional revenues from SPAC activity. Currently. We have a record number of MDS, active projects, and new business activity continues to grow.

Our financial restructuring business continues to perform as expected. In this bullish Market, environment accrued revenues and new business activity are off significantly from the peak levels of last year. However, as we have said, in previous quarters, business activity is similar to pre-pandemic levels and we believe that we continue to hold onto our leading market share through this challenging restructuring cycle. We don't normally discuss single transactions during our earnings call, but in this lat in this

Just quarter.

Hired on a restructuring assignment in China that highlights the strength and reputation of our Global restructuring practice in September. It was announced that we were hired by evergrande to advise and let the largest restructuring in the world. We've been doing business in China for years and I've invested a lot of time and resources and that part of the world as many of the Asian economies work to bring Western Law and maturity to their Capital markets. We continue to believe that one of the most exciting growth prospects for our restructuring business.

This is the expansion of the restructuring product into these condom. He's over the coming decades. The ever Grande engagement, convinces us that we are. Well, positioned for this growth on the acquisition front. We are excited that we successfully closed. The first step of the tender offer for GCA right after our quarter closed on October 4th. And as of today, we are 90% of GCA shares. We expect to complete the acquisition of the remaining ten percent during the month of November.

Lindsay will highlight some of the financial metrics associated with the transaction on the integration front. We have had several welcome events across the globe to moot, to mutually introduce our firms. We are already pitching business together, identifying opportunities for new business and executing mandates on a collaborative basis, although Lindsey and I refer to GCA for ease of discussion. We will be operating as a single firm and we are very pleased with the integration efforts thus far.

And as previously, reported by GCA, they continue to experience very strong results and are projecting a record calendar 2021, our historical experience with prior Acquisitions. Suggest. It is typically takes one to two years to get through integration and to begin to see measurable Revenue synergies to date. Nothing suggests. This transaction won't experience the same time line bringing our two companies together, enhances the profile,

Cool Hand low-key and I'm pleased to summarize some of the highlights on a combined pro-forma basis. We operate in 17 countries significantly, increasing our Global diversification. We have over 2200 employees with nearly 300, client-facing managing directors. We serve well over 2,000 clients annually on a pro forma basis. We have trailing 12-month revenues of approximately 2.3 billion and adjusted pre-tax income.

Of approximately 600 million. Most importantly, we maintain a shared set of values and goals, and we believe cultural consistency is one of the Hallmarks of our firm.

In addition to the GCA transaction. During the second quarter. We hired or acquired for managing directors, one in corporate finance, one and financial restructuring into, and financial. And valuation advisory. Overall. We were very pleased with their financial results, and we look forward to continuing our recent strong performance with our new colleagues from GCA. With that. I'll turn the call over to Lindsey. Thank you, Scott today. I will do a quick review of HL second quarter. Follow,

By comments about GCA.

And what to expect in the coming, quarters, revenues and corporate finance, were 388 million for the quarter up. Two hundred fifty nine percent. When compared to the same quarter last year. We closed a hundred thirty-four transactions. This quarter compared to 53 in the same period last year and our average transaction fee on close deals. Increased Financial restructuring revenues were 83 million for the quarter. A 34 percent decreased from the same quarter last year.

Closed. 20 transactions. This quarter compared to 30 in the same period last year and our average transaction fee on close deals was relatively flat.

In financial and valuation advisory revenues were 66 million for the quarter. 55 percent increase from the same period. Last year, we had, we had 806 be events during the quarter compared to 539 in the same period last year. Turning to expenses are adjusted compensation expenses or 330 million for the second quarter versus a hundred and seventy-five million for the same period last year or only adjustment was for was for deferred.

Pension payments related to certain Acquisitions are adjusted. Compensation expense ratio was 61.5% for the

our adjusted non-participation. Expenses were 43 million for the quarter versus 29 million for the same quarter last year, an increase of 51% This resulted in an adjusted non-compensation, expense ratio of eight-point-one percent for the quarter versus ten point four percent in the same period last year. And for this quarter, we adjust it out of our non-compensation expenses, 1.6 million and acquisition related amortization and 1.6 million in acquisition related transaction costs.

