Houlihan Lokey Inc

NYSE:HLI

Earnings Call Analysis

Quarterly Revenues Dip, Optimism Cautious

In a challenging market, the company reported quarterly revenues of $467 million, down 5% year-over-year, while adjusted EPS fell by 7%. Corporate Finance saw a revenue drop of 11% to $282 million. Despite increased interest in deal-making, M&A market fickle behavior leads to a tedious transaction closing process. The company remains optimistic due to the pipeline backlog and improving confidence in capital markets. Restructuring business grew by 17% with revenues of $115 million, thanks to higher interest rates and upcoming debt maturities. Valuation Advisory revenues decreased by 8%, totaling $71 million. The firm expects FVA to see positive revenue momentum in 2024. Operating expenses exhibited disciplined management, with adjusted compensation expense ratio held steady at 61.5%. Conservatism marked their approach to share repurchasing and the effective tax rate is predicted to be at the high end (27%-29%).

Steadying the Ship Amidst a Downturn

The company has maintained a strong balance sheet with approximately $525 million in unrestricted cash, taking a conservative approach to share repurchases to prioritize financial solidity despite the anticipated reduction in balance sheet cash due to deferred cash bonus payments.

Optimistic Market Signals from Sponsors

There's been a noticeable uptick in interest and activity from sponsors with regards to their portfolio companies, although the pace has not yet returned to pre-pandemic levels. This is reflected in the number of pitches, conference engagements, and process start-ups.

Structural Adjustments and Performance Outlook

Historically, the December quarter is usually robust for the industry, but recent trends have suggested a deviation from this pattern. The Managing Director (MD) count has slightly decreased, attributed to normal year-end adjustments, with new promotions and hires balancing the count. The pipeline remains strong despite current M&A market challenges, indicating resilient potential for the company's growth.

Bright Prospects for the Restructuring Sector

The restructuring industry is poised for favorable conditions in the coming years, with a relatively flat yet promising business environment in the United States and increasing activity internationally. The robust pipeline and challenging macroeconomic factors like elevated interest rates suggest continued strong performance in restructuring.

Refinancing Trends and Compensation Strategy

While refinancing opportunities exist, elevated interest rates may not fully alleviate financial strains on businesses, promising sustained activity in restructuring. The company maintains flexibility in its compensation ratio and expects to adhere to its stable payout approach despite market fluctuations, signaling confidence in its operational strategy.

The Evolving Dynamics of Debt Financing

A growing presence of nontraditional banks and private debt capital is reshaping the financing landscape, likely influencing transaction valuations and deal completion timelines as the market approaches a new equilibrium.

Non-Comp Expenses and Corporate Finance Recovery

Non-comp expenses are forecasted to increase seasonally in the second half of the year. The slower-than-expected recovery in Corporate Finance is recognized, with signs of improvement taking longer to materialize, although the deal pipeline remains substantial, suggesting generally optimistic market conditions moving forward.

Stable Capital Markets and Restructuring Outlook

Despite improvements in the capital markets, the high interest rate environment may still necessitate restructuring for some businesses. The company does not perceive the opening of capital markets as a significant threat to restructuring activity as long as interest rates remain elevated.

Anticipation and Preparedness for the Next Phase

The company ends the call on a forward-looking note, expressing gratitude to participants and an eagerness to share further progress in the upcoming third quarter fiscal year 2024 earnings call.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Houlihan Lokey's Second Quarter Fiscal Year 2024 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today, October 26, 2023.

I will now turn the call over to Chuck Yamarone, Houlihan Lokey's Chief Compliance Officer. Please go ahead.

[Charles Yamarone, executive]

Thank you, operator, and hello, everyone. By now, you should all have access to our second quarter fiscal year 2024 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 the 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 September 30, 2023, when it is filed with the SEC.

During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our earnings release and our investor presentation on the hl.com website.

Hosting the call today, we have Scott Beiser, Houlihan 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.

[Scott Beiser, executive]

Thank you, Chuck. Welcome, everyone, to our second quarter fiscal 2024 earnings call. We ended the quarter with revenues of $467 million and adjusted earnings per share of $1.11. Revenues were down 5% and adjusted earnings per share were down 7% from the quarter a year earlier.

However, in comparison to the June quarter, revenues were up 12% and adjusted earnings per share were up 25%. Over the last 7 quarters and during a challenging time in the world's financial markets, our diversified business model has enabled us to produce steady results, with quarterly revenues consistently in a range of $416 million to $490 million. Our business activity and financial results have shown consistent improvement since April, and we enter our third fiscal quarter with measured optimism.

