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Earnings call: Houlihan Lokey reports strong Q1 FY2025 results, optimistic outlook

EditorAhmed Abdulazez Abdulkadir
Published 2024-07-31, 10:38 a/m
© Reuters.
HLI
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Houlihan Lokey, Inc. (NYSE: NYSE:HLI) has announced a robust start to its fiscal year 2025, with first-quarter revenues climbing to $514 million, a 24% increase from the previous year. Adjusted earnings per share for the quarter also rose significantly by 37%, reaching $1.22.

The company's Corporate Finance division led the growth with a 45% revenue increase, while its Financial Restructuring revenues saw a slight decline. Despite a challenging environment, the firm remains positive about the future, citing an improving M&A landscape and its strategic investments as catalysts for further growth.

Key Takeaways

  • Houlihan Lokey's first-quarter revenues rose to $514 million, a 24% year-over-year increase.
  • Adjusted earnings per share improved by 37% to $1.22.
  • Corporate Finance business saw a notable 45% increase in revenues.
  • Financial Restructuring revenues decreased by 5%, while Financial and Valuation Advisory revenues grew by 4%.
  • The company is optimistic about the M&A and capital markets activity.

Company Outlook

  • Houlihan Lokey is optimistic about continued growth quarter-over-quarter, given market conditions remain favorable.
  • Integration of GCA has strengthened European operations.
  • The company is engaged in ongoing discussions for inorganic growth, seeking acquisitions or organic hires to address underweighted sectors.

Bearish Highlights

  • Financial Restructuring revenues experienced a 5% decrease.
  • There is uncertainty around the return of revenues to normal levels and the prediction of a normal non-compensation expense ratio following the recent M&A recession.

Bullish Highlights

  • The company has made strategic investments to capitalize on the recovery in M&A and capital markets activity.
  • Corporate Finance and Financial and Valuation Advisory businesses are expected to continue their seasonal growth.
  • The credit markets remain healthy, and the distressed business is growing despite elevated default rates.

Misses

  • The company expects the tax rate to be at the higher end of the historic range due to operations in higher tax jurisdictions.

Q&A Highlights

  • Activity levels in Europe are improving, albeit at a slower pace than in the U.S.
  • An increase in capital markets activity could provide solutions to distressed situations.
  • The company is committed to inorganic growth and is in discussions with potential partners that align with the company's culture.

In conclusion, Houlihan Lokey's first-quarter financials reflect a strong performance, particularly in its Corporate Finance division. Despite some challenges, such as a decrease in Financial Restructuring revenues and a potentially higher tax rate, the company's leadership is confident in their strategic positioning and the health of the credit markets. With a focus on inorganic growth and capitalizing on market recovery, Houlihan Lokey is poised to continue its trajectory in the coming quarters. The firm plans to provide further updates during its second-quarter results call in the fall.

InvestingPro Insights

Houlihan Lokey's (NYSE: HLI) positive start to fiscal year 2025 is further complemented by its strong market performance and financial health as indicated by InvestingPro data. With a market capitalization of $10.52 billion USD and a high Price / Book ratio of 5.62 as of the last twelve months leading up to Q4 2024, the firm is demonstrating significant investor confidence. The company's revenue growth has been steady, with a 5.8% increase over the last twelve months, which aligns with the robust revenue figures reported in the first quarter of FY2025.

InvestingPro Tips suggest that Houlihan Lokey has a history of rewarding its shareholders, having raised its dividend for 9 consecutive years and maintained dividend payments for 10 consecutive years. This could be an important factor for long-term investors seeking reliable income streams. Additionally, the firm has been trading near its 52-week high, with a price that is 99.72% of this peak, indicating a strong market position.

Investors interested in deeper analysis and more InvestingPro Tips can explore further at https://www.investing.com/pro/HLI. Currently, there are additional tips available, which can be accessed with the use of coupon code PRONEWS24 for up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. These insights could provide valuable context for evaluating Houlihan Lokey's future performance and investment potential.

Full transcript - Houlihan Lokey Inc (HLI) Q1 2025:

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to Houlihan Lokey First Quarter Fiscal Year 2025 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, July 30, 2024. I will now turn the call over to the company.