Attributable to both the Baylor client acquisition which closed in July. And the GCA acquisition. We expect the bulk of the transaction cost for the GCA acquisition to be included in our third quarter results, as we did this quarter. We will adjust those costs out of our non-competition expense next quarter as well.

Given the pandemic we have been operating at a historically low, non-compensation expense ratio. Unfortunately, it is too early to tell what our post pandemic non-competition expense ratio. Target is going to be, but we expect that. Our new Target Target will fell fall well below. Our pre-pandemic range of 14 to 15 percent as result of the economies of scale that have occurred in our business over the last several quarters.

Or just it other income and expense decreased for the quarter to an expense of approximately 850, 3000 versus income of approximately 196,000 in the same period last year. This was primarily a result of lower interest earned on our cash and investment balances as well as unrealized losses. On our investment Securities are adjusted effective tax rate. For the quarter was twenty seven point nine percent compared to twenty seven point three percent during the same quarter last year in

And with our long-term Target of between 27 and 29 percent.

Turning to the balance sheet and uses of cash. As of the quarter n, we had approximately 960 3 million of unrestricted cash and equivalents and investment Securities. As a reminder. We paid approximately 540 million in October to settle the first step of the acquisition of GCA and we currently own. 90% of the company. We expect to pay an additional 60 million in the second step of the transaction to complete the acquisition and acquire. The remaining 10 percent. The second step is

A to occur on November 5th. In addition during November. We will be paying our deferred cash bonuses for fiscal 2021. Finally, in this past quarter. We we purchased approximately four hundred ninety, nine thousand shares at an average price of eighty, two dollars, and 89 cents. Per share is part of our share repurchase program.

Regarding GCA.

We want to share some of the specifics around the acquisition to Aid in your thinking over the next several quarters. Similar to other transactions. We will put in place, a retention pool for the benefit of GCA employees. That Aggregates to no more than a hundred thirty three million. We anticipate that their attention pool will be put in place in or around February and vest Over a four-year period with the first testing date May 2023. We expect the results.

Ancient pool will be paid out primarily in stock similar, to other retention pools. We will be adjusting the corresponding expense out of our Gap. Earnings, as we view retention, as a component of acquisition cost. Essentially. We are treating the GCA retention pool. Similarly, to the way we treated our HL pre-ipo grants as a reminder. Once this retention pool is put in place are share. Count will go up by the full amount of stock, granted.

In addition we expect there will be a modest amount of integration costs associated with combining our businesses that will occur at least over the next four quarters, any significant and non-recurring integration costs will be adjusted out of our Gap earnings in order to provide shareholders with the not with recurring run rate of the combined companies. Having said that when we acquired GCA, there was excess cash on the balance sheet. That excess cash is not only expected to cover any integration costs.

But also a portion of the retention pool. Finally, as with all of our transactions, we expect there to be a non-cash. We expect there to be non-cash amortization is associated with the intangible assets that we acquired for GCA. This amortization will be significant and will be adjusted out of our Gap. Earnings similar to what we have done in the past.

Regarding how the GCA transaction will affect, ahl's, long-term targets. We expect that. We will maintain or compensation ratio consistent with our historical practice and our long-term Target throughout the remainder of this fiscal year. And Beyond one additional comment about GCA as compensation costs. GCA currently is a calendar year company and we will pay bonuses and our fourth fiscal quarter based on their performances through December 20, 21, historically gdpr

CA paid their bonuses, 100%.

Cash for this calendar year, we intend to pay GCA bonuses. Consistent with hls deferred stock bonus structure. This rule is this will result in HL issuing stock in lieu of a portion of the cash bonus paid to GCA employees and our fourth disco quarter as part of their bonus cycle. We will provide further details of what we plan to Grant on our next earnings. Call after this calendar year, end going forward. GCA employees, will operate on the same bonus.