The market environment for our Corporate Finance and Financial and Valuation Advisory business is improving, but at a pace that is likely to result in a slow exit from this market environment. Consistent with their commentary in the previous quarter, we continue to experience improvement in client confidence as a result of improving capital markets.

We see some improvement in deal momentum, in M&A and a renewed interest from our clients in testing current market conditions after sitting on the sidelines for more than 18 months. However, recent events, including rising interest rates, a stalled stock market and the war in Israel have slowed some of the momentum we experienced in late spring and early summer.

Looking forward, we remain optimistic that market conditions will continue to improve, but we are realistic about the macro pressures that exist today.

Our Corporate Finance business produced $282 million in revenues for the quarter. This was a decline from the prior year period but an increase from last quarter. For several months, we have continued to experience a solid level of new business opportunities. Financial sponsors are showing increased interest in taking their portfolio of companies to market, this is a result of improving availability of debt capital, a resilient stock market, pressure from limited partners seeking liquidity and the desire by PE managers to get back into the deal business versus maintenance business.

Strategic buyers and sellers are also slowly coming back buoyed by an improving equity markets and continued stable financial performance. This increased interest to transact is still tempered by a fickle M&A market, resulting in a longer time to close transactions and deeper due diligence.

With respect to our Capital Markets business, our revenues are up year-over-year, driven by improvements in availability of credit, particularly in the mid-cap space. Also, capital is harder to access than it was in calendar 2021, which has increased our value proposition for this service line.

Historically, in a business rebound, we see capital markets improving first, then M&A activity follows. We expect this rebound to follow a similar path. Our Financial Restructuring business had another strong quarter, producing revenues of $115 million. While the Restructuring business continues to benefit from higher interest rates and a fast approaching debt maturity wall, the growth in new business slowed during the quarter, likely a result of improving capital markets.

While the U.S. restructuring market has leveled off a bit, causing slowdown in new business activity, we have seen continued strength in our restructuring business in Europe, Asia and South America, where we believe our brand and market presence is second to none.

As we have said on previous calls, since this restructuring cycle is not the result of a one-off crisis, we expect to experience elevated revenues over the next couple of years versus a significant revenue spike and subsequent drop as we experienced in previous cycles.

Financial and Valuation Advisory produced $71 million in quarterly revenues, down from the same quarter last year but higher than anything we have reported for FVA in the last 3 quarters. Our market neutral service lines continue to perform well in this environment, while our service lines that are tied to the M&A markets are lagging previous year results.

If the slow but general improvements we are seeing in Corporate Finance and the overall M&A markets produce an increase in M&A closings, we would expect FVA to see positive revenue momentum in calendar 2024. Although we resumed share repurchases this quarter, we continue to take a conservative approach to excess cash in order to give us plenty of balance sheet flexibility to take advantage of acquisitions that may arise.

Also during the quarter, we had 2 new managing directors start and believe that the market for hiring senior bankers remains attractive. Over the last 7 quarters, our senior hires, acquisitions and geographic expansions have resulted in significant value being added to our investment banking platform. We believe we are well positioned for growth as market conditions continue to improve, and we are well prepared to maximize that opportunity for the benefit of our employees and shareholders.

And with that, I'll turn the call over to Lindsey.

[J. Alley, executive]

Thank you, Scott. Revenues in Corporate Finance were $282 million for the quarter, down 11% when compared to the same quarter last year. We closed 117 transactions this quarter compared to 114 in the same period last year.

Although our transaction count increased, our average transaction fee was lower for the quarter versus the same quarter last year. This was a result of deal mix and not the result of any trends in transaction value or fee size.

Financial Restructuring revenues were $115 million for the quarter, a 17% increase versus the same period last year. We closed 31 transactions in the quarter compared to 24 in the same period last year, but our average transaction fee on closed deals declined slightly.

In Financial and Valuation Advisory, revenues were $71 million for the quarter, an 8% decrease from the same period last year. We had 852 fee events during the quarter compared to 890 in the same quarter last year.

Turning to expenses. Our adjusted compensation expenses were $287 million for the quarter versus $301 million for the same quarter last year. Our only adjustment was $9.3 million for deferred retention payments related to certain acquisitions. Our adjusted compensation expense ratio for the second quarter in both fiscal 2024 and fiscal 2023 was 61.5%. We do not expect a change to our long-term target of 61.5% for our adjusted compensation expense ratio.

