Earnings Call Transcript
HOULIHAN LOKEY, INC. (HLI)
Earnings Call Transcript - HLI Q4 2021
Operator, Operator
Good day, ladies and gentlemen. Thank you for standing by. Welcome to Houlihan Lokey's Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. Please note that this conference call is being recorded today, May 11, 2021. I will now turn the call over to Christopher Crain, Houlihan Lokey's General Counsel.
Christopher Crain, General Counsel
Thank you, operator, and hello, everyone. By now, everyone should have access to our fourth quarter and fiscal year 2021 earnings release, which can be found on the Houlihan Lokey website at www.hl.com in the Investor Relations section. Before we begin our formal remarks, we need to remind everyone that the discussion today will include forward-looking statements. These forward-looking statements, which are usually identified by the use of words such as will, expect, anticipate, should, or other similar phrases, are not guarantees of future performance. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect, and therefore, you should exercise caution when interpreting and relying on them. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. We encourage investors to review our regulatory filings, including the Form 10-K for the year ended March 31, 2021, when it is filed with the SEC. During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the Company's financial performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our earnings release and our investor presentation on the hl.com website. Hosting the call today, we have Scott Beiser, Houlihan Lokey's Chief Executive Officer; and Lindsey Alley, Chief Financial Officer of the Company. They will provide some opening remarks, and then we will open the call to questions. With that, I'll turn the call over to Scott.
Scott Beiser, CEO
Thank you, Christopher. Welcome, everyone, to our fourth quarter and fiscal year 2021 earnings call. Fiscal 2021 was a rollercoaster of a year that brought out the best in Houlihan Lokey's employees and highlighted the strength of our balanced business model. In the spring of 2020, with the rapid impact of the global pandemic, activity levels in our financial restructuring practice significantly increased, mitigating the reduction in M&A activity. By early fall of 2020, these trends reversed with similar speed as new Financial Restructuring opportunities returned to a more normal pace, and our Corporate Finance business began to spring back from an almost complete pause in new business activity, and activity levels in our valuation business improved. By the end of the fiscal year, we had produced a record $1.525 billion in revenues, an increase of 32% over last year. Fiscal 2021 is our ninth consecutive year of annual revenue growth and a 14% compounded annual growth rate over that nine-year period. We are especially proud that all three of our business segments achieved record results. For fiscal 2021, Financial Restructuring revenues grew 52%. Corporate Finance revenues grew 24% over last year's record level, and Financial and Valuation Advisory revenues grew 17% against last year's record level. We also achieved $4.62 in adjusted earnings per share, an increase of 44% over last year's results. For the fourth quarter, we reported $501 million in revenues, up 65% over last year, and adjusted earnings per share was $1.51, up 57% over last year. FVA achieved another record quarter, and Corporate Finance was up 93% over last year. Financial Restructuring revenues were down from last quarter's peak but still up 38% over last year. Our results were strong across all industry groups, most of which are operating at record levels, and almost all of our subproduct lines in FVA achieved records this year. Furthermore, our investments outside the U.S. are paying dividends as our international revenues grew faster than our U.S. revenues. We entered fiscal 2022 with one of the most bullish market environments for our M&A, capital markets, and valuation businesses in the firm's history. We are at record levels for new business activity, mandated engagements, transaction size, and estimated transaction and project fees. We have seen this business environment improve consistently since summer of 2020, and we remain cautiously optimistic that it will continue through at least the balance of this calendar year. While the bullish elements of our firm are operating at record levels, our Financial Restructuring practice, as highlighted in previous quarters, has slowed from its torrid pace in early fiscal 2021. The current business environment for restructuring is now at pre-pandemic levels, and we expect revenues in fiscal 2022 to return to those levels. We continue to remain optimistic about the restructuring outlook over the medium and long term. There are several themes that we believe support our optimism, including record levels of company leverage, continued technology disruption across most major industries, the eventual end of pandemic-related government support programs, the continued global expansion of the restructuring product, and finally, the likely challenges that exist as companies adjust to society's new normal. Although our restructuring revenues can be volatile during economic cycles like the one we just experienced, we have experienced consistent revenue growth for this business through the cycles and believe this growth will continue over the next decade or so. As a frame of reference, from calendar year 2007, just prior to the Great Recession, to calendar year 2019, just prior to the pandemic, revenues for the Financial Restructuring business grew at a compound annual growth rate of almost 10%, punctuated by outsized activity during periods of financial dislocation, including the Great Recession, the oil and gas crisis, and the pandemic. Throughout the successful and challenging year, we've continued to invest in our people, and we promoted 16 employees to Managing Director in April, our largest and most capable class ever. Since April 1, we have announced the addition of three new MDs in both our