Q3 2024 Houlihan Lokey Inc Earnings Call

Good day, ladies and gentlemen, thank you for standing by welcome to the Houlihan Lokey third quarter fiscal year 2024 earnings conference call. At this time, all participants are in a listen only mode.

Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Houlihan Lokey's third quarter fiscal year 2024 earnings conference. At this time, all participants on... A question and answer session will follow the presentation. Please note that this conference call is being recorded today, February 1st, 2020. I'll now turn the call over to. Thank you, operator. And hello, everyone.

A question and answer session will follow the formal presentation. Please note that this conference call is being recorded today February 1st 2024.

Speaker Change: I'll now turn the call over to the company.

Speaker Change: Thank you operator, and Hello, everyone by now everyone should have access to our third quarter fiscal year 2024 earnings release, which can be found on the houlihan Lokey website at www Dot H L Dot com in the Investor Relations section.

Christopher M. Crain: By now, everyone should have access to our third quarter fiscal year 2024 earnings release, which can be found on the Houlihan Lokey website at www.hl.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 the use of words such as will, expect, anticipate, should, or other similar phrases, are not guarantees of future performance.

Speaker Change: Before we begin our formal remarks, we need to remind everyone that the discussion today will include forward looking statements.

Speaker Change: 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.

Christopher M. Crain: 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 conditions. We encourage investors to review our regulatory filings, including the Form 10-Q for the quarter ended December 31, 2023, 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.

Speaker Change: You should exercise caution when interpreting and relying on them.

Speaker Change: 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, 2023, when it is filed with the SEC.

Speaker Change: During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance.

Speaker Change: These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP a reconciliation.

Christopher M. Crain: A reconciliation of these measures to the most directly comparable gap measures is available in our earnings release and our investor presentation on the HL.com website. Hosting the call today are Scott Beiser, Houlihan Lokey's chief executive officer, and Lindsay Alley, the company's chief financial officer. 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.

Speaker Change: Filiation 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.

Speaker Change: Hosting the call today, we have Scott Beiser, Houlihan, Lokey, as Chief Executive Officer, and Lindsey Alley.

Scott Lee Beiser: Financial officer of the company. They will provide some opening remarks, and then we will open the call to questions.

Scott Lee Beiser: With that I'll turn the call over to Scott.

Scott Beiser: Christopher.

Scott Lee Beiser: Welcome everyone to our third quarter fiscal 2024 earnings call. We ended the quarter with revenues of $511 million and adjusted earnings per share of $1.22. Revenues were up 12% and adjusted earnings per share were up 7% compared to the same quarter last year. Our third fiscal quarter produced our first $500 million revenue quarter in two years. We've now reported two consecutive quarters of revenue increases with a 9% increase in our third fiscal quarter when compared to our second fiscal quarter. All three business segments reported their highest quarterly results for the fiscal year, and all three businesses enter our fourth fiscal quarter with continued momentum. This quarter, we closed our previously announced acquisition of 7 Mile Advisors, an IT services business investment banking firm, adding four new MDs to our corporate finance business.

Scott Lee Beiser: Everyone to our third quarter fiscal 2024 earnings call. We ended the quarter with revenues of $511 million and adjusted earnings per share of $1 22.

Revenues were up 12% and adjusted earnings per share were up 7% compared to the same quarter last year.

Scott Lee Beiser: Our third fiscal quarter produced our first 500 million revenue quarter in two years, we've now reported two consecutive quarters of revenue increases with a 9% increase in our third fiscal quarter when compared to our second fiscal quarter.

Scott Lee Beiser: All three business segments reported their highest quarterly results for the fiscal year and all three businesses into our fourth fiscal quarter with continued momentum.

Scott Lee Beiser: This quarter, we closed our previously announced acquisition of seven mile Advisors, and I T services business.

Scott Lee Beiser: Investment banking firm, adding four new Mds to our corporate finance business. We also announced the pending acquisition of Triage go private funds investment banking firm.

Scott Lee Beiser: We also announced the pending acquisition of Triago, a private funds investment banking firm. Upon the completion of this acquisition, we believe our private funds group will be one of the few platforms with a fully integrated advisory business offering clients primary, secondary, direct, and GP advisory services on a global basis. In addition to these acquisitions, we hired four new Managing Directors in our Corporate Finance and Financial and Valuation Advisory business this quarter. Our corporate finance business produced $311 million in revenues for the quarter.

Scott Lee Beiser: Upon the completion of this acquisition, we believe our private funds group will be one of the few platforms with a fully integrated advisory business offering clients primary secondary directs and GP advisory services on a global basis. In addition to these acquisitions, we hired four new man.

Scott Lee Beiser: And directors, and our corporate finance and financial and valuation advisory business this quarter.

Scott Lee Beiser: Our corporate finance business produced $311 million in revenues for the quarter, New business activity remains strong while the overall confidence of our managing directors and closing active engagements and attracting new business continues to improve as we enter a new calendar year.

Scott Lee Beiser: New business activity remains strong, while the overall confidence of our managing directors in closing active engagements and attracting new business continues to improve as we enter a new calendar year. However, while the M&A market has shown signs of steady improvement for several months, we believe that we are still well below what would be considered normal market conditions. Consequently, we expect to see continued steady improvement in our corporate finance business throughout the calendar year when compared to the same periods in the previous year. Two positive signs of improved market conditions are the strength of year-to-date results in our capital markets business and recent strength in the technology sector. Historically, our capital markets business has been a leading indicator of improving M&A market conditions.

Scott Lee Beiser: The M&A market has shown signs of steady improvements for several months. We believe that we are still well below what would be considered normal market conditions. Consequently, we expect to see continued steady improvement in our corporate finance business throughout the calendar year when compared to the same periods in the previous year.

Scott Lee Beiser: Two positive signs of improved market conditions are the strength of year to date results and our capital markets business and recent strength in the technology sector.

Scott Lee Beiser: Historically, our capital markets business has been a leading indicator to improving M&A market conditions. Additionally, our technology business, which experienced one of the largest revenue declines over the last two years as a result of very weak industry fundamentals as experienced a meaningful increase in new business.

Scott Lee Beiser: Additionally, our technology business, which experienced one of the largest revenue declines over the last two years as a result of very weak industry fundamentals, has experienced a meaningful increase in new business and transaction closings across geographies and is a significant component of backlog leading into calendar 2024. Our financial restructuring business produced quarterly revenues of $129 million, the highest since the COVID crisis. The business environment for restructuring remains very strong.

Scott Lee Beiser: Action closings across geographies and is a significant component of backlog leading into calendar 2024.

Scott Lee Beiser: Our financial restructuring business produced quarterly revenues of 129 million the highest since the Covid crisis the business environment for restructuring remains very strong new business activity has improved in the U S. Since last quarter and we are now seeing strengthen financial restructuring across all <unk>.

Scott Lee Beiser: New business activity has improved in the U.S. since last quarter, and we are now seeing strength in financial restructuring across all geographies. While we expect our restructuring business to remain at elevated levels for the foreseeable future, we remind everyone that our financial restructuring quarterly results can be lumpy based on the timing of when certain transactions close. Financial and Valuation Advisory generated $72 million in quarterly revenues.

Scott Lee Beiser: The AGA fees.

Scott Lee Beiser: While we expect our restructuring business to remain at elevated levels for the foreseeable future, we remind everyone that our financial restructuring quarterly results can be lumpy based on the timing of when certain transactions close.

Scott Lee Beiser: Angel and valuation advisory produced $72 million in quarterly revenues. This is only slightly above last quarters results, but similar to corporate finance shows a consistent trend in quarterly improvements over the fiscal year.

