Houlihan Lokey, Inc. (NYSE:HLI) Q3 2023 Earnings Conference Call January 31, 2023 5:00 PM ET
Company Participants
Christopher Crain – General Counsel
Scott Beiser – Chief Executive Officer
Lindsey Alley – Chief Financial Officer
Conference Call Participants
Brennan Hawken – UBS
Manan Gosalia – Morgan Stanley
Devin Ryan – JMP Securities
James Yaro – Goldman Sachs
Steven Chubak – Wolfe Research
Ken Worthington – JPMorgan
Jim Mitchell – Seaport Global
Operator
Good day, ladies and gentlemen. Thank you for standing by. Welcome to Houlihan Lokey’s Third Quarter Fiscal Year 2023 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, January 31, 2023.
I will now turn the call over to Christopher Crain, Houlihan Lokey’s General Counsel.
Christopher Crain
Thank you, Operator, and hello, everyone. By now everyone should have access to our third quarter fiscal year 2023 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 December 31, 2022, 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 will turn the call over to Scott.
Scott Beiser
Thank you, Christopher. Welcome everyone to our third quarter fiscal year 2023 earnings call. We ended the quarter with revenues of $456 million and adjusted earnings per share of $1.14. Revenues were down 49% versus the same quarter last year and down 7% from the previous quarter.
When comparing to last year’s third quarter, bear in mind that our December 2021 quarter was extraordinary. In fact, the prior year quarter was substantially higher than any previous quarter in our firm’s history, both in revenues and adjusted EPS.
Furthermore, numerous external market factors have altered the typical seasonality of the M&A market globally. This year our results are consistent with the industry trends and that our December 2022 quarter was less than our September 2022 quarter.
This is the first time our December quarter results were lower than our September quarter results since December 2008. While this quarter’s financial results are disappointing, we are encouraged by the fact that our nine-month year-to-date results are the second best in the firm’s history.
Corporate Finance quarterly revenues were $292 million. We saw an increase in transaction closings this quarter versus last quarter offset by a reduction in average transaction fees. New Business activity remains robust as the number of new engagements was a quarterly high for this fiscal year.
Partially offsetting these positive factors is that the financing market remains challenged. Mid-cap transactions can still get financing, but lenders are more selective. The cost of debt is up significantly and some lenders have opted to sit on the sidelines until they perceive better visibility on the economy. This has resulted in pent-up demand in M&A, which we believe will ultimately be a positive for our business once there is more broad-based confidence in the economy.
Financial and Valuation Advisory recorded $66 million in revenues. The decline in revenues versus the same quarter last year was primarily driven by lower revenues in transaction opinion and transaction advisory services. Both service lines were affected by reduced M&A activity, especially in the public marketplace. However, our portfolio valuation service line continues to do well and in certain circumstances, benefits from a more volatile market.
Financial Restructuring produced $99 million of revenues, another very strong quarter. For each quarter of this fiscal year, Financial Restructuring experiencing an increased number of closed transactions and an increased number of new engagements versus the prior quarter.
Restructuring continues to see strong new business activity adding to our confidence in this business segment in the second half of the calendar year and throughout calendar 2024. New Business and Financial Restructuring is broad-based across all major geographies and most industry sectors.
Our long-term focus on growing our business both internally and externally continues. We hired five managing directors this quarter. We announced the acquisition of Oakley Advisory, a digital infrastructure investment banking firm in the U.K. and we continue to have a robust pipeline of quality acquisition targets.
Finally, I wanted to end today’s comments with a recognition to all three of our business segments and the bankers that continue to deliver exceptional results to our clients and our shareholders.
In calendar 2022, we continued our string of league table successes. Houlihan Lokey was ranked as the number one investment banking firm for all global M&A transactions under $1 billion and all transactions regardless of size in the U.S. based on transaction volume.
We are again ranked the number one investment banking firm for all Financial Restructuring transactions, both in terms of value and volume. In addition, we were ranked as the most active fairness opinion firm by volume when measured for the period over the last 25 years.