health care and oil and gas groups. We remain very active in senior and junior employee recruiting while noting that the cost of recruiting has risen recently. On the acquisition front, we are in dialogue with several firms and remain confident that we will continue to use M&A to effectively drive shareholder value. In our goal to deploy our excess cash, we repurchased over $60 million of stock in our fourth fiscal quarter and expect to continue to repurchase more shares than we issue in order to manage our cash position. Finally, consistent with our performance and our desire to return excess cash to our shareholders, we are pleased to announce a 30% increase in our quarterly dividend from $0.33 per share to $0.43 per share payable on June 15 to shareholders of record as of June 2. In closing, we are pleased with our success during this incredibly difficult year. We are proud of the women and men at Houlihan Lokey who worked so hard to achieve these results and are thrilled with the continued support we receive from our clients and shareholders. While there are always new challenges ahead, we believe we are well-positioned for fiscal 2022 and beyond. With that, I'll turn the call over to Lindsey.
Lindsey Alley, CFO
Thank you, Scott. Revenues in Corporate Finance were $301 million for the quarter, up 93% when compared to the same quarter last year. We closed 151 transactions this quarter compared to 84 in the same period last year, and our average transaction fee on closed deals increased this quarter when compared to the same period last year. As Scott suggested, we continue to see very strong momentum in our Corporate Finance business heading into fiscal 2022. Financial Restructuring revenues were $143 million for the quarter, a 38% increase from the same period last year. We closed 35 transactions this quarter compared to 29 in the same period last year, and our average transaction fee on closed deals was significantly higher this quarter when compared to the same period last year. As Scott stated, restructuring activity has returned to more normal pre-pandemic levels. And unless something changes, we expect to see solid but significantly lower restructuring revenues in fiscal 2022. In Financial and Valuation Advisory, revenues were $57 million for the quarter, a 32% increase from the same period last year. We had 765 fee events during the quarter compared to 624 in the same period last year, and we continue to see an increase in revenues per fee event as our business mix continues to evolve. For fiscal 2021, the FVA business grew 17%, and the momentum that drove its growth continues as we enter fiscal 2022. Turning to expenses. Our adjusted compensation expenses were $312 million for the fourth quarter, versus $184 million for the same period last year. Our only adjustment was for deferred payments related to certain acquisitions. Our adjusted compensation expense ratio was 62.2% for the quarter, and we ended fiscal 2021 with an adjusted compensation expense ratio of 62.5%. As we have discussed on previous calls, our compensation ratio is slightly higher than our long-term target, primarily as a result of lower revenue attributable to reimbursable expenses for fiscal 2021 due to impacts from the pandemic. For fiscal 2022, we expect to return to our long-term target for the adjusted compensation expense ratio of between 60.5% and 61.5%, although based on continued lower reimbursable expenses, we expect to be towards the higher end of the range. Our adjusted non-compensation expenses were $42 million for the quarter versus $45 million for the same period last year, a decline of 6%. This resulted in an adjusted non-compensation expense ratio of 8.4% for the quarter versus 14.9% in the same quarter last year. This quarter, we adjusted out of our non-compensation expenses $1.1 million in acquisition-related amortization. We ended fiscal 2021 with a non-compensation expense ratio of 9.1% versus 15.2% in fiscal 2020. We expect to see a significant increase in non-compensation expenses in fiscal 2022 as we begin to return to more normalized travel and operations, especially in the latter part of the fiscal year. As a reminder, our long-term range for the adjusted non-compensation expense ratio is between 14% and 15% of revenues. We believe it is likely that we will end up below that range in fiscal 2022. Our adjusted other income and expense decreased for the quarter to an expense of approximately $473,000 versus income of approximately $1 million in the same period last year. This was primarily a result of lower interest earned on our cash and investment balances and an increase in the expected value of future earn-out payments related to acquisitions. Our adjusted effective tax rate for the quarter was 29% compared to 15.1% during the same period last year. And for the fiscal year, our adjusted effective tax rate was 26.9% compared to 25.2% for the prior fiscal year. For future years, we anticipate an effective tax rate at our long-term targeted range of between 27% and 29%. For fiscal 2021, we ended up slightly below this long-term range due to COVID-related factors that I have discussed in previous quarters. Turning to the balance sheet and uses of cash. As of the quarter end, we had over $1 billion of unrestricted cash and equivalents and investment securities. As a reminder, a significant portion of this cash is earmarked to cover accrued but unpaid bonuses for fiscal 2021 that will be paid this month and in the month of November. In addition to our cash bonuses to be paid this month, we expect to issue approximately 2 million shares to employees as part of their compensation for fiscal 2021. Similar to previous years, we intend to offset these new shares with share repurchases throughout fiscal 2022. And it is likely, given our excess cash position, that our repurchases for fiscal 2022 will exceed what we plan to issue this month. In our fourth quarter, we repurchased 907,000 shares at an average price of $66.58 per share as part of our share repurchase program. And with that, operator, we can open the line for questions.