Scott Lee Beiser: This is only slightly above last quarter's results but, similar to Corporate Finance, shows a consistent trend of quarterly improvements over the fiscal year. Our market-neutral service lines continue to show strong results as we add new clients globally, enabling us to expand our FBA business into new geographies. Our service lines tied to the M&A markets continue to slightly lag our M&A business, but we expect them to eventually catch up. I would like to end today's comments by celebrating the success of our three business segments with accolades similar to those I've announced for the last nine years. In calendar 2023, Houlihan Lokey was ranked the number one investment banking firm globally for all M&A transactions based on transaction volume. We are again ranked as the number one investment banking firm globally for all financial restructuring transactions, both in terms of value and volume.

Scott Lee Beiser: Our market neutral service lines continue to show strong results as we add new clients globally, enabling us to expand our SDA business into new geographies, our service lines tied to the M&A markets continued to slightly lag our M&A business, but we expect them to eventually catch up.

Speaker Change: I'd like to end today's comments by celebrating the success of our three business segments with as accolades similar to those I've announced for the last nine years in calendar 'twenty twenty-three Houlihan Lokey was ranked the number one investment banking firm globally for all M&A transactions based on transaction volume. We are again ranked as the.

Speaker Change: Number one investment banking firm globally for all financial restructuring transactions, both in terms of value and volume and finally, we ranked because the most active fairness opinion provider globally when measured over the last 25 years. Congratulations to every employee at Houlihan Lokey, who worked hard to achieve those accolades.

Scott Lee Beiser: And finally, we ranked as the most active fairness opinion provider globally when measured over the last 25 years. Congratulations to every employee at Houlihan Lokey who worked hard to achieve these accolades, and thank you to all our investors who, throughout the cycles, have continued to support our efforts to become a trusted advisor to our clients and a leader in investment banking worldwide.

Speaker Change: And thank you to all our investors who throughout the cycles have continued to support our efforts to become a trusted advisor to our clients and a leader in investment banking worldwide and with that I'll turn the call over to Lindsey. Thank you Scott.

Lindsay Alley: Thank you, Scott. Revenues in corporate finance were $311 million for the quarter, up 6% when compared to the same quarter last year. We closed 117 transactions this quarter, compared to 125 in the same period last year. Although our transaction count decreased, our average transaction fee was higher for the quarter versus the same quarter last week. Financial restructuring revenues were $129 million for the quarter, a 30% increase versus the same period last year. We closed 30 transactions in the quarter, compared to 28 in the same period last year, and our average transaction fee on closed deals increased. In financial and valuation advisory, revenues were $72 million for the quarter, a 9% increase from the same period last year. We had 926 fee events during the quarter, compared to $876 in the same period last year. Turning to expenses, our adjusted compensation expenses were $314 million for the quarter versus $281 million for the same quarter last year. Our only adjustment was $9.7 million for deferred retention payments related to certain acquisitions.

Lindsey Alley: Revenues in corporate finance were $311 million for the quarter up 6% when compared to the same quarter last year.

Lindsey Alley: We closed 117 transactions this quarter compared to 125 in the same period last year.

Lindsey Alley: Though our transaction count decreased our average transaction fee was higher for the quarter versus the same quarter last year.

Lindsey Alley: Financial restructuring revenues were $129 million for the quarter, 30% increase versus the same period last year.

Lindsey Alley: We closed 30 transactions in the quarter compared to 28 in the same period last year and our average transaction fee unclosed deals increased.

Lindsey Alley: In financial and valuation advisory revenues were 72 million for the quarter, a 9% increase from the same period last year, we had 926 fee events during the quarter compared to 876 in the same period last year.

Lindsey Alley: Turning to expenses, our adjusted compensation expenses were $314 million for the quarter versus 281 million for the same quarter last year are only adjustment was $9 7 million for deferred retention payments related to certain acquisitions.

Lindsay Alley: Our adjusted compensation expense ratio for the third quarter of both fiscal 2024 and fiscal 2023 was 61.5%. We do expect to maintain our long-term target of 61.5% for our adjusted compensation expense ratio. Our adjusted non-compensation expenses were $82 million for the quarter, an increase of $10 million over the same period last year. This resulted in an adjusted non-compensation expense ratio of 16.1% for the quarter compared to an adjusted non-compensation expense ratio of 15.9% for the same quarter last year. On a per-employee basis, our adjusted non-compensation expense was $31,000 this quarter versus $29,000 for the same quarter last year.

Lindsey Alley: Our adjusted compensation expense ratio for the third quarter in both fiscal 2024 and fiscal 2023 was 61, 5%.

Lindsey Alley: We do expect to maintain our long term target of 61, 5% for our adjusted compensation expense ratio.

Lindsey Alley: Adjusted non compensation expenses were $82 million for the quarter, an increase of 10 million over the same period last year. This resulted in an adjusted non compensation expense ratio of 16, 1% for the quarter compared to an adjusted non compensation expense ratio of 10.9% from the same quarter last year on a per employee basis.

Lindsey Alley: Our adjusted non compensation expense was 31000 this quarter versus 29000 for the same quarter last year, we typically see some seasonality in our adjusted non compensation expenses with a second half modestly higher than the first half we expect that trend to continue in our final fiscal quarter. This year.

Lindsey Alley: For the quarter, we adjusted out of our non compensation expenses $1 6 million in noncash acquisition related amortization.

Lindsay Alley: We typically see some seasonality in our adjusted non-compensation expenses, with the second half modestly higher than the first half. We expect that trend to continue in our final fiscal quarter this year. For the quarter, we adjusted $1.6 million out of our non-compensation expenses for non-cash acquisition-related amortization.

Lindsey Alley: $4 3 million for acquisition related costs, primarily related to the triage <unk> acquisition, which is expected to close during our first quarter of fiscal 2025, and $2 6 billion pertaining to professional fees associated with streamlining our global organizational structure, which we referred to as projects solo.

Lindsay Alley: $4.3 million for acquisition-related costs, primarily related to the Triago acquisition, which is expected to close during our first quarter of fiscal 2025, and $2.6 billion pertaining to professional fees associated with streamlining our global organizational structure, which we refer to as Project Solo. Regarding Project SOLO, we have completed 12 acquisitions since we went public in August 2015, and with most of these acquisitions, we have acquired multiple legal entities. Since the acquisition of GCA, the number of legal entities has become burdensome and costly enough that we have decided to streamline our legal structure globally to simplify our operations and reduce our costs. We expect this project to last through fiscal year 2025 and will result in charges for both non-compensation and tax expense, which we plan to adjust out as non-recurring, adjusted other income and expense increase for the quarter to income of approximately $6 million versus income of approximately $2.2 million in the same period last year.

Lindsey Alley: Regarding project solo we've completed 12 acquisitions since we went public in August 2015, and with most of these acquisitions, we have acquired multiple legal entities.

Lindsey Alley: Since the acquisition of GCI, the number of legal entities has become burdensome and costly enough that we decided to streamline our legal structure globally to simplify our operations and reduce our costs. We expect this project to last through fiscal year, 2025, and will and will result in charges to both non compensation and <unk>.

Lindsey Alley: <unk> expense, which we plan to adjust out as nonrecurring.

Lindsey Alley: Our adjusted other income and expense increase for the quarter to income of approximately $6 million versus income of approximately $2 2 million in the same period last year.

The improvement in this category was primarily due to an increase in interest income generated by our investment securities.

Lindsey Alley: Our adjusted effective tax rate for the quarter was 33% compared to 24, 6% for the same quarter last year.

Lindsey Alley: Our taxes increased year over year due to adjustments for federal and state tax returns filed during the quarter and increased taxes due to our foreign operations.