Overall, we are proud of our accomplishments in calendar 2022 and we fundamentally believe that our business model positions us effectively for long-term growth and strong shareholder returns.
And with that, I will turn the call over to Lindsey.
Lindsey Alley
Thank you, Scott. Revenues in Corporate Finance were $292 million for the quarter, down 7% when compared to last quarter and 59% when compared to the same quarter last year. We closed 125 transactions this quarter, compared to 114 last quarter, but our average transaction fee on closed deals was lower.
Financial Restructuring revenues were $99 million for the quarter, an 11% increase from the same period last year. We closed 28 transactions in the quarter, compared to 21% in the same period last year and our average transaction fee on closed deals was lower.
In Financial and Valuation Advisory, revenues were $66 million for the quarter, a 21% decrease from the same period last year. We had 876 fee events during the quarter, compared to 901 in the same period last year.
FVA’s quarter was heavily influenced by the slowdown in M&A activity for the quarter, both the transaction opinion and transaction advisory service lines were down versus the same quarter last year.
Turning to expenses. Our adjusted compensation expenses were $281 million for the third quarter versus $547 million for the same period last year. Our only adjustment was $8.6 million for deferred retention payments related to certain acquisitions. Our adjusted compensation expense ratio for the third quarter was 61.5%, the same as last year.
Our adjusted non-compensation expenses were $73 million for the quarter, an increase of $14 million over the same quarter last year, but flat versus last quarter. This resulted in a non-compensation ratio of 15.9% for the quarter. We believe that our non-compensation expenses have settled into a post-COVID norm relating to TM&E and other operating expenses.
We still see pressure on rent with additional space supporting our growth and general inflation, and we expect to continue to invest in technology as a point of differentiation as the firm grows. We continue to believe that our long-term target for our non-compensation ratio will be lower than what it was pre-COVID given the increased size of our business. However, we are seeing some pressure on that ratio this year given the current business climate.
For the quarter, we adjusted out of non-compensation expenses, $10.4 million in non-cash acquisition-related amortization, the vast majority of which was amortization related to the GCA transaction.
Our adjusted other income and expense decreased for the quarter to income of approximately $2.2 million versus an expense of approximately $300,000 in the same period last year. We adjusted out of our other income and expense, $2.7 million related to the wind down of the SPAC that we co-sponsored. Given the wind down, there is no remaining asset related to the SPAC on our balance sheet.
Our adjusted effective tax rate for the quarter was approximately 25%, compared to 30% when compared to the same quarter last year. Although, we received some benefits this quarter, which slightly reduced our effective tax rate, we continue to target a long-term range for our effective tax rate of between 27% and 28%.
Turning to the balance sheet. As of the quarter end, we had approximately $586 million of unrestricted cash and equivalents and investment securities. As is typical during our third quarter, the cash position was affected by a November payment of cash deferrals relating to bonuses accrued in fiscal year 2022.
In this past quarter, we repurchased approximately 100,000 shares at an average price of $91.65 per share as part of our share repurchase program. We continue to be disciplined regarding share repurchases as we look to maintain balance sheet flexibility.
Finally, the Board approved the quarterly dividend to be paid in March and also approved a change to our Board Committee structure, where effective immediately, our Compensation Committee and our Nominating and Governance Committee will be comprised solely of independent directors, consistent with our Audit Committee.
And with that, Operator, we can open the line for questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] And we will go first to Brennan Hawken with UBS.
Brennan Hawken
Good afternoon, Scott. Lindsey, how are you?
Scott Beiser
Hi, Brennan.
Lindsey Alley
Hi, Brennan.
Brennan Hawken
So thanks for taking the question. I would love to start on Corporate Finance. So you spoke to financing becoming more challenging from banks, and so clearly, that was impacting the December quarter. But how has that — have you noticed any change here early in 2023, how is that continued availability trending here so far, has there been any change and how should we be thinking about the outlook for mid-market M&A?