Christopher Crain: Thank you, Operator, and hello, everyone. By now, everyone should have access to our first quarter fiscal year 2025 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 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-Q for the quarter ended June 30, 2024, 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 Adelson, Houlihan Lokey’s Chief Executive Officer; and Lindsey Alley, 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.

Scott Adelson: Thank you, Christopher. Welcome everyone to our first quarter fiscal 2025 earnings call. We ended the quarter with revenues of $514 million and adjusted earnings per share of $1.22. Revenues were up 24% and adjusted earnings per share were up 37% compared to the same quarter last year. We began the new fiscal year with strength in all three of our business lines. And we concluded the first quarter with a solid increase in Corporate Finance, improving Financial and Valuation Advisory Services, and continue elevated levels of Financial Restructuring revenues. Overall, we remain optimistic that current market conditions will drive improved M&A activity throughout the year, even as macro elements of uncertainty, including the interest rate environment and U.S. Presidential elections persist. Corporate Finance produced $328 million in revenues for the quarter, a 45% increase over last year’s first quarter and our highest first quarter Corporate Finance revenues ever. Key metrics for our Corporate Finance business continue to see steady improvement. Our transaction size and average fee per transaction is increasing, especially outside the U.S. The average close rate on transactions is increasing and the time it takes to close a transaction is seeing slight improvement, though still lengthier than historical norms. As long as these trends remain, we should see improvement in our Corporate Finance business versus the same periods last year. Finally, capital providers in the middle market are aggressively seeking to deploy capital, benefiting middle market M&A and resulting in a strong start to the year for our capital markets business. Financial Restructuring produced $117 million in revenues for the first quarter, the second highest first quarter revenue for this business. As we have mentioned in previous calls, for fiscal 2025, we expect our Financial Restructuring business to perform similarly to the first three quarters of fiscal 2024. These elevated levels of Financial Restructuring activity are supported by persistently higher interest rates, political dislocation, especially in Europe and accelerated re-financings due to corporate maturities occurring over the next couple of years. However, as general market conditions continue to improve, some of this restructuring activity could turn into healthy refinancing activity and our capital markets business is well positioned to take advantage of this opportunity. Financial and Valuation Advisory produced $68 million in revenues for the first quarter, a 4% increase versus the first quarter last year. Many of the same underlying trends that are affecting our Corporate Finance business are starting to positively impact our FVA business. Our less cyclical services like portfolio valuation have continued to perform well throughout this challenging economic backdrop, while our more pro cyclical businesses have started to gain momentum. In the quarter, we completed the acquisition of Triago, making a significant expansion of our private funds capabilities and adding seven managing directors to our business. The team has had positive early momentum and success in marketing our new fully integrated capabilities across primary, secondary, directs and GP advisory markets. More than 70 finance professionals now make up our private funds practice globally, positioning us to be a holistic advisor across products and geographies. In total, we added 27 new managing directors in the quarter, hiring six new managing directors in addition to the seven who joined us through the Triago transaction. And we would like to congratulate the 14 managing directors who were promoted from director during the first fiscal quarter as part of our year-end process. Also as part of the year-end process, we had 11 mostly planned managing director departures. We continue to see a very strong hiring market for new senior talent and a steady flow of new candidates as we add to the most talented workforce in our firm’s history. We are optimistic about fiscal 2025 given the signs of improving M&A and capital markets activity. Given the investments we have made across our businesses over the last several years, we are especially well positioned to capitalize on this recovery as it unfolds. Lindsey, over to you.

