This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: Good day, ladies and gentlemen. Thank you for standing by. Welcome to Houlihan-Loki's fourth quarter and fiscal year 2023 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note that this conference call is being recorded today, May 9th, 2023. And I will now turn the call over to Christopher Crane, Houlihan-Loki's general counsel. Please go ahead.
spk05: Thank you, operator, and hello, everyone. By now, everyone should have access to our fourth quarter and fiscal year 2023 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 conditions. We encourage investors to review our regulatory filings, including the Form 10-K for the year ended March 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. 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 Alley, chief financial officer of the company. They will provide some opening remarks, and then we will open the call to questions. With that, I'll turn the call over to Scott.
spk01: Thank you, Christopher. Welcome, everyone, to our fourth quarter and fiscal year 2023 earnings call. We ended the quarter with revenues of $445 million and adjusted earnings per share of $1.11. Revenues for the quarter were down 6% from a year ago and adjusted earnings per share were down 15% from a year earlier. During fiscal 2023, we had little volatility in our quarterly revenues and our second half results were almost identical to our first half results. This fiscal year, we did not experience our typical increase in second half results, likely due to current market conditions. However, our diversified service industry and geographic platform enabled us to achieve our second highest yearly revenues in the firm's history, notwithstanding the difficult market environment. For the quarter, we recorded $256 million in corporate finance revenues, down 8% versus last year. For the fiscal year, corporate finance revenues of $1.13 billion were down substantially from last fiscal year, but still the second best year in the firm's history. Our corporate finance business continues to be a tale of two cities. On the positive side, we have more managing directors than at any other time in the firm's history, covering more industry sectors and geographies than ever before. We closed more transactions this quarter than in any other quarter this fiscal year. The number of new engagements this quarter remains strong and consistent with previous quarters this fiscal year. Overall, the quality and size of the companies hiring us especially in Europe, continues to improve driven by our investments in talent, build out of industry verticals, and geographic expansion. On the other hand, there are headwinds that include continued uncertainty in global markets, challenging financing markets, and a longer time to close transactions as measured between the time we are hired and the time we complete a transaction. Similar to my comments in previous quarters, this environment has resulted in strong new business activity as companies hire us in anticipation of market conditions improving, but lower current revenues as the time to close has extended and companies are cautious about the economic outlook. Financial restructuring achieved 120 million in revenues, down 1% versus the same quarter last year, but up 22% versus last quarter. Fiscal year revenues of 396 million, the second highest in the firm's history, and we enter fiscal 2024 with strong momentum in this business. Several factors are contributing to financial restructuring performance. The period of easy government money and low interest rates no longer exists. With very tight debt markets, leveraged companies are turning to restructuring or liability management to find solutions. The pending debt maturity walls in 2024 and 2025 are putting increasing pressure on companies to do something as the volatility in the capital markets is showing no signs of letting up. These factors, combined with breadth and depth in our restructuring business, are expected to contribute positively to our financial results throughout the year. The number of closed transactions, new quarterly engagements, active engagements, and potential fees associated with active engagements are at highs not seen since the initial months of the COVID pandemic. However, as expressed previously, the current environment for financial restructuring is not fueled by a crisis, but by a combination of factors that should allow this business segment to do well for an extended period of time. Financial and valuation advisory produced 68 million of quarterly revenues, down 4% versus the same quarter last year. fiscal year revenues of $287 million were a record for FEA as they were able to grow revenues slightly this year in a challenging environment. FEA's diversified service offerings enabled some segments to perform quite well, while other segments experienced the same headwinds as our corporate finance business. The disruption occurring in regional banking is having a short-term negative impact on FEA, but an increased banking regulatory environment which most of us believe is likely, will benefit FVA over the long term. Finally, FVA is experiencing strong new business activity, but the time and effort to complete engagements is decreasing overall employee productivity. This will likely result in FVA having a stronger second half of the year than first half. Looking forward, we continue to take advantage of a favorable market for adding talent by hiring eight new MDs this quarter across the globe. We would also like to congratulate our 18 newly promoted managing directors, all effective as of April 1st. On the acquisition front, we continue to be selective in ensuring targets fit both culturally and strategically. Finally, I'd like to thank our 2,600 employees for an exceptional effort in a challenging year and our clients and shareholders who continue to support us with confidence as we navigate the current market. With that, I'll turn the call over to Lindsay.