Operator, Operator
Our first question is from Manan Gosalia of Morgan Stanley.
Manan Gosalia, Analyst
So you had 20% pretax margins last year. It's 30% if we look at the last six months. And even if I normalize for travel returning to maybe, say, 75% of what it used to be, I might go down only one percentage point or so. So I guess the question is, do you think that pretax margins will stay in this range for the foreseeable future until the M&A cycle turns? Or is there something that we're not thinking about?
Lindsey Alley, CFO
No. I believe that while travel, meals, and entertainment expenses are currently below pre-pandemic levels, we can expect slightly elevated pretax margins. It's still early for us to determine where our non-compensation expenses will stabilize once we move past this situation. Before the pandemic, our expenses were about 15%. It's difficult to predict where we will land, especially as our business has expanded significantly. I do anticipate some improvement in pretax margins compared to pre-pandemic levels, but we need to clarify how travel, meals, and entertainment will return, at what levels, and where our non-compensation expenses will ultimately settle.
Manan Gosalia, Analyst
Got it. And then I guess on the M&A side, just based on your conversations with clients, how reliant do you think the current level of activity is on the fact that share prices have been near their highs for a while? So if we were to get some sort of market correction here without there being some big shock in the system, is there still enough momentum for activity to continue at these levels?
Scott Beiser, CEO
I mean the momentum has been building, as we said, really, for probably the last six months, and each month seems to be better than the previous months. So there is quite a bit of momentum. That being said, you're right, all things being equal, when asset values are rising, typically, that's more positive for M&A activity. And when they decline, it's more negative. Whether that's a week or a month decline is a different than if we actually entered into a couple of quarters or a year's worth of decline. But right now, everything we see, it's still very positive in M&A, capital markets, and the valuation side of our practice.
Lindsey Alley, CFO
I would tell you, as a reminder, though, 80% or so of our M&A business is private, 20% is public. And as a result, we are probably a little bit less susceptible to swings in the stock markets. I think to Scott's point, if they're longer-term, if they start to have fundamental effects on valuation, we will see an effect. If it is the monthly swings, we just tend to be a little bit more insulated from that because of our mix.
Operator, Operator
Our next question is from Devin Ryan of JMP Securities.
Devin Ryan, Analyst
Maybe staying on the.
Lindsey Alley, CFO
Devin, you're cutting out a little. Devin? Why don't we circle up to the next caller?
Operator, Operator
Our next question is from Ken Worthington of JPMorgan.
Ken Worthington, Analyst
So thank you for your comments on restructuring. As we think about the outlook, you talked about returning to pre-pandemic levels. I'm trying to get a better idea of what this might look like. Does either fiscal 2020 or '19 represent sort of a better outlook here? And are you still working through some of the elevated pipeline? Or is Houlihan already at the point where the pipeline is balanced with the replenishment rate?