Lindsey Alley: Thank you, Scott. Revenues in Corporate Finance were $328 million for the quarter, up 45% when compared to the same quarter last year. It closed 116 transactions this quarter, compared to 95 in the same period last year. And our average transaction fee was higher for the quarter versus the same quarter last year. Financial Restructuring revenues were $117 million for the quarter, a 5% decrease versus the same period last year. We closed 33 transactions in the quarter, compared to 30 in the same quarter last year, but our average transaction fee on closed deals decreased. As we’ve mentioned in the past, given the nature of the business, revenues in our Financial Restructuring business can be lumpy quarter to quarter. For Financial and Valuation Advisory, revenues were $68 million for the quarter, a 4% increase from the same period last year. We had 847 fee events during the quarter, compared to 786 in the same period last year. Turning to expenses, our adjusted compensation expenses were $316 million for the quarter versus $256 million for the same period last year. Our only adjustment was $14.2 million for deferred retention payments related to certain acquisitions. Our adjusted compensation expense ratio for the first quarter in both fiscal 2025 and 2024 was 61.5%. We expect to maintain a long-term target of 61.5% for our adjusted compensation expense ratio. Our adjusted non-compensation expenses were $80 million for the quarter, an increase of 6% over the same period last year. This resulted in adjusted non-compensation expense ratio at 15.6% for the quarter, compared to 18.2% for the same period 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. For the quarter, we adjusted out of our non-compensation expenses $3.5 million in non-cash acquisition related amortization and $3.6 million for acquisition related costs, which was primarily related to the write-down of the assumed lease in New York as part of the Triago acquisition. We also had an adjustment of $500,000 pertaining to professional fees associated with streamlining our global organizational structure, also referred to as Project Solo. Our adjusted other income and expense produced income of approximately $5.1 million versus income of approximately $3 million in the same period last year. The improvement in this category was primarily due to a net increase in interest income. We adjusted out of other income and expense a loss of $828,000 related to the increase in value of an earn-out liability associated with one of our prior acquisitions. We treat all acquisition related earn-out at purchase price and adjust out of our P&L any significant changes in the value of these earn-outs. Our adjusted effective tax rate for the quarter was 31.2%, compared to 29.2% for the same quarter last year. The increase in our adjusted tax rate was driven primarily by increased non-deductible expenses for the quarter. We adjusted out of our GAAP effective tax rate a significant benefit that we received as a result of our stock vesting in the first quarter and we also adjusted out a one-time reversal of a deferred tax asset. A long-term target for our adjusted effective tax rate is between 28% and 30%, and we expect the school 2025 to end up at the high end of that range. Turning to the balance sheet, as of quarter end, we had approximately $485 million of unrestricted cash and equivalent and investment securities. Our cash position declined this quarter as we paid a significant portion of our fiscal 2024 bonuses to employees in May. Also in our first quarter, we issued approximately 1 million new shares to employees as part of our fiscal 2024 year-end compensation and we repurchased through withhold to cover approximately 800,000 shares during the month of May. And with that, Operator, we can open the line for questions.

Operator: Thank you. [Operator Instructions] The first question comes from the line of Brennan Hawken with UBS. Please go ahead.

Brennan Hawken: Good afternoon, Scott and Lindsey. Thanks for taking my questions. We’d like to start on Corporate.

Scott Adelson: Hi, Brennan.

Brennan Hawken: Hey, guys. How are you? We’d like to start on Corporate Finance. Good to see breaking out of the prior range and it certainly sounds like from your prepared remarks, the outlook for that business continues to improve. So, is there a historical context that you could give or is there a way in which we should be thinking about the potential growth and what indicators we should be watching as we continue to monitor the situation?

Scott Adelson: I think it’s really consistent with what we’ve been saying for a number of quarters now, that we continue to see things improving and they’re continuing to improve. And we have benefited, as we’ve said, particularly in Europe from a very different reputation than we had prior to our transaction a couple of years ago. As the market increases, we are seeing improvement in average deal size and our close rates and our fees and so forth and all of that just inherent to our benefit.

Lindsey Alley: And the only thing I’d add, Brennan, is we do have a seasonal business as I think most of you know. And so we do think about it in terms of how the next quarter will perform versus the same quarter last year and that moves into the third quarter for us in Q4, and that’s primarily in our Corporate Finance and our FVA business. As you know, our restructuring business tends to be a bit lumpier, maybe a little less seasonal, but certainly for Corporate Finance and FVA, we are comparing versus the same quarter last year. And I think our comments were generally around, look, if conditions continue to behave the way they are, improve the way they are, we should expect to see growth -- good growth quarter-over-quarter.

Brennan Hawken: Got it. That’s clear. Thanks very much. On restructuring, we’ve recently seen what I believe is the first full-blown restructuring from the creditor of direct lending group. I’m curious to hear your views on this. Maybe is this more of a one-off or do you think this might be a sign of building stress behind all of the liability management mandates that we’ve seen in recent years? And if that’s the case, could that provide some upside given that full-blown restructurings do tend to be more profitable than liability management?

