Earnings Call Transcript - HLI Q4 2022

Operator, Operator

Good day, ladies and gentlemen, thank you for standing by. Welcome to the Houlihan Lokey's Fourth Quarter Fiscal Year 2022 Earnings Conference Call. Please note that this conference call is being recorded today, May 12, 2022. I will now turn the call over to Christopher Crain, Houlihan Lokey's General Counsel. Please go ahead.

Christopher Crain, General Counsel

Thank you, operator and hello, everyone. By now, everyone should have access to our fourth quarter and fiscal year 2022 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, 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'll open the call to questions. With that, I'll turn the call over to Scott.

Scott Beiser, CEO

Thank you, Christopher. Welcome, everyone, to our fourth quarter and full fiscal year 2022 earnings call. We are pleased to report another record year for the firm. We ended the fiscal year with $2.27 billion in revenues, up 49% from fiscal '21's revenues of $1.53 billion. This is our tenth straight year of annual revenue growth. Corporate Finance achieved just under $1.6 billion in revenues, up nearly 100% year-over-year. Financial and Valuation Advisory reported $284 million in revenues, up just over 50% from last year. And Financial Restructuring reported $393 million in annual revenues, down 27% year-over-year but the second highest annual result in its history. Our adjusted earnings were a record $7.10 per share, up 54% from an adjusted $4.62 per share last year. In addition to strong financial results for the year, we had several notable accomplishments that are worth highlighting. We remain number one in the relevant league tables for all 3 of our product lines. We successfully completed the acquisition of GCA, further increasing our global scale and reach. With the completion of GCA and the addition of over 500 new employees, the firm now has approximately 2,300 employees, 295 of which are managing directors operating out of 35 offices worldwide. We also hired 13 managing directors during fiscal year 2022 and in early April, promoted 29 employees to managing directors, our largest class ever. We head into fiscal year 2023 with strong activity levels in our Corporate Finance and FVA businesses and early signs of improving market conditions and financial restructuring. While our fiscal 2022 full year results were very strong, the fourth quarter for fiscal year 2022 was weaker than we anticipated only a few months ago. For the quarter, we achieved $471 million in revenues, down 6% from the $501 million recorded a year ago. Adjusted earnings per share were $1.30, down from $1.51 last year. Corporate Finance revenues for the quarter were down 7% versus the same period last year and down materially from the prior quarter's extraordinary results. FVA continued to achieve strong results. Its revenues grew 23% for the fourth quarter compared to the same quarter last year. Financial Restructuring ended the year stronger than we anticipated but was down relative to a very strong record fourth quarter last year which was driven by COVID-related restructurings. With respect to our Corporate Finance business, there were several factors that led to the relative softness in our fourth quarter. First, as we suggested on last quarter's call, the timing on transaction closings in our third quarter benefited that quarter to the detriment of our fourth quarter. Second, we started to see a slowdown in deal closings as the market reacted to the buildup and invasion of Ukraine in mid-February which lasted through the end of the quarter. Third and overlaying all of this, we believe the market is still assessing the impact of higher inflation and higher interest rates and we believe on the margin, this is extending the time it takes to close transactions and maybe delaying certain closings. FVA did not experience the same softness as Corporate Finance in our fourth fiscal quarter and FVA's prospects remain quite strong entering fiscal year 2023. We have experienced slowdowns similar to this one over the last few decades. And while each trigger event is different, the impact on our business trends tends to follow similar patterns. First, the timing to close active transactions stretches out, allowing buyers and sellers to reassess the marketplace. If the negative trends stabilize, like what happened in the summer of calendar 2020 with COVID, the market comes back quickly and current lower revenues are made up for in subsequent quarters. If the negative trends persist, certain deals are put on hold and may eventually go away, resulting in prolonged softness in the M&A markets. As we sit here near the middle of May, almost halfway through our first fiscal quarter, we are still seeing strong new deal activity in both Corporate Finance and FVA and good momentum going into fiscal year 2023. However, we are facing headwinds that did not exist at this time last year. Namely increased geopolitical risk, inflation and rising interest rates. If these headwinds get worse, we may see increased pressure on revenues in our Corporate Finance and FVA businesses in subsequent quarters and likely increased activity in our Financial Restructuring business. Given where we are in the year, any new restructuring activity is likely to more meaningfully impact fiscal year 2024 revenues given the typical length of a restructuring. Whenever we complete a year, we reflect on our strategy going forward. For over a decade, our general business strategy has not changed. Stay true to our need for a focus on growth and build a firm that is highly diversified across industry, geography, banker, product and economic climate. In fiscal year 2022, we significantly increased our presence in technology, diversifying into arguably one of the most important drivers of growth in the world's economies over the next several years. In fiscal year 2022, we increased our non-U.S. business to represent 26% of total revenues, up from 22% a year ago. Our non-M&A business remains at approximately 50% of revenues as we have seen continued strong growth in FVA, capital markets, private funds placement and continued strength in our core Financial Restructuring business. In fiscal year 2022, we added almost 100 new managing directors to the firm. And in fiscal year 2022, no single client, no single banker and no single transaction represented more than 2% of our revenues for the fiscal year. We remain committed to this business strategy and believe fiscal year 2022 was one of our most successful to date. Finally, given our success this year and the strength of the platform heading into the new fiscal year, effective Q1 of fiscal year 2023, we are raising our quarterly dividend by 23% to $0.53 per share, up from $0.43 per share for the previous quarter. The Board has also authorized $500 million to repurchase shares in the open marketplace. And with that, I'll turn the call over to Lindsey.