Lindsey Alley: Overall, our effective tax rate has also increased for the year to date period as a result of the increase in corporate tax in the U K from 19% to 25% effective April one 2023.

Lindsay Alley: The improvement in this category was primarily due to an increase in interest income generated by our investment security. Our adjusted effective tax rate for the quarter was 30.3%, compared to 24.6% for the same quarter last year. Our taxes increased year-over-year due to adjustments for federal and state tax returns filed during the quarter and increased taxes due to our foreign operations.

Lindsey Alley: Due to our increasing mix of foreign revenues and increase in the U K corporate tax rate, we are slightly increasing the long term range for our effective tax rate to between 28% and 30% up from between 27% and 29%.

Lindsay Alley: Overall, our effective tax rate has also increased for the year-to-day period as a result of the increase in corporate tax in the UK from 19% to 25% effective April 1st, 2023. Due to our increasing mix of foreign revenues and increase in the UK corporate tax rate, we are slightly increasing the long-term range for our effective tax rate to between 28 percent and 30 percent, up from between 27 and 29 percent. Turning to the balance sheet, as of the quarter end, we had approximately $591 million of unrestricted cash and equivalents and investment security. In this past quarter, we did not repurchase any shares.

Lindsey Alley: Turning to the balance sheet as of quarter end, we had approximately 591 million of unrestricted cash and equivalents and investment securities.

Lindsey Alley: And this past quarter, we did not repurchase any shares.

Lindsey Alley: We continue to take a conservative approach to share repurchases as we are prioritizing balance sheet strength and flexibility to be able to take advantage of acquisition and hiring opportunities in this market.

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

Oh.

Speaker Change: Thank you and at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two unless you would like to remove your question from the queue.

Speaker Change: So he's using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: And one moment, please while we poll.

Operator: We continue to take a conservative approach to share repurchases as we are prioritizing balance sheet strength and flexibility to be able to take advantage of acquisition and hiring opportunities in this market. And with that, Operator, if we could open the line to questions. Thank you. At this time, we will be conducting a question and answer session. If you would like to ask... A confirmation tone will indicate that you're live. You may press star two if you would like to remove your question. Participants are using speakers.

Speaker Change: And our first question comes from the line of Ken Worthington with Jpmorgan. Please proceed with your question.

Ken Worthington: Hi, good afternoon. Thanks for taking the questions maybe first on restructuring the MD count I think fell from 60 to 52 this quarter.

Ken Worthington: It's not a decline I think we've seen since you've been a public company and assuming my data is correct, what what sort of happened here.

Speaker Change: Yeah, we took a number of our people that were in what I'll call, our oil and gas industry sector, which historically was built through doing restructuring and think back through the distressed that oil and gas had over the years and today that group of people. We believe are doing far more work on the healthy environment than on the distressed environment. So we.

Ken Worthington: It may be necessary to pick up. And our first question comes from the line of Ken Worthington with J.P. Morgan. Please proceed with your call. Hi, good afternoon. Maybe first, in restructuring, the MD count, I think, fell from 60 to 52 this quarter. It's not a decline I think we've seen since you've been a public company. And assuming my data is correct, what sort of happened?

Speaker Change: Moved those people into the category of corporate finance. So it was not departures of people, leaving the firm is really just an internal shift of categorizing. These people are focusing at this juncture more on corporate finance activities and in financial restructuring activities and just to follow up on that there were a total of eight M DS.

Speaker Change: And the revenues don't change this was just a movement of personnel.

Scott Lee Beiser: We took a number of our people that were in what I'll call our oil and gas industry sector, which historically was built through doing restructuring and thinking back on the distress that oil and gas companies have had over the years. Today, that group of people, we believe, are doing far more work in the healthy environment than in the distressed environment, so we moved those people into the category of corporate finance. So it was not departures of people leaving the firm; it was really just an internal shift of categorizing these people, focusing at this juncture more on corporate finance activities than financial restructuring activities. And just to follow up on that, there were a total of eight MDs, and revenues didn't change. This was just a movement of personnel; the revenue profile of restructuring versus corporate finance will be booked in the areas going forward in which the work is performed. Okay, that's awesome.

Speaker Change: Revenue profile of restructuring versus corporate finance.

Speaker Change: Be booked in the in the areas going forward in which the though the work is performed.

Speaker Change: Awesome, even got the follow up question there.

Okay for my my other follow up in terms of financing it sounds like the syndicated loan market at least in the U S has opened back up.

Speaker Change: What are you hearing and seeing in terms of deal financings I guess, both for smaller companies or smaller deals.

Speaker Change: And larger deals and then talk to us sort of a U S versus non U S.

Speaker Change: If I'm right and we are seeing an improvement in financing is it sort of proportional throughout different geographies or is it improving more so or less so.

Speaker Change: And any particular region.

So a couple of responses to your question one we've seen for at least several quarters I think more of an open market for mid market sized transactions in the larger syndicated deals. So part of it is a size issue.

Scott Lee Beiser: You even got the follow-up question there. Okay, for my other follow-up, in terms of financing, it sounds like the syndicated loan market, at least in the U.S., is open back up. What are you hearing and seeing in terms of deal financings, I guess, both for smaller companies or smaller deals and larger deals? Talk to us about U.S. versus non-U.S.

Speaker Change: I do also think that probably the U S is leading the way its still has a healthier economy, a much broader base capital environment than in Europe or parts of Asia. So I'd say, we do see some increased strength in the U S versus Europe or some of the other places but things are <unk>.

Speaker Change: <unk> up slowly, but surely and at an increased pace I'd say month by month and quarter by quarter at least during calendar 2023.

Scott Lee Beiser: If I'm right, and we are seeing an improvement in financing, is it sort of proportional throughout different geographies, or is it improving more so or less so in any particular region? So, a couple of responses to your question. One, we've seen for at least several quarters, I think, more of an open market for mid-market size transactions than the larger syndicated deals. So, part of it is a size issue. I do also think that the U.S. is probably leading the way. It still has a healthier economy, a much broader-based, you know, capital environment than in Europe or parts of Asia.

Speaker Change: Okay.

Speaker Change: Those are my two thank you very much.

Speaker Change: Thanks, Ken.

Speaker Change: Thank you. Our next question comes from the line of Devin Ryan with JMP Securities. Please proceed with your question.

Speaker Change: Hi, Scott and Lindsey this is Alex Chang stepping in for Devin and I. Appreciate you guys. Taking my question I guess, just a FERC a start on sponsors they've been really absent from the market for the last calendar year and their slowest share of announcements I think since 2013.

Alex Chang: So what is the tone that youre getting from sponsors right now and how is that comparing to the tone from your corporate clients.

Scott Lee Beiser: So, I'd say we do see some increased strengths in the U.S. versus Europe or some other places, but things are opening up slowly but surely and at an increased pace, I'd say month by month and quarter by quarter, at least during calendar 2023. Great. Those are my two.

Alex Chang: Yeah, you're correct, obviously in the total number of percentage importance survive.

Alex Chang: <unk> sponsors versus strategics.

Alex Chang: As weight more towards the strategic end. During this said tougher time period, we are seeing more activity in the financial sponsors I'd say a couple of things are happening. One is interest rates have come down a bit spreads have tightened up a bit I think each and every month or quarter that there has been some if he might I guess hibernation.

Scott Lee Beiser: Thank you very much. Thank you. Our next question comes from the line of Devin Ryan with JMP Securities. Please proceed. Hi, Scott and Lindsay. This is Alex Jenkins stepping in for Devin.

