Houlihan Lokey Inc
NYSE:HLI
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Houlihan Lokey Inc
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Good day, ladies and gentlemen, thank you for standing by. Welcome to Houlihan Lokey’s First Quarter Fiscal Year 2021 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 28, 2020.
I will now turn the call over to Christopher Crain, Houlihan Lokey’s General Counsel. Thank you. You may begin.
Thank you, operator, and hello, everyone. By now, everyone should have access to our first quarter fiscal year 2021 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 condition. We encourage investors to review our regulatory filings, including the Form 10-Q for the quarter ended June 30, 2020, when it is filed with the SEC.
During today’s call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company’s financial performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our earnings release and our investor presentation on the hl.com website.
Hosting the call today, we have Scott Beiser, Houlihan Lokey’s Chief Executive Officer; and Lindsey 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.
Thank you, Christopher. Welcome everyone to our first quarter fiscal 2021 earnings call.
The last few months have been unusual times. We feel compassion for the millions of people around the world affected by COVID-19 and we’re hopeful for successful treatments and a vaccine in the months ahead. I’d like to offer our sincere appreciation to those who are working on the frontlines to battle this disease and to all of you doing your part to keep yourself and others safe and healthy. Also we’re coming to understand with greater clarity the horrible injustices suffered by many of our fellow human beings. But we’re hopeful true positive change can come about in America and abroad.
Everyone at our firm understands we need to be part of the solution. We’re making a concerted effort to continually improve diversity, inclusion and a quality of opportunity within our organization and we’re increasing our involvement in our local communities to improve the quality of life for all. I will now turn from the vital issues affecting our society and our fellow citizens to our business results.
The current business environment continues to exhibit very tough near-term challenges, but also shows signs of significant opportunities in the mid and long-term. Our first quarter fiscal 2021 revenues were $211 million down 16% versus our first quarter last year. Our adjusted earnings per share were $0.56 also down 16% compared with the same quarter last year. Notwithstanding our performance in the first quarter, in recognizing the continued short-term headwinds, our financial position is strong and our mid-term and long-term outlook remains positive.
As I mentioned on our last quarterly earnings call, our balanced business model is working as it was designed. The severe and abrupt dislocation caused by the pandemic has negatively impacted revenues in our M&A business not unlike other downturns. At the same time, the opportunities for us in financial restructuring have expanded significantly. However, as has been the case through other periods of financial change and disruption. The near-term impact on our M&A business has occurred faster in the anticipated growth in financial restructuring revenues.
We believe growth in our restructuring revenues will become more evident overtime as we work through the significant opportunities that currently exists and will continue to expand as the result of this pandemic. I’ll start by summarizing the challenges we’re facing and then move on to our opportunities. By any measure, M&A globally and in the US large cap and midcap, strategic and financial, analyzed by volume or deal count is down and down by a lot.
During our first quarter we had a number of deals that died and even large number that were put on hold and we experienced a much slower case in M&A, new business activity. This quarter we closed 43% fewer corporate finance transactions compared to the same quarter last year and new business activity levels in the quarter were down almost 50% versus the same quarter last year. In previous recessions, we have experienced dramatic declines in M&A activity. But never one as abrupt as the one we experienced during our first quarter.
Today capital markets are strong and the stock market heads held up well. However the continued pressure to stay at home, the risk of a second shutdown and an uncertain US election outcome loom over the M&A market. Mitigating these concerns is the fact that the number of deals on hold versus the number of deals that died is more favorable than in previous downturns. We believe this reflects the market’s view of a temporary pause in M&A activity versus a prolonged disruption, notwithstanding the rather dramatic reduction in M&A activity over the past few months. Over the last 30 days we’ve begin to see some greenshoots to recovery in the M&A market place. Equity markets have effectively regained their lost value and are trading generally flat from calendar year end. Interest rates remain at historically low levels. The debt markets are liquid and lending for buyouts is gradually returning.
The number of financial sponsor pitches we’re participating in is nearing pre-COVID levels and the prospects of higher corporate and individual tax race in US are starting to positively influence M&A activity. Although we’ve experienced a decline in M&A activity, our capital markets business has been busy. We’ve closed the number of transactions across industries for companies seeking more flexible capital and for companies who intend to use capital to be opportunistic in this market environment.