spk08: Thank you, Scott. Revenues in corporate finance were $256 million for the quarter, down 8% when compared to the same quarter last year. We closed 140 transactions this quarter, a high for fiscal 2023, but below the 144 transactions we completed in the same period last year. Our average transaction fee was lower for the quarter versus the same quarter last year. Financial restructuring revenues were $120 million for the quarter, a slight decrease versus the same period last year. We closed 38 transactions in the quarter compared to 25 in the same quarter last year, but our average transaction fee on closed deals was lower. FR ended the year up slightly versus fiscal 2022. In financial and valuation advisory, revenues were $68 million for the quarter, a 4% decrease from the same period last year. We had 957 fee events during the quarter compared to 999 in the same quarter last year. FBA end of the year ups slightly versus fiscal 2022, a strong performance and a challenging business environment. Turning to expenses, our adjusted compensation expenses were $274 million for the fourth quarter versus $290 million for the same quarter last year. Our only adjustment was $9.4 million for deferred retention payments related to certain acquisitions. Our adjusted compensation expense ratio for the fourth quarter and fiscal year was 61.5%. We enter fiscal 2024 with no change to our target of 61.5 percent for our adjusted compensation expense ratio. Our adjusted non-compensation expenses were $68 million for the quarter, an increase of $9 million over the same period last year. Our fourth quarter non-compensation expense was lower than the last couple of quarters, primarily driven by the timing of certain expenses. This resulted in a non-compensation ratio of 15.3 percent for the quarter. On a per-employee basis, our non-compensation expense ratio was 26,000 per employee this quarter versus 26,000 per employee for the same quarter last year. Heading into fiscal 2024, there is continued upward pressure on rent expense and information technology expenses, which will likely result in our non-compensation expense growing faster than inflation. For the quarter, we adjusted out of our non-compensation expenses $3.2 million in non-cash acquisition related amortization, the vast majority of which was related to the GCA transaction. Our adjusted other income and expense decreased for the quarter to income of approximately $3.9 million versus an expense of approximately $300,000 in the same period last year. The significant growth in this category was driven by higher interest income on our cash balances across the globe. We adjusted out of our other income and expense a benefit of $700,000 related to an earn out for one of our previous acquisitions. Our adjusted effective tax rate was 28% for the quarter as compared to 27.9% for the same quarter last year. We adjusted out of our GAAP effective tax rate a one-time benefit of 5.9 million relating to the release of evaluation allowance in one of our foreign subsidiaries. Finally, we made a policy adjustment in accordance with GAAP relating to the retention shares and fiscal 2022 deferred shares issued as a result of the GCA acquisition, which reduced our GAAP fully diluted shares by approximately $1.6 million for the quarter. This reduction in GAAP fully diluted shares will reverse itself ratably over the next three years. As a result, we are adjusting out this non-recurring change in our fully diluted share count as if it had not occurred, and we are presenting adjusted fully diluted shares the same way we always have. Turning to the balance sheet, as of the quarter end, we had approximately $752 million of unrestricted cash and equivalents and investment securities. A significant portion of our cash is earmarked to cover accrued but unpaid bonuses for fiscal year 2023 that will be paid this month and again in November. Shares issued as part of our fiscal 2023 compensation will vest into the fully diluted share count over a four-year period from the date issued. We did not repurchase any shares for the quarter, and we continue to take a conservative approach to share repurchases as we want balance sheet flexibility to take advantage of acquisition and hiring opportunities in this market. Finally, the Board approved an increase in the quarterly dividend to $0.55 per share from $0.53. The dividend will be paid in June. With that, operator, we can open the line for questions.