Our adjusted non-compensation expenses were $75 million for the quarter, an increase of $3 million over the same period last year, but flat from the previous quarter. This resulted in an adjusted non-compensation expense ratio of 16.1% for the quarter compared to an adjusted non-compensation expense ratio of 14.8% for the same quarter last year.

On a per employee basis, our adjusted non-compensation expense was $29,000 per employee this quarter versus $30,000 per employee for the same quarter last year. We typically see some seasonality in our adjusted non-compensation expenses, with the second half normally coming in modestly higher than the first half. We expect that trend to continue this year.

For the quarter, we adjusted out of our non-compensation expenses, $3.4 million in noncash acquisition-related amortization, the majority of which was related to the GCA transaction and $1.5 million For acquisition-related costs, primarily related to the Seven Mile acquisition, which is expected to close during our third fiscal quarter.

Our adjusted other income and expense decreased for the quarter, to income of approximately $2.5 million versus an expense of approximately $1.2 million in the same period last year. The improvement in this category was driven by higher interest income on our cash balances across the globe as a result of higher interest rates. We adjusted out of our other income and expense, a gain of $816,000 related to the payment of an earn-out on a previous acquisition.

Our adjusted effective tax rate for the quarter was 28.4%, compared to 27.9% for the same quarter last year. We maintain our long-term range for our effective tax rate of between 27% and 29%, but we expect that our effective tax rate for the year will be at the higher end of that range.

Turning to the balance sheet. As of the quarter end, we had approximately $525 million of unrestricted cash and equivalents and investment securities. As a reminder, we will pay the deferred cash bonus related to compensation in fiscal year 2023 to employees in November, which will significantly reduce our balance sheet cash.

In this past quarter, we repurchased approximately 239,000 shares at an average price of $1.04 -- $104.33 per share as part of our share repurchase program. We continue to take a conservative approach to share repurchases as we are prioritizing balance sheet strength and flexibility to be able to take advantage of acquisition and hiring opportunities in this market.

And with that, operator, we can open the line for questions.

[Operator]

[Operator Instructions] The first question comes from the line of Brennan Hawken with UBS.

[Brennan Hawken, analyst]

I wanted to start with the comments on the Corporate Finance market. So totally appreciate -- the environment has been challenging and somewhat fluid. But I'm curious about your perspective on sponsors.

We're hearing that sponsors have been a bit slow to return to the MA market. And I'm curious about what you're seeing there. And with this, maybe a little bit of caution added to the more positive outlook, do you think that it's reasonable to expect some seasonality here this year in the Corporate Finance line?

[Scott Beiser, executive]

Brennan, well, I think there's 2 questions there. I'll take at least the first one on the sponsors. I think we've continue to see really over the last several months, an improved interest by sponsors to start doing things with their portfolio companies. We see that in terms of number of pitches that we have participated in. We've seen that in their attendance in our various industry conferences. We've seen that in terms of them asking us to get started in processes.

We continue to hear from them that there is some [indiscernible] buy LPs to start returning capital. And there's issues, I think, from the employee base of sponsors that they eventually need to start getting back into what we call the deal business.

Having said all that, they're still not going at the pace that I think we all experienced in the industry 3 years ago, 5 years ago, 7 years ago. So I wouldn't quite say they're exactly at the normal pace yet, but we do think it's improved from where they were 3, 6, 9 months ago.

And on your question on seasonality, for as long as I could remember except for calendar 2022, the December quarter is always the best quarter for the industry and not too dissimilar for Houlihan Lokey either. Calendar 2022, the December quarter did not stand out like other quarters, there's maybe a host of reasons.

And once again, kind of unclear where the lawyers and bankers and accountants and all the other service providers, are they going to be pushing for various -- probably compensation or tax-related reasons to get something done by this quarter. Or will they be more motivated to slip things where they do have control into the next quarter? I don't know. We know what historically has happened, and we also know that calendar 2022 was the operation? And I guess we'll find out pretty soon what calendar 2023 holds.

[Brennan Hawken, analyst]

Okay. That's fair. And when we think about the MD count in Corporate Finance, noticed that it was down quarter-over-quarter. Could you maybe speak to what drove that decline and whether or not you'd expect that to continue? Or what was behind that slip?

[Scott Beiser, executive]

So what I think we do, like in every year, and remember, we're a March 31 company, so it's that time period where we are talking to -- always a small subset of our MDs, that maybe we think they're in the wrong platform, aren't outperforming at the level we'd like. And there is some involuntary departures as well. And then they typically occur -- some in the June quarter, some in the September quarter. So I think that's just the normal year-end component.