Overall the size of our average mandate and our average fee in capital markets is larger than pre-COVID. Furthermore, as expected in current conditions with less plentiful capital corporate and financial sponsors are more highly valuing the role of the capital market advisor which bodes well to the long-term future of this business. Overall, our financial and valuation advisory businesses holding up well, while revenues were down somewhat in the first quarter versus the same period last year, new business activity has stabilized since the trough in the stock market earlier this year.
Our portfolio valuation, transaction advisory and corporate valuation advisory service lines are up year-over-year while our transaction and fund opinion service lines are lower. Historically, our valuation business segment has experienced single-digit declines in its annual revenues during a business downturn. Our financial restructuring business has benefitted substantially from current market conditions.
At the outset of the COVID crisis, new business activity increased immediately as many firms across multiple industries were plunged into crisis mode. As government intervention and the bond market stabilize in new situation. Our outlook for restructuring has changed since our last earning’s call. 90 days ago we would have anticipated a much steeper rise in bankruptcies but over a shorter timeframe. Today, we expect that the overall business environment for many firms maybe worse than first anticipated. But their ultimate need to restructure may take place over a longer period of time.
Currently, we’re working on more assignments than ever before and we have a pipeline of developing situations that we believe will translate into engagements over the relative near term. As a reminder, it can take several quarters or years to complete a restructuring assignment consequently while we have had record first quarter revenues and financial restructuring and we have seen a considerable increase in the monthly fee component of restructuring assignments. We expect the majority of our current financial restructuring transaction fees to be recognized as we move towards the latter part of this fiscal year and in subsequent years.
Turning to our acquisition activity. In June, we announced the acquisition of MVP Capital. MVP provides investment banking services to telecommunication firms. Their business has remained stable during the pandemic has infrastructure, investment and telecom is as important as ever. As we all sit here in a Zoom connected world. It seems fairly clear that all of us are benefitting from the rollout of 5G technology.
The combination of our two firms’ better positions us to serve our collective client base during this important technological transition. We expect this transaction to close in August and we’re excited about welcoming our new partners to the firm. Consistent with our historically exquisite business model, strong business performance and a recent equity offering, we’re in active dialog with a number of companies interested in combining with our firm. To-date the most promising opportunities are in the US and Europe. Certain firms provide sector expertise where we’re underweighted while other firms, we’re looking at would expand coverage in current industry verticals. Generally speaking, several of our most active dialogs are with firms larger than our previous acquisitions. We don’t expect to close on every transaction and we may not close on any of them. But overall we’re quite pleased with the quality of firms we’re talking to.
In closing, we expect more uncertainty in the economy and our financial results in the short-term until we get more clarity and the resolution of COVID and the upcoming US elections. However, we’re as confident as ever in our balanced business model. The talent and perseverance of our employees and the advice we’re giving our clients. Regardless of the length of this pandemic or the severity of the aftermath, we believe as with previous cycles. We will come out of this a much stronger and even better position firm than when we went in.
And with that, I’ll turn the call over to Lindsey.
Thank you, Scott. Revenues in corporate finance were $88 million for the quarter compared to $134 million for the same quarter last year. Lower revenues were a result of a 43% decline in a number of closed transactions partially offset by an uptick in our average transaction fee on closed transactions. Financial restructuring had a record first quarter delivering $89 million in revenues, a 12% increase from the same period last year. Higher transaction volume and higher monthly retainer fees drove the increase in financial restructuring revenues this quarter compared with the same period last year.
We closed 29 transactions compared to 25 in the same period last year and the increase in retainer fees as a result of the significant increase in the number of current engagements driven by the pandemic. Although we have started to see an uptick in monthly retainer fees the bulk for the revenue associated with COVID-related restructuring will not be realized until the transaction is closed in subsequent quarters in years.
In financial and valuation advisory, revenues were $35 million for the quarter compared to $37 million for the same period last year. SBA saw mixed results across its service lines as Scott mentioned with several other product lines positively affected by the increase in volatility caused by the pandemic and a couple other product lines negatively affected by the steep decline in M&A activity.
Turning to expenses, our adjusted compensation expenses were $132 million for the first quarter versus $153 million for the same period last year. We had one adjustment this quarter for deferred payments related to certain acquisitions and as a reminder, we will have no more adjustments relating to our pre-IPO grants as the last tranche was expensed in the fourth quarter of fiscal 2020.