Scott Beiser
On the financing front, I’d say, we have seen a slight improvement during the month of January versus the previous quarter in financings. I think there were some lenders who just did not want to deploy any capital on their books when they closed them out on December 31. So they were, I’d say, slightly more open-minded in terms of finding opportunities to lend, but it’s still a marketplace that’s rather challenged out there.
Brennan Hawken
Okay. And should we therefore keep our expectations toned down so long as the financing markets remain challenged as far as Corporate Finance goes in M&A?
Scott Beiser
I’d say there’s a dichotomy going on, which for the last several months, the last few quarters, I’d say, the amount of new business, the size of our prospects, pipeline, backlog, however, you might count it, actually continues to grow. That’s the very positive sign. But really have not seen a definitive turn in the marketplace yet, whether it’s willingness by buyers and sellers or lenders and borrowers to come together.
So the transactions are occurring. They are just not occurring at the pace that we would think is typical for the size business that we have already got signed up. So I think we are all still waiting for eventually that improved pipeline to ultimately turn into revenues, but just haven’t seen a definitive turn in the marketplace at least as of yet.
Brennan Hawken
Okay. All right. Thanks for that. That’s appreciated. I’d love to use that as a segue to my follow-up question, which would be, if we do see continued challenging climate and environment, particularly for M&A and Corporate Finance, is there a point where your normally, very predictable, very reliable and very boring 61.5% comp ratio begins to see some upward pressure, maybe it becomes a little bit less boring? How should we be thinking about that and is there any point in which maybe it starts to become a bit more of a concern for you at least in the short-term?
Scott Beiser
I think all we can point to is, since we have gone public, we have had a very tight range and I believe it’s almost as tight as anybody in terms of what our payout ratio is and it’s typically not very much year-to-year or within the year.
And as we see the marketplace as we see the results of our business, I think, we are still comfortable with the 61.5%. I don’t think you can ever say that it will never change, but there’s nothing sitting here in our minds right now that suggests it’s going to change in the foreseeable future.
Lindsey Alley
And I’d say, Brennan, even pre-public in the two recessions that occurred early 2000s and kind of 2008, there’s precedence of us managing to a fairly tight range as well. So I think we certainly have history to help us answer that question, but I agree with Scott, nobody knows what the next six months is going to look like.
Brennan Hawken
Okay. Thanks for the color. Appreciate it.
Scott Beiser
Thanks, Brennan.
Operator
And we will move to our next question from Manan Gosalia with Morgan Stanley.
Manan Gosalia
Hey. Good afternoon. You noted that the average transaction fees were lower this quarter. Is there anything specific driving that? Is it just a lower size of deals? Is it more competition? Can you talk about how we should think about that going forward?
Lindsey Alley
I think it’s hard to think about it going forward. It is really going to be a little random quarter-by-quarter. We kind of think about average transaction fee on an annual basis, and I’d say, if you look back over the last 15 years, we have pretty consistently increased our average transaction fees over that time period.
It’s just sometimes in the quarter, you will have swings based on size. I’d say, there was no store here at all and you will unfortunately continue to see some swings quarter-by-quarter, but the long-term trend is obvious if you look at the numbers.
Manan Gosalia
Great. And you also spoke about the pent-up demand in M&A. So is it really just the financing market that’s holding things back? Can you talk about what you are hearing from clients as we get closer to the Fed maybe stopping their rate hikes and how — where buy and sell expectations on the bid ask right now?
Scott Beiser
Yeah. I think it’s a combination, interest rates and financing availability is one thing, where people think the economy is going, where a company’s near-term earnings, expectations are different people’s views on valuations, all of that is impacting the decisions and the speed of which people are able and willing to close transactions.
Manan Gosalia
Got it. Thank you.
Operator
And we will move on to our next question [Technical Difficulty] W [ph]. Matt [ph], your line is open.
Unidentified Analyst
I am sorry.
Operator
Please go ahead, Matt.
Unidentified Analyst
Hi. I think you cut out there for a second, but I believe I was called here. Good afternoon, guys.
