HLI - Earnings call transcript Q4 2019

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Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Houlihan Lokey Fourth Quarter Fiscal 2019 Earnings Conference Call. [Operator Instructions] Please note that this conference is, call is being recorded today, May 8, 2019. I'll now turn the call over to Christopher Crain, Houlihan Lokey's General Counsel. Please go ahead, sir.

Christopher Crain

hello, and operator, you, everyone. Thank website should By year found to the Lokey fiscal access fourth now, on Relations quarter Houlihan be everyone and can XXXX our which in have earnings section. www.hl.com at the Investor release,

operating statements formal materially forward-looking will, we include These use refer for to remind therefore, subject today These recent could fiscal when results to filings, anticipate, of you We identified cause expect, should more Form regulatory condition. guarantees the by we other of caution with the forward-looking a XX-K risks investors March impact should statements, interpreting exercise the words we uncertainties everyone Before to our We of remarks, SEC need review as our SEC. expect. all the that similar our year-ended encourage when our not and performance. discussion risks to usually or filings numerous are and and such actual is begin phrases, discussion filed them. future results detailed statements. will from financial of And you which are that for could XX, that the including to future it differ on what XXXX, relying are

will Officer; call website. directly Chief call isolation company's some GAAP. today's is we to presentation call performance. opening and A the in the investor measures our a Scott financial we as GAAP we Lindsey turn these the be Officer company. These Chief measures non-GAAP most the with then remarks, and considered will in in financial discuss useful Hosting measures, not to substitute During Financial prepared Executive that, Alley, Beiser, They over I'll reconciliation evaluating open the call, financial today, Houlihan of questions. in or Scott. available results release on measures can will which the the to we provide have With for believe should accordance our of earnings hl.com Lokey's comparable and our be

Scott Beiser

Hello, fourth earnings Christopher. everyone, call. you, Thank welcome fiscal to quarter XXXX and our

We for of $X.XXX earnings revenues adjusted record of to are fiscal record and share $X.XX. billion per pleased report XXXX

$XXX quarter, the and both per revenues achieved for we quarter. adjusted million the $X.XX in For share, in fourth records earnings

businesses Restructuring Our second-highest Financial business Corporate the Financial annual fiscal record in Finance of middle eclipsed by our were and only reported revenues Advisory reported annual global its and when recession. revenues, we the XXXX both

our to results dividend XXXX Board Our fiscal in in quarterly $X.XX $X.XX to raise by approximately our and XX% outlook positioned from share. our confidence per

XXXX, we fiscal of combination These new achieved XX lateral of acquisitions. promotions, a During Directors net only Managing added added We Managing a through Managing in of fiscal X several and internal Directors hires were versus a XXXX. net Directors accomplishments.

invest We in banking group added capital, in management. new and services office BearTooth finance fiscal Munro continue our and corporate We capabilities accounting, human new adding marketing Quayle Munro to private the fill our and through BearTooth starting portfolio clients our continue markets We advisory a data point in advisory financing us HL funds to capital to offered which Finance, and of analytics, several acquired Quayle in in investment corporate products established our business. XXXX. early officers business. for and launched out

total XX% and Restructuring and business on transaction focused significant outside our in Financial FAS both the of our nearly We increased segment practice mandates. a revenues. growing Our to of worked We our business revenues international U.S. of succeeded in number firm on goals. advisory resolution dispute

markets to ranked we XX once our an reported turn months. of in a continued in I seeing number we number closed, fairness business global an Finally, testament Fourth Corporate are over the Finance industry-leading product across Overall, in would for U.S. growing investment current and to the banking activity, another position Financial to as X Reuters. our by share like Despite quarter. debt mid-cap lines. business $XXX again our in in now fiscal X we trends level hold transactions transactions, the Restructuring of revenues. M&A after record Thomson revenues a caused fiscal global a the our year market market in return increase million a last of and in saw reported few Houlihan third success decline of despite market and Lokey this XXXX $XXX in build volatility The XX deals revenues last quarter. fiscal platform. in quarter as very equity last markets million a And number fourth the volatile decline quarters the months, for helped the and poor capital achieved bond double-digit to reported stock market healthy opinions