Our adjusted compensation ratio was 62.5% for the quarter. We experienced upward pressure on our compensation ratio relative to last year’s first quarter for two primary reasons. First, there’s continued uncertainty around the length of the pandemic and the severity of its aftermath which is applying some upward pressure on our compensation ratio. Second, we’re experiencing materially lower reimbursable expenses which are component of our gross revenues and since our employee compensation is driven by fee revenues and not gross revenues, we’re adjusting upward our compensation ratio to account for the lower reimbursable expenses.
Offsetting this decrease in our revenues is a decline in our adjusted non-compensation expenses which ended the quarter at $30 million versus $37 million for the same period last year, a decline of 20%. This resulted in an adjusted non-compensation expense ratio of 14.2% versus 14.9% in the same quarter last year. This decline is a direct result of reduced travel, meals and entertainment expenses and other operating expenses associated with recruiting and marketing events.
All related to stay at home orders implemented as a result to the pandemic. We expect to continue to see significantly reduced non-compensation expenses in these two categories at least through the balance of the calendar year. This quarter we adjusted two items out of our non-compensation expenses $418,000 in costs related to our primary stock offering in May and $1 million in acquisition related amortization. We will continue to adjust for similar types of expenses in quarters in which they occur.
Our adjusted other income and expense decreased for the quarter to income of approximately $1.2 million versus income of approximately $1.7 million in the same period last year. This was primarily a result of lower interest earned on our cash and invested balances.
Our adjusted effective tax rate for the quarter was 25.3% compared to 28.8% during the same period last year. As a reminder a portion of the deferred stock that we issue as compensation to employees vest during the first quarter of our fiscal year. This vesting had a significant effect on our GAAP effective tax rate this quarter as expected which we adjusted for in order to give a more normalized effective tax rate for the quarter.
Our adjusted effective tax rate of 25.3% is below our long-term target of between 27% and 29% driven by a couple of discrete items that likely won’t repeat in subsequent quarters. But also because they are lowered non-deductible expenses expected this year as a result of the COVID crisis. Non-deductible expenses include certain meals and entertainment, employee parking and certain non-deductible compensation associated with our named executives. As a result of lower non-deductible expenses we expect our tax rate for fiscal 2021 to be closer to 27%.
Turning to the balance sheet and uses of cash. As of the quarter end, we had $546 million of unrestricted cash and equivalence and investment securities which includes $189 million in cash from the equity offering we completed in May. To Scott’s earlier comments regarding our acquisition activity. We believe, we have enough capital to take advantage of attractive acquisition opportunities as they arrive.
In addition to having adequate cash in our business. We have effectively no debt and undrawn revolver of $100 million. In our first quarter, we issued approximately 900,000 net new shares to employees as part of their bonus compensation for fiscal 2020 and as we had in previous years, we intend to offset this dilution to share repurchases throughout fiscal 2021. In addition at our board meeting this month, we replaced our previous share repurchase program with a new share repurchase program totaling $125 million.
Finally, we’re pleased to announce that we’re increasing our dividend to $0.33 per share payable on September 15 to shareholders of record as of September 2 and with that, operator we can open the line for questions.
[Operator Instructions] the first question comes from the line of Brennan Hawken with UBS. You may proceed with your question.
So just wanted to clarify something. The compliments on the comp ratio it’s a little elevated versus the range that you normally think about for the quarter. it sounded like there was some noise, is the message that you expect that noise to sustain through the year and so we should be thinking about higher comp ratio or is it that, this is noise that will be passing and things will revert back to the normal range just wanted to maybe just put a finer point to that.
Yes, so very briefly. I’ll try to make it quick. When the accounting change occurred two years ago and they insisted that we increase our revenues to comp for reimbursable expenses. Last year we had about $34 million in reimbursable expenses in our revenue number and as you know, there’s a dollar-for-dollar offset in that number in our non-compensation expenses. And so this year we think our reimbursable expenses maybe as much half of that number and we don’t pay compensation expenses based on reimbursable expenses.
We only do it based on fee revenues and so we essentially we may lose up to $17 million of pass through revenues that we had normally tied our compensation expense ratio to, so we’re adjusting upward our compensation expense ratio to put the expectation that we’re going to see a much lower reimbursable expense number in revenues. The flipside of that is that our non-compensation expenses are going to decline dollar-for-dollar for that lost reimbursable expense revenue. So we may see slightly higher as a result of the accounting change, compensation expense offset by lower non-compensation expense. Does that make sense?