Scott Adelson: Well, I mean, I’ll take a stab at that. Brendan, I’m not familiar with the restructuring that you mentioned. We still think that the credit markets remain quite healthy and continue to be in the middle market, our primary source of capital. And so, there is quite a bit of leverage out there, there will be some players that perform well and others that do not, but we’re not looking at this restructuring that you mentioned as a sign of things to come.

Brennan Hawken: Okay. Thanks for taking my questions.

Operator: Thank you. Next question comes from the line of James Yaro with Goldman Sachs (NYSE:GS). Please go ahead.

James Yaro: Good afternoon, Scott and Lindsey, and thanks for taking my questions. Maybe just starting with Corporate Finance and specifically on the sponsor side of the business, maybe if you could just provide your thoughts on how much those improved over the last few months and then over what time period would you expect sponsor M&A to fully normalize and would we need to see rates come down for that to occur?

Scott Adelson: Thanks. Good set of questions. I mean, I think when you take a look, it has been that continued improvement in the sponsor world as well. You do see people gaining confidence and moving deals forward. We’ve been saying that, again, for quarters, and this is just a continuation of it. I can’t sit here and tell you when that will exactly peak or that crystal ball is not available to me. Having said that, everything is continuing in the direction that we have expected it to, and we just can -- everything that we are seeing right now says it will continue.

James Yaro: Okay. That’s very helpful. Maybe just on the private funds businesses, you talked about the size of business. Those numbers are very helpful, but maybe just if you take a step back, your views on the durability of the industry growth that we’re seeing in that business and which pockets within the business you see the best opportunities to grow and take market share?

Scott Adelson: I think when you’re talking about the private funds group, it really is, in our view, a rapidly evolving part of the market, less so on the primary side, more on the secondaries and directs and stakes, that we are still in very early days of that as the entire alternative asset class really matures as an industry along things like this and we think that there is a lot of growth and that’s why we’ve made the investments that we’ve made in it, and we are very pleased with our early indications of how things are going.

James Yaro: Very helpful. Thank you so much.

Scott Adelson: Appreciate it.

Operator: Thank you. Next question comes from the line of Devin Ryan with JMP Securities. Please go ahead.

Devin Ryan: Hi, Scott. Hi, Lindsey. How are you?

Scott Adelson: Hey, Devin.

Devin Ryan: I want to pick up on the comment on the average fee size outside the U.S., and it sounds like GCA has been a nice catalyst for the European business, and now that it’s been integrated, just curious kind of the network effects that you might be seeing on productivity for either the legacy European bankers within Houlihan or even connectivity into their U.S. counterparts, and I’m just trying to think about what this all implies, potentially for upside to average banker productivity over time, just given that there were so many bankers added with GCA and it sounds like it’s going pretty well? Thanks.

Scott Adelson: Yeah. I mean, I think, that there is a, we’re a very different firm. Each individual firm, if you will, is very different than before the transaction than we are on a combined basis afterwards and our importance to the marketplace, and the ability for us to truly deliver an international footprint with our capital markets capabilities, with our sponsor capabilities has certainly driven a different type of business that I would say either group of individuals was seeing before, and as markets return, we expect to continue to see that momentum.

Devin Ryan: All right. Thanks. And just to follow up on just capital markets outlook, and maybe the interplay as well with the restructuring business, and I’m curious, obviously, the M&A business has been relatively depressed and it’s starting to pick up. Restructuring has been healthy and may take down, but more traditional kind of capital markets activity may open up as a result. So I’m just kind of curious how, one, that business has been trending, and then two, the interplay with that business if restructuring slows down, but the M&A business is picking up? Thanks.

Lindsey Alley: Yeah. I mean, the capital markets business has continued to grow, I think, for a number of reasons, and as we continue to see growth in the private capital markets, obviously, being one of them as that market heats up. Obviously, there are certain restructurings that in a less robust financing environment may have become restructurings and they wind up being capital markets opportunities. We think we’re well-positioned with -- in either direction that those head, but the capital markets business is continuing to grow for multiple reasons, not just that.

Devin Ryan: Okay. Great. Thank you very much.

Scott Adelson: Thank you.