Devin Ryan: Appreciate you guys taking my question. I guess just to start on sponsors, they've been really absent from the market for the last calendar year, had their slowest year of announcements, I think, since 2013. So what is the tone that you're getting from sponsors right now? And how's that comparing to the tone from your corporate?

Alex Chang: Private equity activity.

Alex Chang: They do run into eventual timelines for a variety of reasons, they will get them to start considering doing the transactions and we continue to see more dialogue.

Alex Chang: You know we are still finding the timeframe from conversations to getting higher digging closed its still longer than what might we might say has been normal over the last decade, but the financial sponsor business environment has been increasing over the last several quarters.

Scott Lee Beiser: Um, you know, you're correct, obviously, in the total number or percentage importance of financial sponsors versus strategics, sponsors versus strategics have weighed more towards the strategic end during this tougher time period. However, we are seeing more activity in financial sponsors. I see a couple of things happening.

Speaker Change: Okay great.

Speaker Change: Great. Thank you for that color and then.

Speaker Change: Just one follow up on you you kind of touched on this in your prepared remarks, but on the M&A side are you seeing a lot of pent up activity starting to move forward, which could in theory create like a coiled spring for business or do you see a recovery is more of a slow build even if.

Scott Lee Beiser: One is that interest rates have come down a bit, and spreads have tightened a bit. I think each and every month or quarter that there has been some, if you might, I guess, hibernation, private equity activity. They do run into eventual timelines for a variety of reasons that will get them to start considering doing transactions, and we continue to see more dialogue.

Speaker Change: Conditions remain favorable.

Speaker Change: Thank you.

Speaker Change: It probably somewhere in between I don't think we're in a coiled spring where theres a lot of pent up demand that for some variety of reasons need it gets accomplished in a short term basis.

Speaker Change: But I would say things are building at an increasing pace, we still do not think we're at it as we described at a normal level and then history would show eventually you'll go to something that is more robust than a normal level and any swing back downwards once again.

Scott Lee Beiser: You know, we're still finding the timeframe from conversations to getting hired to getting closed is still longer than we might say has been normal over the last decade. But the financial sponsor business environment has been increasing over the last several years. Okay, great, thank you for that, Keller. And then just one follow-up, you kind of touched on this in your prepared remarks, but on the M&A side, are you seeing a lot of pent-up activity starting to move forward, which could, in theory, create a coil spring for business, or do you see a recovery as more of a slow build, even if conditions remain favorable? The answer is probably somewhere in between.

Speaker Change: And so things have been improving I'm not sure I would use the word exactly slow, but its not a coiled spring ready to pounce and and then we don't expect to see what we saw probably from summer of 2020, all the way through calendar 2021.

Speaker Change: Great. Thank you guys appreciate it.

Speaker Change: Thanks, Alex.

Speaker Change: Thank you. Our next question comes from the line of Brennan Hawken with UBS. Please proceed with your question.

Brennan Hawken: Hi, Thanks for taking my questions.

Brennan Hawken: So it looks like as far as corporate Finance goes and you guys had been in this sort of revenue range of about $2 50 to 300. This quarter came in a little better than that and we are it seems as though the commentary around the outlook seems to be improving so are we at a place where.

Devin Ryan: I don't think we're in a coiled spring where there's a lot of pent-up demand that, for some variety of reasons needed, gets accomplished on a short-term basis, but I would say things are building at an increasing pace. We still do not think we're at, as we described, a normal level, and history would show that eventually you'll go to something that is more robust than a normal level, and then you swing back downwards once again. So, things have been improving. I'm not sure I would use the word exactly slow, but it's not a coiled spring ready to pounce, and we don't expect to see what we saw probably from the summer of 2020 all the way through calendar 2021.

Brennan Hawken: There.

Brennan Hawken: As long as the environment remains constructive we can begin to start thinking about how to grow and what our growth trajectory would look like within corporate finance or is it too early to be calling that.

Brennan Hawken: What we'd say is we're in a step one which is to get back to normal levels.

Brennan Hawken: Which is to increase the number of opportunities per banker increase the percentage of deals that close and shrink the time to close.

Brennan Hawken: We think there are net more tailwind than headwind just to make that happen. So.

Brennan Hawken: Thank you, guys. I appreciate it. Thank you. Our next question comes from the line of Brennan Hawken with UBS. Please proceed with your question. Hi, thanks for taking my question. Um, so. And that's what it looks like as far as corporate finance goes. The quarter came in a little better than that.

Brennan Hawken: So we do think it's in a growing in an escalating environment I think the question. We would have is really the speed that it will take to get to normal and what does that trajectory look like but we do think where we're operating at a.

Brennan Hawken: A more buoyant level than we were last couple of quarters last year or two.

Scott Lee Beiser: It seems as though the commentary around the outlook seems to be improving, so are we at a place where... As long as the environment remains constructive, to start thinking about row and what a gross looks like within corporate finance, or is it too early? What we'd say is we're in step one, which is to get back to normal levels, which is to increase the number of opportunities per banker, increase the percentage of deals that close, and shrink the time to close. We think that there are net more tailwinds than headwinds to make that happen. So we do think it's in a growing and escalating environment. I think the question we would have is really the speed that it will take to get to normal and what that trajectory looks like.

Speaker Change: Got it. Thank you very much for that and then when we think about previously you guys had indicated that the.

Speaker Change: M D head count I believe was expected to be pretty stable.

Speaker Change: In the fiscal year within Corp fin did that expectation for debility include the expectation of those five oil.

Speaker Change: Energy bankers moving into corporate fence or is that exclusive of that re categorization.

Speaker Change: Im not sure we sliced it that are specific.

Speaker Change: When we mentioned this maybe a couple of quarters ago I mean, we have.

Speaker Change: Approximately 220.

Scott Lee Beiser: But we do think we're operating at a more buoyant level than we were, you know, last couple of quarters, last year or two. Thank you very much for that. MD, headcount. Did that expectation for stability include the expectation of those five oil energy bankers moving into corporate finance, or is that not expected? with that recap.

Speaker Change: Client facing bankers and corporate finance in the way, we count it and I think what we've said is we.

Speaker Change: We always planned to do some acquisitions that we don't control the timing of those I think we believe we've been in a normal hiring environment, we have not massively.

Speaker Change: Kris fair amount of hiring a north slowed down our hiring and then we have a I'd call. It a normal but still relatively small percentage of our departures for a variety of reasons and based upon all of that we didn't think there would be much change in our head count and corporate finance at least through fiscal 'twenty, four and I think that's going.

Brennan Hawken: You're not sure we sliced it that specifically when we mentioned this maybe a couple quarters ago. I mean, we have approximately 220 client-facing bankers in corporate finance the way we count them. And I think what we've said is that we always plan to do some acquisitions, but we don't control the timing of those. I think we believe we've been in a normal hiring environment. We have not massively increased our amount of hiring or slowed down our hiring.

Speaker Change: Pan out and.

Speaker Change: While we had been talking about the potential move of the oil and gas team internally for a while.

Speaker Change: I don't have a specific thought Ed said, when we really penciled stuff out a couple of quarters ago, where we included or not including I'd say ultimately the eight people that.

Scott Lee Beiser: And then we have a, I'd call it a normal, but still relatively small percentage of departures for a variety of reasons. And based upon all that, we didn't think there would be much change in our headcount in corporate finance, at least through fiscal 24. And I think that's going to pan out. But you know, while we had been talking about the potential move of the oil and gas team internally for a while, like I said, I don't have a specific thought. Ed said, when we really penciled stuff out a couple quarters ago, were we included or not included, I'd say ultimately the eight people that Lindsey mentioned is still kind of just a rounding percentage in Okay, so I wasn't trying to nitpick there; I was just curious.