Lindsey Alley, CFO

Thank you, Scott. Revenues in Corporate Finance were $279 million for the quarter, down 7% when compared to the same quarter last year. We closed 144 transactions this quarter compared to 151 in the same period last year. And our average transaction fee on closed deals stayed relatively flat. For fiscal year 2022, Corporate Finance revenues were up 98% when compared to fiscal year 2021, primarily due to a robust M&A market, the acquisition of GCA and continued increases in both transaction count and average transaction fee. For fiscal year 2022, we saw significant growth in our capital markets business, our private funds placement business and our non-U.S. Corporate Finance business, all 3 strategic objectives of the firm. Financial Restructuring revenues were $122 million for the quarter, a 15% decrease from the same period last year. We closed 25 transactions this quarter compared to 35 in the same quarter last year, while our average transaction fee on closed deals increased. This quarter ended up better than we expected as we had a few transactions that closed in Q4 fiscal year 2022 as opposed to the expected close date of Q1 fiscal year 2023. In Financial and Valuation Advisory, revenues were $71 million for the quarter, a 23% increase from the same period last year. We had 999 fee events during the quarter compared to 765 in the same period last year. FVA continues to see growth across all major product lines and is experiencing good momentum as we head into fiscal year 2023. For fiscal year 2022, FVA had a record year with revenues of $284 million, 51% higher than last year. Growth of that amount in this product line is unprecedented and represents exceptional execution, purposeful diversification and a strong M&A market in fiscal year 2022. Turning to expenses. Our adjusted compensation expenses were $290 million for the fourth fiscal quarter versus $312 million for the same period last year. Our only adjustment was for deferred retention payments related to certain acquisitions. Beginning in Q1 fiscal year 2023, we expect this adjustment to increase materially as we will be including the $133 million 4-year retention pool that was put in place for GCA in March. Our adjusted compensation expense ratio was 61.5% for both the quarter and for fiscal year 2022. Our adjusted non compensation expenses were $59 million for the quarter versus $42 million for the same quarter last year, an increase of 40%. This increase was a result of including GCA's non compensation expenses this quarter which were not in last year's quarter and we also saw increases in all categories of non compensation as a result of increased investment and, in some cases, inflation. This resulted in an adjusted non compensation expense ratio of 12.6% for the quarter versus 8.4% in the same quarter last year. We ended fiscal year 2022 with an adjusted non compensation expense ratio of 8.5% versus 9.1% in fiscal 2021. We expect that our adjusted non compensation expense ratio will begin to return to a more normalized level in fiscal year 2023 as we have largely returned to work in office, we are holding an increasing number of face-to-face marketing events, we continue to invest in technology to give us a competitive advantage and we are experiencing increases in our occupancy costs as we move or consolidate offices across the globe. For the quarter, we adjusted out of our non compensation expenses, $15.8 million in non cash acquisition-related amortization, the vast majority of which was amortization related to the GCA transaction. We expect significantly elevated levels of amortization relating to this acquisition through fiscal year 2023. In addition, we adjusted out of our non compensation expenses $3.8 million in acquisition and integration costs related to the GCA acquisition. Our adjusted other income and expense increased for the quarter to an expense of approximately $0.3 million versus an expense of approximately $0.5 million in the same period last year. We adjusted out of our other income and expense $7.6 million of expense related to the earn-out for one of our acquisitions. We treat all acquisition-related earn-outs as purchase price and adjust out of our P&L any significant changes in the value of these earn-outs. Our adjusted effective tax rate for the quarter was 27.9% compared to 29% during the same quarter last year. And for the fiscal year, our adjusted effective tax rate was 28.6% compared to 26.9% for the prior fiscal year. We maintain our long-term range for our effective tax rate of between 27% and 29%. Turning to the balance sheet and uses of cash. As you may have noticed, we did not include the balance sheet in our earnings release this quarter as we require a bit more time to finalize the balance sheet given the complexity of the GCA acquisition. A complete balance sheet for the quarter will be provided in our 10-K when filed. As of the quarter end, we had approximately $943 million of unrestricted cash and equivalents and investment securities versus approximately $1 billion at the same time last year. In our fourth quarter, we paid cash bonuses to GCA employees who joined us in the merger and we issued approximately 900,000 shares to them as part of their year-end compensation. We also issued 1.2 million shares to GCA employees as part of the retention pool previously discussed. A significant portion of our cash is earmarked to cover accrued but unpaid bonuses for fiscal year 2022 that will be paid this month and again in November. In addition to our cash bonuses, we expect to issue in May approximately 2.3 million shares to employees as part of their compensation for fiscal year 2022. Similar to previous years, we intend to offset new shares associated with compensation with share repurchases throughout fiscal year 2023. And finally, in this past quarter, we repurchased approximately 1.2 million shares at an average price of $100.93 per share as part of our share repurchase program. With that, operator, we can open the line for questions.