Scott Beiser, CEO
We have observed a consistent long-term growth rate in our restructuring business. We still anticipate it to maintain a long-term growth profile due to several factors we've mentioned. There are always phases that may seem stagnant, whether these last a few quarters or extend to two years, which we have seen over the past several decades. Currently, we are not in a phase that significantly drives results beyond what we consider the normal upward trend. A good way for people to visualize this is to consider that trend line, assuming it will continue to rise, but it is unlikely to exceed that line appreciably unless there is a significant shift in the marketplace. We still expect to achieve business levels similar to fiscal 2019 or 2020, which were clearly representative of the pre-pandemic environment. We have many solid reasons to believe that we can continue to grow from those levels, but in the short term, we do not anticipate the same conditions that led to fiscal 2021 occurring in fiscal 2022.
Lindsey Alley, CFO
And when we talk about pre-pandemic, we're talking about activity levels. I mean, it's not hard to put numbers on revenues. Our product mix does change, so our client mix does change in restructuring. And we have outsized fees in some years, and in some years we don't. But activity levels are pre-pandemic. Where revenues fall out are going to depend a little bit on the nature of the transactions we're working on.
Ken Worthington, Analyst
Okay. Okay. Great. And I know we've talked about tax in prior calls, but it feels like changes to the capital gains rate are a little bit more real than maybe it was following elections. So to what extent is the tax environment having an impact on the discussions in middle-market M&A? And to what extent does it seem tangible that you'll get a pull-forward from maybe future years into current years? Or does it not feel like that both from your business perspective and then from your own sort of company's growth through M&A perspective? Might you participate in more deals because you've got more willing sellers looking to get in prior to possibly a year-end deadline? I think I wrapped like eight questions into that. Just to be clear.
Scott Beiser, CEO
So I think there's really two core questions as it pertains to our clients and their desire to do transactions in today's tax environment and a pending change in the tax environment. I think we noted back in probably summer of 2020, we thought there would be some amount of pull-forward in terms of doing transactions to beat a potential change that might occur. Ultimately, we saw a little of that but not a whole lot. Obviously, now the calendar year has moved on. The presidential and congressional elections are done. We all read the same thing in the newspapers. I would say it's clearly a discussion point amongst our clients, but it's not a driving force, I believe, right now that's convincing clients to do something today in case if there is a change and when that change might occur. So right now, I'd say it's a decent talking point, but it's not any significant component of why people are doing deals and not sure it's going to be driving the deal flow. As you get closer to usually December 31, maybe that occurs. But right now, it's not something that we would say is a top handful of reasons people are participating in M&A activity. As it pertains to Houlihan Lokey's ability to do acquisitions of companies, same thing and all the companies that we're talking to, there are very specific reasons why we might want to do a deal with them and they want to do a deal with us. But there really is almost nothing out there that people are specifically talking to us or urgently wanting to close something in the next quarter or before this calendar year in anticipation or concern about tax rate changes. That also is just not a driving force that we think is going to influence the outcome of our M&A activity when we're looking to acquire businesses.
Operator, Operator
Our next question is from Richard Ramsden of Goldman Sachs.
Richard Ramsden, Analyst
So perhaps I can ask a question on productivity. You've obviously seen this very significant improvement in productivity in the Corporate Finance business in particular. And I wondered if you could just help us break it down into factors that you think are cyclical such as the improvement in the environment, the fact that people are working remotely so they can just get more done in a day versus perhaps more structural factors that you think are likely to stick such as having a broader product set, the fact you've got a more recognizable brand, you've got a broader client base, and so on?
Scott Beiser, CEO
I would like to highlight a few points. First, our brand continues to strengthen, and as its recognition grows, we are able to engage in more transactions and larger deals, which means higher fees. This has been a fundamental part of our business for many years. Second, as asset values have risen, the size of the businesses we are selling now is significantly larger compared to six months, a year, or even five years ago, which is a direct result of increasing asset valuations. Regarding productivity, whether we measure it by managing directors or employees, we have certainly benefited from reduced travel. With the marketplace becoming accustomed to remote transactions, our bankers have accomplished a lot more without the need to travel for meetings. While some travel is likely to resume, which may slightly reduce productivity, I believe there will be a lasting change in how we conduct in-person meetings. It’s unlikely that we will fully return to pre-pandemic practices, particularly in fiscal '22, '23, and '24. Many aspects still favor productivity. However, we must anticipate that travel will eventually start again, which could negatively impact efficiency. Lastly, regarding our newest hires, particularly at the junior level, while we have done our best to train them remotely, it cannot compare to in-person training. I believe that as we return to the office and they collaborate more easily with colleagues, their skills will improve, further enhancing productivity.