Schedule and structure that all HL employees do regarding the incremental. Non-compensation costs associated with the GCA acquisition. We do not expect to see synergies relating to non-compensation costs in the next few quarters. As we integrate the two businesses. In fact, it is best to take a look at gcas publicly released non-compensation costs for the first six months of calendar year 2021 and assume that there will be some organic growth to those costs over the next several.

We fully expect that over time. The combined company will be able to operate at a non compensation expense ratio consistent with where HL is operated in the past. On a standalone basis. We will update you over the coming quarters, as we make progress on our integration, including certain milestones and the cost of the integration.

With respect to taxes for now. You can assume that the Consolidated taxes will be a weighted blend of are two separate effective tax rates.

One final comment as a reminder, we will be consolidating, GCSE results for Q3, but we will be backing out approximately 4% of their profit through. I'm going through a minority interest investment as we will not Own 100% of the company for the entire quarter, for our entire fourth quarter. We expect to Own 100% of GCA.

And with that operator, we can open the line for questions.

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star one on your telephone keypad. A confirmation total. Indicate your lies in the question Q. You may press star two. If you'd like to remove your question from the queue. The partitions using speaker equipment. It may be necessary to pick up your handset before pressing the star Keys. One moment, please while we both for questions.

Our first question comes from the line of Devin, Ryan with J, and T Securities. Please proceed with your question.

Good afternoon, everyone, obviously terrific quarter here and corporate finance stands out. Just just the strength are. So I'd love to just dig in a little bit around the velocity of deals, kind of moving through the system. How that changing if at all or you see an acceleration and then I know you don't like to give too much specifics on the pipeline, but are you replacing the pipeline after? You know, what was obviously a great quarter? Has any other context?

Give us just around how the pipeline is progressing. Today, relative.

To be heading into the last quarter or given beginning of the year.

Hey Devon, you know, pipeline is still very solid. We're still seeing growth in almost all the metrics in terms of new business coming in kind of size. It deals that were working on potential for closings. I think it's been a continuation of a growth in that particular product line that we've really seen for probably four or five rolling Quarters at this point. And what we had a very, very strong quarter. We're still, you know, sitting with a

Large amount of activity to continue to work on and I think with respect to Velocity. I'm not sure there's been any notable change and how quickly deals are moving through the system. I think there are many just assume that that velocity has been consistent since sort of the pandemic changed.

Okay, terrific. And then just kind of moving over to the restructuring business, and a great to see the big win in China, as you referenced. Are you seeing spillover from that? Like, it's a direct New Opportunities coming from that. I know you're excited about the kind of the longer-term positioning and so, this will be a marquee event to be involved in. But, is there actual kind of activity? May be, that that's being driven as a result coming off the heels of this?

There can actually be a meaningful kind of uptake an activity in that region and that kind of intermediate term here.

Getting taking a step back. We've been out in the region for, you know, close to probably two decades now and we've had other very sizable mandates in that area. So this isn't like the first one that we've ever had. It's probably the most sizable and Notre Bowl One, just in today's current Marketplace, which I think continues to help with the man the brand and reputation. And I think we, you know, we believe that there's quite a bit of increased opportunity in the asia-pacific area.

And we've been a dominant poly or out there in restructuring and obviously getting engaged on a project like that, just continues to help us continue to hopefully build market, share out there.

Great. Thank you. Squeeze one more coin in here. So just talking to GCA commentary, Lindsey. Thanks for the update. If I take kind of components of comprehension over time, and then non comps, you know, it sounds like it's going to take a bit of time. But effectively, you're saying that you think you can get to see as margins up toward Houlihan, Lokey margins, which would be a meaningful kind of margin Improvement for that is that I just wanna make sure I caught that. And is there a time frame on the noncoms, where you feel like you can kind of push that forward?

Yeah, I mean, I think can't answer your question than on cop. I mean we want to make sure that the integration is done very deliberately. And so that it is just non-disruptive non-disruptive as it can be to the bankers at GCA. So I think we're going to take as long as we need to to make that happen effectively. I think with respect to compensation. I think you hurt heard me correctly, you know expectations are that from a compensation ratio standpoint will be able to bring them to our kind of

Rangers then kind of how we traditionally have operated.