spk03: Thank you feel like to register a question, please press the one followed by the four in your telephone and you will hear a three tone prompt to acknowledge your request. If your question has been answered, and you would like to withdraw your registration, please press the one followed by the three. If you are using a speakerphone please lift your handset before entering your request once again that's one for to register for a question on brief moment for the first question. We do have a question from the line of Brennan Hawkins with UBS please go ahead your lines open.
spk07: uh hi uh thanks for taking my questions how you doing scott how you doing lindsay good hi brennan um so wanted to it's obviously a really challenging environment um and uh and certainly march brought an end to the quarter that was no different if we think about either corporate finance business and if we just assume the environment remains unchanged from what we've been seeing because we've been living in a challenging environment for a while now Is the fiscal 2023 revenue base a reasonable way to think about what corporate finance can do if the environment does not improve?
spk01: Yeah, I think similar to my comments earlier, that in fact, quarterly results, really, whether you're looking at the firm level or even the corporate finance level, just didn't have much variability. And for the most part, it does seem like for You know, a little over a year, we've been saying the same thing that new business activity has been pretty good considering the market environment. But getting things across the finish line just continues to take longer than at least what we've historically seen or we'd like. And so, yeah, I think that's a fair way to assume a response to your question. If the markets don't really change, you know, likely having similar results in fiscal 24 versus 23 and not a bad approximation sitting here today.
spk07: Okay, that's helpful. And Lindsay, I believe you indicated that your expectation coming fiscal year would be to grow a little faster than inflation. But different inflation rates are kind of all over the map. So, you know, is it just fair to think about that line as like a mid or single digit grower in the coming fiscal year? or should we calibrate it to a particular inflation metric? Thanks.
spk08: No, I mean, I think purposely ambiguous, Brendan. It is, you know, unclear what inflation is going to do this year. But I think based on sort of our continued investment in real estate, continued investment in information technology, you know, those line items are going to grow quite a bit better than inflation. And I'd say the rest of it, consider inflation and whether you want to consider that 6% or 5% or 8% based on what you think might happen this year, I'll leave up to you.
spk07: Okay, great. Thank you. And then just last one, I believe, Scott, you indicated that a tougher bank regulatory environment could provide a tailwind for SBA. Could you explain how you'd expect that to manifest?
spk01: All things being equal, FBA generally benefits from a more taxing society, a more regulated society, a more society that requires more transparency. And just with what's happened in the I'll call it depository institution, it would seem to me that there will probably be some more regulations. There's probably going to be some more requests by investors on kind of what's in the balance sheets of different institutions. And those things generally do help over the long term. what FEA does for a living.
spk07: Okay. Thanks for taking my questions. Thanks, Brennan.
spk03: Our next question is from Ryan Kenney with Morgan Stanley. Please go ahead. The line's open.
spk06: Hi. Good afternoon.
spk08: Hi, Ryan.
spk06: Wondering if you could expand on how impactful the tighter deal financing is on the M&A outlook. Are financing conditions impacting a few pending deals or the majority? And is it enough of a headwind to take deals out of the backlog?
spk01: I think, you know, since we tend to do more private deals or deals are more in the mid cap space, there has been really throughout this whole I'll call it year time period availability of capital. So it's not that there is no availability of capital costs or higher. There are probably fewer participants asking more questions and more complexities. But we believe the markets are open for the deals that we're working on and things are just taking a little longer for whether that's lenders, boards, buyers, different consultants, asking incremental questions before they can get to the closing. But we do believe that notwithstanding, as we described, the volatility in the financing marketplace, it's not truly a lack of financing that's causing deals not to get done, at least at this juncture. Thanks.
spk06: That's helpful. And then did the volatility related to the March bank failures have any impact on deal closures that were planning to close in the fourth fiscal quarter and then got pushed to this quarter? Or did those deals largely end up closing on time?
spk01: I think, you know, if you really looked at it probably month by month, January seemed to be an improvement in the industry world and things perked up slightly. February, people got, I think, a little more concerned about interest rates and things ticked down a little. And then March, at least the last two weeks, I think a number of deals did just get paralyzed until people could make an assessment of what's happening in the marketplace. And then you could argue maybe got a little better for a couple of weeks. And then we've had another round of concerns And so, yeah, I think there are some deals that have gotten pushed out and some of those are still not closed.