Operator: Thank you. Next question comes from the line of Ken Worthington with JP Morgan (NYSE:JPM). Please go ahead.

Ken Worthington: Hi. Good afternoon. On FVA…

Scott Adelson: Good afternoon.

Ken Worthington: … revenue is up quarter-over-quarter, but as we look sort of year-over-year, growth at sort of 4% in what seems like an easier comp comparison, we’ve seen deceleration in growth from what we’ve seen in recent quarters. So, you can give us a little more detail on the variance in revenue generation from this quarter last year, and maybe why we’re not seeing better growth more recently in that area, given how strong markets are and sort of the rebound we’re starting to see in M&A and the impact that that we would expect would have there versus what we saw this time last year. What are the puts and takes?

Scott Adelson: Yeah. I mean, I think. Yeah. For FVA as a reminder, the last couple of years when I’d say the M&A markets were down pretty significantly, not only for our peers, but for us, the FVA was flat and so we had a pretty good couple of years where most certainly M&A focused firms were down. And so, for us, we’re actually quite happy with the growth in M&A this quarter or, sorry, with FVA this quarter. There are several business lines within FVA, some of which are traditionally kind of M&A market driven, others of which have nothing to do with the current state of the markets. And so, I think, coming off a couple of good years in FVA on a relative basis, I think, quarter-over-quarter growth here is something we’re pretty happy about. And I’d say, the mix of the service lines is probably going to result in FVA growing slower than the Corporate Finance as these markets come back and that’s the nature of the business. In good strong M&A markets, it tends to grow a little bit slower than a pure M&A business because of the non-cyclical businesses that it’s in, or I’d say that, non-cyclical businesses it’s in, and then in tougher markets, it tends to perform better. And so, I think that’s probably what you’re seeing.

Ken Worthington: Okay. Can you give us -- actually give us a little more color on those non-market sensitive businesses and how they’re doing, and even on the rebound that you’re seeing in the more market sensitive businesses? Again, can you just take us one level deeper and give us a little more color?

Scott Adelson: Yeah. We don’t get into specific line out and performance in FVA. I will say the non-sensitive -- non-market sensitive businesses did certainly better than the businesses that were M&A focused in FVA, but we don’t get into the details, Ken, on which businesses are performing in terms of the specifics, in terms of how the businesses are performing within FVA.

Ken Worthington: Great. Then a super simple one on tax. You mentioned tax for the rest of the year kind of should come at the high end of the historic range. What’s driving the tax to be at the high end versus the low end?

Scott Adelson: Again, it’s a mix of business.

Lindsey Alley: I think it’s…

Scott Adelson: That’s happening in the mix.

Lindsey Alley: Yeah. It’s a few things. I think it is, as you know, we have pretty big businesses in some of the higher jurisdictions in Europe. So the higher tax jurisdictions in Europe, so U.K., Germany, we have a big business in Japan, all of which are performing pretty well. So that’s going to drive our tax rate a little bit higher and that’s probably the primary thing driving it. And so I think as long as we’re optimistic about some of the larger markets with higher taxes that we’re in, you’re going to see us towards the high end of that range.

Ken Worthington: Okay. High quality problem. Thank you very much.

Lindsey Alley: Yeah. It’s a high quality problem. Thank you.

Operator: Thank you. Next question comes from the line of Brendan O'Brien with Wolfe Research. Please go ahead.

Brendan O'Brien: Hey. Good afternoon. Thanks for taking my questions. I guess, to start, I just wanted to follow up on the European business. I just wanted to get a sense as to how activity is trending in Europe relative to the U.S., specifically whether the recent rate cuts by the ECB have had any material impact on activity levels in the region?

Scott Adelson: I mean, really from our perspective, we continue to see it picking up like it has in the U.S. If anything, I would say it has lagged it a little bit in that pickup, but the directionally everything is heading in the same direction. It is just more about pace.

Brendan O'Brien: Got you. And I guess pivoting to restructuring and your comments indicating that we could see a tail off in activity if M&A activity were to pick up more meaningfully which makes sense given the historical relationships between the two businesses. I know in the past, you guys have spoken to the business kind of seeing higher floors and higher ceilings as you continue to grow. So I just want to get a sense as to how we should be thinking about the trajectory of restructuring over the next couple of years and maybe where that number could settle out?