Lindsey Alley, CFO
I would like to mention a couple of points. First, considering the relatively young age of our European Corporate Finance operations compared to our U.S. ones, the average banker’s productivity in Europe has been lower. However, this year we observed very strong financial results from that group in Europe. Although European economies have faced some challenges in recent years, we achieved some impressive results that contributed to our productivity, which we believe can be sustained. Secondly, the middle market or mid-cap sector differs from the large-cap sector because we see significant origination coming from our Director class. When evaluating productivity per Managing Director, a substantial amount of business at Houlihan Lokey is generated by those who are close to becoming Managing Directors. You will notice a notably large promotion class across all three product lines this year because these Directors performed exceptionally well for us, and many have transitioned to Managing Director roles. Therefore, at Houlihan Lokey, we maintain a group below the MD level that contributes considerably to our business, and this is not reflected in the current numbers.
Richard Ramsden, Analyst
Okay. That's really, really helpful. The second, can we spend a couple of minutes just talking about the cash on the balance sheet? Because I think, as you mentioned, it's over $1 billion. And I just want to kind of think through what the steady-state cash level looks like in the business. And I guess, look, there's various things that have changed. The business is obviously a lot bigger. I guess you learned some stuff through the pandemic around what the appropriate level of cash is. So what do you think the steady-state level of cash looks like today? And then what do you think is a realistic time line to get to that level of cash?
Lindsey Alley, CFO
I'm not certain what you mean by steady state, but let me address your question, and you can let me know if I've understood it correctly. We currently have excess cash on our balance sheet, similar to last quarter, and we are managing it in a couple of ways. First, we've increased our quarterly dividend, which we discussed in the last Board meeting and announced today. Second, we are raising our share repurchase efforts beyond the shares we issue for regular compensation. We believe this will help mitigate our excess cash situation and have already made some progress. However, we think it will take several quarters of increased repurchases to fully address it. We are not in a hurry; we plan to approach this methodically. We are also engaged in discussions with several promising M&A targets, and at any point, one of these could require more cash for a transaction. It's a delicate balance between acting quickly and maintaining an appropriate cash level while pursuing M&A. I hope that clarifies your question. Keep in mind that a significant portion of that $1 billion will be disbursed within the next week or two, so you'll have a clearer understanding of our excess cash situation next quarter.
Operator, Operator
Our next question is from Steven Chubak of Wolfe Research.
Steven Chubak, Analyst
So wanted to just start off with a question with regards to the revenue outlook. I mean, Scott, you did note that the Corporate Finance backdrop is quite favorable. It would likely remain constructive for the remainder of the calendar year. At the same time, you are lapping these tougher restructuring comps, which, based on your earlier remarks, implies about a $200 million headwind relative to this last fiscal year. And you noted you've delivered nine straight years of revenue growth. I was hoping you might speak to just given all those different puts and takes, your confidence level around your ability to grow revenues in this coming fiscal year.
Scott Beiser, CEO
We generally avoid focusing on a quarter-by-quarter or year-by-year analysis in our business. I have significant confidence in our ability to continue growing over the years. We do not anticipate 32% increases year-over-year, and we haven't experienced a decline in the past decade. Currently, I would like to point out a couple of things. On the restructuring side, we believe we have reached a peak in revenues, so we expect them to decline. Whether that decline will be around $200 million or another figure remains to be seen. Conversely, our Corporate Finance business performed well in the last two quarters. The first half of the year was somewhat underwhelming due to the pandemic, and without that factor, we anticipate more positive outcomes for Corporate Finance. Regarding valuation, it has been performing well for the last few years, especially in recent quarters. Over time, we have indicated that we do not believe there are any unusual issues affecting the valuation business that would prevent it from continuing to grow. While there are many positive aspects, we acknowledge that the restructuring business will contract. We do not provide specific forecasts for any single year. As we have mentioned before, a growth target of 7% to 10% through organic and acquisition means is reasonable. We have successfully exceeded this target for many years. This is the best guidance we can offer for expectations over the next year or two.