Operator, Operator

We will now take our first question from Brennan Hawken with UBS.

Brennan Hawken, Analyst

I want to unpack a little bit some of the comments, Scott, around the environment. It seems as though the uncertainty is extending some time frames as you flagged but it'd be helpful to kind of understand maybe how the quarter progressed. It's my understanding that the velocity of transactions and closing slowed as the quarter went on. And so number one, is that right? And then number two, is the quarter-to-date here so far more similar to the end of last quarter and therefore, we should continue to expect that to sustain for at least for now? Or have things changed since March?

Scott Beiser, CEO

Yes. So I'd say the 1.5 months in the quarter we're in right now is experiencing similar fact tendencies to maybe the final 1.5 months in the previous quarter. And by that, I mean a couple of things. One, we're seeing things, once again, just take a little longer to close but closings are still occurring. Just the time period is taking a little longer. We're seeing very few deals at this juncture being put on hold as we would describe them, or just feel that they should be completely taken off the stack in terms of anything that we expect to close in the near term. And new business still continues to come in. So at this point, we would continue to point to delays from what we'd seen 6 months or a year ago. But new business is still relatively strong. And as we try to point out, whether this current market conditions we're in last another month or 2, we probably ended up with 1 conclusion on where we'll all be. And if it lasts for a couple more quarters or a year, we're going to see further drag on prospects for the time being.

Brennan Hawken, Analyst

Okay. Okay. Got it. And restructuring, that picked up nicely quarter-over-quarter and you guys finished at a higher range in that pre-pandemic range of the $300 million to $350 million that's been referred to previously. So is this year's results sort of the level that we should be thinking about for now? And we're hearing about leading indicators of restructuring picking up inbounds to other restructuring firms. Are you all seeing similar developments? And how should we think about that playing through the restructuring line as we refine our models for the coming quarters and years?

Scott Beiser, CEO

So probably 2 key points. One, the current market conditions and well, we gave you some cautionary notes on kind of where M&A activity is, the reverse is happening in restructuring. There's more dialogue, more activity in getting hired, more companies running into some issues. The size of the indebtedness has definitely been growing for years and interest rates are obviously creeping up. All of that sets out a net positive effect pattern for restructuring. The second point we would make is remember, all restructurings do take some time. And much like we talked probably off of the March quarter in 2020, there's that handoff timing. So while we are starting to build once again new business coming in, some of it's just going to obviously take some time to close. And as we said, probably most of what we think we're bringing in now and might bring in the next couple of quarters is going to have more of a financial impact on fiscal '24 than it will in fiscal '23.

