Q3 2023 Houlihan Lokey Inc Earnings Call
Okay.
Yeah.
Good day, ladies and gentlemen, thank you for standing by welcome to the Houlihan Lokey third quarter fiscal year 2023 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 January 31 2023.
I will now turn the call over to Christopher Crain, Houlihan Lokey as general counsel.
Thank you operator, and Hello, everyone by now everyone should have access to our third quarter fiscal year 2023 earnings release, which can be found on the other hand 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 like that.
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-Q for the quarter ended December 31, 2022, 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 HL Dotcom website.
Hosting the call today, we have Scott Pfizer 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. Thank.
Thank you Christopher.
Welcome everyone to our third quarter fiscal year 2023 earnings call. We ended the quarter with revenues of $456 million and adjusted earnings per share of $1 14 revenues were down 49% versus the same quarter last year and down 7% from the previous quarter.
When comparing to last year's third quarter bear in mind that our December 2021 quarter with extra ordinary in fact, the prior year quarter was substantially higher than any previous quarter in our firm's history, both in revenues and adjusted EPS.
Furthermore, numerous external market factors have altered the typical seasonality of the M&A market globally. This year. Our results are consistent with industry trends and that our December 2022 quarter was less than our September 2022 quarter. This is the first time our December quarter results were lower than our September .
Third quarter results since December 2008, while this quarter's financial results are disappointing. We are encouraged by the fact that our nine month year to date results are the second best in the firm's history.
Corporate finance quarterly revenues were $292 million, we saw an increase in transaction closings this quarter versus last quarter offset by a reduction in average transaction fees new business activity.
<unk> remains robust as the number of new engagements with a quarterly high for this fiscal year.
Partially offsetting these positive factors is it the financing market remains challenged mid cap transactions can still get financing, but lenders are more selected the cost of debt is that they frequently and some lenders have opted to sit on the sidelines until they proceed better visibility on the economy.
This has resulted in pent up demand in M&A, which we believe will ultimately be a positive for our business. Once there is more broad based confidence in the economy.
Financial and valuation advisory recorded 66 million in revenues the decline in revenues versus the same quarter last year was primarily driven by lower revenues in transaction opinion in transaction Advisory services.
Both service lines were affected by reduced M&A activity, especially in the public marketplace.
However, our portfolio valuation service line continues to do well and in certain circumstances benefits from a more volatile market.
Financial restructuring produced 99 million of revenues, another very strong quarter for each quarter. This fiscal year financial restructuring experiencing an increased number of closed transaction and an increased number of new engagements versus the prior quarter restructuring.
Restructuring continues to see strong new business activity, adding to our confidence in this business segment in the second half of the calendar year and throughout calendar 2024.
New business in financial restructuring is broad based across all major geographies and most industry sectors.
Our long term focus on growing our business both internally and externally continues we hired five managing directors. This quarter, we announced the acquisition of Oakley Advisory digital infrastructure investment banking firm in the U K and we continue to have a robust pipeline of quality acquisition targets.
Finally, I wanted to end today's comments with a recognition to all three of our business segments and the bankers that continued to deliver exceptional results to our clients and our shareholders in calendar 2022, we continued our string of league table successes Houlihan Lokey was ranked as the number one investment banking firm for all.
Global M&A transactions under $1 billion, and all transactions regardless of size in the U S based on transaction volume.
We were again ranked the number one investment banking firm for all financial restructuring transactions. Both in terms of value and volume. In addition, we were ranked as the most active fairness opinion firm like volume when measured for the period over the last 25 years.
Overall, we are proud of our accomplishments in calendar 2022, and we fundamentally believe that our business model position us effectively for long term growth and strong shareholder returns and with that I'll turn the call over to Lindsay.
Thank you Scott.
Revenues in corporate finance were $292 million for the quarter down, 7% when compared to last quarter and 59% when compared to the same quarter last year. We closed a 125 transactions this quarter compared to 114 last quarter, but our average transaction fee on closed deals was lower.
Financial restructuring revenues were $99 million for the quarter and 11% increase from the same period last year, we closed 28 transactions in the quarter compared to 21 in the same period last year and our average transaction fee on closed deals was lower.
In financial and valuation advisory revenues were $66 million for the quarter, the 21% decrease from the same period last year.