Scott Adelson: Yeah. I mean, I think, that just to be clear is M&A, but even more so capital markets, the availability of capital picks up is more so than M&A is really what can drive some solutions to more distressed situations. That when we’re looking at our distressed business, we have seen it over time reach new levels. There are as people continue to utilize that and multiple tranches of debt increasingly around the world, that market is just growing. There will always be a percentage that wind up in default for one reason or another. And even without that, we still have elevated interest rates and likely will for a period of time. And right now we still have, I’ll call it, we never haven’t been in this cycle at extraordinary default rates. It’s just been normal default rates, but we’ve gotten so used to really almost non-existent default rates prior to that. This is in our minds very much the new normal. How long that exists for, time will tell, but we expect the elevated levels to persist for a while.

Brendan O'Brien: Great. Thank you for taking my question.

Operator: Thank you. Next question comes from the line of Ryan Kenny with Morgan Stanley (NYSE:MS). Please go ahead.

Ryan Kenny: Hi. Good afternoon. Thanks for taking my question.

Scott Adelson: Hi, Ryan.

Ryan Kenny: Can you impact the comment and the prepared remarks around time to close Corporate Finance transactions, seeing some improvement that feels like a much better environment and discussion than we were in last year when we’re talking about lags on all the earnings calls? So what’s really driving that change?

Scott Adelson: I mean, look, the sentiment and everything that we’re discussing and all of our peers have been discussing as well is the pickup in the M&A market. And some of that is, as we’ve discussed, there are reasons why BERT deals had been dragging on just one more piece of information that we want one more schedule. Some of that is starting to subside. I would not say that we are back in any way to, I’d call it, optimistic or even probably normal timeframe, but it is improving and that is good to see.

Ryan Kenny: And on sponsors, I heard the comments earlier around sponsor activity improving. Just walk through how the recent rotation to mid-cap stocks and value stocks is impacting conversations with sponsors. Is that a meaningful catalyst to get movement on their portfolio companies?

Scott Adelson: That really isn’t something that I would say people are massively fixated on. It’s certainly something that we have seen and it is a bit of a different attitude when you’re buying a stock for years versus effectively renting it. It’s just a different mentality between public and private markets.

Ryan Kenny: Thank you.

Operator: Thank you. Next question comes from the line of Jim Mitchell with Seaport Global. Please go ahead.

Jim Mitchell: Hey. Good afternoon. Maybe just following up on that last question.

Scott Adelson: Hi, Jim.

Jim Mitchell: Hey. How are you? On that last question in terms of maybe just smaller deals, generally, I think in the past you’ve talked about smaller deals and financial sponsors typically rebounding more quickly than larger deals. Are you seeing that? Is that part of the positive outlook? How are you -- how is it playing out in terms of the smaller deals coming to market relative to the overall market?

Scott Adelson: I mean, I would say, we are just seeing a normal mix within our portfolio of things. So I can’t point to that they are smaller or larger. Really, it is a fairly normal mix at this point. There’s no trend there.

Jim Mitchell: Okay. And then just maybe on MD headcount, I appreciate that it’s lumpy in terms of leavings and hirings and things like that. But I feel like in the last four quarters, year-over-year growth has been around 1% to 2%. Was that sort of a kind of deliberate slowing in the environment and we should expect that pace to pick up or how should we think about MD headcount from here?

Scott Adelson: Yeah. I think we are constantly looking for talent. And unfortunately, as I always joke, you can’t go to the investment banker store and pick up a few. I mean, it is a process for us and we are constantly looking. And when we see talent that we think we mutually agree is a good fit, we do our best to attract that talent. And so that is, we don’t think about it so much as, hey, we’re going to go hire 10 MDs this quarter or something like that. That’s just not the way we think about it.

Jim Mitchell: But should we expect at least sort of more historical growth going forward? I mean, from a net headcount perspective, you’ve been mid high-single digits. Is that a fair way to think about the next couple of years?

