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. Please note that this call is being recorded today, May 9, 2018. I would now toll over to Christopher Crain, Houlihan Lokey's General Counsel. Please go ahead.
Thank you, operator, and hello, everyone. By now everyone should have access to our fourth quarter fiscal 2018 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-K for the year ended March 31, 2018, 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, Chistopher. Hello, everyone, and welcome to our fourth quarter fiscal 2018 earnings call. We are pleased to report another successful quarter and year. We ended the fiscal year with record revenues of $963 million, up 10% from last year, and our earnings per share reached a record $2.39, up 26% from last year.
We've also decided to raise our quarterly dividend by 35% to $0.27 per share, reflecting our continued earnings growth. This is our sixth consecutive year of revenue growth, and we ended the year with strong performance across all 3 of our business segments. Our Corporate Finance business reported a record $529 million revenues, up 22% from last year. We continue to see positive trends in Corporate Finance with higher volume, higher average transaction sizes, higher average fees and strong momentum entering fiscal 2019.
Our Financial Advisory Services business reported a record $141 million in revenues, up 8% from last year. This business segment has consistently grown its revenues each year for the last 5 years and has continued to hire senior-level talent to complement its existing product lines and expand into new areas.
Our Financial Restructuring business reported $294 million in revenues, decline of 4% from last year. We are proud of the performance of this business segment given a very low default rate environment, a testament to our franchise, which is a global leader in providing restructuring advice to clients.
Looking back on fiscal 2018, there are several firm accomplishments worth mentioning. First, we maintained our market leading position across all 3 of our product lines. We ended calendar year 2017 as the #1 U.S. M&A adviser measured by number of transactions, and for the 12th year in a row, we were named as the #1 U.S. M&A adviser for transactions below $1 billion, cementing our position as the top mid-cap market adviser. We were named by Thomson Reuters as the #1 global restructuring adviser, and we believe that our revenues and group size make us the largest Financial Restructuring investment banking firm in the world. And for our FAS business, we maintained our position as the #1 U.S. M&A fairness opinion adviser over the last 20 years.
Second, we promoted 9 employees to Managing Director and we hired an additional 20 Managing Directors across all 3 product lines throughout the year. We made a significant investment in managing directors in our fastest growing business segment, capital markets, with the addition of 5 new MDs to the group, and we expanded our international operations with the hiring of 7 MDs outside of the U.S. As we have demonstrated historically, sustained investment in senior banking talent helps drive our future growth.
And third, during fiscal 2018, we opened an office in Singapore, we opened an office in Dubai, acquired the equity of the Sydney joint venture that we did already own and expanded and refurbished our New York office.
Looking forward, I would like to highlight a couple recent developments. First, we promoted 10 additional employees to Managing Director as part of our review and bonus cycle in April and added 9 new MDs with the acquisition of Quayle Munro, which closed on April 4. During fiscal 2019, we plan on combining our Quayle Munro London office with our existing Houlihan Lokey office in a new location.
Now let me briefly touch on a few market observations. While the stock market has recently experienced increased volatility, the general economic outlook, prospects for corporate earnings growth and confidence of our client CEOs and financial sponsors remain strong. Current transactional dialogue with companies is active, and today, we have a greater pipeline of Corporate Finance business than at any time in our history.
Regarding our restructuring business, for several quarters, we expressed a cautionary note about our future prospects in light of the significantly improved oil and gas markets and low default rates. However, the ongoing impact of various technology disruptors and the financial pressures at even a slight increase in interest rates for leverage firms has enabled us to deliver better results in Financial Restructuring than was anticipated at this time last year. We remain cautious regarding our prospects for Financial Restructuring in fiscal 2019 but more optimistic than we were a year ago.
On the Financial Advisory Services front, with our investment in senior banking talent and our continued move towards industry specialization, we expect the momentum of this business to continue into fiscal 2019.