Speaker Change: Lindsey mentioned, there's still kind of just a rounding percentage and the totality of corporate finance the size.

Speaker Change: Okay. So I wasn't trying to.

Speaker Change: Nitpick, they're just just curious thanks for taking the questions.

Speaker Change: Thanks Brendan.

Speaker Change: Thank you. Our next question comes from the line of Steven <unk> with Wolfe Research. Please proceed with your question.

Speaker Change: Good afternoon. This is Brendan O'brien filling in for Steven.

Brennan Hawken: So I guess to start just on the restructuring outlook commentary there was similar to what we've been hearing from some of your peers.

Wanted to get a sense as to whether you would expect rate cuts that had any material impact on activity levels and also if you could provide some color on whether or not you are seeing more activity on the liability management or traditional restructuring side at the moment that'd be great.

Speaker Change: I'll take the first part and Lindsey can take the second.

Speaker Change: All things being equal as the economy gets better and better at it as interest rates go down et cetera. It will have some.

Brennan Hawken: Thanks, Brennan. Our next question comes from the line of Stephen Chubac with Wolf Research. We'll see you. Good afternoon. This is Brennan O'Brien filling in for Stephen.

Speaker Change: Slow down on the restructuring business, having said that we still think we're probably playing a bit of catch up for things that did not run into some level of financial distress due to governmental intervention over the last several years and the difference today is while the financing marketplaces are opening up.

Stephen Chubac: So I guess to start, the commentary there was similar to what we've been hearing from some of your peers. I just want to get it, material, www.kenhub.com liability management or traditional restructuring side at the moment. That would be great.

Speaker Change: Our and people are able to do some refinancings.

Speaker Change: A lot of these companies are still going to be refinancing at much higher interest rates. So it doesn't necessarily solve their problem and that's why we think we will be at kind of a elevated level for some time period and this is not a typical call. It crisis mode, where you see substantial shrinkage in EBITDA. This is less.

Lindsay Alley: I'll take the first part and Lindsey can take the second, you know, all things being equal, as the economy gets better and better, and as interest rates go down, etc., it will have some slowdown in the restructuring business. Having said that, we still think we're probably playing a bit of catch-up for things that did not run into some level of financial distress due to, you know, governmental intervention over the last several years, and the difference today is while the financing marketplaces are opening up more, and people are able to do some refinancings, a lot of these companies are still going to be refinancing at much higher interest rates, so it doesn't necessarily solve their problem, and that's why we think we will be at kind of an elevated level for, you know, some time period, and this is not in a typical, call it crisis mode, where you see substantial shrinkage in EBITDA.

Speaker Change: The company's financial performance deteriorating completely and it's more about a balance sheet problem, that's still going to take some while to fixed for many companies.

Speaker Change: And I think with respect to liability management, given the characteristics of of the economy that have been in place. Since early 2022 liability management continues to play an important role in our restructuring business.

Speaker Change: And expect that to continue for the foreseeable future, it's a relatively long runway.

Speaker Change: The maturity walls are out long enough that companies have time.

Speaker Change: To have those discussions early on versus a scenario like what we saw in COVID-19 or in the great recession, where there was a crisis and it.

Speaker Change: It resulted in sort of an immediate impact on the economy. So just given these characteristics liability management has and will continue to play an important role.

Speaker Change: That's great color. Thank you and I guess for my follow up I, just wanted to touch on the Trulia acquisition.

Speaker Change: Given it didn't meet the materiality threshold for disclosure and it doesn't feel like it'll have a significant impact on revenues in the near term. However, it does seem like you could realize significant synergies once it's plugged into your sponsor coverage platform. So I just wanted to get a sense as to how quickly you believe this business become a it could become a meaningful contributor contributor.

Lindsay Alley: This is less about companies' financial performance deteriorating completely, and it's more about a balance sheet problem that's still going to take some time to fix for many companies. And with respect to liability management, you know, given the characteristics of the economy that have been in place since early 2022, liability management, you know, continues to play an important role in our restructuring business, and I expect that to continue for the foreseeable future. It's a relatively long runway, though maturity walls are out long enough that companies have time to have those discussions early on versus a scenario like what we saw in COVID or in the Great Recession, where there was a crisis, and it resulted in sort of an immediate impact on the economy. So, just given these characteristics, liability management has and will continue to play an important role. Great color, thank you.

Speaker Change: To your revenues and what the growth opportunity is there.

Speaker Change: Well, we've always felt that but we'll call them the private finance aside it's an important part of what we can do for our clients.

Speaker Change: We recognize it's a global business, we recognize there are different components and advising Gpus at times in Lp's at times and as we call. It direct et cetera, and we think we had certain strengths in some of those categories, but not enough of them and so really I would say what we already had.

Speaker Change: We'll be adding in some acquisitions in some hirings that we've done we think we will have a much larger platform and we will continue to be a growing part of really the whole I'll call. It capital provisioning to clients for different reasons and as you'd mentioned a very good connecting point with our financial sponsor coverage efforts since we really know hundreds and <unk>.

Stephen Chubac: And I guess for my follow-up, I just wanted to say. The Bulletproof Executive 2013, given it to me. Threshold for Disclosure.

Speaker Change: Hundreds of GPS and L. P is we think theres a decent amount of work that we can do.

Lindsay Alley: It doesn't feel like it'll have a significant impact on revenues in the near term, however, it does, http://TheBusinessProfessor.com. So I just want to get, believe this business could come, to become a meaningful contributor. Well, we've always felt that we should call the private finance side, it's an important part of what we can do for our clients. We recognize it's a global business; we recognize there are different components to advising GPs at times and LPs at times, and, as we call it, directs, etc., and we think we have certain strengths in some of those categories, but not enough of them.

Speaker Change: Over the coming years.

Speaker Change: Alright, Thank you for taking my questions.

Speaker Change: Yeah.

Speaker Change: Thanks, Brian.

Speaker Change: Thank you. Our next question comes from the line of James <unk> with Goldman Sachs do you foresee with your question.

James: Thanks, Scott and Lindsey for taking my questions. Maybe you could just speak to quickly what you see as the key risks at this point to the M&A recovery for 2024 I thought it would just be useful given there is so much.

James: Good news here to get your perspective on that.

Scott Lee Beiser: So I'd start with a comment and we do see more of I'll call. It positive news and potential negatives going forward, but a couple that I point out that we have no control over what the impact might be.

Scott Lee Beiser: And so really, I'd say what we already have, we will be adding in some acquisitions and some hirings that we've done. We think we will have a much larger platform and will continue to be a growing part of, I call it, capital provisioning to clients for different reasons. And as you mentioned, a very good connecting point with our financial sponsor coverage efforts since we really know hundreds and hundreds of GPs and LPs. We think there's a decent amount of work that we can do, you know, over the coming year. Thank you for taking my question. Thank you. Our next question comes from the line of James Yarrow with Goldman Sachs. www.larryweaver.com. Thanks Scott and Lindsay. Thank you.

Scott Lee Beiser: First I would talk about just the geopolitical environment out there and specifically the two wars going on in Europe, and the Middle East and where they go and if they expand and what impact that could have on other parts of the economy would be 0.1 I've mentioned.

Scott Lee Beiser: Two is as we get closer and closer to the U S elections.

Scott Lee Beiser: And I think there's always uncertainty regarding elections and regardless of how it goes you will likely have some clientele that will just want to wait to see the outcome before they might do things I don't think that's impacting business yet I suspect as we get closer to summer time, we'll get a better feel for it and the third thing I'd mentioned is <unk>.