Lindsey Alley: Yeah. I think that’s fair. Look, I think the last couple of years, we had a slowdown in the M&A markets and I think we along with every other firm kind of took a step back and said, do we want to make some changes within the organization to kind of right size a workforce around the last couple of years and we probably did that along with everybody else. And so you’re probably seeing some puts and takes in terms of new hires versus departures over the last couple of years that won’t exist in a high capacity environment. And so, yes, probably, our growth look like for the five years prior to two years ago. And then that’s a decent proxy, maybe take TCA out. That’s a decent proxy…

Jim Mitchell: Right.

Lindsey Alley: … for what our growth and headcounts could look like.

Jim Mitchell: Right. Great. Thanks.

Operator: Thank you. Next question comes from the line of James Yaro with Goldman Sachs. Please go ahead.

James Yaro: Thanks for taking my follow up. I just wanted to touch on the non-comp expenses.

Scott Adelson: Hi, James.

James Yaro: We did fall for the second consecutive quarter again and despite the much stronger revenue, maybe you could just talk to the updated trajectory for non-comp that we should be thinking about. And then maybe, any thoughts on, maybe your best guess for what a normalized non-comp ratio looks like? I know that’s changed a lot over the past few years and with COVID and then obviously with travel increasing, but just any thoughts there?

Scott Adelson: Yeah. I think with respect to non-comp, the comments I’ve made before, I think are probably similar, James. We expect non-comp this year, the last couple of years, non-comp’s been at that 15%, 16% growth. We don’t expect it to be like that this year. We expect it to kind of normalize and whether it normalizes kind of mid-to-high single digits, not sure of. I think it depends on a whole number of factors, including revenue, because there’s reimbursable expenses in there, but I don’t think that’s a bad way to think about non-comp and I think this quarter was roughly 6% and versus last year, same quarter. And it was a good quarter with respect to managing non-comp. We still expect pressure on our investments in information technology. We still expect pressure on PM&E, just given some of the inflation concerns. And then in terms of what a normal non-comp looks like from a ratio standpoint, it’s hard to tell. It’s hard to tell how quickly revenues are going to return. And so I’m a little hesitant to mention that, just because we’ve been in sort of a, like I said, kind of an M&A recession here for the last couple of years and it is 100% driven by revenues. And so in terms of how to answer your question, we feel like that we have a much better prediction of what non-comp’s going to look like for the next three quarters and maybe what revenue is going look like. But I think we remain optimistic on both. It’s hard for me to answer your ratio question until I have a better sense of how quick revenues will return.

James Yaro: Very fair. Thanks for taking my follow-up.

Operator: Thank you. Next question comes from the line of Aidan Hall with KBW. Please go ahead.

Aidan Hall: Great. Good afternoon, everyone. Thanks for taking my question. Maybe just one on the inorganic side. Inorganic growth has been a large part of the story at the firm. Just wondering if you’d just give us any color around, characterize kind of the pipeline or conversations that you’re having, just giving the building activity seen across the industry and if there’s any areas of that are particularly attractive to you from an inorganic perspective that you would flag?

Scott Adelson: Yeah. Great question. And I think that we’ve obviously stated that is a part of our business model and part of our growth, and we continue to be committed towards it, and we are in constant dialogue with a number of parties. And at the end of the day, the thing that is driving it most is finding groups that we really think are a super strong cultural fit to our organization. And again, a little bit like bankers don’t know exactly when they’re going to fall in, but it’s -- you can rest assured that we are constantly in dialogue with people and things are moving along as they have been in the past.

Lindsey Alley: And just to follow up on the specifics, I think, well, think about it this way. We have 300, 400 subsectors in industry, some of which we are strong in and some of which we are underweighted. The ones that were underweighted is kind of game on for acquisitions or organic hires and it really, to Scott’s point, we want to fill every single one of them out in the U.S., that’s our ultimate objective and if we find the right person through organic hire to help us become strong in that subsector, we will. And if an acquisition makes the most sense, we’ll pull that lever. And so really the whole strategy is filling up those underweighted sectors in industry and we believe there are hundreds of them.

Aidan Hall: Got it. Appreciate the color. Thanks for taking my question.

Scott Adelson: Yeah. Thank you.

Operator: Thank you. Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to Scott Adelson for closing comments.

Scott Adelson: I want to thank you all for participating in our first quarter fiscal 2025 earnings call. We look forward to updating everyone on our progress when we discuss our second quarter results for fiscal 2025 this coming fall. Thank you.

Operator: Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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