Scott Beiser
Hi, Matt.
Unidentified Analyst
I just have one on the Restructuring cycle. Hi. How is going? Just last quarter you expressed some optimism overall that this Restructuring cycle could be elevated for what feels like a prolonged period of time. Just wanted to take your pulse on that, just kind of given where that the sentiment stands today, just given that there’s been maybe some shifting of expectations for maybe a soft landing more recently? And I guess even from like a headline standpoint, I think, a lot of the large activity you have seen at least from news flows related to the crypto space. But curious in terms of what impacts you guys, what you are seeing as challenged areas in industry verticals and regions that more directly impact Houlihan?
Scott Beiser
So, overall, I’d say, we are more optimistic on what we see going forward with Restructuring than we were a quarter or two quarters ago as it just continues to build. I’d say, if you think of it as kind of a water spigot.
It just keeps opening up a little bit more and more, it’s not fully open and we don’t expect to see a full flush out like we saw maybe in Spring of 2020 or the Great Recession of 2008, but it is a kind of a full-fledged increased Restructuring environment globally.
So not only in the United States, Western Europe and Asia, but really almost all other parts of the world and it’s impacting a whole litany of industries. I don’t think there is a particular leading industry.
Crypto, which has obviously gotten some news, but it’s just one of many, many pieces out there and we continue to see a build of our business and whether it’s on the debtor side or credit or side, U.S. or outside of the U.S. among a variety of different industries.
So the expectations and just where the marketplace is, kind of where interest rates are, where financing is, kind of the never ending movements in the maturity wall, all that leads us to believe that it will be a good, and probably, better environment for Financial Restructuring for at least the foreseeable future.
Lindsey Alley
And just going back to Brennan’s question, which was kind of the million-dollar question, which how should we think about M&A over the next 12 months and that’s probably not just for Houlihan but for anyone in the industry is, we are in an unusual circumstance where we are seeing increased activity in Corporate Finance relative to the last quarter and increased activity in Restructuring relative to the last quarter, which is unusual.
It just normally does not happen that way and so there is, call it, half the population out there that believes in the soft landing and half the population out there that thinks it’s going to get ugly. And so very hard to go back and answer Brennan’s question until we really see some inflection point that shows a direction.
Unidentified Analyst
Yeah. Makes sense. And then kind of just switching gears, just thinking about kind of your capital priorities from here. I know this quarter, you guys announced that you would be keeping the dividend flat for this coming quarter and the second quarter of relatively light buybacks. So just coupling this with the comments you made last quarter kind of citing a pickup in conversations with acquisition, targets, as well as the announced Oakley Advisory acquisition. I guess how should we think about the M&A outlook from here, I am assuming there’s still more by way of conversations, but just kind of curious on any updates there on capital priorities overall, as well as M&A specifically?
Lindsey Alley
So I will let Scott handle the M&A question and I will just start with the capital priorities. I think with respect to the dividend, if you just go back in time, our normal cadence is our Q4, which is next quarter and so it would be unusual for us to increase the dividend this quarter or have any effect on the dividend this quarter.
With respect to share repurchases, I think, we have called out for the last couple of quarters that we are going to be conservative with respect to share repurchases. As you saw during COVID and as you heard from Scott in his comments, we do tend to see a bit more M&A activity during periods like this and making sure that we have balance sheet flexibility, I think, is prudent, going through a dislocation in the market, so not dislocation, it’s probably too strong a word, but stubbornness in the markets like the way we are going through — like what we are going through now.
And then I think with respect to M&A activity, I think, I have kind of answered that question. That is an important component of capital allocation for us. We feel like it is the most accretive to shareholders and that’s going to continue to be a priority for us to put money to work through our acquisition strategy. I think with respect to what we are seeing out there, Scott, can highlight some of what he talked about.
Scott Beiser
I think we are experiencing still a relatively active marketplace for us as a principal to acquire interesting and hopefully additive businesses to our organization. We never know whether everything we are talking to will close or none of them will close and they all take a different time line.