As or transactions hold uptick we in put healthy business being new across and geographies. slight transactions sectors seen XXXX, to caution, head somewhat are on seeing take word into not activity a we have industry close, and Though we a fiscal of closing. remains longer

not XXXX, come mini these have continue experience seasonality to revenues results and Consistent few to individual for we However, thus and expect but over the results. quarter Finance. with gone annual quarterly generally affect years, previous last may quarters trends in Corporate in our fiscal

quarter always much market fiscal second the restructuring the With are quarter. and practice. year first normally opportunity than our global The first there rates distressed their market-leading in corporate weakest pockets our the with higher of of normally financial even half is years, for lowest fiscal levels default to our at environment, respect is half,

debtor Financial to revenues of more advice are revenues our X% history. expanding fiscal team, restructuring in over XXXX, believe We fiscal reputation XXXX. approximately time list and for the have an million sophisticated enabled business of last versus skilled $XXX the low allowed highly and size Furthermore, worldwide business in consistently rates. are creditor us fiscal default companies the our revenues the globally, recent in an highly to over increase creative for bankers years experiencing restructuring achieve of annual We $XXX first level X of in of seeing generate industry despite some our million This and combination which knowledgeable distress. bankers resulted Restructuring XXXX

Restructuring For at is of our reported end $XXX revenues more $XX million. quarterly the Financial in typical revenues. of million million This the between and range higher in quarter, $XXX

can lumpy, As Financial continued revenue Restructuring we transaction anticipate XXXX. and variability be Restructuring fiscal quarterly fees in Financial for

business Advisory number Financial of per continued grow and events fee year the fiscal Our to also the event. this average increased fee

reported adding years, last $XX FAS growth the tasks. new for in in for business the for million revenues in its This for several industry and continued million above-average Over services quarter, has year XXXX. both records Financial to services specific revenue firm. our expertise increased fiscal unique providing and investment generated capabilities, FAS revenues valuation $XXX Advisory the the

healthy and Our recently U.S. FAS resurgent benefit continues market. a stock business to economy from

focus shareholders. continue return We and tactically to to our on we what to can strategically do and our business enhance

cognizant and the and a economies, markets of can various believe that market business are the volatility have conditions. external we We we built of succeed in

few the well model last growth to Houlihan in growth believe will has and with I'll finance, shareholders, the turn corporate call Lokey diversified advisory of clients. growth in experienced bode And continue in employees for and financial our our business financial Over to years, We Lindsey. the over that, resilience restructuring.

Lindsey Alley

same compared XX% We this closed last year. last XX% last from for the $XXX We closed was fee Corporate closed year. our to Finance last revenues this to quarter quarter, on the last Revenues same transactions were period period year. transactions our up fee versus Financial the on quarter last in to Thank average the you, and significantly a XX higher with year, Restructuring in the the for average in slightly increase quarter, the XX deals quarter year. were was quarter year, compared same $XXX million compared transaction closed transactions compared million XX when lower same the Scott. in transaction deals although XX quarter quarter same

on performance had transactions fee resulted a and for in fee the period notable same large quarter to has quarter partly and million fee quarter, were quarter We the the large and very due several often in to handful events events, the Advisory that compared a a worked was from same Financial strong XXX XX% business in $XX In Restructuring year, last for revenues record quarter. year Financial strong we fee those XXX this on larger of last events. increase FAS. timing Services, quarter's Our a

seen quarters. New have business in we our some Managing activity in Director FAS steady, several productivity in improvements last and remained FAS over the business

to Turning expenses.

versus Our adjusted million compensation the period expenses for $XXX year. for last the million same were quarter $XXX

contingent the will also on adjusting consideration, our performance This to we addition of fiscal retention in grants, consideration related primarily operating year in quarter, pre-IPO continue and, X the business adjusted primarily with acquired. fiscal and acquisition agreements for deferred some form XXXX cases, XXXX, it's acquisitions. payments, associated XXXX, of we to through for both the last employment in This deferred

vesting The fiscal both our of As XX.X% a for and reminder, pre-IPO quarter was within ratio fiscal the XXXX will XX.X%. the last year targeted adjusted XX.X% our grants. for of year, between and XX.X% the range compensation be