I'd like to end my remarks by highlighting several key trends that have [included] continued deposit that heavily impact our business. Our mid-cap M&A presence continues to grow as measured by the number of transactions that we complete each year and the size and depth of our financial staff. Our transaction success in collaboration with the financial sponsor community has never been greater. We believe we have the largest and most successful mid-cap financial sponsor coverage effort of any investment bank in the U.S. Furthermore, we continue to see growth in new financial sponsor firms being established, growth in the size of existing firms and growth in the number of successful transactions that we complete with our financial sponsor clients
We continue to believe that the market for private finance solutions has meaningfully changed since the great recession, and we are in the early years of the secular change. We believe that the market for these services is significant, and we believe given our mid-cap focus that we are as well positioned as anyone to serve clients with specific financing needs.
Finally, for the last couple of quarters, the ongoing impact from slightly higher interest rates combined with several higher profile restructurings have mitigated the effect of a meaningful decline in our oil and gas related restructuring revenues and increased our confidence in our fiscal 2019 results.
As we begin a new fiscal year, we remain committed to maintaining a highly diversified business model that is built to reduce revenue and earnings volatility across economic cycles, a business where the employees and shareholders are aligned and their incentives and a business that is thoughtful in the way it deploys capital with a goal of maximizing the return to our shareholders.
With that, I'll turn the call over to Lindsey.
Thank you, Scott. I'll start with a few comments on the firm's performance for the recently completed quarter.
In Corporate Finance, revenues were $130 million for the quarter, an increase of 13% from the prior year. We closed 56 transactions in the quarter compared to 62 in the same period last year. However, our average transaction fee on closed transactions was up significantly. Consistent with our expectations, Corporate Finance continued its positive momentum for the year.
Financial Restructuring revenues were $78 million for the quarter, a decline of 25% from an exceptionally strong fourth quarter last year. We closed 26 transactions in the quarter compared to 30 transactions in the same period last year, and our average transaction fee on closed deals was slightly lower compared with the same quarter last year.
In Financial Advisory Services, revenues were $37 million for the quarter, a 1% decrease from the prior year. Our FAS business continues to benefit from a strong M&A market as we saw slightly higher fee events offset by lower results across a couple of product lines.
Turning to expenses. Our adjusted compensation expenses were $153 million for the fourth quarter versus $164 million for the same period last year. This resulted in an adjusted awarded compensation expense ratio of 64.2% for the quarter and 65% for the year, which is at the low end of our fiscal 2018 target range of between 65% and 66%.
Our adjusted non-compensation expenses in the fourth quarter were $28 million, which were up slightly when compared with the fourth quarter last year. This resulted in a non-compensation expense ratio of 11.4% for the fiscal year, below our fiscal 2018 target range of between 12% and 13%. This quarter, we adjusted out $800,000 in primarily legal and accounting costs associated with our registered block trade, which closed in March 2018 and $700,000 in expenses associated with our acquisition of Quayle Munro. We will continue to adjust for these types of expenses in the quarters in which they occur.
Our adjusted other income and expense line item resulted in a gain for the year of $1.8 million versus a loss last year of $3.5 million. As a reminder, the recurring income and expenses included in this line item are: gains and losses associated with our Italian joint venture, interest income and interest expense. Most of our income in this line item for fiscal 2018 was a result of interest income on our sizable cash balances throughout the year that we hold in anticipation of our bonus payments in May and November.
Our adjusted effective tax rate for the quarter was 34%, and we ended the year with an adjusted effective tax rate of 35.2%. With respect to the adjustments that we made to the GAAP effective tax rate this quarter, they include non-recurring adjustments related to tax reform, including both a remeasurement of our deferred tax assets and liabilities based on the new rate, and a onetime deemed repatriation tax on our foreign earnings. Last quarter, we made estimates regarding these items, and this quarter, we are truing up those estimates. We don't expect any additional material adjustments to our estimated -- to our estimates relating to tax reform in the coming year. As a reminder, because we are a March 31 fiscal year company, unlike our publicly traded peers, we will not recognize the full impact of tax reform until next quarter.