876 fee events during the quarter compared to 901 in the same period last year.
The quarter was heavily influenced by the slowdown in M&A activity for the quarter. Both the transaction opinion in transaction Advisory service lines were down versus the same quarter last year.
Turning to expenses, our adjusted compensation expenses were 281 million for the third quarter versus $547 million for the same period last year are only adjustment was $8 6 million for deferred retention payments related to certain acquisitions, our adjusted compensation expense ratio for the third quarter was 61.
5% same as last year.
Our adjusted non compensation expenses were $73 million for the quarter, an increase of 14 million over the same quarter last year, but flat versus last quarter. This resulted in a non compensation ratio of 15, 9% for the quarter. We believe that our non compensation expenses have settled into a post COVID-19 norm relating to.
<unk> and other operating expenses.
We still see pressure on rent with additional space supporting our growth and general inflation.
And we expect to continue to invest in technology as a point of differentiation as the firm grows.
We continue to believe that our long term target for our non compensation ratio will be lower than what it was pre COVID-19 given the increased size of our business. However, we are seeing some pressure on that ratio. This year given the current climate.
For the quarter, we adjusted out of non compensation expenses, $10 4 million and noncash acquisition related amortization.
SaaS majority of which with amortization related to the GCI transaction.
Our adjusted other income and expense decreased for the quarter to income of approximately $2 2 million versus an expense of approximately 300000 in the same period last year, we adjusted out of our other income and expense $2 7 million related to the wind down of the stack that we co sponsored.
Given the wind down there is no remaining asset related to the stack on our balance sheet.
Our adjusted effective tax rate for the quarter was approximately 25% compared to 30%.
When compared to the same quarter last year, although we receive some benefits this quarter, which slightly reduced our effective tax rate. We continue to target a long term range for our effective tax rate of between 27 and 28%.
Turning to the balance sheet as of quarter end, we had approximately 586 million of unrestricted cash and equivalents and investment securities.
This is typical during our third quarter. The cash position was affected by November payment of cash deferrals relating to bonuses accrued in fiscal year 2022.
This past quarter, we repurchased approximately 100000 shares at.
At an average price of $91 65 per share as part of our share repurchase program. We continue to be disciplined regarding share repurchases as we look to maintain balance sheet flexibility.
Finally, the board approved the quarterly dividend to be paid in March and also approved a change to our board committee structure, where effective immediately our compensation committee and our nominating and governance committee will be comprised solely of independent directors consistent with our audit committee and with.
That operator, we can open the line for questions.
Thank you.
I would like to ask a question please.
Star one on your telephone keypad.
Your phone please make sure your mute function is turned off.
Our equipment.
Wanted to ask a question.
And we will go first to Brennan hawken with UBS.
Yeah.
Good afternoon, Scott and Lindsey how are you.
Hey, Brian .
So thanks for taking the question would love to start on corporate finance. So you spoke to financing becoming more challenging from from banks.
And so clearly that that was impacting the December quarter, but how has that have you noticed any change here early in 2023, how is that.
Continued availability trending here. So far has there been any change and how should we be thinking about the outlook for mid market M&A.
On the financing front I'd say, we've seen a slight improvement during the month of January versus the previous quarter and financings I think there were some lenders who just did that wanted to deploy any capital on their books when they close to that on December 31.
So they were I'd say slightly more open minded in terms of finding opportunities to land but.
But it's still a marketplace, that's a rather challenged out there.
Okay and should we therefore.
Keep our expectations toned down so long as the financing markets remain challenged as far as corporate finance guys and M&A.
All I can say there is that dichotomy going on which for the last several months last few quarters I'd say the amount of new business the size of our prospect pipeline backlog. However, you might count it actually continues to grow and that's been a very positive sign.
But really have not seen the definitive turned in the marketplace yet.
Whether its willingness by buyers and sellers or lenders.
And borrowers to come together, so cooler the transactions are occurring they are just not occurring at the pace that we would think it is typical for the size business that we've already got signed up so I think we're all still waiting for eventually that improved pipeline.
Pipeline to ultimately turned into revenues, but just haven't seen that at the end of the churn in the marketplace at least as of yet.
Okay, alright, thanks for that that's appreciated.
I'd love to use that as a as a segue to my follow up question, which would be.