targeted to that fourth ratio compared fiscal in range an year. with the noncomp driving adjusted were and Also XXXX pronouncement quarter of noncompensation due accounting clarifies headcount global million, in when ended investments adjusted last expenses the increase the rent expenses included new in We partially revenues. in significantly Our $XX of between just be expense increase an XX% were quarter higher fourth above XX%. reimbursements an XX.X%, expenses in noncompensation that our expense, is noncompensation technology. The up in and increase with

of of This acquisition-related quarter, noncompensation out million approximately adjusted we expenses $X.X amortization. our

similar We occur. which will and in other the for adjust expenses in continue types of to this quarters they

line interest income item of year adjusted on income the million during a quarter versus of our same in $X.X $X.X for income Most balances Our our million. the the last cash this for gain period throughout gain a resulted other item quarter a in of result of quarter. line was expense approximately the and

high effective quarter for rate rate of tax in XX.X%, and which range our targeted adjusted the tax of effective of between GAAP XX% year the was resulted fiscal XX%. for an towards XX.X%, the end Our

tax we As have normalized rate we GAAP expected first compensation which deferred of quarter, effect tax effective quarter during to rate our effective a will a the reminder, May on the get our for vests stock This employees adjust a the to quarter. to in portion significant is that fiscal next as order for of in to year. issue a

the balance Turning of cash. uses sheet to and

As we cash marketable million of and equivalents $XXX quarter had of unrestricted securities. and end, the

in to this as of quarter majority number cash bonuses decline to staff. the expect the fiscal financial significantly in first XXXX May, we our pay We our of

XXXX, of approximately issue $XX to for net million May part intend our compensation to we in stock their employees fiscal Finally, new as of XXXX.

stock. new shares we enough we to this quarters open As to the the With back for over can operator, in market questions. intend buy that, associated in line previous open dilution few next the the years, offset with

Operator

Instructions] take first We'll Ryan question Devin [Operator our Securities. from JMP with

Brian Mckenna

backdrop, financial the is for in the seeing volatility recovery appreciate you're what curious with followed Brian hearing after dialogues the Devin. market Has material specifically. by Mckenna This clients sponsors there at year-end the on I been but year? change these activity comments the any start or and I'm the in from your significant of

Scott Beiser

Yes.

new see I earlier, we acceleration their of deals. think said of occasional I interest level

recovery slows still strength the I December over and bit we see seen industry stock long continue global marketplace, of sponsor basis we the down, Sometimes, on have the in saw them decline it in active but then. market the very a across and since the to notwithstanding haul think different financial a quite really be in really sectors,

Brian Mckenna

then it's another it. just restructuring, And year. solid Got on

year up think the say, this in mean appreciate prepared the specifics I'm I I the the year. revenues ago? a X% get in potential any relative from give contribution sense backlog in business the you on the remarks, today, commentary coming were just a business. could trying but to to I of

Scott Beiser

we've be but not has for would over in very environment to environment. able we we've years we're low been don't strong over rate turning seen restructuring are restructuring, for positive to obviously in feel probably more been relatively recessionary still like a think but quarters, it couple the relatively financial produce specific of last I I default default very and and healthy notwithstanding pleased discuss different last experiencing some So in backlog, of periods, to the consistent what results say environment continues low a couple a the

Operator

move Next, to Lynch. Merrill America with of we'll Bank Needham Michael

Michael Needham

the one relationships first the markets really with capital have financial the given interesting a business. It like seems got So area I is you've sponsors.

transaction pretty this You did it a quarter, was I Citco think big financing.

market's the of source just you next Just couple alternate steps if about you years wondering more that think over the make business can you advisers want talk to moving the whether and financing. using to with towards

Scott Beiser

on market. part of to our bullish continue that we So very be

develop will geographical capital standpoint continue will we might, we continue also develop need and from if along along like hire competitor secular agent our the in think foreseeable to incremental general the the to very to continue it have others. where of in incremental to and lines. provide still grow we we're you is we standpoint financing think in go financial that that grow, that in We'll the can sector biggest don't future. and clients, we've adviser avenues said they to I the industry services services in firm to ourselves scene, early the to a business or And skills in the days for what to of clients continue different whole past see structure. of regards components think a a we'll From that