Scott Lee Beiser: While we do believe interest rates at least for the moment have hit their peak energy are going to head downward. It at some level, we are not expecting any either as a client base that they are going back down to zero or close to zero. So we will be living in a higher interest rate environment and we've seen over call. It. The last 10 years, but you might argue it's an interest rate environment.

James Mitchell: Maybe you can speak to quickly what you see as the key risks at this point to the M&A recovery for 2024. I thought it would just be useful given, you know, there's so much, you know, good news here to get your... So I'd start with the comment that we do see more of what we'll call positive news than potential negative news going forward, but a couple that I'd point out that, you know, we have no control over what the impact might be, you know, first I would talk about just the geopolitical environment out there and specifically the, you know, two wars going on in Europe and the Middle East and where they go and if they expand and what impact it could have on other parts of the economy would be, you know, point one I'd mention, I think point two is as we get closer and closer to the U.S. elections and I think there's always uncertainty regarding elections and regardless of how it goes, you will likely have some clientele that will just want to wait to see the outcome before they might do things.

For those of US who've been in the business for 10 2030 years, it's probably more akin to what we've seen those would be a couple of things I would mention.

Scott Lee Beiser: Okay.

Speaker Change: That's really helpful. Thanks, Scott just one for you Lindsay just on the non comp expenses you did talk about how they should remain higher in the second half of the fiscal year, maybe you could just speak to the longer term outlook for those should we expect them to continue to rise into <unk>.

Speaker Change: Subsequent.

Speaker Change: Fiscal years.

Scott Lee Beiser: I made a quick answers the quick answer is yes.

Scott Lee Beiser: We continue to experience inflation across the major categories rent tier.

Tim any.

Scott Lee Beiser: Professional fees I don't think that's going away.

Scott Lee Beiser: I do believe you might see a bit more measured.

Scott Lee Beiser: Increases next year, we did have quite a bit of increase in rent. This year as I think we've mentioned on previous calls we had a little bit of a perfect storm in terms of.

James Mitchell: I don't think that's impacting business yet. I suspect as we get closer to summertime, we'll get a better feel for it, and the third thing I'd mention is while we do believe interest rates, at least for the moment, have hit their peak and are going to head downward at some level, we are not expecting, and neither is our client base, that they're going back down to zero or close to zero. So we will be living in a higher interest rate environment than we've seen Those would be a couple things I would mention. Okay, that's really helpful. Thanks, Scott. Just one for you, Lindsay, on the non-comp expenses.

Scott Lee Beiser: Movement of offices and our investments in rent and so you saw some significant pressure. There you know you continue to see a little bit of pressure on <unk>.

Scott Lee Beiser: On the return to work kind of as a hangover from Covid, but you should expect to see it I would say probably closer to inflation versus significant growth, but but yes. We are.

Scott Lee Beiser: We do expect to see some some increases in non comp next year and I think next quarter I'll, probably give a little bit more insight on what our fiscal 'twenty five might look like.

Speaker Change: Okay that makes a lot of sense. Thanks a lot.

Speaker Change: Thank you. Our next question comes from the line of Ryan <unk> with Morgan Stanley.

Ryan: See what's your question.

Ryan: Hey, Thanks for taking my question.

Ryan: So I thought the comment earlier was interesting around one of the levers to normalize M&A volumes being shrinking the time to close and we've been hearing about lags in time to close from the peer group. So wondering if you could give more color. There how do you shrink that time to close and are you seeing any signs that those lags are mitigating it.

Scott Lee Beiser: You did talk about how they should remain higher in the second half of the fiscal year. Maybe you could just speak to the longer-term outlook for those. Should we expect them to continue to rise into? Subs by www.zeoranger.co.uk and Chris Cooper.

Ryan: At all.

Ryan: I think most of the timeframe has to do with outside forces not necessarily inside what bankers can do.

Lindsay Alley: Thank you. Thank you. I mean, the quick answer is yes.

Lindsay Alley: We, you know, continue to experience inflation across the major categories, rent, TM&E, and professional fees. I don't think that's going away. I do believe you might see a bit more measured increases next year. We did have quite a bit of an increase in rent this year, as I think we've mentioned on previous calls. We had a little bit of a perfect storm in terms of the movement of offices and investment in rent, and so you saw some significant pressure there.

Ryan: Ultimately the more robust and auction is so you have more buyers.

Ryan: Then sellers at the moment are more potential lenders and borrowers and some fear or concern that if you don't close or you don't have the winning bid you don't provide the right kind of a capital structure that opportunity may get taken away from you to a competitor and I think we've talked about this for.

Ryan: Quite some time that in the I guess truly gogo days of calendar 2021, it was much more of a seller's market.

Lindsay Alley: You know, you continue to see a little bit of pressure on TM&E on the return to work, kind of as a hangover from COVID. But you should expect to see it, I'd say probably, you know, closer to inflation versus significant growth. But yeah, we do expect to see some increases in non-comp next year. And I think next quarter, I'll probably give a little bit more insight on what our fiscal 25 might look like. Yeah, that makes a lot of sense. Thank you.

Ryan: And much more of a borrower's market. It then clearly flipped in 2022, and 2023 or more probably a buyer's market and a lenders market is gotten more balanced but not to a point, where I would say that it's slipped to the seller side and a borrower side and when that happens you will start to.

Ryan: C Timeframes shrink once again.

Lindsay Alley: Our next question comes from the line of Ryan Kenney with Morgan Stanley, which is: Hey, thanks for taking my question. So I thought the comment earlier was interesting around one of the levers to normalize M&A volumes being shrinking the time to close. And we've been hearing about lags in time to close from the peer group. So wondering if you could give more color there. How do you shrink the time to close?

Ryan: And do you feel like that's more of a mid sized deal phenomenon.

Ryan: Yeah.

Ryan: It's both I mean, we don't have the issue of some very large mega cap deals that also run into <unk>.

Ryan: Regulations, and antitrust et cetera, so it I wouldn't call. It in our case, it's not governmental issues that are slowing things down I think it's more just a bit.

Devin Ryan: And are you seeing any signs that those lags are mitigating at all? I think most of the timeframe has to do with outside forces and not necessarily inside what bankers can do. Ultimately, the more robust an auction is, so you have more buyers than sellers at the moment or more potential lenders than borrowers and some fear or concern that if you don't close, or you don't have the winning bid, or you don't provide the right kind of capital structure, that opportunity may get taken away from you by a competitor.

Ryan: Bid ask spreads buyer seller mindsets.

Ryan: That's that's caused kind of the timeframes to get a little longer than what we had seen over the last call. It decade.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next question comes from the line of Mike Brown with <unk>. Please proceed with your question.

Michael Brown: Okay, great. Thank you for taking my questions.

Michael Brown: I guess I'd like to just put a little finer point on the restructuring side of the business for the fiscal third quarter was as you said I think the second strongest since COVID-19. It sounds like there is a number of regions that the restructuring activity will be elevated here for some time.

Scott Lee Beiser: And I think we've talked about this for quite some time that in the, I guess, hooligogo days of calendar 2021, it was much more of a seller's market and much more of a borrower's market. It then clearly flipped in 2022 and 2023 or, more probably, became a buyer's market and a lender's market. It has gotten more balanced, but not to a point where I'd say that it's flipped to the seller side and the borrower side.

Michael Brown: But I guess as I think about the revenue opportunity versus the fiscal third quarter is it fair to assume that that can can be kind of a floor near term. Obviously, it's episodic as you mentioned, but I guess on an average over over the next year or so is that the right way to think about the potential for that business.

A couple of comments I think you know we've said for the last probably at least year don't view. This restructuring cycle is something that we're going to substantially increase revenues and then watch them substantially decrease.