Offsetting that is, obviously, we promoted a number of MDs, in April, we hired a number of new MDs in the June quarter as well as the September quarter. And much like others in the industry, we have other offers that have been accepted, but they just have not started yet. So effectively, our head count is pretty similar over the last really year. And I think it's just a little bit of typical transition of some departures and then filling in with incremental either through promotions or external hirings.

[Operator]

Next question comes from the line of James Yaro with Goldman Sachs.

[James Yaro, analyst]

Scott and Lindsay. Maybe we could just start with restructuring, which was a little bit weaker in the quarter than I think the quarter before, but against this, obviously, rates continue to rise. So how do you think about the move in the long end of the curve and its impact on restructuring? And do you think the opportunity set has improved?

[Scott Beiser, executive]

I think it's pretty hard to make a case that things do not look good for the restructuring industry for at least the next couple of years just on where certain businesses are performing, where interest rates are, just the maturity wall, a whole host of dynamics. We've always found that, that business, at least for us, is probably the most lumpy or sometimes you get more sizable projects that may close in 1 quarter versus another.

We did note in our remarks, there was a bit of a slowdown in new business activity, albeit it was only in the United States. And I think it continues to ramp up in other parts outside of the United States, and we expect that we will be operating at this higher level for the foreseeable future. And as you mentioned, yes, a continuation of the theme now, probably on interest rates, which might be higher for longer, net-net is good for the restructuring environment.

[James Yaro, analyst]

Okay. And then as a follow-up, just -- M&A continues to -- maybe it's past the trough. It's increasing slowly, however you want to think about it. But I would imagine that perhaps opens up the window for you to contemplate more acquisitions as some of the smaller firms haven't seen revenue recover. So maybe you could just talk about how you're thinking about the potential for bolt-ons from here?

[Scott Beiser, executive]

Lindsey, do you want to cover that? You've been talking to a number of the acquisition targets we've been pursuing.

[J. Alley, executive]

Sure. Look, I think the pipeline is as robust as it's ever been. I think the longer this M&A recession, if you want to call it that, continues, as you suggested, the tougher it is on smaller firms that don't have a restructuring practice in particular.

But I think for us, it's very important we don't rush it. We -- our acquisition process is usually a long one. We like to get to know the management teams. We like to make sure that there's a good cultural fit. And there's normally a process of, for lack of a better word, dating, that we go through, and we're doing that. And we're not rushing it given the circumstances.

So I think acquisitions will continue to be an important part of our nonorganic growth. It does provide some opportunities in a market like this, but we do have to move at a speed that makes sense for both parties and we continue to do that.

[Operator]

Next question comes from the line of Devin Ryan with JMP Securities.

[Alexander Jenkins, analyst]

This is Alex Jenkins stepping in for Devin Ryan. I hope you guys are doing well. I guess just to follow up on the restructuring question. Obviously, we've been talking a lot about the maturity wall coming in '24 and '25.

Can you just talk about how you're proactively getting ahead of clients and what the catalyst is going to be for them to take action, meaning, should we expect a flurry of activity leading up to that? Or will we see a step-up function of activity as time kind of runs out?

[Scott Beiser, executive]

I think, consistent with our comments, it just isn't the crisis mode, it's just a probably a little bit of plain catch-up, as well as just a higher interest rate world. I think you're going to see more of a steady flow of business. And some companies more proactively early on. We'll try to do things before they hit that maturity walls, some take a little longer.

I think the major difference today versus what we've seen over the last couple of years, there is an ability to do refinancings that maybe didn't even exist 6 or 9 or 12 months ago, but refinancings are at a higher interest rate. So it doesn't necessarily solve their problem. And I think we continue to chat with companies that we know maybe have some struggles in their business plan and their financial results and a balance sheet, in which -- in today's world and today's interest rate, causes them to need to come to some solution. And this is the reason I think -- in the industry, will just have some elevated results and restructuring for the next couple of years.

[Alexander Jenkins, analyst]

Sure. That makes sense. Thanks for that color. I guess as a follow-up, just on the expenses, you guys have been able to hold the line on expense ratios, particularly relative to your non-middle market peers.

If the M&A market doesn't recover, do you see a scenario where you might have to take that comp ratio structurally higher? Or is this just an example of the difference of your business models?

[J. Alley, executive]

I think it's probably the latter. I mean, we do have some structural differences that allow us some flexibility in how we run the compensation ratio. And in market conditions like the one we're in, we're clearly confident enough to suggest on the earnings call that we have no plans to change that.