So as Lindsey had said, we try to factor in the magnitude of what we are looking at, maybe some probability assessment of what we are looking at in closing kind of what other of our cash needs are, and I think, that’s probably. It’s a combination of a variety of factors that have tempered a bit our repurchases over the last quarter or two.
Unidentified Analyst
Great. Thanks, guys.
Scott Beiser
Thank you.
Operator
And we will go next to Devin Ryan with JMP Securities.
Brian McKenna
Great. Thanks. This is Brian McKenna for Devin. So the syndicated credit markets are still largely shut, but the private credit markets are functioning and are filling this fold in a pretty meaningful way. So how has this impacted your capital markets business and what kind of opportunities does this create near-term and over the longer term for this business?
Scott Beiser
So short-term, the reduction in total number of players that are able or willing to provide financing and the total number of deals that you have got willing buyers and sellers is down, so that puts some negative pressure on our capital markets business.
On the long-term, we think, in fact, what’s occurring is going to be good for us and the rest of our industry participants. Effectively, when it’s harder to find capital, we have always said our typical competitor here is not another investment banking firm, it’s the CFO who believes that he or she can do it themselves or it’s a private equity firm who believes they can do it themselves. So as things have gotten a little more difficult over the last year, we are seeing more people turning to institutions like ourselves to go raise that financing for them.
So like I said, short-term, still probably is a little rocky compared to a year ago, but long-term, we think actually what’s happening much like what happened in the 2008, 2009 time period will result in a more positive trend for aging of a financing in the private marketplace, which is what we specialize in.
Brian McKenna
Helpful. Thanks. And then just bigger picture, thinking about the next leg of growth you clearly have deep relationships with sponsors and continue to expand related capabilities. But what else can you do with sponsors longer term that could drive some incremental growth across the business?
Scott Beiser
So, first of all, I think we have been very dominant and successful in our financial sponsored arrangements out in the U.S. and we are growing rapidly in Europe and then we will continue that pace in the Middle East and Latin America and Asia, et cetera. So there’s some geographical expectations that we have.
And we continue to find incremental types of services that we can provide to many of these financial sponsors. So part of it is learning what they need and what they want as long as it fits the kinds of services that we have or could continue to expand, that’s part of the growth strategy.
Brian McKenna
Nice job.
Operator
And we will move next to James Yaro with Goldman Sachs.
James Yaro
Hey, Scott and Lindsey. Thanks for taking my questions.
Scott Beiser
Hi, James.
James Yaro
I just wanted to start with the sponsors versus strategic point here. Maybe you could just talk about the differences in — among your clients across strategic sponsors, where they are seeing roadblocks to engaging and closing transactions, and what this might mean for the mix of sponsor versus strategic deal making over, let’s say, the next two years or so?
Scott Beiser
Yeah. I don’t think we see or expect major changes in what we have experienced over the last couple of years in any given small quarter trend at times you see sponsors more active in our book of business than financials and vice versa. But the financial sponsors are still incredibly important. There continues to be more of them. They are still raising money. They are still deploying it. They are probably just taking more time in deciding what they want to do or when they get started or when they are waiting for a particular key point of when they want to approach the marketplace, whether it’s on the sell side or buy side. So we still think it’s an important part of our business and for the industry at large.
James Yaro
Okay. That makes sense. And then just on the Restructuring business, is there any ability to sort of contextualize where you are seeing most of these new mandates you talked about being announced? Is it on the debtor side, creditor side and then are they more liability management or traditional Restructuring assignments?
Scott Beiser
It’s really in everything that you have mentioned. In different parts of the globe, we tend to be maybe slightly more active debtor oriented and creditor, a quarter ago, probably, had a little more better type of work recently. It’s been maybe a little more creditor oriented, depending upon the particular company situation, sometimes it starts in the liability management side, sometimes it’s right into a transaction that might immediately lead into a bankruptcy filing.