If we do see continued challenging climate and environment, particularly for M&A and corporate finance is there a point where your.
Normally very predictable very reliable and very boring, 61.5% comp ratio begins to see some upward pressure it maybe becomes a little bit less boring.
How are we how should we be thinking about that and is there any point in which maybe it starts to become a bit more a bit more of a concern for you at least in the short term.
I think all we can point to is.
Since we've gone public we've had a very tight range I believe almost as tight as anybody in terms of what our payout ratio is.
And it's typically not very much year to year or within the year and as we see the marketplace as we see the results of our business I think we are still comfortable up to 61, 5%.
I think you can ever say that a lever change, but theres nothing sitting here in our minds right now that suggests it's going to change in the foreseeable future and I would say, Brian is even pre public and with two recessions that occurred early two thousands and kind of the 2008.
There is precedence of us managing to a fairly tight range as well.
So I think we certainly have history to help us answer that question, but I agree with Scott.
Nobody knows what the next six months is going to look like.
Alright, thanks for the color I appreciate it.
Thanks, Brian .
And we'll move to our next question from Monica <unk> with Morgan Stanley .
Hey, good afternoon.
You had noted that the average transaction fees were lower this quarter.
Is there anything specific driving that is it just a lower size of deals is it more competition can.
Can you talk about how we should think about that going forward.
I think it's hard to think about it going forward is really going to be a little random quarter by quarter.
We kind of think about average transaction fee on an annual basis and I'd.
I'd say, if you look back over the last 15 years, we have pretty consistently increased our average transaction fees over that time period. It just sometimes in the quarter Youll have.
Swings based on size I'd say, there was no store here at all and you will Unfortunately continue to see some swings quarter by quarter with the long term trend is obvious if you look at the numbers.
Great and you also spoke about the pent up demand in M&A. So is it really just the financing market that's holding things back.
Yeah.
Can you talk about what youre hearing from clients as we get closer to the fed maybe stopping their rate hikes.
And.
How are we're a buyer and seller expectations on the bid ask right now.
Yes, I think it's a combination interest rates and financing availability is one thing where people think the economy is going where our company is near term earnings expectations are different people's views on <unk>.
Salutations all of that is impacting the decisions and the speed at which people are able and willing to to close transactions.
Got it thank you.
Okay.
And we'll move on to our next.
Thank you.
And Matt Your line is open.
Please go ahead Matt.
Hi, I think I think you cut out there for a second but I believe.
I was called Yeah. Good afternoon guys.
Just one on the restructuring cycle.
How's it going.
Last quarter, you expressed some optimism overall that this restructuring cycle could be elevated for what feels like a prolonged period of time.
Just wanted to take your pulse on that just kind of given where that.
The sentiment stand today, just given that there's been maybe some shifting of the expectations for maybe a soft landing more recently.
And I guess, even from a headline standpoint.
A lot of the large activity.
From club news flows related to the crypto space, but curious in terms of what impacts you guys what youre seeing.
As challenged areas industry verticals and regions.
More directly impactful Ed.
So overall I'd say, we're more optimistic on what we see going forward with restructuring than we were a quarter or two quarters ago and it just continues to build.
I'd say, if you think of it as kind of a water spigot. It just keeps opening up a little bit more and more it's not fully open and we don't expect to see a a full flushed out like we saw maybe in spring of 2020 or the great recession of <unk> eight.
But it is a kind of a full fledge increased restructuring environment globally, so not only the United States Western Europe , and Asia, but really almost all other parts of the world and it's impacting a whole litany of industries I don't think periods, a particular leading industry.
Crypto, which has obviously gotten some news, but it is one of many many pieces out there and we continue to see a build of our our business and whether it's on the debtor side or creditor side U S or outside of the U S. Among a variety of different industries, so the expectations and just where the marketplace is.
Kind of where interest rates are where financing is kind of the never ending movements into maturity well all of that leads us to believe that it'll be a.
Good and probably better environment for financial restructuring for at least the foreseeable future.
And just going back to Brian's question.
Which is kind of a 1 million dollar question was how should we think about M&A over the next 12 months and Thats, probably not just for houlihan, but for anyone in the industry.