Brennan Hawken, Analyst

Okay. With restructuring, there are sometimes revenues that can come in not just at the end. So is it reasonable to think we might see an increase in restructuring compared to where we were before? Or was this quarter not really a sign of strength and more of an isolated instance?

Scott Beiser, CEO

You are correct. In the restructuring business, there are often decent monthly or quarterly retainer fees that are independent of a client's closing date. Additionally, we noted that our fourth fiscal quarter included several projects that, beneficially, closed in that quarter which we initially expected would close in the first or second quarter. This resulted in an acceleration of closings, making our fourth quarter of restructuring stronger than we might have anticipated.

Operator, Operator

We'll take our next question from Devin Ryan with JMP Securities.

Devin Ryan, Analyst

Maybe to come back to Brennan's first question just on kind of the environment, particularly on the M&A side. So I appreciate that when market conditions change, there's often new conversations that come together as a result of that. I'm curious, can you just give us a little more detail around what's driving some of the newer conversations because it sounds like you're still quite active and despite this volatility, new people are at least engaging and interested in doing things from a transactional perspective. And then, I'm also curious if the deals that are maybe being discussed today, the newer ones, there's a probability higher that those types of deals will move forward and get to completion versus, obviously, something that maybe started before market conditions of the world changed. I would suspect that's a harder deal to push forward now that everything has changed. So I'm just curious a little more background on all of that.

Scott Beiser, CEO

Sure. On one hand, I think what we're seeing in terms of the business environment today just compared it to, call it, spring of 2020. In spring of 2020 when the pandemic was really starting, I think there was much greater concern on where all this was going to go and probably people thought it was going to be a much deeper negative impact to the economy, deal business, et cetera. Today, clearly, there's a lot of negative headwinds out there but I don't think people are nearly as concerned or nervous about transactions, transaction closings, et cetera, than they probably were 2 years ago. That's at least what we would say today. I think a couple of things are still driving new business in no particular order but some people are motivated to want to try to get something done sooner because they just think interest rates are going to continue to rise. And if you want to do a deal, you might as well do it. We tend to, as you know, do more work probably with private companies than public companies. And I think price volatility is usually greater in the public marketplace than the private marketplace. And then if you further dissect different components in the industry, I think some of the higher prospective growth, more questionable business plan companies which rose quite a bit in the stock market or the VC market, those are the ones that have come down the most. And while we do work in that area, that isn't necessarily the biggest component of what we do. So I think there are certain insulated areas that we're seeing that's still driving the business and you still have the private equity community sitting on lots and lots of money and still in the business of needing to do deals. So I think that's what we're seeing and why deals are still occurring; deals flow is still coming in. Just buyers, sellers, lenders, borrowers are taking a little longer to ultimately close.

Devin Ryan, Analyst

Yes. Okay. Great. And then just a follow-up here, I want to dig in a little bit more on what you're seeing in the capital markets business and the outlook that's obviously been a really nice story for Houlihan and a good growth story and conditions over the last few years have also been pretty favorable. But I'm curious like the opportunities over the intermediate term there because on one hand, you have kind of a more difficult market backdrop. But on the other hand, companies still need capital for different reasons, even beyond just M&A. And in a choppy market, it would seem that there could be a lot of value in being an intermediary in introducing kind of companies to capital providers or vice versa. So I'm just curious if that's an area that could still be quite resilient in this type of backdrop?

Scott Beiser, CEO

So the quick answer is yes. And I think what you find is probably the total amount of deployed capital to finance different kinds of businesses for different reasons is probably less today than it was a quarter or so ago. But on the other hand, what we've always said in the agenting of finance which we do, our biggest competition is really the CFO or the private equity shop themselves saying, 'We don't need to hire an adviser, we can do it ourselves.' So when things get a little more difficult and a little more turbulent, a little more volatility that we've seen out there, the number of situations where people are choosing to hire an adviser versus do it themselves has been growing. So as we've always said, depending upon the magnitude of the negativity out in the marketplace, actually some turbulence is net good for our capital markets business. And so far, like I said, maybe total amount of deal activity might be shrinking there but the percentage of situations that people are hiring firms like ourselves or our competitors is actually growing.