I wouldn’t say that there is a particular unique trend out there. It’s — really, I think, just a lot of its catch up, companies that probably just don’t have the right business plan. You still have some technology disruptors. You obviously have higher interest rates and the ability to refinance any of the situations that you could have done 12 months or 18 months ago is not the same today.
And therefore, that’s why we have got a — I’d say, in some regards, it’s just a pent-up demand for Restructuring that maybe the ordinary course should have occurred over the last one year or two years, had the central governments not be as helpful in providing liquidity in the system.
James Yaro
Okay. Thanks a lot.
Operator
And we will move to our next question from Steven Chubak with Wolfe Research.
Steven Chubak
Hi. Good evening.
Scott Beiser
Hi, Steven.
Steven Chubak
So, Scott and Lindsey, I wanted to try and set out some guidance on how we should be thinking about the FVA business. And now this was a business that was growing at a relatively consistent, let’s call it, like mid single, high single-digit type clip up until COVID and then you saw this meaningful step function higher, where you have been running somewhere in like the $75 million plus or minus type per quarter zone and this is the first quarter where we have actually seen like a decent step down, even more acute than what we saw in Corp Fin, which was merely a bit surprising. You have been gaining share in that business fairly steadily. You talked about some of those things on the last quarter’s call. I was hoping to get some perspective on how we should think about the jumping off point for this year, recognizing the M&A environment remains challenged, but your franchise continues to gain pretty strong momentum. What’s a reasonable expectation for revenues for that business?
Scott Beiser
It is historically the most steady of our businesses. You are correct, statistically, it took a bigger drop than some of our other business segments over time. Occasionally, this group does end up with some, for its business, some sizable projects just didn’t have many of those in this particular quarter. So you will occasionally get a little bit of a lumpiness.
I think the diversification that we have in the service lines is still the right mix that we have. But it is being impacted negatively to some extent, like, Corporate Finance and at least in the public M&A space, which has come down from where it was a year ago. But we think the ultimate trend lines in terms of growth potential is still there.
We have got more senior bankers in there as we ever have. We have the biggest staff that we have ever had there. We are more global in our reach than we have done in the past. We continue to introduce kind of some sector expertise into what historically was probably much more just service line oriented and kind of would just chalk it up things didn’t fall into place in that December quarter and would expect to continue to see some growth from that standpoint.
What is a normalized level? Probably be a little better now after another quarter or two recognizing, like you said, that we did have a decline this quarter. I think we will all know a little bit more in the next quarter or two on how those quarters shape up to be able to give you a little more guidance on what should be the normalized level and running off from there.
Steven Chubak
No. That’s great color, Scott. And just one follow-up on the comments regarding the myriad of factors impacting deal activity. What I wanted to suss out is whether you still expect to see the inflection in M&A activity sooner relative to peers? I know, historically, your franchise tends to feel the pain first when the environment slows, but also typically recovers more quickly as activity picks up?
Scott Beiser
Yeah. I think we still believe that, that’s the nature of the mid-market business. It is going to draw down a bit and speed up quicker than others. I think what we would all like to see is a consistent trend instead of things like almost every two months, the market tone goes from, oh, yeah, we are definitely going to have a soft landing to, oh, yeah, a definite recession is occurring, oh, yeah, interest rates are going to stay up higher and longer than we thought to maybe now they are not, all of that.
Look, we have had a better month in the stock market and bond market during January, but February could be a reversal of that or it could be a continuation trend. I think we have commented in the past that as time goes on and we are not in either a decreasing stock market or at least not a significant decreasing, buyers and sellers are getting closer and closer to hitting that point of equilibrium, so I think that is improving with time. There’s probably some impatience level by the private equity firms to eventually start deploying capital.
And then the question we answered earlier, I’d say, the financing marketplace at least in the mid-cap space, slightly better in January, but not enough to say, yeah, we are back into an environment where we can finance meaningfully more deals than has been occurring in the last couple of quarters. That just hasn’t happened yet.