We are in an unusual circumstance, where we're seeing increased activity in corporate finance relative to the last quarter and increased activity in restructuring relative to the last quarter, which is unusual just normally does not happen that way.
So there are as you know call it half the population out there that believes in the soft landing and half the population out there.
Can we get ugly and so.
Very hard to go to go back and answer Brennan's question until we really see some inflection point that shows the direction.
Yes makes sense.
And then kind of just switching gears just thinking about kind of your capital priorities from here I know this quarter, you guys announced that you'd be keeping the dividend flat. So this coming quarter.
The second quarter of relatively light buyback so.
Just a couple of minutes with the cover comments you made last quarter kind of citing a pickup in conversations with acquisition targets as well announced advisory.
Acquisition, I guess, how should we think about the M&A outlook from here I am assuming there is still more by way of conversations, but just kind of curious.
Any updates there on capital priorities overall as well as M&A specifically.
So I'll, let Scott handle the M&A question and I will just start with the capital priorities I think with respect to the dividend. If you just go back in time, our normal cadence is our Q4.
Which is next quarter and so it would be unusual for us to increase the dividend this quarter.
Or have any effect on the dividend this quarter with respect to share repurchases I think we have called out several quarters that we're going to be conservative with respect to share repurchases.
As you saw during Covid.
And as you heard from Scott in his comments, we do tend to see a bit more M&A activity during periods like this and making sure that we have balance sheet flexibility I think is prudent going through.
The dislocation in the market so not dislocation is probably too strong word but.
Stubbornness and the markets like the way, we're going through like what we're going through now and then I think with respect to M&A activity I think I've kind of answered that question that is an important component of capital allocation for us we feel like it is the most accretive to shareholders and that's going to continue to be a priority for us is to put money to work.
Through our acquisition strategy I think with respect to what we're seeing out there Scott can can you can highlight some of what he talked about I think we're.
Were experiencing is still a relatively accurate active marketplace for us as a principle to acquire interesting and hopefully additive.
Businesses to our organization.
We never know whether everything we're talking to will close or none of them will close.
And they all take a different timeline.
Lindsay had said.
We try to factor in the magnitude of what we're looking at maybe some probability assessment of what we're looking at and closing kind of what other of our cash needs are and I think thats, probably it's a combination of a variety of factors that has tempered a bit our repurchases over the last quarter or two.
Great. Thanks, guys.
Thank you.
And we will go next to Devin Ryan with JMP Securities.
Great. Thanks, This is Brian Mckenna for Devin so to say.
Indicated credit markets are still largely shot but the private credit markets are functioning and are filling this void in a pretty meaningful way. So how has this impacted your capital markets business and what kind of opportunities does this create near term and over the longer term for this business.
So short term the reduction in total number of players that are able or willing to provide financing and the total number of deals that you've got willing buyers and sellers is down so that puts some negative pressure on our capital markets business on the long term, we think in fact whats occurring is going to be good.
For us and the rest of our industry participants effectively when it's harder to find capital.
And we've always said our typical.
Competitor here is not another investment banking firm, it's the CFO , who believes that he or she can do it themselves or it's a private equity firm who believes they can do it themselves.
Things have gotten a little more difficult over the last year.
We're seeing more people turning to institutions like ourselves to go raise debt financing for them. So I guess its short term still probably is a little rocky compared to a year ago, but long term, we think actually it's happening much like what happened in the O eight or nine time period Wolverine will result in a more positive trend for us.
<unk> financing in the private marketplace, which is what we specialize in.
Helpful. Thanks, and then just bigger picture thinking about the next legs of growth.
Clearly have deep relationships with sponsors.
We continue to expand related capabilities, but what else can we do with sponsors longer term that could drive some incremental growth across the business.
So first of all I think we have been very dominant in the successful and our financial sponsor arrangements out of the U S. And we are growing rapidly in Europe , and then we'll continue that pace in the middle East and Latin America, and Asia et cetera. So there is some geographical XP.
Expectations that we have.
And we continue to find incremental types of services that we can provide to many of these are financial sponsors. So part of it is learning what they need and what they want as long as it fits the kinds of services that we have or it could continue to expand that part of the growth strategy.
Thanks Scott.
Okay.
And we will move next to James <unk> with Goldman Sachs.
Hey, Scott and Lindsey Thanks for taking my questions.