Now I would like to take a few minutes to address an accounting rule change and how that change affects our targets. Accounting rule changes require us to report reimbursable expenses as part of our gross revenues beginning next quarter, which is the first quarter of our fiscal 2019. To provide you with the frame of reference, our reimbursable expenses for fiscal 2018 were $30 million. Going forward, we do not intend to adjust our GAAP revenues, and when we report results for the first quarter of fiscal 2019, you should expect to see reimbursable expenses incorporated into our individual product line revenues. This accounting change will affect our compensation and non-compensation ratios going forward, and we're adjusting our targets accordingly.
In addition to the accounting change, we are also incorporating our recent experiences regarding compensation and our expected experience regarding non-compensation costs. Although we will continue to manage our compensation expense on an adjusted awarded basis, we will provide our target based on GAAP compensation expense adjusted for certain non-recurring items or what we call adjusted compensation expense.
Going forward, we are targeting an adjusted compensation ratio of between 60.5% and 61.5% off of our gross revenue. This new range is the equivalent of lowering our prior target adjusted awarded compensation ratio from 65% to 66% to approximately 64% to 65% under our old way of accounting for reimbursable expenses. The lower expectations are based on continued growth in our business, which has resulted in modestly improved operating leverage related to compensation.
Now let's shift to non-compensation expenses. From an accounting standpoint, whatever we add to revenue as reimbursable expenses, we also add to our non-compensation expenses in the same amount. Previously, we netted our reimbursable expenses against our non-compensation expense. Assuming the same $30 million in reimbursable expenses for fiscal 2018, our adjusted non-compensation expense for fiscal 2018 would have been $139 million, resulting in a pro forma adjusted non-compensation ratio of 14%. Going forward, we are targeting an adjusted non-compensation ratio of between 14% and 15% off of our gross revenue for the year. This new range is the equivalent of us maintaining our prior target non-compensation ratio of 12% to 13% under our old way of treating reimbursable expenses.
Even though our experience this year was better than our target, our fiscal -- for fiscal 2019, we expect to see a modest increase in our non-compensation expenses in addition to the increase that results from the accounting change. The expected increase is a result of: the completion of our New York office refurbishment and the depreciation associated with those costs, incremental rent in London as a result of our planned move to a new building and consolidation of office space, and ongoing and planned expenditures related to technology that we believe will have a short- and long-term positive impact on our business. We believe these increases will result in a non-compensation expense ratio that is in line with our new target range of between 14% and 15% of gross revenues for the year. Lastly, we are not changing our effective tax rate target of between 27% and 29%.
Turning to the balance sheet and use of cash for the quarter. As you all know, we completed a public offering of 4 million shares, which closed in March. Related to that transaction on the balance sheet at year-end, we had $94 million of restricted cash and an offsetting amount of $94 million of forward repurchase liability and $94 million of additional APIC, which is offset by $94 million of negative shareholders' equity as it relates to treasury stock. These line items reflect the forward repurchase contract that we entered into With ORIX at the time we completed the offering. This contract settled in early April 2018, and all 4 line items in the balance sheet have now been eliminated.
As of March 31, 2018, we had $416 million of unrestricted cash and equivalents and investment securities and debt of $12 million. We expect to see several uses for a significant amount of this cash in the first quarter of fiscal 2019: First, we will pay significant portion of our cash bonuses in May; Second, we closed on the Quayle Munro transaction in early April; and third, we will pay our quarterly dividend to shareholders in June, which as Scott mentioned, has been increased from $0.20 a share to $0.27 a share.