Okay, I think so. And then, when we think about the restructuring business. Sorry to start up the questions with such a geeky accounting questions about simple expenses. Pulling back and thinking about restructuring business and thinking about you guys touched on the level uncertainty to the fact that, you think that things might take a little longer to come to fruition. Is the understanding that there could be an extended timeframe to the cycle? Has the opportunity set changed? Do you think that the expected revenue that all of us should be considering for the upcoming year that you just kicked off? Should we calibrate that and be pushing off some of the revenue into subsequent years? How should we think about the potential ramp at this stage? Is what you’re seeing now enough to adjust those views or is it still too early?
What we said is, today compared to 90 days ago. We probably think that our restructuring revenues in fiscal 2021 will be less than maybe what we thought 90 days ago. But conversely, we probably think our restructuring revenues in 2022, 2023 maybe some additional years will be higher than what we once thought. So we think the government intervention has slowed down the pace of some of the restructuring that we would have thought would have occurred 90 days ago on the other hand as this pandemic is not a short-term blip and is going to be something much longer and probably more damaging to the economy. We think there’s going to be ultimately more opportunities but over a longer period of time.
Excellent, that’s very clear. Thank you for that Scott. I appreciate it. One last one from me. When you think about the greenshoots that you referred to in M&A. how should we think about that as we try to adjust our models? Normally given that you focus on the deals that are in the middle market. A lot of times you have announcements in closing that happen in the same quarter. How should we think about when those greenshoots can actually translate to real revenue opportunity for you guys?
Couple of things. I think we would say, the decline in the M&A marketplace over the last quarter versus severe in a singular quarter probably anybody has seen. Having said that, like I said we’re starting albeit [indiscernible] totally been in call to last 30 days some of these greenshoots. We’re usually confident they will turn into new business whether the deals will close or when they’ll close is much more uncertain. We know there’s some push because the potential changes in tax policy that’s going on.
We’re starting to see some of the private equity firms who have said look we’ll go forward on some transactions even if at the moment we can’t actually physically meet with management or visit plans. So humans are starting to evolve with this new order, if you might. And those are some things that we’re seeing in - clearly, I think the equity markets and bond markets have been much more buoyant than strong than probably what anybody would have thought 90 or so day ago.
So all of those are positive signs like I said we’re clearly seeing activity which is getting us to have more dialog gaining us to probably have more new engagements than what we saw 90 days ago. But whether they will turn into closed deals or when they’ll close too early to tell.
Okay, thanks for all the color.
Our next question comes from the line of Devin Ryan with JMP Securities. You may proceed with your question.
Maybe a follow-up to the last question for Brennan and make finer point on just the M&A backdrop and the ability to do deals when people still aren’t traveling much at least in the US. How critical is that to getting back to something that’s maybe not a great market but just even a reasonable market? Will people have an appetite to buy an asset without actually seeing it in person or sitting down with the management team or talking to employees is that happening? Has this become an evolution of the ability to do an M&A transaction people more comfortable with technology? I’m just kind of curios if, one, if it’s possible. But two, are they’re kind of lasting maybe some benefits where people become more comfortable doing some things with historically are parts of the process that they weren’t comfortable doing remotely where that may actually become a lasting effect of the pandemic.
I think there were six questions there. Clearly, I think technology is evolving and the human behavior is evolving. Several things we would point to. Clearly, we’re seeing our workforce and other professional service organization workforce, they’re working remotely. We’re seeing audits by the accounting firms getting done all remotely without having to go in the offices. We’re seeing people actually I think it’s about how you buy a house or how you purchase things. People are willing to do things remotely without actually physically going and seeing it which was not common place couple years or couple quarters ago.
I still think the general view to buy a 100% business is ultimately buyers want to physically meet with management and physically go visit the factory. But we’re also doing videos of the factory, so that you can minimize the amount of travel that needs to get done or when they need to do it. And the longer this stay at home, lack of travel exists. I think people will continue to be willing to do deals without kind of a normal procedure that you know you once did.
So we did something, it would be great if traveling could occur immediately tomorrow. But I think now that we’re four months into this process. We’re clearly seeing buyers, sellers, lenders, borrowers are more willing to do certain number of things remotely that they would have never contemplated doing even a year ago.