I just wanted to start with the sponsors versus strategic point here, maybe you can just talk about the differences in.
Yes.
Among your clients across strategic sponsors where theyre seeing.
Roadblocks to engaging and closing transactions and what this might mean for the mix of sponsor versus strategic dealmaking over let's say the next two years or so.
Yes, I don't think we see or expect major changes in what we've experienced over the last couple of years in any given.
Small quarter trend times, you see sponsors more active.
Our book of business and financials and vice versa.
But the financial sponsors are still incredibly important there continues to be more of them. They are still raising money. They are still deploying it.
Probably just taking more time in deciding what they wanted to do or when they get started.
When they are waiting for a particular key point.
When they want to approach the marketplace, whether it's on the sell side or buy side.
So we still think it's an important part of our business and for the industry at large.
Okay that makes sense and then just on the restructuring business is there any way to.
Just sort of contextualize, where youre seeing.
Most of these new mandates you talked about being announced is that on the debtor side creditor side and then are there.
They more liability management or traditional restructuring assignments.
It's really everything that you've mentioned.
Different parts of the globe, we tend to be maybe slightly more active that are oriented and creditor.
A quarter ago, you know probably had a little more better type of work recently, it's been maybe a little more creditor oriented depending upon the particular companies situations, sometimes it it starts in the liability management side, sometimes its right into a.
Transaction that might immediately lead into a bankruptcy filing.
I wouldn't say that there is a particular unique trend out there.
Really I think just a lot of it is catch up the companies that probably just don't have the right business plan you still have some technology Disruptors, you, obviously have higher interest rates and the ability to refinance.
Many of the situations that you could've done 12, or 18 months ago is not the same today.
And therefore, that's why we've got a.
I'd say its some regards it's just a pent up demand for restructuring that may be in the ordinary course should have occurred over the last one or two years had the central government has not.
It is helpful in providing liquidity in the system.
Okay. Thanks, a lot.
Okay.
And we'll move to our next question from Steven <unk> with Wolfe Research.
Okay.
Hi, good evening.
So.
Scott and Lindsey I.
I wanted to try and.
Such out.
Guidance on how we should be thinking about the FBA business and now.
This was a business that was growing at a relatively consistent let's call. It like mid single high single digit type class.
Up until Covid and then you saw this meaningful step function higher.
<unk> been running somewhere in the $75 million plus or minus type CT per quarters out in it and this is the first quarter, where we've actually it seem like a decent step down.
Even more acute than what we saw in Corp, fin, which was admittedly a bit surprising you've been gaining share in that business fairly steadily you talked about some of those gains on last quarter's call I was hoping to get some perspective on how we should think about the jumping off point for this year recognizing the M&A environment remains challenged by your franchise continues to gain pretty strong momentum.
What's a reasonable expectation for revenues for that business.
It is historically the most steady of our businesses Youre correct statistically it took a bigger drop.
Then some of our other business segments over time.
Occasionally this group does and that was some for its business some sizable projects.
Didn't have many of those in this particular quarter.
So you will occasionally get a little bit of a lumpiness.
Think the <unk>.
The diversification that we have in the service lines is still the right mix that we have.
But it is being impacted negatively to some extent like corporate finance and at least in the public M&A space, which is has come down from where it was a year ago, but we think the ultimate trend lines in terms of growth potential is still there we've got more senior.
Bankers in there as we ever have we have the biggest staff that we've ever had there.
We're more global and our reach that we've done in the past we continue to introduce kind of some sector expertise into what historically was probably much more just service line oriented.
And I would just chalk it up things can fall into place in that December quarter.
And we would expect.
We continue to see some growth from that standpoint, what is a normalized level.
<unk>, probably be a little better now after another quarter or two recognizing like you said that we did have a decline this quarter.
I think we'll all know a little bit more in the next quarter or two on how those.
Quarters shape up to be able to give you a little more guidance on what should be the normalized level and growing up from there.
That's great color, Scott and just wanted to follow up on that comment.
Comments regarding the <unk>.
Factors impacting deal activity, where I wanted to start out is whether you still expect to see the inflection M&A activity sooner relative to peers I know historically your franchise tends to feel the pain first when the environment slows, but also typically recovers more quickly as activity picks up.