During the first quarter, we also planned to issue approximately $56 million in stock to our employees as part of our compensation program for fiscal 2018. This stock will generally vest over a 4-year period but show up in our fully diluted share count beginning next quarter. We will continue to target a share repurchase program that offsets the dilution associated with the shares issue as part of our compensation program. In fact, when we went public, we had fully diluted shares outstanding of approximately 65.5 million, and as of today, we have approximately 66 million of fully diluted shares outstanding prior to the issuance of the stock I just mentioned for our fiscal 2018 bonus cycle. The entire management team at HLI remains committed to returning capital to our shareholders to the extent that we are unable to put it to work through hiring, acquisitions or investing in our business for growth.
And with that, operator, we can open the line for questions.
[Operator Instructions] Our first question will come from Ken Worthington with JPMorgan.
Just on the advisory business, revenue has generally been heading higher. Margins and profits have been declining somewhat. Can you walk through the drivers here? And if we think about this business at 15% margins, is that the right way to look at the business? Or should it be doing better? And then lastly, I think you mentioned in your prepared remarks there were some lower results across a couple of product lines. Which lines are you referring to? And maybe could you flesh out those comments a little more?
Ken, this is Scott. I'll take the second question. Lindsey can take the first part of your question. Regarding the product lines, what we saw over the full year is actually a growth in Corporate Finance, and our FAS business, a slight decline in Financial Restructuring. We did -- during the last particular quarter that just ended, we saw growth in Corporate Finance, a slight decline in FAS and a more significant decline in our Financial Restructuring business, and I think this was part and parcel what we had expected and had been talking about for some time. We had a very good first half this year and probably had one of the least volatile quarter-over-quarter over the last 4 quarters of almost any particular time period. But throughout all of it, the business still saw a roughly 10% growth in their revenues year-over-year.
Yes. I think if you just break it down to this particular quarter, Ken, there were a couple of the business segments in FAS that didn't do as well as they did last quarter. Having said that, we don't report on a segment-by-segment basis in FAS, but I can tell you that all of our product lines within FAS continue to see benefits from a good strong M&A market and have good momentum going into 2019. I wouldn't read into a particular quarter for that business segment. As we suggested in the past, the drivers of FAS tend to be a good healthy M&A market for a significant portion of that business, and then another portion of the FAS business does well through the cycles. It's more -- much more of a recurring model. With respect to segment profitability, we've said this in the past, and I think that when you look at our segment profitability that's reported in our earnings release and our 10-Ks and 10-Qs, we do adjust for that profitability when there is collaboration across product lines, and we do have pretty significant collaboration across all 3 of our product lines. And what I mean by that is if, for instance, there is a Corporate Finance project that requires the collaboration with valuation-oriented investment bankers, the revenues associated with that Corporate Finance project stays within Corporate Finance, but a portion of the fees associated with that project will end up being allocated to FAS employees or FAS bankers. And so you'll see higher compensation expenses in FAS without the associated revenues. And so it's very hard to get a sense of profitability for any other product lines, and they will tend to be fairly volatile across quarters and years. And the good news is the more volatility they are, the more collaboration that's occurring across the product lines. But because of the way we report our segment reporting, we're just going to have to live with that. So that hopefully answers your question. I think all 3 product lines, and Scott has suggested this in the past, operate at relatively similar margins within a couple 300 basis points of each other.
Our next question will come from Conor Fitzgerald with Goldman Sachs.
Just want to get an update on how you're progressing in your pipe. Like the [pet] brand is gaining traction. Seems like you had a pretty good quarter in the year obviously in the hiring perspective. What -- just would be curious what you're hearing from clients as well.
Yes. First of all, we do see a more probably positive tone just in the European marketplace itself from the economy types of the transactions that are occurring, activity, dialogue we're having with executives. And then specific to ourselves, we have probably made much of an effort in the last 2 or 3 years to continue to build out our European and specifically our Corporate Finance activities in Europe through the acquisition of Quayle Munro that just closed last month, an acquisition we did of a company called McQueen about 2 years ago, adding in the Leonardo locations about 2.5 years ago, also been hiring numerous senior bankers. So I think we see improved market opportunities. We see an improved brand presence that we have, and we're seeing, therefore, greater results. And we'll continue to add to strengthen resources out there as marketplace dictates.