spk06: Thank you.
spk03: Our next question is from one of Matt Moon with KBW. Please go ahead, your line's open.
spk11: Hi, good afternoon. Several of your publicly traded peers have outlined and kind of described an extremely strong revenue or rather a recruiting environment currently. And momentum appears to be relatively strong for you guys as well. Obviously, I understand that you guys aren't necessarily going after the same profile of recruits, but kind of curious how you describe the recruiting environment today and the magnitude to which we should expect you guys to lean into the environment, assuming you agree with the characterization of a strong recruiting backdrop here.
spk01: We've never internally posted targets that say we want to hire X number of people and we're ahead or behind that. I think we're always looking for talent where it's available. We're always looking to expand the breadth of our bench and whether you view that by an industry sector or subsector or geography or some skill set. And sometimes people are more available than others. I think, yeah, it's a somewhat better recruiting environment. But I think there's also still challenges in getting people to want to leave their current place, whether it's coming to Houlihan-Loki or anywhere else. You know, we announced that we effectively added eight new MDs. That's, you know, greater than probably some of the recent quarters we've had, but a lot of that's timing. And, you know, I would say we've been very paceful in our thinking about what we hire, how many we hire, terms and conditions in which we hire people.
spk11: Okay, great. And then for my follow-up, just kind of piggybacking off of Ryan's comments on the post-CV operating environment, kind of just more curious on what you perceive to be the potential medium-term implications on the commercial banking sector, what those impacts could be for your business kind of down the road, whether that be from a higher proportion of high-quality liquid assets maybe held at the banks, et cetera. But we'd love to hear those thoughts and kind of also how your views pre and post those events have maybe evolved for your business lines, maybe specifically on restructuring as well.
spk01: Well, I'll take the restructuring side first. As we've said, we believe what's happening in the restructuring environment is not being driven by a unique crisis like 08-09 or COVID. There's just certain fundamental reasons that we think will give it a long tail over some time period to do work. And the recent issues in some of the depository banking situation probably just adds a little bit of extra fuel to help that business out. But I wouldn't describe that what we're exhibiting today is dramatically different because of the recent banking situation. On the M&A front, I think whenever you have uncertainty associated with the banking system, uncertainty regarding who might survive, who not, who will provide loans or not, things freeze up a little. In the mid and long term, I think it's going to be, once again, probably more of a skew towards non-traditional commercial lenders will be the providers of debt capital for many mid-market size deals, and that trend's been going on for probably 15 years anyways, but it's probably going to get another little jolt upward, and you start seeing some of the opportunistic funds raising new capital to fill in a hole that may be left by some of the mid-size commercial banks.
spk11: Okay, great. Thanks for taking my question.
spk03: Thanks, Matt. Our next question is from Devin Ryan with JMP Securities. Please go ahead. Your line's open.
spk12: Thanks. Good evening, Scott and Lindsey. So, I want to follow up on the restructuring commentary. It sounds like engagements are kind of back to levels experienced in the pandemic, and you go back and look at the firm's revenues and restructuring, there were well over $500 million in that period, and you actually had a couple quarters in there where the annualized rate was quite a bit higher than that. So, I'd just like to think about whether you guys think, just based on what you're seeing in the pipeline today, if you can get those restructuring revenues back to similar kind of $500 million plus levels. And then if you were to take it a step further and pencil out an economic slowdown and maybe couple that with the maturity while coming here, what does that look like for who we are? Given that we're already kind of back to something that looks a little bit like the pandemic. Thanks. Thanks.