Scott Lee Beiser: And when that happens, you will start to see timeframes shrink once again. And do you feel like that's more of a mid-sized deal phenomenon? Um, it's both.

But look at this as a much more modest increase but staying higher for a longer period of time, but we did comment today relative to where we were probably a quarter ago.

Scott Lee Beiser: I mean, we don't have the issue of some very large mega-capital deals that also run into regulations and antitrust, etc. So I wouldn't call it, in our case, governmental issues that are slowing things down. I think it's more just, you know, bid-ask spreads, buyer-seller mindsets that have caused the timeframes to get a little longer than what we've seen over the last decade. Thank you. Thank you.

Michael Brown: Where last quarter, we had noticed some softness in new business on the U S side.

Michael Brown: That is no longer the case of kind of new business and it's really across the globe seems to be.

Michael Brown: Still the strong heavy robust side and expect that it will continue to last for a while.

Devin Ryan: Our next question comes from the line of Mike Brown with KBW, http://www.fema.gov. Great, thank you for taking my questions. I guess I'd like to put a little finer point on the restructuring side of the business. So the fiscal third quarter was, as you said, I think the second strongest since COVID, and it sounds like there's a number of reasons that the restructuring activity will be elevated. But I guess as I think about the revenue opportunity versus the fiscal third quarter, is it fair to assume that that can be kind of a floor near term? Obviously, it's episodic, as you mentioned, but I guess on an average over the next year or so A couple of comments.

Michael Brown: So I think we kind of look at the levels that we've been at and recognizing this business has more quarterly volatility due to certain size transactions can cause that number to go up or down in the quarter, but it feels like you know where we've been running at for the last couple of quarters is the expected level for several more quarters.

Speaker Change: Yeah. So another way to say it is kind of take our year to date and divide by three quarters and think of that as a proxy, but recognizing that and we've said this before you know it's a lumpy business. So you can have some quarters like this one where you exceed that number in some quarters like last one where you're below it.

Speaker Change: But thats a pretty good.

Speaker Change: A pretty good way to think about how to model it.

Speaker Change: Okay, great. Thank you.

Speaker Change: Lindsay just maybe a quick.

Lindsay: Question for you on the expense side I know, it's probably a little too early to know, but you mentioned this project so low.

Lindsay: Any way to size the potential benefit of that once it is completed.

Michael Brown: I think, you know, we've said for the last probably at least year, don't view this restructuring cycle as something that we're going to substantially increase revenues and then watch them substantially decrease, but look at this as a much more modest increase but staying higher for a longer period of time. We did comment today relative to where we were probably a quarter ago, where last quarter we had noticed some softness in new business on the U.S. side. That is no longer the case.

Lindsay: Yeah, I mean, we've obviously done some internal work on sort of what the cost savings are I'm not going to give you a number but I'll kind of just walk you through a couple of obvious ones.

Lindsay: We're moving from roughly 50 legal entities.

More than that to roughly 25%, so we're cutting our legal entities in half.

Lindsay: And with almost every legal entity, we have accounting costs. We have tax costs. We have just third party compliance costs and you add all that up and it starts to become a decent number so.

Scott Lee Beiser: So kind of new business really across the globe seems to be, you know, on the still strong, heavy, robust side and expect that it will continue to last for a while. So I think we kind of look at the levels that we've been at and recognize this business has more quarterly volatility due to certain size transactions that can cause that number to go up or down in a period of a quarter. But it feels like, you know, where we've been running in the last couple of quarters is the expected level for, you know, several more quarters. Yeah.

Lindsay: There are some real savings there.

Lindsay: Built into our thinking I think are they going to be material enough for you to model them no.

Lindsay: But they are certainly material enough to justify the expense and so thats, probably the best way to think about it.

And I'd add Lindsay described kind of third party costs.

Lindsay: We will not have to incur there's also a decent amount of time that people in our accounting Department and our legal Department, a compliance department or HR Department.

Michael Brown: And so another way to say it is kind of take our year to date and divide by three quarters and think of that as a proxy. But recognizing that, and we've said this before, you know, it's a lumpy business. So you have some quarters like this one where you exceed that number, and some quarters like the last one where you're below it. But that's a pretty good way to think about how to. Okay, great.

Lindsay: Just you have to deal with all these different entities.

Lindsay: When we go to the marketplace or not.

Lindsay: Working in that mindset as we think about three core business segments industry groups geographies et cetera.

Lindsay: We think it will be able to streamline some of the efforts that we're doing with our existing employees as well. So I think we just got to a point we made so many acquisitions over the years.

Lindsay Alley: Lindsey, just maybe a quick question for you on the expense side. I know it's probably a little too early to know, but you mentioned this project solo. Any way to size the potential benefit of that once it is completed? Yeah, I mean, we've obviously done some internal work on sort of what the cost savings are. I'm not going to give you a number, but I'll kind of just walk you through a couple of obvious ones.

We need to start rationalizing and whittling it down and it will probably be a little more cognizant of thinking about that every time, we make them.

Lindsay: Another acquisition and especially if it's an acquisition outside of the United States. It just seems to always carry another entity that we'd like to ultimately be able to consolidate into an entity that we already have.

Speaker Change: Okay, great well. Thank you it sounds like a very onerous task and good luck, but thank you for taking my questions. Thank you.

Lindsay Alley: You know, we're moving from roughly 50 legal entities, more than that, to roughly 25. So we're cutting our legal entities in half. And with almost every legal entity, we have accounting costs, we have tax costs, we have just third-party compliance costs. And you add all that up, and it starts to become a decent number. So there are some real savings there. They're kind of built into our thinking. I think, you know, are they going to be material enough for you to model them? No, but they are certainly material enough to justify the expense.

Speaker Change: Okay.

Speaker Change: Maybe maybe solo is our ultimate objective could we get it down to one but yes, it will never get into one entity.

Speaker Change: Our next question comes from the line of Jim Mitchell with Seaport Global.

James Mitchell: Proceed with your question.

James Mitchell: Hey, good afternoon.

James Mitchell: Maybe you should have called it project multiple.

James Mitchell: Yeah.

James Mitchell: Maybe it seems like you've made a pretty.

James Mitchell: Significant higher in private credit the head of private credit Morgan Stanley.

James Mitchell: Just how do we is that bringing on new capabilities in that space and it just maybe more broadly.

Scott Lee Beiser: And so that's probably the best way. And I'd add, Lindsey described the kind of third-party costs that we will not have to incur. There's also, you know, a decent amount of time that people in our accounting department, in our legal department, in our compliance department, in our HR department, you just have to deal with all these different entities. Albeit, when we go to the marketplace, we're not, you know, working in that mindset. As we think about three core business segments, industry groups, geographies, et cetera, we think we'll be able to streamline some of the efforts that we're doing with existing employees as well. So I think we just got to a point where we've made so many acquisitions over the years.

James Mitchell: The go to Tao Terence.

James Mitchell: This is <unk> of what you're doing there how do you thinking of the opportunity set and growth.

Tao Terence: So first of all I can give you take a broad perspective of Houlihan Lokey and I think it's just our ongoing growth and success in brand recognition allows us to attract and retain.

Speaker Change: Certain quality people that we probably would have never been able to do.

Speaker Change: Attract and retain three years ago five years ago 10 years ago. So part of it is just a recognition of who and what Houlihan Lokey has today specific in your individual that you are talking about we've always been very bullish on our views on what we think we can do and grow in the capital markets area.