That's helpful. And then, Scott, on your comment for some signs of distress in the market just given the move in interest rates, was any of that because of the outsized move in LIBOR? Or was that purely just not technical reasons, I guess, but just the design, the fact that rate's going higher?
Yes. I think it's a simple issue of right now I would say to date since maybe the trough, interest rates haven't moved up that much for the average normal company either doing no transactions or doing a typical M&A type of transaction but in a more highly leveraged situation, 50 or 100 basis points make more of a difference. So it helped the restructuring business, I'd say, in the last couple quarters and [at this juncture's had] a nominal negative impact, if any, on the Corporate Finance side of our business.
But it wasn't driven by the volatility in LIBOR that technically created defaults. That wasn't -- that's not generally what's driving it. It's much more fundamental.
Yes, that's helpful. And then just a housekeeping one. The $30 million you spoke of, the reimbursable expenses, just any way to help us understand what line item that flows through from a revenue perspective? Just trying to get a sense of the breakdown between your various 3 lines of business.
So as I was reading this, I realized someone was going to ask that question because I didn't provide it. So roughly half is Corporate Finance. Roughly $10 million is our valuation business, and roughly $5 million is Financial Restructuring. And that will, obviously, vary each year, but for modeling purposes, those are the numbers I'd use.
Our next question will come from Yian Dai with KBW.
Quick question for you on MD headcount. So if we just think about the 9 promotes from the beginning of the year and then the 20 new hires this year and compare that to the net change in MDs, it does feel like there's been a little bit of elevated attrition this year. And maybe we've talked about it in prior quarters. But can you just give us a breakdown around where you saw that? How much of it was voluntary? How much of it was related to maybe some breakage around the acquisition?
Yes. I'd put it in a couple categories, and the vast majority was not surprising and more expected and planned throughout the time period. Some component of it is just normal retirements, people who have been with the firm for many years. Some component of it is what I would call -- has been just voluntary type of a turnover that we would expect either when we're hiring people or especially as we mentioned when you acquire businesses sometimes we know and they know a certain percentage of those people are not going to work out in the new platform versus the other platform that they maybe came from. And very few of them what I really categorize is departures that were not planned or not considered. So on a net headcount basis, we really didn't have that much change year-over-year. But I think as we've felt for many years, every time we keep adding to the bench, we're adding certain kinds of talents and strengths that we need, and we'll have certain departures. But the bench strength continues to grow, and I think you see that in the fact that we've been able to achieve much higher revenues this year and last year and in fact, not necessarily a large net increase in headcount.
That's helpful. And maybe on the back of that then. To your commentary on the greater pipeline that you guys are seeing than you've seen historically, I guess, I'm curious whether there are certain sectors or geographies, I know Europe may be one of them, where you've seen an acceleration in those early pipelines. And could you just give us some color around that?
Especially in our Corporate Finance business, I think it's so diversified across almost all of the key industries, and they'll have their own unique volatility or circulation on what maybe is leading and is going to be the strongest in fiscal '19 versus '18 versus '17, et cetera. But I wouldn't point to any particular industry or subindustry that is doing phenomenally better. I think it's really across the board. Partly, we have more key people in different sectors. Some of it's been from the acquisitions. As you've mentioned, clearly, it's from our efforts in Europe. I think we've mentioned in numerous times also, I think, the ongoing strength and build out of our capital markets group has all added that to pipeline. But I don't think it's any 1 particular industry or 2 that we would attempt to point out to ourselves or to you.
[Operator Instructions] Our next question comes from Devin Ryan with JMP Securities.