spk01: So I think a couple of ways to frame that, um, the total size of the global market, the total size of total leverage and dead in this, the total size of our internal team, the total size of, you know, their maturity and skillset all tells you that we can, uh, you know, grow and potentially, uh, do better than what we've had in previous peaks. Having said that, um, I think what occurred at least in the pandemic, was a relatively short period of time which was truly a crisis and so a lot of business came in to ourselves and our peers rather quickly and it had to get done on a very short-term basis. Today I think we're expecting the amount of new business coming in to ourselves and our peers is going to last longer and the average time to effectuate a restructuring is going to be, I'll call it more normal, versus in a crisis period, it just gets shortened. So we tend to look at it really on what's the total duration of this cycle, and we think it's probably bigger than what we've seen in the past, and we're not really trying to determine whether in any particular quarter or year we'll achieve necessarily a new record. We just think it's a bigger and better marketplace today for restructuring than maybe it's ever been.
spk12: Okay, terrific. Just on the kind of state of the corporate finance and M&A markets, you just want to get a little bit of flavor around whether buyers and sellers are getting closer in the market today, or kind of what are the issue is more just buyers are hesitant because of the uncertainty and then uh in your experience how long do you think it takes of stability uh for for you know buyers to get more conviction and start to move forward it sounds like the number of mandates is still incredibly high so you have sellers that um you know have an asset to potentially sell but just obviously we're not getting to that point of completion so just love a little color on that thanks yeah i mean historically you might find anywhere in a six or 18 month period is what it takes to get uh buyers and sellers to get more aligned
spk01: I think in this particular time period, every time they maybe get a little more aligned, there's a new issue out there. And while maybe it got started with some overvaluation measures on the technology side, and then you've got the war in Ukraine, and then it's been the rapid increase in interest rates that maybe people couldn't initially grapple with, probably staring at us all next is what's going to happen with the U.S., whether they expand the debt limit or not, or what ripple effects that has. So while I think buyers and sellers slowly but surely are getting more aligned, there always seems to be a new issue out there that causes it with a new hiccup. And it still feels that there's enough leeway for buyers or lenders to ask a few more questions, wait for a little more time period. And some of these are the issues that are causing deals to take longer to close.
spk12: Okay, got it. Just one last quick one here on capital markets business. With capital tighter and obviously more complicated backdrop that we're in today, what's going on with that business? Are there more opportunities to disintermediate or just help connect folks that need capital with capital providers just in an environment where capital has just become more scarce and some of the traditional capital providers are obviously tightening standards?
spk01: So I think it's probably a similar comment that we've given in the last couple of quarters. Short term, just because there is less absolute amount of deal potentials for anybody and everybody to work on. And lenders who are providing some amount of capital are just a little more cautious in deploying that. Those are the headwinds into the capital markets business over the mid and long term. I think this is going to be actually positive to that business. much like what happened out of the 08, 09 recession. If it is more difficult to get financing and a shift away from traditional commercial bank lenders to more private direct family offices, sovereign wealth, opportunity funds, et cetera, those tend to use intermediaries to find the placement of that capital. So I think the same thing will likely happen in our capital markets business. There's still probably some rough, you know, potentially weeks, months, quarters ahead. But over the long haul, what's happened in the market activity is actually going to be good for us or anyone else that's in this business is acting as agents and assisting companies in finding debt capital. Got it. Okay. We're there.
spk12: Thanks very much. Appreciate it.
spk03: Thanks, Devin. We have a question from James Yarrow with Goldman Sachs. Please go ahead. Your line's open.
spk02: Good afternoon, and thanks for taking my questions. Maybe we can just talk about the sponsor dialogues that you're having today in the corporate finance business. How close do you think we are to that client base, specifically reengaging, and are they weighing up the need to deploy dry powder with the challenging macro backdrop?
spk01: Well, in many regards, we've had as many pitches on opportunities from financial sponsors as we've had in almost any relevant time period. So they are active. They are focused on needing to eventually do transactions, eventually return capital to the LPs, et cetera. As I and Lindsay mentioned in some of our prepared remarks, a lot of still what is happening, though, is they will run a process and, you know, a pitch to decide who they want to hire, want to lock up the firm that they think can handle this situation best. But instead of saying tomorrow, can you get started? It might be, well, let's wait a week or a month or a quarter until some event occurs. Um, so you get these statistics of getting hired, but not necessarily, uh, you know, get out to the market tomorrow. Um, so I, I think it's just getting closer and closer to the financial sponsor community. feeling like they want to, need to, or maybe it's safe to go out and do deals, pulling out where it was 18 months ago.