Yes, I think we still believe that that's the nature of the mid market business is going to dry down a bit and spooled up quicker than others.
I think what we'd all like to see is a consistent trend instead of it seems like almost every two months.
<unk> goes from Oh, Yes, we're definitely going to have a soft landing at.
A definite recession is occurring Oh, yes interest rates youre going to stay up higher and longer than we thought to maybe no theyre not.
All of that look we've had a better month in the stock market and bond market during January but February could be reversal of that or it could be a continuation trend I think we've commented in the past that as time goes on and we're not in either a decreasing stock market or at least not as significant decreasing buyers.
And sellers are getting closer and closer to hitting that point of equilibrium. So I think that is improving with time, there's probably some in patients level by the private equity firms to eventually start deploying capital.
And then a question we answered earlier I would say the financing marketplace at least in the mid cap space slightly better in January but not enough to say yeah. We're back into an environment, where we can finance meaningfully more deals and has been occurring in the last couple of quarters that just hasn't happened yet.
That's great color, Scott I think you're right if I could squeeze in one more quickly just given you've had 12 months of GTA results under your belt I was hoping you could speak to how the business performed this year and whether youre seeing any evidence of those revenue synergies coming through whether there is any tangible examples that you could cite in that regard.
So as you said, we've been with TCA per year, we don't breakout the GCI business and as you know.
A good chunk of GTA was non technology so.
We have merged essentially all of the GCE operations into the individual industry groups, so hard to tell from our publicly.
Disclose numbers, how <unk> is doing we are thrilled with the acquisition and how it's how it's come together I would say.
Specially in Europe , we have seen the revenue synergies that we see on every transaction.
Where we see a meaningful increase in average transaction size and average fee.
And as you know Europe was more than 50% of their business. So we've lost very few individuals since we did the transaction to the workforce is still in place.
So yes.
We're excited about the acquisition a year out and as you know technology has been one of the more effected industry groups.
Has has seen that in their results, but again the important thing to US is that we have the workforce in place that we acquired a year ago, we're seeing those revenue synergies that you alluded to.
Actually in Europe and.
The collaboration among the deal teams across really all three product lines has been as good as we see it on any acquisition.
I would further say that the interaction between the bankers the interface with the clients has been probably better than we.
We would have ever mapped or fought out the negative is taking a little longer and a little bit more money to do some of the back office consolidations and synergies just different.
Type a systems different payroll systems different geographies all of those things just it's definitely take a little bit longer we will get to it and we feel we've made a lot of headway.
It's taken us a little longer on the back office stuff in on the front.
Inter relationship on the client facing side, we think it's been actually very excellent.
Great color. Thank you both for taking my questions.
Thanks Steven.
Okay.
And we will go next to Ken Worthington with J P. Morgan.
Hi, good afternoon I.
I think most of my questions have been asked and answered maybe just a follow up on FX and the impact that the euro the pound and the yen movement are having on revenue and expenses, we're seeing a fair amount of volatility.
You know both up and down in FX. So what is sort of the flow through on currency movements through revenue and expenses.
So it's been negative on the revenue side I mean overly simplistic you can look.
Call it roughly a quarter of the business is non U S.
And exchange rates, while they've gotten a little better depending on what perspective, you got here, but the dollar is still strengthened against almost every other currency and so it's put some negative elements into the amount of revenues that were up.
Ultimately presenting when it gets converted into U S dollars and Youre going to have the same thing on the expense side.
But ultimately we've got more revenues and expenses of the currency exchange marketplace in calendar 2022 has negatively impacted our revenues.
To explain the decline that we or the industry in general has seen but it's added just one extra equation to it.
And are the expenses pretty much lined up with the revenue in terms of.
The different major currencies.
Yes, we don't have any we are pretty much perfectly hedged with respect to our expenses our revenues.
Both compensation and non compensation, yes, you do have some timing issues revenues in theory coming in yes.
Periodically and bonuses get paid.
In our case, roughly two times a year.
So youre not necessarily perfectly match from a timing standpoint, but Lindsay is correct for the most part where our revenues and cost country by country or reasonably close.
Okay, great. Thank you.
Yeah.
And as a reminder, it is star one if you do have a question at this time, we will go next to Jim Mitchell with Seaport Global.