Really quickly as early as next quarter. So but they're not compensation will take take a while and no specific yet as to how long it will take.

Understand. Okay. Great. Thanks for taking my questions. Thanks, Donna.

Thank you. Our next question comes from the line of Ken Worthington with JP Morgan. Please proceed with your question. Just following up on GCA. Is it possible to give us a sense of the revenue and the margins for GCA in the September quarter? And if it is, how does GCA is relative backlog, sort of look compared to what you would see is as Houlihan's, you know, corporate finance.

This backlog, is it does it seem to be at all? Comparable? Is it, is it better as it worse? How do we sort of compare the outlooks for those two businesses in the near term?

So can we have decided not to disclose specifics around GCA for the September quarter? And with respect to backlog. I think we're going to stay away from, you know, the two separate firms backlogs. I will only tell you that GCA momentum in their business is very significant similar to the Houlihan Lokey momentum in our business, but in terms of, you know, pipelines, I think Scott's comments, you can think about on it.

Validated basis. Okay, and then as you think about integrating GCA and II hear your comments and takes one to two years. What do you see as sort of the most critical synergies to the deal success? And and if you can give us sort of how you think of of moving forward to put the I don't know. I'm going to call it the infrastructure in place so that you can deliver on those, you know sort of

Of critical synergies.

From from a banker perspective. What we're really looking to do as people both and their organization are sometimes view themselves. Along industry sector, sometimes long products. Sometimes along geography is to get them to meet the relevant people and our organization and vice versa. And that's why we've had numerous get together, welcome events, Retreats, whatever you want to call it. And so we're already kind of assembled along.

IND industry, sectors combine the geographies combined products so that everybody can get introduced to the capabilities that on a pro forma basis exists. That will enable us to pursue. We believe more pieces of business. Be able to put collectively better people on projects to get hired in to execute with the better results. So all of that dictated from a timing standpoint is how quickly can you get people to get to know the capabilities?

What else? The classical integration costs are much more back-office oriented, you know, when you deal with different platforms, whether that's a you know, a CRM or an epr system or obviously people have different kinds of policies and procedures. So really it's trying to get people on the banker side to as quickly as possible get understand and know their colleagues and nowhere via an email via call the zoom. How can they get to the right person? And I think we're

On Target in our minds on how this happens, but it doesn't happen overnight.

And that's what we say can take, you know, a couple quarters a year to really get everybody up to what we'll call amateur level. And can just one thing. I'll add that's different about this transaction, you know, historically, and you've heard of say this, you know, we have acquired much smaller companies. And the premise is that we can drive productivity of the bankers that we acquire by having a larger platform being able to, you know, aim higher in terms of average transaction size.

And fee, I think here, it actually works both ways GCA is, I think well-established in technology, and we fully expect there to be productivity improvements at the HL level, particularly around Bankers, that are tangential to the technology space. And so, not only do we think we larger platform can help with respect to GCA, but we think GCA size and their depth of expertise, particularly around the technology space is going to be beneficial to quite a number of our Banker.

That kind of work in and around technology, but have never had that, you know, size of the core technology. Practice. The GCA has

And is language a barrier here to success. And if language is, how do you sort of bridge that communication between, you know, both sides, are you using technology to do that? What's the sort of answer there?

Vast majority are overwhelmingly. All of the bankers do speak either English as their first language or good enough English, that, that doesn't English. It doesn't become a significant barrier. There are tools, you know, through zoom and other things that you can also use there. But, you know, we've operated in most of these countries. Anyways, GCA in and of itself, you know, was a very geographically spread out organization with

Major presence in Europe, North America and Asia, so I don't think this is a brand new issue for either the historical, Houlihan, Lokey, folks, or the historical GCA folks.

Great. Thank you.

Thank you. Our next question comes from the line of James Yaro with Goldman Sachs. Please receive your questions.