Are there market conditions that might impact our compensation ratio? Of course, there is. Are we in one now? No. And so I think we are still comfortable suggesting that we won't change our target, and we've been pretty consistent over the last -- certainly the last several years at maintaining this tighter range.

[Scott Beiser, executive]

And I would add, the firm's [indiscernible] business for 50 years. We've gone through some very bullish cycles and some very bearish cycles. And we have just always -- partly to the way we think about our business, the way we manage our business, the diversity of our business, the amount of deferrals we have, whether there's stock cash, et cetera. All of that adds to reasons why we've always had, I think, a relatively tight range of what our compensation payout ratio is. And we've -- for the last really several quarters have been in a very consistent ratio. Expect that's what we'll do for the foreseeable future.

But as Lindsay mentioned, there's always things I guess we could never predict that could get us to change our point of view to properly run the business. But right now, we're happy with how we're running it. And think that the compensation payout ratio that we've been at for quite a few quarters feels like the right range that we should be in.

[Operator]

Next question comes from the line of Ken Worthington with JPMorgan.

[Kenneth Worthington, analyst]

I wanted to follow up on the impact of higher long-term rates on middle market M&A. So maybe first, as we think about middle market M&A, what portion of these deals are financed by debt and loans versus equities, equity? And how does that compare maybe to large-scale M&A? So are the smaller middle market deals financed differently?

And I guess you mentioned in the prepared remarks that the availability of financing or debt financing is improving. But given that the financial costs are a good bit higher than they were, 5, 6 months ago and a year ago. Are you seeing evidence that this higher cost of financing is having -- or possibly will have a more lasting sort of negative impact on deal activity, as we look out again maybe over the next 6 to 12 months. So I think there's a bunch there, but curious to hear your thoughts.

[Scott Beiser, executive]

Sure. Good question, Ken. First of all, I think in all the statistics that we've seen, when others do these kinds of surveys. In a higher interest rate world or a tougher to excess debt capital, sponsors are putting in more equity than they normally would. So the percentage of the capital structure now has more equity on a percentage basis than we've seen in some previous years. So that would be the first comment.

The second comment then tied into that, is all things being equal in a higher interest rate world, you are going to achieve lower IRRs from kind of a principal standpoint that obviously has some impact on what buyers and sellers think the valuation is. What we find, and especially in the mid-cap space that we participate in is there is a growing number of nontraditional banks that are providing that financing. And when you look at the amount of raised by sponsors in this, we'll call it, private debt capital environment. It is substantially greater today than it ever was several years ago.

So we're getting new entrants into the marketplace. Yes, it comes with a higher interest rate. Yes, therefore, it should have some impact on IRRs and valuations. But ultimately, as time goes on, I do believe that buyers and sellers and lenders and borrowers just get closer and closer to seeing the world through the same vantage point. And that's what ultimately gets deals done when they have completely different vantage points, that's when deals kind of stalled.

And so all of those reasons, I think we've tried to describe in previous quarterly calls, do suggest that people are getting closer and closer to that equilibrium point. And therefore, we do see the activity level is increasing still, like I said, not probably at the pace that maybe we expected based upon the prior periods, but it is improving.

[J. Alley, executive]

And one thing I would add, Ken, is if you take a look at the typical Houlihan Lokey transaction, the type of leverage versus equity. I'm not sure it's any different than what our publicly traded peers are doing in terms of levels.

I think that the significant difference is the participants. The larger transactions is likely either high yield or a bank syndicate market, versus the private credit market, and all 3 behave very differently. And the private credit market in this environment has just been more robust than either the public debt markets or the bank syndicate market. And I think that's why you might be hearing slightly different views on how the capital markets are doing from a Houlihan Lokey versus a firm that does $3 billion, $4 billion, $5 billion, $6 billion transaction.

[Operator]

Next question comes from the line of Ryan Kenny with Morgan Stanley. .

[Ryan Kenny, analyst]

So on the noncomp side, there's a comment around expecting noncomp to be seasonally higher in the second half of the year. Any color on the puts and takes there and how high it could get, how we should think about the run rate heading into the next fiscal year?

[J. Alley, executive]

I don't want to give specifics. I mean, there's a fair amount of public information. If you look at over the last 5 or 6 years, you'll get a sense, COVID was a little unique. And the breakdown of noncomps, and maybe throughout 1 or 2 years, they are 2020 and 2021.

But when you look at pre-COVID, then even last year and take a look at the noncomp ratio first half versus second half, and that's not a bad proxy.