Michael Needham

you then environment. be healthy if like in things part we The, Okay. sounds similar the are do things broader guys reasonably a appear to of Great. the U.S. in of the you I'm and a look curious of for kind peer can or much like And data little slowing that M&A market as did the kind some change? so bit. middle are terms track slowdown just down of of of the just like in. the, not companies, it market, It are on seeing

Scott Beiser

number of in of in statistics, in couple do, a we it's financial environment. to U.S. that in the But have in for C have couple that maybe of globally, last the terms continue the of that you the downward same the there both deals years. last that volume see executives suite activity, healthy reading terms we sponsors, with of quarters, of probably dialogues trending the the been We're M&A data have and and these been the to

Operator

to move we'll JPMorgan. with Next, Worthington Ken

Ken Worthington

of put getting somewhat we more that And heard the on some assume missed that and first, we've delayed part. in sellers were deals Maybe I the to you between to and the Is extent in either or mentioned conditions? of I mid-May, March almost quarter. past. something referring just And conversations delay transactions to market quarter in in since than here kind given we've equity you transactions that a seen the this were focus pricing already contributed rate that what really the from, are hold. that saw? was broader that was hearing maybe then been improvements slowdown and buyers March it's normalizing the

Scott Beiser

don't of we longer-term over seen percentage for think they variety this the in close, pace. will close where of that they they duration more of months I at then seem close likewise, in any And accelerated, of at seem couple over given brand-new, longer and take different to subset And So indefinitely other we at see just periods, that this or see terms have to not the get a a that a trends take. we've a little time we and to or reasons, rapid quarters deals point, certain last will any get of delayed deals maybe close. that periods

So at kind ebbing we of at marketplace. might think of to it point, the longer-term and this it's attribute anything I Eventually, nature. the a just occur. don't juncture, flowing But that's of this that

we where juncture, on work finance not that deal we're deals typically that fact many there delayed it. and and and to can back at these focused the are that seeing deals something, we potential do on, I so legs number mid-cap transactions the more and peers market find a to our that of close. that I space, think, I, in got are just like corporate terms in small this said, long-term has It's you or changes that of are

Ken Worthington

on And Fair Okay. up an question. enough. then follow I'll earlier just

business, from business, as On at the think I'm continued restructuring to as the why has well, least revenue I has activity resilient impress me it restructuring maybe perspective, understand to Houlihan been been. and better trying a levels

environment, are the to can not it's the pipeline, Is about outlook next months might what you that because I'm, of drivers And in I rate the look the to S. default low anything think appreciate I'm mentioned of XX like to talk over us think how do help comments, your the desire in that your your sort that you XX guys prepared just remarks You'd think despite that. opportunities. a given grasping seeing about of a for then resiliency still non-U. one I business? about to but

Scott Beiser

Yes.

our in I different in of already companies in have globally driven and particular might companies to have ago. do, today than been at to certain high-yield a that's gets slight And last of business somewhat to technology able companies rate, restructuring cause disruptors or certain healthy leveraged. being have that is not host far but mentioned many been M&A different we've of distress, say, and maybe I've dozens level It plans do changes XX interest of would comments that was marketplace are considered that as in The some detrimental something wide ever countries. dozens point, and the reach XX where years but be distress get probably their this there In X. ultimately or debt, past, healthy of to in order, highly than than been it that meaningfully that's our of on there was we've by cases, across, causing is quarter think there's are business to no I not just problems some one and the with level more the reasons just circumstances. those number able been hired a

companies in of been been last some we have there's in could quarters. litigation business a we've reasons low able of of proud to couple team, robust environment, years very host whole right restructuring the groups different by described, don't years. what it's and of have for happy for matters, rate last what plan, to seen the always, in similar as have some And couple maybe always And very we've we've the be reasons, I I'd a but means management are the no guess opportunities. say this pockets just default our right You that succeed

Operator

And Sachs. we'll Richard [Operator Goldman Instructions] next Ramsden move to with

Richard Ramsden

about Are that the a middle of had in large Or are you availability seeing to perhaps effort. when bit the on their a competitive you've seeing any impact about growing of talked business So we hire environment banks market impact either so obviously We've far? people? any banking talk terms pitched could competitive environment. a got the number little bit, for them you