So maybe one here following up on restructuring. Just the commentary, it sounded like maybe the outlook's a bit better than what we heard last quarter. I think the commentary was an expectation for lower revenues in 2019. So I just want to make sure I'm kind of hearing right. I mean, is the takeaway to maybe expect less of a decline than the -- maybe we previously were? Or could there be a scenario here? What would that scenario look like where restructuring revenues actually grow from 2018?
Yes. So what we still see in the marketplace is that same generally low default rate environment that exists today, and this existed, call it, last couple of years, put the oil and gas issue aside. So we haven't seen any new major macro fact patterns, which would suggest that our restructuring revenue is going to grow substantially at least in the near term. That being said, we continue to see more companies running into some level of distress, whether that's just changes in those unique companies' business plans, what we've always described or others, kind of these technology disruptors that are occurring and some slightly increased interest rates just gets us more confident today looking out for the next several quarters and next several years than would have felt a year ago. And it's just -- I think your comments are kind of right. We don't see either the same magnitude of decline or any potential decline that maybe we felt was potential a year ago. But still need to remember, we are still in a low default rate environment, and so unless -- until that changes, hard to really forecast growth or meaningful growth in the restructuring marketplace.
Got it. Understood. Okay, now that's very helpful color. And then just one here on the capital markets business. I think you mentioned you added 5 new managing directors, and then last quarter, I believe, you said that the activity there doubled from the prior year. So I know this is kind of a big, kind of longer-term opportunity. But as we think about kind of the sizing of the group, how do you think about -- I know it's hard to predict how many people you bring in this year but like how big the team could be over the next few years. And then is it more about kind of the group that you currently have driving more revenues? Or is it bringing in more people and that's kind of bigger opportunity?
So first, I'd say we think the marketplace, as we described before, is very, very big. We're in the very, very early days on where this could go. So part of it is just convincing the client base and consider that either companies or financial sponsor firms believing that it make senses to actually hire financial advisers to assist them in their financing. So that's probably big trend #1. And then the second thing is just as we continue to grow and think of it, we will grow with key people who can specialize in certain parts of the capital structure. We can grow geographically. We can grow with people who will end up being ultimately focused on particular industries in providing financing help. So there's a lot of places we can grow. But at the moment, I'd say we're also very picky on what kinds of people we think will be successful in the market that we're going after. So it's a big market, but we need to be prudent about what kinds of people and how many we can hire at a time. It's not really market driven as there's -- trying to find the right people that can focus on a platform like ours to be successful.
And then just last one here just on -- appreciate some of the commentary on just overall Managing Directors. Where do we stand now with Quayle Munro and with the recent promotions? That will be helpful.
You'd take the numbers that we published in our disclosure. You'd add to it 10 promotions that we did in early April and the 9 coming from Quayle Munro that also closed in early April, so we'd be up 19 through the first week of April. We'd be up 19.
And I think it's fair to assume, although not perfect, that there often is a preponderance of the reductions in senior-level force occur in that last 4 to 5 months of the year, not the first 6 months of the year.
And next we'll go to Brennan Hawken from UBS.
Just a follow-up on one of Devin's questions there. So given the fact that you guys have a creditor side orientation in restructuring and some of these episodic components of stress you're seeing may not necessarily be default driven, does that mean that we should expect that Houlihan may not participate in this part of, I don't know, whatever you want to call this, many restructuring cycle or whatever it is we're in versus maybe some of your competitors? Or do you think that the creditor orientation, creditor side orientation of your business is not really an obstacle in that regard?
First of all, Brennan, while we're maybe more well known for our creditor work as we tended to be on the largest of transactions in the creditor side, we actually do a large, large amount of debtor-related work as well. So I wouldn't actually consider the firm to be creditor focused. We do both creditor and debtor side. And from everything that we see in terms of what kinds of situations are out there, what we're pursuing, what we're getting hired on, what we perceive or know that our peers are doing, there's nothing that would suggest to us at all that the next couple quarters or next couple years' worth of restructuring activity is going to put us at any disadvantage with others. In fact, like I said, we believe we probably got the largest team producing the largest amount of revenues, and that's been that way for many years and hope and expect that, that will continue to be for the foreseeable future.