[Ryan Kenny, analyst]

And then on the comments around the pace of Corporate Finance expecting to be a slow exit from this environment. Is it fair for us to hear that as a more negative tone shift from last quarter? And if so, where are you seeing the most hesitation among your client group? Is there a certain segment or geography?

[Scott Beiser, executive]

I guess, the way I would describe it is, for several quarters now, everybody has always felt, well, next quarter is when we'll start really seeing some meaningful improvement. And it just feels like it just keeps getting pushed out a little. So things are improving. They're just taking longer to get to that improvement and maybe the pace of the improvement, the evidence just says it's going to be maybe be slower than -- not necessarily what we thought a quarter ago, but I think what most people probably thought when forecasting in views of a year ago.

We do think that we've kind of hit the trough in this cycle, back in spring time, and things have been improving since then. What we do know, not only from ourselves, but from our peers and talking to lawyers, is kind of pipeline backlogs, things that are in the queue are rather significant. And it's just a matter of what pace that they can eventually get to the finish line. We are not experiencing any abnormal amount of deals that we'll call, become dead deals or significant hold deals, they're just still taking longer to get from getting hired to starting to close. I think that's the better description and not necessarily that our view of the markets today are meaningfully different than what they were a quarter ago.

[Ryan Kenny, analyst]

So pipeline's building, but lags are longer.

[Scott Beiser, executive]

Yes.

[Operator]

Next question comes from the line of Steven Chubak with Wolfe Research.

[Brendan O'Brien, analyst]

This is Brendan O'Brien filling in for Steven. I guess to start, I just wanted to follow up on the last question. It's encouraging and it feels like we're at the bottom or the worst is behind us in terms of M&A activity, and that's consistent with what we've been hearing at peers.

But as we think about that exit rate or exit growth rate from here, I know it's a bit of a tough question, but based on what you know today, I wanted to get a sense as to when you think that we can get back to what you would characterize as normal activity levels?

[Scott Beiser, executive]

I guess we'd be in another business if we really know that answer. While -- at least what I thought about it is, in summer of 2020, you started to see a pickup that lasted for probably a good year or 1.5 years from the trough created by COVID, to maybe the peak in December of 2021. And much harder to describe what caused that switch from a declining environment to an improving and then a rapidly improving. We think the same thing is happening and will happen, that we're in the process of improving and things will improve.

But if you looked at the growth coming from the trough of 2020 to the peak of December 2021, we don't think it's going to be at that velocity, if you might. So I guess that's our crystal ball, sees is -- we see some of the similarities of coming out of this more doldrums. It's just not going to come out at the same maybe super pace that it came out 3 years ago.

[Brendan O'Brien, analyst]

Got you. That's helpful context. And then I guess on restructuring, I know in the past, you pointed to that $120 million or so run rate as being the right level for the next year or so. However, you noted in your prepared remarks that activity has slowed, which makes sense given the improvement in capital markets.

So I just want to get a sense as to whether -- like significant improvement in the capital markets environment could potentially present a risk to that $120 million run rate? Or is the debt maturity on some of the dynamics you spoke to earlier enough to sustain that into 2024 and beyond?

[Scott Beiser, executive]

I'd say, 2 things. One, it doesn't necessarily make a lot of logical sense to us in why there's been a bit of a slowdown in restructuring new activity in the U.S. because we think the macro factors impacting it are still there. Nothing has hugely changed.

On the capital market improvement side, you start with the worst of all fact patterns, for Corporate Finance is when their capital markets are not open. As we've described, we do think they're open now, but it's not necessarily hugely helpful to restructuring or I should say, hugely doesn't cause restructuring business to go down, because while the capital markets are more open and continue to open more you still just have a higher interest rate than what people would be refinancing at.

So I don't see, I'll call it, what we would expect is normalization for the -- while in the capital markets, as being a detriment to the restructuring environment because of where interest rates are. You have a different conclusion if you somehow thought the Feds were going to bring interest rates down substantially and close to where they were 2 years ago, which is not what anybody is expecting, but if that were to happen, we'd have a different tone and view on restructuring.

[Operator]

[Operator Instructions] This concludes today's question-and-answer session. I would like to turn the floor back over to Scott Beiser for closing comments.

[Scott Beiser, executive]

I want to thank you all for participating in our second quarter fiscal year 2024 earnings call, and we look forward to updating everyone on our progress when we discuss our third quarter results for fiscal 2024 this coming winter.

[Operator]

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