Steven Chubak
That’s great color, Scott. Thank you. And if I could squeeze in one more quickly, just given you have had 12 months of GCA results under your belt, I was hoping you could speak to how the business performed this year and whether you are seeing any evidence of those revenue synergies coming through, whether there’s any tangible examples that you can cite in that regard?
Lindsey Alley
So, as you said, we have been with GCA for a year. We don’t break out the GCA business, and as you know, a good chunk of GCA was nontechnology. So we have merged essentially all of the GCA operations into the individual industry group. So hard to tell from our publicly disclosed numbers how GCA is doing.
We are thrilled with the acquisition and how it’s come together. I would say, especially in Europe, we have seen the revenue synergies that we see on every transaction, where we see a meaningful increase in average transaction size and average fee, and as you know, Europe was more than 50% of their business.
So we have lost very few individuals since we did the transaction, so the workforce is still in place. So I mean we are excited about the acquisition a year out, and as you know, technology has been one of the more affected industry groups. GCA has seen that in their results.
But again, the important thing to us is that we have the workforce in place that we acquired a year ago. We are seeing those revenue synergies that you alluded to, especially in Europe and the collaboration among the deal teams across really all three product lines has been as good as we have seen on any acquisition.
Scott Beiser
Yeah. I would just further say that the interaction between the bankers, the interface with the clients has been probably better than we would have ever mapped or thought out the negative is taking a little longer and a little bit more money to do some of the back-office consolidations and synergies, just different IT type of systems, different payroll systems, different geographies, all of those things just certainly take a little bit longer. We will get to it and we feel we have made a lot of headway. It’s taken us a little longer on the back office stuff and on the front interrelationship on the client-facing side, we think it’s been actually very excellent.
Steven Chubak
Great color. Thank you both for taking my questions.
Scott Beiser
Thanks, Steven.
Operator
And we will go next to Ken Worthington with JPMorgan.
Ken Worthington
Hi. Good afternoon. I think most of my questions have been asked and answered. Maybe just a follow-up on FX and the impact that the euro, the pound and the yen movement are having on revenue and expenses. We are seeing a fair amount of volatility both up and down in FX. So what is sort of the flow-through on currency movements through revenue and expenses?
Scott Beiser
So it’s been negative on the revenue side. I mean overly simplistic, you can look, call it, roughly a quarter of the business is non-U.S. and exchange rates, while they have gotten a little better, depending on what perspective you got here, but the dollar has still strengthened against almost every other currency and so it’s put some negative elements into the amount of revenues that we are ultimately presenting when it gets converted into U.S. dollars.
You are going to have the same thing on the expense side. But, ultimately, we have got more revenues and expenses. So the currency exchange marketplace in calendar 2022 has negatively impacted our revenues. Not enough to explain the decline that we or the industry in general have seen, but it’s added just one extra equation to it.
Ken Worthington
And are the expenses pretty much lined up with the revenue in terms of the different major currencies?
Lindsey Alley
Yes. We don’t have any — we are pretty much perfectly hedged with respect to our expenses and our revenues, both compensation and non-compensation.
Scott Beiser
Yeah. We do have some timing issues.
Ken Worthington
Great.
Scott Beiser
Revenues in theory are coming in periodically and bonuses get paid, in our case roughly two times a year. So you are not necessarily perfectly matched from a timing standpoint, but Lindsey’s correct for the most part, where our revenues and costs country by country are reasonably close.
Ken Worthington
Okay. Great. Thank you.
Operator
[Operator Instructions] We will go next to Jim Mitchell with Seaport Global.
Jim Mitchell
Hey. Good afternoon. I will just maybe follow up on the new deal activity. I am just trying to wrap my head around how you are talking about record backlog and new business activity remaining quite robust, but financing markets being mostly shut. It doesn’t seem like there’s any hesitation from your client base to at least engage in new, at least discussions or transactions. So I am just — why do you think that is? What’s driving the, I guess, the urgency to at least have dialogues or sign new deals today if they are worried about financing and macro uncertainty?