Got it, interesting. Okay, thank you. And then just a follow-up here on some of the commentary on acquisitions obviously. You issued 3 million shares in the quarter raising nearly $200,000 million. You announced the MVP deal which appears more regular sized compared to what you’ve done in the past or maybe reasonably small. It sounds like you’re still and you mentioned this last quarter having conversations with some larger firms. Now it sounds like firms versus it sounded like maybe there’s something with more specific last quarter. to the extent, you’ve raised this capital, do you think that this kind of is sufficient for several deals that are larger or how should we think about that or funding kind of to the extent you actually would be wanted to execute on more than one of the larger deals that sounds like you’re talking about this moment, try to get a little flavor for that since it sounds like a slight nuanced from last quarter.
Several things. We said we’re talking to numerous firms as you pointed out, yes. Several of them are larger maybe much larger than we’ve talked to in the past. Not necessarily because we raised the money it’s just where the opportunities are and due to the general size of our firm today versus three or five etc. years ago, makes it a little different from a cultural standpoint. Having said that, I think either with the capital that we have on our balance sheet right now through the lending capabilities when we are still doing acquisitions. It’s always been a combination of cash stock announced etc.
There’s nothing that tells us for the foreseeable future if we needed to and wanted to close on a couple of deals. We’ve got enough capital and tools to be able to do that. So if you’re question was, do we enough money to actually close on few deals and especially if they’re more sizable deals so I think the answer is, yes.
Yes, okay terrific. Well, thank you guys for taking the questions. I’ll leave it at there.
Our next question comes from the line of Matt Coad with Autonomous Research. Please proceed with your question.
So kind of cleanup question based on your restructuring commentary before. Is it fair to say that say relative to 90 days ago that you believed that total addressable market for your restructuring team and this cycle is now larger?
Yes.
Simple enough. That’s all I got.
You didn’t ask a time period and we didn’t put out [indiscernible]. I mean our call for couple of years. We think the addressable market is bigger today than it was like I said, a quarter ago. But it’s just going to take a longer period of time for all of that potential business to come our way and our competitor’s way.
Awesome, thanks guys.
Our next question comes from the line of Richard Ramsden with Goldman Sachs. You may proceed with your question.
This is James Dera [ph] filling in for Richard. Thanks for taking my questions. Perhaps we could dig in a little bit on some of the trends in the corporate finance business. You saw a reduction in number of MD’s here. They were down by six this quarter and obviously the number of completed of transactions were down given the weaker environment. So maybe we could just dig in on how the fact that the MD’s have fallen could have any impact on the corporate finance business going forward, if any?
I think typically there’s some seasonality to our hiring, departures part of it. You’ve got when promotions come in part of it is since we are a March 31 company and are doing our reviews with our employees in April and May. You’ll start to see some turnover both voluntarily and involuntary. So that’s a typical time period you get and kind of looking at quarter-over-quarter or even year-over-year total MD’s by all of our product lines is not materially different. So I would not look at the potential for us to get business or close business has been impacted at all by the handful of departures that you’ve alluded to.
Okay, got it. And then two quick bigger picture ones. So I guess maybe if you could just comment on the opportunity for there to be in calendar year 2021 and perhaps into 2022 for there to be both simultaneously strong restructuring environment as well as the strong M&A outlook or do you think one of the other is going to slow down like in prior cycles?
Each downturn in each cycle has its own unique story to it, all I would tell you is the last couple downturns that we’ve experienced that the - I’ll call it number of quarters that our restructuring business grows is more than the number of quarters that our corporate finance business shrinks whether that will repeat itself and what’s the magnitude of each of those don’t know. But typically due to the duration of restructuring projects and the more quickly either putting on hold, dying or regarding back up and corporate finance is quicker. You do tend to typically get at the early stages of the downturn like I said the restructuring business does not exceed, the growth in restructuring does not exceed the shrinkage in corporate finance yet we’ve seen in the past there is that potential for the restructuring business to ultimately start playing catch up.
Okay, got it. And then the last one, I appreciate your comment on how you see a lower non-comp ratio in the near term. But perhaps you could talk about how the faster adoption of technology over the course of this pandemic as people have been forced to work from home could have a more permanent impact on your non-comp cost over the longer term, if any?
When we’ve talked about this quite a bit internally. You’re going to likely to see some incremental cost for all of the firms in our business on information technology. And if we manage this effectively, you’ll see reduced cost in items like real estate. You’ll see reduced cost in items like TM&E over the long-term. As people realized you don’t have to jump on a plane and fly six hours to New York or Los Angeles for a two-hour meeting anymore. So we hope, honestly that we’re going to see structural changes in our non-comp expense that are attractive to investors over the next five to 10 years. It will take a while real estate to unfortunately. We’ve signed long leases. So that will take time, but we expect that to happen as a result of what’s the changes that are occurring and the way we all do business.