Good afternoon, so you could you help us?

So we've always said approximately about fifty percent or so of our businesses are touched by sponsors. And when we mean sponsors, we mean private Equity, hedge funds, family offices, Sovereign, wealth fund. So it's a broad definition in our mind of sponsors. Sometimes they are the controlling influential parties and sometimes they're in a much more minority party. And it happens in all of our product lines. They're big sellers of businesses. Buyers of our businesses. They sit on creditors communities and part.

Restructuring franchise. They provide a lot of

Tony's and we'll do a variety of valuation work for him. Our goal is to cover is many of those sponsors as we think are relevant and at and we can be helpful to. So we're always looking to increase the number of sponsors that we cover. And to look to increase the incremental amount of services that we can provide to the sponsor community and has been noted by many organizations like yours. And others is the sponsor Community has been very active in deal-making and

Channel oriented issues, especially over the last year. And we've continued to I think, you know expand our presence with them which is clearly helped our financial results as well over the last couple quarters and you know, arguably really last decade or two.

Okay, and then FDA, I was just a record results again. I guess the question is whether this is a run rate, you expect to be able to continue and perhaps Accelerate from whether there was some seasonality in the results and you know, sort of the Outlook going forward.

I think we've always felt at least on a Consolidated basis. We do have some level of seasonality. You typically have seen our fiscal third and fourth quarter of generally better in our fiscal first and second quarter. And to some degree, Fe also has some of that seasonality, what has been very positive in our minds. And I mentioned in my comments, literally, it's been over the last, I think five quarters that every single quarter, ignoring seasonality it, continue to grow and do better, I think.

They've got a great business profile at this point. I won't tell you that they'll never hit some seasonality issues here, but the business feels like it's got a lot of momentum that it can continue to grow from where it's at today.

Okay. Thank you.

Thank you. Our next question comes from the line of Manan. Gosalia with Morgan Stanley. Please leave your questions. Hi, good afternoon. Appreciate all the details on GCA. That's all you know, very helpful. Are there any synergies on the restructuring or the valuation side? So for instance, can you use the GCA relationships in corporate finance on the valuation side or maybe there?

Geographical reach for restructuring.

We think the addition of the GCA Bankers. Well, primarily we think of them in on the corporate finance side, but they're also going to be helpful on the restructuring and the FDA side. On one hand. We clearly have far more presents than we ever did in Asia, which they are weren't really historically at all focused in restructuring. They now have some connectivity relationships and we can bring the skill sets. Same thing will happen in parts of

Europe that we don't cover additional e have relationships, they've never focused at the same level we have on valuations. They'll do a little bit of valuation work but not to the same brush that we have. And so we think kind of the added number of Bankers in areas of new geographies as well as in deeper strengths on the different industry sectors that they participate in, is going to drive some Revenue synergies to this to other businesses, I mentioned as well.

Great. Thank you. And maybe you can comment on, you know, how do you see the supply chain issues and inflation impacting. Do you like the very, you know, is it? Perhaps driving some companies to pause and see how things turn out, or are more companies looking at vertical integration than sure that they're better prepared for the future. And is it perhaps maybe also impacting conversations on the restructuring side?

I'd so I'll take the Restriction side first. I think these supply chain issues, which are more critically and negatively. Impacting business is starting to increase, Dialogue, on the restructuring side, whether these supply chain issues will last long enough to make a tip some companies and do true distress too early to tell on the otherwise Court m&a practice, you know, there's always something and whether it's concerns about interest rate changes in taxes, supply chain, the

Endemic political change. There's always things out there that become topical to either the c-suite, or this financial sponsors. Sometimes it causes them to accelerate transaction. Sometimes it causes them to delay right now. I'd say it's clearly a topic, but it's not overwhelmingly driving, at least our client base to need to want to do something quicker or conversely that it's meaningfully slowing down. The prospects of completing a deal. It's it's a topic out there.

But at this point, I went tell you that it's hugely financially, impacting, positive or negative our client base.

Great. Thanks for taking my questions.

