Houlihan Lokey, Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Houlihan-Loki's Fiscal Year-End Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note that this conference call is being recorded today, May 12, 2020. I will now turn the call over to Christopher Crane, Houlihan-Loki's General Counsel. Thank you, Mr. Crane. You may begin.

Thank you, Operator, and hello, everyone. By now, everyone should have access to our fourth quarter and fiscal year 2020 earnings release, which can be found on the Houlihan-Loki 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 use of words such as will, expect, anticipate, should, or other similar phrases, are not guarantees of future performance. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. And therefore, you should exercise caution when interpreting and relying on them. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. We encourage investors to review our regulatory filings, including the Form 10-K for the year ended March 31, 2020, 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.com website. Hosting the call today, we have Scott Beiser, Houlihan Loki's Chief Executive Officer, and Lindsay Atkins, Chief Financial Officer of the company. They will provide some open remarks, and then we will open the call to questions. With that, I'll turn the call over to Scott.

Thank you, Christopher. Welcome, everyone, to our fourth quarter and fiscal year 2020 earnings call. I would like to start by thanking our incredible employees around the world. They have worked tirelessly the last couple of months in a difficult operating environment, They have done so from their living rooms, kitchens, and home offices. Their safety and health is our firm's utmost concern, and we're blessed that very few of our employees have been afflicted with COVID-19. Next, we would like to thank all the workers who continue to provide us with their medical needs, food, and other essential services. Without their dedication and sacrifice, our world would simply be less safe. I am pleased to announce that Houlihan Loki and its senior management team have contributed approximately $2 million to first responder causes thus far. And with our ongoing employer matching program, we anticipate the firm and our employees will continue to contribute as we all get through this together. Moving on to our operations and financial results, I will provide my remarks in three sections. One, a brief overview of our fourth quarter and fiscal year 2020 results. Two, a summary of the firm's activity and how we believe we are positioned in the current business environment. And three, an overview of potential opportunities that this pandemic creates for us over the next year or two. Our fourth quarter fiscal 2020 revenues were $303 million, up 4% year over year. This was the firm's second highest quarterly revenues, surpassed only by our third quarter this fiscal year. For the full fiscal year, we achieved record revenues of $1.16 billion, up 7%, with year-over-year growth recorded in all three business segments. Corporate finance and financial and valuation advisory achieved record results, and financial restructuring had its second-best year ever. Adjusted earnings for the quarter were $0.96 per share, up 12%, and for the full year, adjusted earnings were $3.20 per share, up 11%. Lindsay will provide more details on our fiscal quarter and full year financial results, including some favorable tax results that benefited our earnings per share later in this call. Today, we operate in a completely different business environment than last quarter. Since we went public nearly five years ago, we have worked hard to explain to our investors, clients, employees, and acquisition targets why we believe our cyclically balanced business model is unique, and why we are well-positioned to operate in challenging environments like the one we are in today. It is far too early to tell what the next few quarters or years hold for us, our industry, or our economy. We have never seen disruption like we are seeing today, and we cannot predict what our economy will look like when all is said and done. Having said that, let me describe the changes we are seeing at Houlihan Loki, as well as remind you of the key tenets of our business models. Activity in our restructuring business has increased significantly in the last two months, and the size and complexity of transactions have increased as well. New engagement activity is running at almost double our recent monthly run rate, as the pandemic has greatly increased the number of troubled situations and the speed at which solutions are needed. Prior to the crisis, we believed our financial restructuring revenues would substantially increase in a normal economic downturn in light of the sizable amount of leverage in the marketplace. Needless to say, the ramifications of the pandemic have exceeded those of a normal downturn and the activity levels have increased faster than we expected. Nevertheless, as the largest restructuring firm in the world with nearly 250 dedicated restructuring bankers, we believe that we are better positioned than anyone to operate in this environment. Through collaboration with our capital markets team, industry bankers, and valuation professionals, we have several hundred additional colleagues assisting with liability management, debt advisory, distressed M&A, and traditional restructuring mandates. Simply put, we are prepared for this market. In M&A, new business activity levels have declined significantly in the last