Scott Lee Beiser: We need to start rationalizing and whittling it down, and we'll probably be a little more cognizant of thinking about that every time we make another acquisition. And especially if it's an acquisition outside of the United States, it just seems to always carry another entity that we'd like to ultimately be able to consolidate into an entity that we already have. Okay, great. Well, thank you. It sounds like a very onerous task and good luck, but thank you, Thank you.

Speaker Change: A multifaceted in terms of within the different components of the capital structure going along industry lines going along certain geographies and being able to help clients in their various financing needs and so yes. I think this this hires just another individual that we will build around to continue to expand.

Speaker Change: The capabilities that we have staying within our true meeting.

Speaker Change: In capital markets, which continue to be a a leading advisor.

James Mitchell: Maybe solo was our ultimate objective; could we get it down to one, but we'll never get it to one entity. Thank you. Our next question comes from the line of Jim Mitchell with CTV. Hey, good afternoon.

Speaker Change: No not one that is deploying the capital, but one that is actually advising others, we're seeking to raise capital for a variety for a variety of reasons.

Speaker Change: Okay.

Scott Lee Beiser: Maybe you should have called it project multiple. Maybe it seems like you made a pretty significant hire in private credit, the head of private credit, Morgan Stanley. So just how is that bringing new capabilities in that space? And just maybe more broadly, given the totality of what you're doing there, how are you thinking of the opportunity set? Well, first of all, I think if you take a broad perspective on Houlihan Lokey, and I think it's just our ongoing growth and success in brand recognition allows us to attract and retain certain quality people that we probably would never have been able to attract and retain three years ago, five years ago, 10 years ago. So part of it's just a recognition of who and what Houlihan Lokey is today.

Speaker Change: That's helpful. Any I guess, maybe any way to size, what you think the opportunity set in private credit is.

Speaker Change: Relative to today do you think it's a double or triple in terms of your revenue just trying to think through the materiality of it of the investment and growth.

Speaker Change: What necessarily specifically answer your direct question I think we have looked at how we define capital markets almost in baseball terms.

Speaker Change: 80, where in the second inning maybe.

Speaker Change: Maybe Max where in the third inning, where I think the maturity.

Speaker Change: In the industry of M&A is much further along so I think everything that is being done, especially for the mid cap market, especially with private credit, especially with private companies, especially with private equity firms.

James Mitchell: Specific to the individual that you're talking about, we've always been very bullish on our views on what we think we can do and grow in the capital markets area. It's multifaceted in terms of different components of the capital structure, going along industry lines, going along certain geographies and being able to help clients with their various financing needs. And so, yeah, I think this hire is just another individual that we will build around to continue to expand the capabilities that we have, staying within our true meaning in capital markets, which is to continue to be a leading advisor, not one that is deploying capital but one that is actually advising others who are seeking to raise capital for a variety of reasons. Okay, that's helpful.

Speaker Change: These are earlier secular times and therefore, we do think there is quite a bit of growth I don't think any of us have a a decent crystal ball to tell you, whether that's a 50% increase or 500% increase over the next 10 years, but we do think there is some substantial growth not only for ourselves, but others in the industry.

Speaker Change: Participate along these lines.

Speaker Change: No. That's definitely helpful. Thanks for that and then just as a follow up.

Speaker Change: I know you typically have seasonality in your fiscal fourth quarter kind of stepped down let's see it across the industry.

Scott Lee Beiser: I guess maybe any way to size what you think the opportunity set in private credit is relative to today. Do you think it's a double, or a triple in terms of your revenue? I'm just trying to think through the materiality of the investment and growth. I want to really specifically answer your direct question.

Speaker Change: But you noted a lot of momentum across all three businesses do you think that seasonality components, a little less this year. How are you thinking about that cadence on the revenue side.

Speaker Change: So for almost every year I've ever been at the firm minus the last two December was always an abnormally great quarter for the industry.

James Mitchell: I think we have looked at how we define capital markets almost in, you know, baseball terms. Maybe we're in the second inning, you know, maybe Max we're in the third inning, where I think the maturity in the industry of M&A is much further along. So I think everything that is being done, especially for the mid-cap market, especially with private credit, especially with private companies, especially with private equity firms, these are earlier secular times, and therefore, we do think there is quite a bit of growth. I don't think any of us have a decent crystal ball to tell you whether that's a 50% increase or a 500% increase over the next, you know, 10 years, but we do think there Well, anyway, that's definitely helpful. Thanks for that.

Speaker Change: It's still a better quarter than normal, but there just hasnt been the classical rush for tax reasons accounting reasons bonus reasons that the service providers have.

And so we just havent seen that since really I guess December of 2021.

Speaker Change: And so we still have always felt that our second half is better than our first half when december's really cooking I guess, we typically see a decline heading into March.

Speaker Change: I just don't think we had as much of a in the industry and an uptick in the December quarter.

Speaker Change: Like we used to have and therefore.

Speaker Change: You know it could go both ways there could be some classical industry softening into the March quarter on the other hand. It is our fiscal year end. So we have some.

James Mitchell: And then just as a follow-up, I know you typically have seasonality in your fiscal fourth quarter kind of a step down. I see it across the industry, but you noted a lot of momentum across all three businesses. Do you think that seasonality component's a little less this year? How are you thinking about that cadence on the revenue side?

Speaker Change: Greater push and wanting to do things and like I said, I think we feel rather good about our business.

Speaker Change: And our backlog and our opportunities and like I said, I think things have been increasing month by month really since we called April of 2023, as the trough and you still believe that's the trough and its not a straight line, but it continues to improve since then.

Scott Lee Beiser: So for almost every year I've ever been at the firm, mine's the last two, December was always an abnormally great quarter for the industry. It's still a better quarter than normal, but there just hasn't been the classical rush for tax reasons, accounting reasons, bonus reasons that the service providers have. And so we just haven't seen that since, I guess, December of 2021. And so we still have always felt that our second half is better than our first half.

Speaker Change: Alright, well thanks for all your color Scott.

Scott Lee Beiser: Yes, Thanks, Jim.

Speaker Change: Thank you.

Speaker Change: And this does.

Speaker Change: Have we started at the end of the question and answer session I'll now turn the call back over to CEO, Scott Beiser for closing remarks.

Scott Lee Beiser: When December's really cooking, I guess we typically see a decline heading into our March. I just don't think we had as much of an, in the industry, an uptick in the December quarter like we used to have. And therefore, you know, it could go both ways. There could be some classical industry softening into the March quarter. On the other hand, it is our fiscal year end, so we have some greater push for wanting to do things.

Scott Lee Beiser: Thank you and I want to thank you all for participating in our third quarter fiscal year 2024 earnings call and we look forward to updating everybody on our progress when we discuss our fourth quarter and full year results for fiscal 2020 for this coming spring.

Speaker Change: Bye bye.

Speaker Change: This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

Scott Lee Beiser: And like I said, I think we feel rather good about our business and our backlog and our opportunities. And like I said, I think things have been increasing month by month, really, since we called April of 2023 the trough and still believe that's the trough. And it's not a straight line, but it has continued to improve since March.

Speaker Change: Okay.

Okay.

Speaker Change: Yes.

Uh huh.

Speaker Change: Okay.

Speaker Change: Sure.

James Mitchell: All right, well, thanks for all your colors. Yep, thanks. Thank you. And this does... We have.

Yeah.

Scott Lee Beiser: Back over to you. Scott Beiser, Thank you, and I want to thank you all for participating in our third quarter fiscal year 2024 earnings call, and we look forward to updating everybody on our progress when we discuss our fourth quarter and full year results for fiscal 2024 this coming spring. Bye-bye. This concludes today's conference, and you may disconnect your line at this time. Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music Music

Speaker Change: Yeah.