Thank you. Our next question comes from the line of Michael Brown with KBW. Please proceed with your question.

Great. Thank you. It's gotten me. You're welcome back.

In China, you know, when you think about MMA, I think Asia typically has the lowest fee rates is, is restructuring, kind of immune to those Trends is giving the best of nature of the advice there. They kind of have similar fee rates as as the US market and then does the mandates there. Have a similar fee structure in terms of the timing in terms of it being mainly a successful.

So the answer is the second one is, well, the answer to both is there. There are far. Fewer transactions in China, in restructuring, than, in any other Market. It's hard to take the handful of restructuring mandates that have occurred in China and say that there is a trend or even a market. I'm having said that the answer your second question is what we've experienced is it similar its monthly retainer is and a the vast majority of it is in success.

Depending on how long the transaction goes on for and I think hard to comment on whether the fees are lower on average than Europe or the u.s. Simply because we don't have enough data points. But, you know, look we're our restructuring, Bankers are disciplined and their fee approach and we're going to take on transactions that we think are profitable. So it's certainly not one of these situations where you get, you know, we're willing to drop significantly with respect to our fees just to

to win a deal. We're just don't think our restructuring Bankers are going to do that.

Okay, great. That, that all makes sense. And I appreciate all the comments here on GCA. Maybe just one more for me there. So, historically you manage to keep your surecount flat to down at least, you know, prior to the capital raised. Last year. Once GCA is, is fully integrated including the retention. And and this year is compensation. Is that still the right way to think about your share count longer term?

I'm of course, obviously pending any other potential Acquisitions that could impact it.

I I think it's going to depend on what the cash flow generation looks like for us and the opportunities for Acquisitions in the future. I think that, you know, this is a large acquisition, it may take a while to integrate and but we still have a pipeline of transactions were looking at. And so part of its going to depend on when we do the next acquisition because historically Acquisitions have been a nice way for us to maintain a relatively small amount of excess cash, because we think we,

Employed very profitably to our shareholders. It we have a long pause around integration. Then you will likely see the result being increased shareholder. Sorry, share, BuyBacks. And so, you know, you might see a trend back down to kind of a flattening or flattish to where we were when we went public, having said that, if there's some wonderful acquisition opportunities out there of the next two to three years, we'd rather put money towards those Acquisitions. If we think they're strategically,

Lee smart Acquisitions, and they're accretive to our shareholders versus doing share buyback. So it part of its going to depend on opportunities, over the next two to three years in terms of where we deploy cash.

I think science are thank you Lindsay. I'll leave it there.

Thank you. Our next question comes from the line of Steven chubak with Wolfe research. Please proceed with your question.

Steven we're having a hard time hearing you. Can you maybe get closer to your mic or speak a little louder? So the past couple quarters, Eugene a pretty substantial increase and the Deep ordeal. I was hoping you can unpack a bit. What has driven that uptick. Is it reflective of an effort to move up in terms of deal size, or is it impacted by the elevated level of?

And by SRI Services across the industry. Just trying to get a sense for how sustainable the current level is moving forward.

So this has been going on for at least the last decade or two in organization. And I don't think this is a, you know, one quarter or one year phenomenon, but almost every single year, the average size of the company. We're doing work for it increases. The fees that were getting what are somewhat tied to the size. Increase of recent note. The close rate has been increasing, allows you to have an increased productivity. I think the

Of the banker pool that we have.

Consider me the long maturity in many of our Bankers. They're more talented today as a group than they were three years ago. Five years ago, etcetera, clearly. Yes, were in a positive m&a market place. That helps asset prices are rising etcetera, but it's a combination of all of those pieces. I mentioned and even if they're small percentage increases by themselves, once you start multiplying them together, you do get increased productivity and this is something we have been.

Constantly working on like I said for the last decade or two believe we have certain processes to continue to make that grow some of its clearly helped by the market. And a lot of it is, I think the Tactical decisions and how we go about procuring and executing business.