two months as our clients have pulled back to await better clarity in the economy and understand what the ramifications may be as the world begins to lift stay-at-home orders. Deals have died, even more have been put on temporary hold, and most have seen their timing slowed. Notwithstanding the current negative economic tone, we continue to be hired on numerous new engagements, albeit at a much slower pace than level experienced this time last year. Until we and our clients are through the initial stages of the pandemic and are able to travel, it is difficult to tell when M&A activity will resemble anything approaching normal. Nonetheless, our industry bankers and corporate finance remain active on existing M&A transactions, capital market mandates, and working with our restructuring colleagues to provide integrated solutions for our clients dealing with distressed situations. This workforce shift is a hallmark of our business adaptability and sophistication, which has historically allowed us to keep our industry bankers operating efficiently through the cycles. Furthermore, the substantial involvement of our industry bankers in restructuring deals bodes well for post-restructuring corporate finance and valuation work. Our capital markets bankers pivoted from financing healthy acquisitions to liability management, debt advisory, rescue financing, and bridge financing. Although the number of new financing opportunities has declined, the size and complexity has increased as many borrowers who historically relied on traditional financing sources now find themselves in need of more flexible financing options. As traditional capital sources become less available for certain sectors of the market, we fully expect this group to remain busy throughout the year. Within our FEA business, each of our sub-product lines are affected differently. Our portfolio valuation group is extremely busy as the volatility in the marketplace is putting pressure on clients as they mark to market their investments. However, as we see fewer clients pursuing deals, our transaction opinion and transaction advisory work has been slower than usual. Our financial sponsors coverage bankers have been a focal point for the sponsor community in understanding what their current needs are. We continue to provide advice to these important clients, making introductions to our various industry, capital markets, restructuring, and valuation bankers. It's also important to highlight some timing results and expectations about our business model. We saw a significant decline in M&A revenues in March and continue to see lower revenues in April. For restructuring, the new business activity levels picked up as quickly as the levels declined in M&A. And although our restructuring transaction engagements have monthly retainers, the larger success fees won't begin to significantly impact revenues for several quarters and into our next fiscal year. As a result of this dynamic in previous cycles, there were a few quarters where we experienced a decline in total revenues before a leveling off and ultimate growth of the business. It is too early to predict how this economic downturn will behave, but it is important to understand history. Similar trends that I just described occurred in our business in 2008 and before that in 2001. In both of those recessions, we outperformed the industry and exited the bottom of the cycle stronger than we entered. Today, once again, our business model is performing the way we had envisioned. Our execution and the depth and breadth of the pandemic aftermath over the next 24 months will be critical to our performance during this crisis and thereafter. Now I'd like to highlight a couple of strategic opportunities that exist because of the dislocation in the market. Firstly, any dislocation of this size puts a significant strain on many industries, including the one in which Houlihan Loki operates. Many of our corporate finance competitors are small boutiques or midsize middle market investment banking firms. Many of them offer only the M&A product or in one industry sector or geography. Some of our competitors may struggle significantly over the next several quarters or wish they had a more diverse product offering. This highlights to our competitors the strength of our platform and spotlights some of their own limitations. In the last few months, our dialogue with firms interested in partnering with or being acquired by Houlihan Loki has significantly increased. Furthermore, the size of these opportunities are somewhat larger than what we have historically encountered. Secondly, the potential to hire talented bankers who might be looking for a more stable and diversified organization should increase. In previous cycles, we have found very talented bankers out of work, or at institutions that had less balance in their business models. Finally, our capital markets business should significantly benefit during and after this crisis as the value proposition of capital markets advice increases. There is now a growing set of opportunities for our firm to participate in and expand our capital market services. In closing, we are fortunate to have healthy employees, are pleased about our fiscal year 2020 financial results, and are realistic about the challenges that lie ahead. However, we also fully expect to see opportunities in the near future that will drive value to our shareholders, and we believe we are very well positioned to capitalize on those opportunities. With that, I'll turn the call over to Lindsey.