Scott Beiser

a because institutions bulge we the we've still saying hire to from of environment. still coming the space. people are, commentary competitive on get trying or generally MDs. in had either that competition new meaningfully changed key speaking, the change wouldn't I most get hire they to to players describe have, hired our meaningful any get in not that the the bracket have want It's in The or same year X. mid-cap projects clients last X that hired on we've to competitive there's not, It's part, is, or for folks or ability to seen

Richard Ramsden

Or range. is think that's XX% anything target which about about XX% it came in back XX% can in there Is secondly, change, it you ratio? for a range should Okay. nature? think, little outlook And I time? I normalizing one-off think at into in we if the about the we your your noncomp accounting below then for adjust to talk over the well bit there

Lindsey Alley

Yes.

in higher be and XX% us. items how our incremental likely acquisitions this XX% we'll were some given of mind. see noncomp the towards guess. onetime to move that's, think the to are range, But come our in range. to standpoint this for will expect do early we'll continue to to corporate relatively inflation And I I the the a other into from sit would end the expenses. infrastructure, to in ratio point. of we best we that year. in keep similar XXXX. modeling part fiscal of no London we higher a in XXXX the that's the we that think But noncomp our costs on that continue TM&E intend fiscal be result that significant that to tend and that as think technology will estimate are closed at I I occurred here to that high early I There large year, make some a at X continue year, investments today, in We did that end XXXX, which There

Operator

move to Brown next KBW. We'll Michael with

Michael Brown

to touch wanted FAS on Just the business.

strength just shift very we kind that were really still provide just wanted And revenues in So of saw that in strong how we business? persistency share transaction, what's results. additional see should business. you if color the overall to a can that fee higher XX% driving year-over-year, And the to up growth market some of Is to it about the gain? think

Scott Beiser

year. described, a this has That we our and a strengthen predominantly is we've was some extraordinary specific business I service where successful fee valuations. any U.S.-centric market, areas We've subproduct expertise, charge implement our been time, There just we've broadly we of the describe operating a a few think standpoint. good had a would those nothing on that and of on the still productivity niche I most And given try subproducts, to I better industry finding gotten want unique pursue. little to in focused continued areas utilization can or we've very on employees. in that been are an business. And would to big But And projects. out higher always more of defined in been

out time. continue years, And people hire a things maybe more to in individuals in do continued 'XX people. fiscal and bring to but think junior it, grow key hiring to both and continue is previous to to also it we've over I by need business, and senior will probably in just worked it we

Michael Brown

did Just MD hit the be I hiring any really down have that there that business. helpful. hires new there will shortly? anything want that some to, just there? the to read on ticked onboarded front in to count then did there. of Is type color into Or notice be you just And will

Scott Beiser

the of of to given departers. been always there. a continued certain Yes, through you any hiring, nothing we'll a retirements. of year, are in which add We've case years, generally either couple big There have particular. last over always And decreases, hirings number in At the or the Financial saw, certain most MD at Restructuring of our has number what basis, finance. not been head And not been, statistical on in in has least there's corporate FAS. swings, either increases or count

Michael Brown

peers And just of we then of similar half, part I market the being first of first kind kind of had about, fiscal size results. first give being, Corporate second expected the and half stronger guess what quarter? to the heard second mean Great. for it you some middle can I quarter or to they just would differentiated your you concentration Obviously, on of results, And a a be the are you your see expectations of But transactions is kind that guess, calendar trend? first expecting in kind that your of soft third as expect from half. think is than softer fiscal Finance. I a that year your the half and

Scott Beiser

I'd points X make. So

market, happened impact that to is are versus It benefited more peers XXXX. clearly due business swings harmed public. private significant Some public we think or do, were number the our our in in calendar stock the what less I in on of has of deals larger by of who which focused an were the size deals more of deals

if same the swings. results, of second all first you quarterly always necessarily won't published see as having typically in have is where last quarter the first half than of couple But circumstances, slowest. the fiscal year our through always I half years we said, we is the And better of the said So year. go that, the the almost

But in we've expect the seasonality it's when and of the unique time is manage had have in motivated that how similar the get we'll particularly business, to run issues would of types that period. we some of Some you December past. tax I

Operator

we'll Buckingham Mitchell with Research. to next Jim And move

Jim Mitchell

can big do And you little I a has acquisitions, just little MD growth. obviously, or of it's about, it Maybe hires a focus with which know talk been tough slow could bit Europe accelerate. a versus to

given opportunities there? trying sense more you're the you weakness in over business color acquisitions to for seeing investing the there, Just are Just to be that of over growth there any a jump-start will get how on great.