Operator, Operator

We will now take our next question from Manan Gosalia with Morgan Stanley.

Manan Gosalia, Analyst

The FVA business held up nicely in a tough environment and I think you said that there's good momentum going into the next fiscal year. Could you talk about how we should think about these revenues in the current environment? I know part of these revenues are cyclical, part of them are not. And you've clearly gained share in that business and you've grown your relationships as well. So how should we think of this business if the market environment stays the way it is?

Scott Beiser, CEO

So I think on one hand, the market environment is probably net neutral to negative to FVA compared to where it was 6 months or a year ago. But on the other hand, it's clearly net positive in terms of what we and who we have hired, what we have built, some of the new service lines we're into. I think our capabilities, our bench strength, our opportunity set is just much greater because of the internal, call it, tactical and strategical decisions we've made and that's what's really driving the business. And we've always said we cannot and do not control the external marketplace. Let us focus on as much as what we can do on the internal side. And right now, I think the internal moves we've made are offsetting any weakness that's out in the marketplace and that's what's continued to drive really quarter-over-quarter growth in this business.

Lindsey Alley, CFO

Yes. Another way to think about it is that there are several product lines in that business that are huge, and we have only a small portion of the market share. Therefore, this is a story about gaining market share in FVA, and it will continue to be so for the foreseeable future. Even in a flat or weaker market like the one we are currently experiencing, we are likely to see ongoing momentum as we capture market share in a few product lines where we have invested.

Manan Gosalia, Analyst

Great. And then just separately, I wanted to get your thoughts on how you're thinking about your excess cash and capital. I mean, I saw the increase in the buyback authorization. But I think one of the things you've done consistently or at least consistently look to do when markets have turned is acquire and integrate smaller boutique firms. So is the increased buyback authorization just something you have in your back pocket if those opportunities don't come through? Or are you maybe saying that you have your hands full right now with the GCA acquisition and buybacks are a way of signaling that you're unlikely to do anything in the near term?

Lindsey Alley, CFO

No, I believe the rise in buybacks correlates with the growth of the company and the number of shares we are issuing to employees. This increase is consistent and has been evident over the last five or six years, much like the ongoing rise in dividends as we've expanded. So, I wouldn't interpret it as anything beyond the company's size and our compensation share issuance. Regarding acquisitions, we've observed that in weaker markets, which I don't think applies to the current M&A landscape, we often find acquisition opportunities that are more appealing than in very strong markets. Our strategy remains unchanged following the GCA transaction.

Operator, Operator

We'll take our next question from Steven Chubak with Wolfe Research.

Brendan O'Brien, Analyst

This is Brendan O'Brien filling in for Stephen Chubak. So for my first question, 10 years of consecutive revenue growth is quite impressive. However, as you noted in your prepared remarks, there are significant headwinds to M&A activity that weren't present at this time last year. And any pickup in restructuring will not meaningfully hit the bottom line until 2024 or fiscal year '24. I understand that the outlook is very uncertain at the moment. There's a lot of moving pieces. But as things stand today, how confident are you in your ability to deliver that revenue growth this coming year in light of these headwinds?

Lindsey Alley, CFO

Let me take you back to March 2020 when we expressed concerns about market conditions due to COVID-19 at the start of that year. Initially, I was uncertain if our revenues would be significantly impacted by the situation, but after about six months, things began to improve. It feels like we're flipping a coin regarding how macroeconomic conditions will influence us or our competitors in this sector. It's unpredictable. However, I can say that activity levels remain strong, and the macroeconomic factors are relevant. What unfolds in the next three to six months is uncertain for everyone.

Brendan O'Brien, Analyst

I appreciate it. Definitely a very uncertain time. So for my follow-up on sponsor activity, while there's a lot of optimism entering the year on the outlook response to M&A, activity has been relatively more subdued when compared to last year's elevated level with many of your peers citing the challenging price discovery and backdrop as a key driver of the slowdown. However, as you mentioned, sponsors are in the business of deploying capital and we saw during COVID that sponsors returned to the market fairly quickly and aggressively. So I just wanted to get your thoughts on how long you believe sponsors can really stay on the sidelines here before they need to start deploying capital more aggressively?