Hey, good afternoon.
Just maybe follow up on the new deal activity I'm, just trying to wrap my head around how.
Youre talking about record backlogs and new new business activity remaining quite robust, but the financing markets being mostly shot it doesn't seem like there's any hesitation.
From your client base to.
To at least engage in new at least discussions or transactions. So just why do you think that is what's what's driving the I guess the urgency to at least have dialogues are signed new deals today, where if they're worried about financing and macro uncertainty.
Sure. Good question I'd say that the M&A process, given the links which is call. It nine months on average.
A lot of private equity groups are betting or strategics are betting that there will be a soft landing and so why not sign us up get it started put your materials together get ready to go to market and then at the appropriate time in the next 1235 months will go to market. So it is real.
Just the groups that are signing us up generally believe that we will see improvements in the economy and they just want to be prepared to take advantage of it I mean, I think that's the dynamic.
If we ended up falling into a deeper recession over the next six months.
Thank you will see some of those new engagements probably unwind.
But I would say that Thats why <unk> got this going back to Brian's question you've got this.
Difference between half of the clients are probably optimistic about the next several months and half of them are a bit more pessimistic.
Right. Okay. No. That's helpful. And then just maybe circling back on the restructuring, but we have seen a pretty big pickup in debt issuance at <unk>.
And the investment grade and even high yields.
In the public markets.
I mean, you seem very confident in the restructuring outlook.
But if that continues that spigot continues to open up does that start to damp damp and things or are you pretty agnostic that hey, there's a lot of at least liability management that has to happen given the change in rates and we're not so.
<unk> about whether they go to bankruptcy or not.
Yes, and restructuring when you get hired the probability of getting to a close conclusion is very very very high.
Much much higher than classical M&A. So we're obviously looking at the amount of business that we've signed up and even if the interest rate environment improves even if the economy improves even if certain things happen you usually companies with a variety of issues. You know part of it is their capital structure part of it is there.
The business model itself.
And so we have them.
Say reasonably good confidence level that a lot of that work will end up in a closed transaction and some normal time period.
And you typically do get paid along the way as well as the transaction fees. So I think the things youre talking about once again around the margin and don't appear to be altering the opportunity and the financial restructuring marketplace for ourselves and our competitors.
Alright, great. Thanks, Thanks for the help.
And we will go to a follow up question from Brennan Hawken with UBS.
Okay.
Hey, Thanks for taking my follow up just maybe a little similar to my initial question, but a bit more tactical approach.
In your prepared remarks, you spoke to.
The typical December quarter seasonality, not really being there.
So how should we think about your fiscal fourth timed out timelines are stretching.
Which is.
Similar to you.
Prior set up but the financing is has loosened up marginally a little so.
How are you thinking that that could play out and should we count on some seasonality here in the March quarter.
So I'll give you the positives and negatives around a positive.
Theory any of the deals as I mentioned were some lenders potentially just didn't want to have something other books by December 31 might be inclined to get something done in this march quarter Houlihan.
Houlihan Lokey, which is a march fiscal year end. So we tend to have an internal pushed different than some of our other peers who are at December 31. So all of that is the positive fact patterns.
The negative fact patterns is unfortunately, I think for most of calendar 2022, our expectation starting at the beginning of the month, we're always a bit optimistic relative to where we ended up at the end of the month and in contrast, just the opposite happened in calendar 2021.
So just don't have enough conviction, yet to say Oh, yes, we have finally.
Brought down the expectations of our internal bankers in the marketplace is heading this to a brighter future. So net net we think things are I'd say slightly better moving forward.
But just havent had enough I'd say consistent months, so I would say, yes, we've hit that inflection point and things should definitely be growing from here.
I guess as much clarity, we can give ourselves and you at this juncture.
Okay. Thanks for thanks for giving that a shot I appreciate it Scott.
<unk>.
Okay.
And with no other questions in queue I would now like to turn the call back over to Scott Beiser for any additional or closing remarks.
Well I want to thank you all for participating in our third quarter fiscal year 2023 earnings call and we look forward to updating everyone on our progress when we discuss our fourth quarter and full year results for fiscal 2023, this coming spring.
And so this concludes today's call. Thank you for your participation you may now disconnect.
Okay.
Yeah.
Okay.
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