Okay, thanks a lot.
Our next question comes from the line of Jeff Harte with Piper Sandler. You may proceed with your questions.
A couple from me. One on the commentary about maybe looking at larger acquisitions than before, should we think of that as kind of relative to the average because historically in a lot of small transactions or even relative to some of your historically larger transaction like Leonardo?
I think what we’re looking at is like I said some I’ll call it normal sized acquisitions for Houlihan Lokey and some acquisitions if completed would be larger than deals we’ve done in the past. But there are still more kind of tuck-in right-sized where we’re nothing that we’re looking at is so big that I think puts a change at risk kind of the culture of the organization. So it’s a combination of like I said I’ll call it normal sized deals and deals that would be, yes equal to or even bigger than the Leonardo one that you mentioned.
Okay and on non-comp. I mean $30 million for the quarters is really low. We typically see kind of seasonal step up and then to the second quarter of fiscal year. Just given what’s going on COVID-wise, should we expect to see a step up like that again quarter-over-quarter?
It’s a little hard to tell because we’re kind of midway through. But I think the way we’re thinking about our next sort of couple three quarters is that you’ll be in that $30 million to $35 million range for all the quarters so year-over-year a pretty significant decline in non-comp expense.
Okay and finally maybe I’m trying to be overly optimistic but looking at the corporate finance business and kind of declines in revenues you guys saw year-over-year. Putting it in the perspective of in the middle market tend to have a lot of same day signings and closing kind of unique dynamic, to what extent is kind of the pain or the bulk of the pain of the slowdown kind of already felt by you guys because compared to peers that don’t have that middle market kind of change. It seems like their revenues have held up better in the 2Q. So I’m trying to get out whether you know you’ve felt most of the pain already or is there potentially more to come?
Well it’s hard to tell whether we’ve felt most of the pain already because we don’t see the end in sight yet. But as I said to others Jeff, we’re the first into the recession in the middle market because we have such small windows between signing and closing and will be the first ones out. So yes, we were affected in March. We had a significant number of revenues go away for us in March and we had almost nothing sort of - we had very little kind of closing in Q1 that were baked by the end of February. Having said that, to this was to an earlier question. If the market comes back in September, October and we got to market on a number of transactions. It is possible those transactions closed for us by the end of March and you see them in fiscal year 2021 revenues. So it’s just - because we don’t have to go through the shareholder vote that most public companies do for the vast majority of our transactions, we just have a much faster sign to close.
And I might add, Jeff in the early months of this health crisis and we saw, we mentioned a number of deals go in hold and number of deals died. That pace of acceleration of deals going on hold and died has clearly slowed down. The real question I think that we have to answer your questions are there more down quarters or not. I think is at what pace will those number of projects on hold will they stay on hold, will they slip into the dead category or in fact, will they hit the let’s go to the marketplace category. So there is, there’s a lot out there that is not dead but it’s not yet been giving the go ahead sign and that’s the big probably bucket that’s a little hard to predict from a timing standpoint.
Okay, thank you.
Our next question comes from the line of Manan Gosalia with Morgan Stanley. You may proceed with your question.
I was wondering, do you have a timeframe in mind within which you would deploy the capital you raised in May and if you don’t see any major opportunities, when you would decide to return that to shareholders? You also had a nice increase in your dividend this quarter. I was wondering if that is a reflection of the upcoming strength you see in the overall restructuring revenues or if it meant that your opportunity to deploy capital was somewhat diminished.
This is Lindsey, I’ll take the second one, first. I think we along with all the rest of the companies that were reporting in the middle of May were in shock on what was happening and I think we didn’t think it was prudent to increase our dividend which was our normal cadence, which is our, right after our fiscal year. We have I think for a lack of better word figured out the environment that we’re in. It is a heck of a lot more stable than it was back in May and so we felt more comfortable increasing our dividend. It has really nothing to do with the fact that we raised the equity and didn’t have anywhere to spend it.
Regarding your question one, I think that it’s really hard to answer it. We do not rush our acquisitions. It is like a very long dating process before we decide to get married and for a lot of these companies that we’re in conversations with. We’ve been dating them for a while but it really is kind of the stars need to align before we make the decision to come together and that could be measured in quarters. It could be measured in years.