Okay, that's fair. I guess, we like to think about things and categorically and since you guys proportionally are larger on creditor side, that's how I usually think about it. But obviously, that is -- doesn't represent the whole pie. So I guess, a follow-up question to that might be, if we have seen a bit of stress here with interest rates only beginning to pick up, does that lead you to believe that once we actually see a turn in the cycle, particularly at higher rate levels, given the amount of debt that's been added to the system, that this restructuring or a potential restructuring cycle, once it gets fully blown, could really be pretty remarkable? Or is it just too early to comment on that?
No. I think what we've said for many years is we know that the total amount of leveraged loans or high-yield debt is much greater today than it was at the last talk. So we just know the marketplace is bigger. We know we're at still probably the bottom half of default rates, so there's a lot more for it to go up when eventually that cycle turns. We think the banking team that we have in restructuring is as -- in fact, is even more skilled today than it was 5 or 10 years ago just because they've all been around longer. So all that would point to us that, yes, when that cycle turns, it could be much bigger than we've seen in the past. I think the caveat you'd have to throw in there is, in the last cycle, not only did we have a recession. We had a global recession and a liquidity crisis. So you'd have to figure out whatever is the next downturn. Does it look like 2008 and '09? Or does it look like some other downturn? That would be kind of our own tempering comments that none of us know exactly know what that downturn will look like. But we do believe all the evidence is out there, is when things turn, it will be much bigger than what we saw before. And ourselves and our peers should probably expect to have higher revenues at that peak than they saw before, and that's kind of what we've all experienced, higher peaks and higher troughs.
I'd say the other thing adding to that is that, if you look back 8 or 9 years ago during the last recession, we are operating in several more countries today than we were 8 or 9 years ago. But just as they've grown, their economies have matured and the rule of law have matured along with them, so whether it's the Middle East or China or India where, I think, 7 or 8 years ago, we weren't doing any restructuring work. And if there is another global recession, there will be levels of activity in places we weren't in during the last recession.
That's fair. And last one for me. Thinking about, a few years ago, there was a general -- a pickup in the mid-market M&A on the back of anticipated higher income tax rates. Just curious whether or not you guys are seeing any change here when -- now that we've gotten through the other end of it and we're seeing lower tax rates. Is that continuing to carry through in the M&A business and drive folks to consider a transaction that may not have otherwise done so albeit for different motivations?
Yes. I don't see...
[Technical Difficulty] I'm sorry for the interruption. This is the operator. We are experiencing an emergency, and we must proceed to a safe area immediately. Your call will be left unattended. We apologize for any inconvenience at this time.
Everything's okay.
Yes. I hope so, too. We'll try to contact you back later. Thank you. Sorry, about that.
Yes. I mean, I think, if anything, the lower tax rates have driven conversations that potentially could have been on pulse for the latter half of last year. I think, if you look back on the M&A market over the last couple of years, I think Scott and I would have described it as stable. I think, if anything now, it's slightly better than stable in the mid-cap space. And I think that's in part driven by some of the things that you suggested, which is valuations that theoretically should be higher with lower tax rates, entrepreneurs that may have been sitting in the sidelines that a $200 million valuation may feel more comfortable at a higher valuation to transact. So there's a whole lot of factors that go into decision-making in the mid-cap space. And I think, for the most part, what we've seen with respect to tax reform have all been positive relating to those decision processes.
The fire alarm might have meant that I'm the last question.
Yes. I know there's a couple of people wanting to ask questions. But to the extent that you're unable to, Scott, why don't you complete the call, and we'll follow-up.
Well, I want to thank you all for participating in our fourth quarter and fiscal year-end call, and we look forward to updating everybody on our progress when we discuss our first quarter results for fiscal 2019 in the summer. Thank you, everyone.