spk02: Okay, that's very clear. And then as we think about the acquisition opportunities out there, could you speak to how the opportunity set has evolved versus, let's say, six months ago, and how are you thinking about the relative attractiveness of hiring versus buying at this point?
spk08: So, I start with the acquisitions look at the, in general and environment like this, the acquisition activity tends to heat up a little bit, maybe become a bit more attractive, whether it's slightly better pricing or. An extended period of time where you've got weaker markets and boutique firms say, you know, enough is enough. I think it would be better under a much larger umbrella next time this happens. So we do tend to see increased activity. I'd say on the margin. It is higher than it was maybe 6 months ago or a year ago, but we remain cautious in terms of the type of acquisitions that we do. We are selective. I've described it as a long dating process. That doesn't change in an environment like this. So it doesn't, we don't ramp up as quickly as you might think, but it is a more attractive environment. As Scott mentioned, on the hiring front, there are some benefits to an economy like this. On the hiring front, there is some dislocation with firms. There are some layoffs. Talent becomes available through Firms closing down, going out of business, whatever it is, and that does provide opportunities to us. And I think one of the reasons we've chosen to maintain our balance sheet flexibility is to take advantage of both of those. And so we do tend to see a benefit if there is a benefit or silver lining to these types of environments in the hiring side and on the acquisition side. I don't think that's inconsistent with what some of our peers have said.
spk02: Okay, that's very clear. Thanks for taking my questions.
spk03: Our next question is from Steven Shuback with Wolf Research. Please go ahead. Your line is open.
spk08: Steven Shuback Hi, Steven.
spk10: Steven Shuback Thanks very much for taking my questions. Maybe just starting off with one on SEA, I just want to clarify your earlier remarks. That weaker 1st half, just trying to understand what the jumping off point is. Is that relative to the 1st half last year? Or how should we think about the trajectory for FDA? To kick off the year relative to the 2nd, half ramp that you alluded to.
spk08: Yeah, look, I think it is. Your best bet is to sort of look at this quarter and last quarter and use that as kind of a starting point. We do have some seasonality in that business. The seasonality was muted this year. So I think our commentary is that, you know, based on sort of what we're seeing today, your best starting off point or jumping off point is to take a look at the last couple quarters.
spk10: Fair enough. And just one clarifying question. Maybe for Scott, it's a follow-up to Brian's earlier question just about how the regulatory backdrop can provide a nice tailwind to the FBA business. Many of the regulatory changes that are being introduced are very bank-specific, things like bailable debt, tougher liquidity standards, securities losses, getting reflected in capital. Still not quite sure I understand how issues that are very specific to the banks are likely to benefit the FDA business more broadly, and was hoping you might unpack that a little bit further. Thanks very much.
spk01: So all of this is evolving, but along those ways, we have, as an institution, assisted different governmental agencies as they do put in regulations, so that's one angle that we have. We do do work with the financial community in the depository institutions you know you go back to the old living wills that the larger institutions had to put together it's very possible that a you know an increasing group of institutions will have to do that they at times have looked at firms like ourselves and others to help them either you know preparing those living wills or components of it if you have any different kinds of stakeholders and whether that's LPs, or I should say really almost, you know, GPs making investments in institutions, and then on their behalf and on the LPs' behalf, they want more frequency in terms of what's actually held and what's the valuation metrics in some of these institutions. You know, something we call is kind of the portfolio valuation arena. That could be a place that we could do some incremental work. And I think our comments are as almost any time we've ever seen increased regulation and increased desire by stakeholders and transparency that does inure to the benefit of the financial and valuation advisory firms.
spk10: Really interesting color, Scott. Thanks so much for taking my questions. Okay. Thank you.
spk03: And we have a question from Jim Mitchell with Seafort Global. Please go ahead.