Scott Beiser

excited of many, in kinds Leonardo, and we're we've we're many I digesting the future businesses. if did those right a short companies, that. remember, Munro would somewhere term, to get on great the made in cetera. And and Obviously, we as think get long said But of still U.S., still of bit all comes achieved like probably that with area of well last still And somewhere prowl I talking do our we've amount success, Europe, in et and the but about years. good of say, up, Europe, take years we've a in made hiring. couple will Quayle a we've thing McQueen, in a So term, lot always, looking what headways full made number headway so in can acquisitions BearTooth, We're we in acquisitions future we we of achieve through the really to but quite to it that different to us open the there. in are acquisitions the place very will yes, added feel we've as to

Jim Mitchell

acquisition because build assume you looks signaling and kind this flat of that maybe is cash, think are is uses cash So it Or maybe the sort of first year it of acquisitions? because cash like when balances I to we like were still priority? you digest of year-over-year need of there's

Scott Beiser

in about utilization. total Lindsey cash just let talk I'll

U.S. I think in we've Europe, digesting do other the digesting digest we the parts same mean in of more got in of comment, the to our or do level to that firm. have doesn't but

we that have or acquisitions. intent think So or changed I our doing on interest future necessarily won't focus

I size there the comment years. applicable really is of really the digesting where Europe couple total of rather rapidly last count think our to on in head grown the has

Lindsey Alley

Yes.

or it after it with the historical believe shareholders and And is we through the believe to not to continue may absolutely is way the best business share think our excess hope whether cash to given I respect our on after the dividends repurchases. we this and that, positively grow accumulate year, return some acquisitions to that to our spend success. acquisitions is we to goal

that that see we take it, this and where acquisition trying if business we value-add year, sense. And absolutely we to think and terms it we're we will can come is the another with if so do one to to makes

Jim Mitchell

Okay. really the on ratio quick ratio. comp of comp target XX.X%? just Maybe Any to XX.X% the to one That's last change question helpful.

Lindsey Alley

No.

maintain continue compensation as We long-term target to that ratio. our

Operator

We'll O'Neill. Instructions] to [Operator move with Sandler next Jeffery Harte

Jeffery Harte

questions been the of have answered. Most

got cleanups. couple a kind Just of

As far be rate for similar it as thinking we XXXX, of should the tax being as XXXX? to

Lindsey Alley

but mid-May, to any change. go me a mean think I year, I here I we have we reason will think there's to long as a way way to decent don't way to that's Obviously, believe model good probably it. it. model for sit that's through in the that a

Jeffery Harte

in mind, we what kind the dollar is in amount what and keeping as been year-over-year have much the noncomp, that was year. anything the that increase Taking of place is nearly this ratio was quarter at, million during the run I'm rate as is of I and run as quarter, look kind Or looking was comp quarter guidance quite next expecting of kind be kind the what dollar fourth to rate In quarterly $XX the increases Okay. as or next not fourth a year, starting kind there maybe basis? being? of mean kind a starting the dollar-wise, to to I point high of as made unusual of on end up going fourth decent that not year

Lindsey Alley

our seasonality some have do We noncomp in expenses.

of of of that have do kind second expenses amount the fair in a the the marketing some have and training run industry that We in We quarters. half third year the through specific occur groups middle of quarters. or

that in lumpiness some have do we business. So

the what an I of by basis. we towards lower on next quarter annual have the noncomp year. The to is year, you money side noncomp the think fourth but happened spend I more versus look for expense it at here will So noncomp driven think to when look that like be

Operator

time. any questions queue the no back remarks. Instructions] to Scott I'll call at in further Mr. [Operator Beiser for additional this our have over turn or We closing

Scott Beiser

our Thank the everybody year you. And and progress updating quarter our all when our participating earnings to And XXXX you on in want for we fiscal results in I to summer. call. we quarter first look thank forward discuss fiscal fourth XXXX for

Operator

our for conclude conference does your you participation. for call We today, thank everyone. do That

your disconnect You may line. now

Houlihan Lokey (HLI) 12 May 192019 Q4 Earnings call transcript