Scott Beiser, CEO

Historically, and we've seen a handful of downturns really over the decades and you got to go back even beyond the COVID one. And usually, it's a relatively short period of time would be point one. The second point is, I think, the more midsized or smaller PE shops need to deploy capital, probably more with some sense of necessity because they're just not big enough to survive off of just management fees that some of the large behemoths might be able to. And so we've tended to see that also increases the velocity of deal transactions even during market downturns.

Operator, Operator

We'll take our next question from Michael Brown with KBW.

Michael Brown, Analyst

So on restructuring, clearly, a strong result this quarter. If I heard you correctly, it sounds like that was due to a resolution of a COVID era transaction. Just wanted to check in, is there anything really left in that pipeline? Or would you say that that's mostly been kind of burned through at this point as you look forward?

Lindsey Alley, CFO

Mike, I think the reference and maybe this is just miscommunicated, was that quarter-over-quarter, even though we had a strong quarter, we were down because last year's same quarter had COVID-related restructurings in them. And on a comparable basis, we just couldn't compare to that. So I don't think that there may be a little bit of COVID-related restructurings left but it's insignificant. What drove the quarter was there were a handful of transactions that ended up closing in this quarter that we had expected to close in the first half of this year and it kind of drove revenues higher than expectations for the quarter and it turned out to be a very strong quarter. They're not necessarily COVID-related transactions.

Michael Brown, Analyst

Okay. Yes, there was clearly strong productivity this quarter. As a follow-up on the restructuring business, during the Q2 earnings call, you discussed the global strength and reputation of the business and mentioned the Evergrande mandate. If possible, can you provide any updates on the status of the restructuring activity related to the Chinese real estate market? Also, do you have any comments on other regions in the world where you are observing some activity or where we might see developments outside of the U.S. and Europe?

Scott Beiser, CEO

We won't comment specifically on any unique transaction but we are clearly seeing probably more opportunities and more growth in various areas of the world not called the United States. We're doing a lot of work right now in the Asia Pacific area. Europe is actually probably heating up more rapidly than the U.S. in terms of restructuring and there's pockets of opportunity in the Middle East and Latin America. So, I won't point to a particular place other than I'd say at this juncture, probably the U.S. in terms of new opportunities or the growth in new opportunities is lagging a bit behind other parts of the world. Part of that dollar exchange rate, part of it is what happens when interest rates goes up, it tends to impact emerging markets quicker than the domestic market places. So it's really kind of worldwide we're starting to see things pick up and maybe even pick up a little faster outside of the United States at this juncture.

Michael Brown, Analyst

And just a quick one. How many of the MDs in restructuring are based outside of the U.S.?

Scott Beiser, CEO

Don't really know off hand but we're going to probably say probably about 1/3.

Operator, Operator

We'll take our next question from Ken Worthington with JPMorgan.

Ken Worthington, Analyst

You mentioned in the prepared remarks that GCA did not experience the same slowdown as Houlihan. So how should we think about the impact of the macro environment on GCA over the next few quarters? Is it something that GCA just happened to be working through a previously built pipeline this quarter? And thus, maybe activity will slow in coming quarters as they kind of make their way through the pipeline? Or maybe there's something just different about the GCA business which leaves them less susceptible to the macro factors. So help us think about GCA.

Lindsey Alley, CFO

I believe there's been some miscommunication. We didn't comment on GCA's performance compared to HL's performance this quarter. We think both firms were influenced by the same macroeconomic factors during the quarter, and there is no distinction between the two.

Scott Beiser, CEO

In future quarters, there isn't really a distinction between GCA and Houlihan Lokey anymore. We’ve consolidated offices and personnel, placing people into various industry groups and capital markets. The only reason we mention GCA is to address the issues that arise until we have a full year's data. The increase in our non-compensation expenses is primarily due to having GCA results for six months rather than a full year. Going forward, while GCA has increased headcount and revenue and has contributed to our diversification, we are essentially operating as one firm.

Operator, Operator

And ladies and gentlemen, this will conclude today's question-and-answer session. At this time, I'd like to turn the conference back to your presenters for any additional or closing remarks.

Scott Beiser, CEO

I want to thank you all for participating in our fourth quarter and fiscal year 2022 earnings call and we look forward to updating everyone on our progress when we discuss our first quarter results for fiscal 2023 this coming summer.

Operator, Operator

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.