spk09: All right, great. Good afternoon. Maybe first you mentioned, I think, hey, Lindsay, I think you mentioned Europe being pretty strong for you guys. Is that simply a function of payoff on a lot of investments you've been making? Or is there something about that market in the middle market that's, you know, maybe a little bit better than the U.S.? Just want to make sure I understand the commentary around Europe.
spk01: Yeah, our comments were not really whether Europe is stronger than the U.S. versus Asia Pacific, etc. I think it was more of a comment of where our historical and growing brand recognition is and through the investments we've made, either through acquisitions or hirings, training, etc., is our reputation is greatly enhanced in Europe today versus where it was a couple years ago. So the quality of deals that we get hired on, the reputation we have, the importance of our firm in the financial sponsor community out there. That really was our comment that just the, I'll call it the quality of types of assignments, engagements we're getting in Europe are meaningfully better than they were a handful of years ago, more due to changes at our firm than necessarily what the marketplace is doing. Right.
spk09: So you're gaining traction. How do you feel you are in terms of, I don't know if we can put it in innings or however you'd like to think about that, the build out there relative to your U S you know, is it potentially a doubling from here? How do we think about the size opportunity in Europe?
spk08: Scott and I are having a debate while we're listening to your question. I would put it in the fourth inning. I mean, we have just started building out the industry verticals in Europe. There are several areas that we have an extraordinary room to grow. Um, And so we're, we're in the early stages where we're past what we think was the really tough part in the first few innings. And I think we're really starting to see the payoff in terms of reputation and, and we're just getting started. So I think we're both very optimistic about our growth in Europe over the next decade.
spk09: Okay. That's helpful. And, and maybe just one on expenses, um, certainly appreciate, uh, the greater revenue stability of the model. Um, but you are leaning into hiring, you're investing in tech, real estate, you got inflation. So how, you know, is there some, is there some ability to flex expenses if things don't go as planned and revenues do fall off a bit, quite a bit more than expected? How do we think about your ability to flex and your sort of commitment to the comp ratio?
spk08: So look, I mean, as you know, on the comp ratio, we have unlimited ability to flex it if we want to. I think we have, um, you know, we have maintained a tight compensation ratio for as long as I've been at the firm. And we've been through several cycles since I've been here. So it is the way our business is structured. There's some structural elements to it with respect to how much stock we provide to employees, with respect to the terms at which we hire employees. And so we think we have some flexibility there that not everyone has. And so we don't have a model that we live by. If we need to flex the compensation ratio in a significant situation, I mean, we have that flexibility to do it. We just haven't had to do it over the years. And so we still feel comfortable that in an environment like this, we can maintain our comp ratio in a very tight range because we've done it before.
spk09: Yep. No, that's understood. Thanks.
spk03: And we have a question from Ken Worthington with JP Morgan. Please go ahead. The line's open.
spk00: Hi. Good afternoon. This is Madeline. I'm for Ken. Thanks for taking the question. Just had a quick one on lower fees per event across most of your businesses this quarter. Is that indicative of any pricing dislocations you're having with clients or just a function of smaller deal size? Any color there would be appreciated as well as expectations as we go into an improving environment. Thanks.
spk08: So it's not a trend. I think we see this on a quarterly basis. Our average fees per transaction, primarily in our corporate finance and our restructuring business, tends to be the result of the nature of the transactions closing. So no short-term trends. I will say over the long run, our corporate finance average transaction size and average fee has steadily increased. We don't have that dynamic in restructuring. But we do in corporate finance, in restructuring, what we tend to see is when you're in periods of dislocation in the economy, you tend to see average transaction sizes increase versus when you have a weaker restructuring market, average transaction sizes and average fees might decrease. But no trends to read in on a quarterly basis simply because it's too short a time to measure.
spk00: Understood. Thanks for the clarification.
spk03: And there are no further questions at this time. I'll turn the call back to Scott Beiser. Please go ahead.
spk01: Thank you. I want to thank you all for participating in our fourth quarter and fiscal year 2023 earnings call. We look forward to updating everyone on our progress when we discuss our first quarter results for fiscal 2024 this coming summer. That concludes the call for today. We thank you for your participation.
spk03: I ask that you please disconnect
Disclaimer