At the time we did the equity offering we weren’t sure how long the pandemic was going to last or what the aftermath looked like. We wanted to make sure we had enough capital certainly for the next couple of years to do acquisitions as they came about and whether we can spend that in one year or three years. I don’t think we’re thinking about it that way. We just believe that there are enough opportunities out there that we wanted the flexibility.
Fair enough. And then, I was just curious how much is the - I appreciate there’s a lot of uncertainty in the environment right now. But I was wondering how much of the election is factoring into your conversations with clients. Are clients will otherwise maybe be managing to this environment, are they signing policy, uncertainty is one of the reasons for holding back and maybe you could see an uptick after the election?
I think it’s mixed. The larger probably the company is and the more they’re worried about antitrust issues and changes on what one administration will look at some industries versus another. They’re probably more holding back to wait and see. The more it is a family held business or privately held business and there’s a capital gain tax consideration. They’re probably going the other direction. Which is let’s give ourselves the optionality to be able to potentially actually close prior to the outcome of the elections or outcome of the change in tax policy. So it varies I think on probably the size of company, public versus private.
Got it and maybe given your skew or two, the smaller and mid-sized background that would be like slightly positive for the cohort that you’re looking at.
Yes mentioned in my remarks, we probably think its net a positive to our client base at least as we sit here today.
Got it. Thank you.
Our next question comes from the line of Michael Brown with KBW. You may proceed with your question.
I just wanted to start with restructuring. So as you think about restructuring that you’ve been very clear that it does take time for those revenues, those success fees to come through. Could you just share with us some insight into how those trends could play out as you think about which industries will see deals kind of closed first or I guess which industries or regions or types of transactions, types of roles that could be kind of the first deals that we see come through and deliver those success fees that way we can maybe have a better understanding as to how this plays out and what we’re looking at as we look at things in the public realm.
[Indiscernible] take easy question to answer. I mean the reality is we probably all know which industries have been hurt the most so far in this downturn. But even if you pick on those industries and whether it’s oil and gas, retail, travel, entertainment related etc. then you have to go into the actual structure of the company and the capital structure and what the dynamics are, so you could have a really bad industry fact pattern. But the balance sheet says that it’s okay, if it takes two years to solve and you could have something much different which is somewhat troubled industry but not maybe a devastated industry about the capital structure and stakeholder situation says you really need to get solved in next couple of months. So it’s not a - you can’t answer it, it’s so unique on each and every unique transaction and assignment.
Okay and just one quick clarification on the expenses. I appreciate all the background color on the impact of the comp ratio. Was that meant to be a change in the kind of a full year guidance or is that just kind of explanation of what happened this quarter and maybe it’s an impact next quarter. But is that the right way to think about it or is it truly that you do think it’s going to of above the historical range this year.
Given the stay at home orders and what we think are going to be a significant impact to our reimbursable expenses. We expect that it’s going to be a change that is in place so long as we have stay at home orders. Which is anyone’s guess but likely certainly through the calendar year and probably through the entire year.
Okay, thank you. That’s it from me.
[Operator Instructions] your next question comes from the line of Ken Worthington with JPMorgan. You may proceed with your question.
I’m not sure you disclosed but I’ll ask anyway. In terms of restructuring this quarter, can you give us a sense of the revenue mix between retainers and success fees and maybe how this quarter compares to other quarters in the past either a year ago or last quarter or average, just to get a sense of how this pipeline is building?
We don’t disclose the mix between retainers and transaction closings. But I think as we both alluded to in our comments. You’re just going to have as a percentage of overall revenues and restructuring higher percentage of retainer fees in this quarter relative to transaction fees compared to other quarters. And so you’re starting exactly intuitively the restructuring is acting the way you would intuitively believe it would, which is we’re starting to see a real build up in our retainer fees that’s going to take place through the balance of our fiscal year and until those transaction fees start occurring those incremental ones related to COVID. You’re just going to see a heavier weight in retainer fees relative to overall fees than you certainly than you did last year.
Great, thank you very much.
Ladies and gentlemen, we have reached the end of question-and-answer session. I would like to turn the call back to Mr. Scott Beiser for closing remarks.
I want to thank you all for participating in our first quarter fiscal 2021 earnings call and we look forward to updating everyone on our progress when we discuss our second quarter results for fiscal 2021 this coming fall.
This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.