That's great color. Thanks. It's for my follow-up. I know you mentioned in the prepared remarks that restructuring activity is running at similar levels to free pandemic. And in Prior quarters, you sort of guided to sort of a range of between call it, 2017, and 2020 levels and 2022. I was just wondering how you're thinking around the potential floor for revenues is evolved.

Give an activity in the u.s. Is remain. Fairly depressed while we've obviously also seeing acceleration activity in China. Just trying to think of where next year, cancer, where we should think. How was your thing about? The Run rate is level heading into next year.

Two ways to think about it under our definition of pre-pandemic, and you can look at our historical results and I'm rounding, but we've been somewhere, probably between 300 and 350 million of historical annual restructuring revenues. The next comment I would make is in every single cycle we've ever seen going back, probably three-plus, decades, each trough is higher than the previous trough in each Peak has been higher than the previous Peak. So I'm not sure we sit there with a crystal ball.

All and therefore tell you here's exactly where you know, the new trough will be and it can always be skewed by a quarter or two maybe in a year or two, but the markets growing. The number of companies that have significant amount of Leverage debt, is much greater today than it was several years ago spread across the globe. We are clearly at historically, low default rates, so whatever, which will eventually increase, that default rate, there's just

More business out there for ourselves and our peers. Eventually to do incremental restructuring work. None of us are per se in control of our exact timing Destiny here, but I would walk away from the my comments of the market is bigger. It's just going to probably still take some time before that, you know, creates incremental revenue streams for us.

Thanks for taking my questions.

Thank you. Our next question comes from the line of Geoff Hart with Piper, Sadler. Please proceed with your question. Good afternoon guys have been hit but but what I'm still looking at, when we look at MD productivity at GCA versus Houlihan Lokey. I mean, at least from what we can calculate. It looks to be quite a bit lower there than it is for you guys. How does this compare to your experience with previous Acquisitions? And

Should we think of gcas, kind of MD productivity, moving toward yours? And if that's the case, what's really the key to driving that?

Well, first of all, I think we've always looked at whether we're hiring or acquiring small or big is, can we buy a business that will produce profitable results? So, you know, you're effectively looking at the flexibility of what you pay everybody versus what they produce. And we tend not to get as hung up as others on pure, revenues per employee, revenues per MD, or whatever. Metrics that everybody uses.

Be our first comment, and the second comment is we have historically seen in almost every single transaction that we've done over a reasonably short period of time, but I'd call that a couple years, the productivity of Bankers that we acquire clearly increases so that it becomes, I'll call it almost Blended from what historically. Houlihan lokey is done. That's a combination of a an enhanced platform for which everybody to sell off of. We

Add Financial sponsor, activity and skills and connections. They didn't have before. We may add incremental geographies. We add multiple product lines availability in depth into incremental Industries. So, all of that does produce higher, you know, revenues per whatever metric you want to use. And while your comment question up, front is accurate. Historically, they've had lower revenues per head there in some slightly different businesses and some slightly different.

The geographies and we clearly expect it will continue to grow and improve like we've seen with other transactions.

Okay, thanks. And I guess it and finally looking at kind of cash levels and I guess I'm also going to try and get it at the potential for BuyBacks with with GCA, you know, cash being spent there via the increase in the authorization, 200, 250 million. I mean, should we be just thinking of that is a reloading so you can use it over time or is that maybe messaging something? Because what I'm looking at the cash you have on the balance sheet Now versus what you're paying out. It seems like the the cash position is looking, you know, stronger than at least.

I thought it was going to be looking, you know, after you pay out for GCA.

I think I would just take it as a reloading and and we ended up doing it last quarter. It happened during our board meeting last quarter, which occurred this quarter. So it was kind of in the ordinary course. We took a look at it relative to our year-end and we just reloaded. So

Okay. Thank you.

Thank you. At this time. There are no further questions. I would like to turn the floor. Back to management for closing comments. I want to thank you all for participating. In our second quarter fiscal year 2022 earnings call, and we look forward to updating everyone on our progress. When we discuss our third quarter results for fiscal 2022. This coming winter.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.