Lindsey Alley
Yeah. Good question. I’d say that the M&A process, given the length, which is, call it, nine months on average, a lot of private equity groups are betting, strategics are betting that there will be a soft landing and so why not sign us up, get it started, put your materials together, get ready to go to market and then at the appropriate time in the next one month, two months, three months, five months, we will go to market.
So it is really just the groups that are signing us up generally believe that we will see improvements in the economy and they just want to be prepared to take advantage of it. I mean I think that’s the dynamic.
If you — if we end up falling into a deeper recession over the next six months, I think, you will see some of those new engagements probably unwind. But I’d say that, that’s why you have got this — going back to Brennan’s question, you have got this difference between half of the clients are probably optimistic about the next several months and half of them are a bit more pessimistic.
Jim Mitchell
Right. Okay. No. That’s helpful. And then just maybe circling back on the Restructuring, we have seen a pretty big pickup in debt issuance at least in the investment grade and even high yields in the public markets. Do you have to worry, I mean, you seem very confident in the Restructuring outlook. But if that continue — that spigot continues to open up, does that start to dampen things or are you pretty agnostic that, hey, there’s a lot of at least liability management that has to happen given the change in rates and we are not so concerned about whether they go to bankruptcy or not?
Scott Beiser
Yeah. In Restructuring when you get hired, the probability of getting to a closed conclusion is very, very, very high, much, much higher than the classical M&A. So we are obviously looking at the amount of business that we have signed up and even if interest rate environment improves, even if the economy improves, even if certain things happen, these are usually companies with a variety of issues.
Part of it is their capital structure, part of it is their business model itself and so we have, I’d say, a reasonably good confidence level that a lot of that work will end up in a closed transaction in some normal time period and you typically do get paid along the way as well as a transaction fee. So I think the things you are talking about once again are on the margin and don’t appear to be altering the opportunity in the Financial Restructuring marketplace for ourselves and our competitors.
Jim Mitchell
All right. Great. Thanks. Thanks for the help.
Operator
And we will go to a follow-up question from Brennan Hawken with UBS.
Brennan Hawken
Hey. Thanks for taking my follow-up. Just maybe a little — similar to my initial question, but a bit more tactical approach. In your prepared remarks, you spoke to the typical December quarter seasonality not really being there. So how should we think about your fiscal fourth, time lines are stretching, which is a bit similar to your — the prior setup, but the financing has loosened marginally a little. So how are you thinking that, that could play out and should we count on some seasonality here in the March quarter?
Scott Beiser
So I will give you the positives and negatives, and then the positive, in theory, any of the deals, as I mentioned, where some lenders potentially just didn’t want to have something on their books by December 31st might be inclined to get something done in this March quarter. Houlihan Lokey, which is a March fiscal year-end, so we tend to have an internal push different than some of our other peers for December 31st. So all that’s a positive fact pattern.
The negative fact pattern is, unfortunately, I think, for most of calendar 2022, our expectations starting in the beginning of the month. We are always a bit optimistic relative to where we ended up at the end of the month and in contrast, just the opposite happened in calendar 2021. So just don’t have enough conviction yet to say, oh, yeah, we have finally brought down the expectations of our internal bankers in the marketplaces heading us to a brighter future.
So net-net, we think things are, I’d say, slightly better moving forward, but just haven’t had enough, I’d say, consistent months where we would say, yeah, we have hit that inflection point and things should definitely be growing from here. That’s, I guess, as much clarity we can give ourselves and you at this juncture.
Brennan Hawken
Okay. Thanks for giving a shot. Appreciate, Scott.
Scott Beiser
Okay.
Operator
And with no other questions in queue, I would now like to turn the call back over to Scott Beiser for any additional or closing remarks.
Scott Beiser
Well, I want to thank you all for participating in our third quarter fiscal year 2023 earnings call and we look forward to updating everyone on our progress when we discuss our fourth quarter and full year results for fiscal 2023 this coming spring.
Operator
And so this concludes today’s call. Thank you for your participation. You may now disconnect.
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