Steven Chubak, Analyst
That's great insight. For my follow-up, I wanted to discuss the FVA business. You mentioned there's been strong momentum there, especially in the past few quarters. In your prepared remarks, you noted some mix benefits and the winning of higher fee mandates. I would like to understand how we should consider the new normal run rate for this business. It appears that there has been a significant increase in that area, and I want to ensure we are accurately modeling it.
Scott Beiser, CEO
I think there's a couple of things. One, that part of our business does have some true kind of contractual repeat components to it. And as long as we live in a world that's desiring of some form of transparency, some taxation litigation environment, all of which we think exists, and in fact, it always seems to be getting more versus less, those are all positive signs on the valuation business. It's still predominantly a U.S.-focused business, but it continues to have some elements outside of the U.S. that we think can and will continue to grow. And we've added many, I'll call it, sub-services that we're now doing over the last one, three, five years that we didn't do 5 or 10 years ago. And I think in the totality of the bench, and whether it's at the MD level or at the analyst level, we just have more FVA folks that have more talent and more skills than we ever have. And we've clearly been a recipient of hiring, I think, some mid- and senior-level people relative to what departures that we had. So we think it's all stacked up for some ongoing growth over the next handful of years.
Operator, Operator
Our next question comes from Brennan Hawken of UBS.
Brennan Hawken, Analyst
Just curious when you talk about restructuring, and I'm not trying to split this too carefully, but talk about getting back to the pre-pandemic range. Is that a suggestion about the run rate for the full year? Or is it more an idea that you expect in the coming year to get back to a sort of pace that would be more in line with the pre-pandemic? Initially, when you made your comments, I thought it was the latter, but just wanted to make sure.
Lindsey Alley, CFO
Yes. Look, I think you are splitting the hairs a little bit. So I think we started seeing pre-pandemic levels in restructuring the second half of fiscal '21, which will have a direct impact on the first half revenues of this year. So I think it's not the latter. It's the former.
Brennan Hawken, Analyst
Got it. Regarding the fifth question on restructuring, I'm going to be splitting some hairs. Fair enough. You have mentioned being in active discussions with some potential targets for a while. Can you share details about those discussions? How should we view them in terms of their likelihood of becoming relevant or actionable at some point? It seems like we are waiting a bit. I’m curious about how close you are and what you think might be hindering progress or the ability to finalize anything in that area.
Lindsey Alley, CFO
So I think, Brennan, with acquisitions, we're going to be much more cautious in our conversations about them. There are two parties involved. I can tell you we have been very consistent with our acquisitions since before the IPO, doing one or two a year. Scott and I don't anticipate any changes to that. We are in discussions, whether it's next quarter, the quarter after, or three quarters from now, but we will be careful about talking about acquisitions because things can change. However, I believe our history and precedent clearly reflect our approach.
Brennan Hawken, Analyst
Okay. And then maybe just sneak one last one in here. You had mentioned, I believe, 16 promotions and three recruits. Were the recruits all in the Corporate Finance business? And what was the breakdown of that large promotion class by line of business?
Scott Beiser, CEO
So the three hires at the MD level post April 1 were all in Corporate Finance. And within the 16 MDs that we have promoted, by one or two up roughly, a little over 1/3 was in restructuring, a little over 1/3 was in Corporate Finance, a little under 1/3 was in FVA. So it was pretty evenly split, and it may have been something like six, six, and four. Somewhere around that vicinity is my recollection.
Operator, Operator
Our next question is from Jim Mitchell of Seaport Global.
Jim Mitchell, Analyst
Regarding revenue, we were surprised that this quarter performed nearly as well as last quarter, which was exceptional. Our performance is somewhat unique compared to our peers, and we are optimistic about the future. Over the last two quarters, we've exceeded our best-ever quarter by about 50%, and it seems like we may maintain that level. I'm not trying to put words in your mouth, but could you discuss what factors are contributing to this? Is it mainly M&A activity, or are there other types of growth we may not see as clearly, like debt advisory? Are we seeing larger deals leading to bigger fees? I would appreciate more insight into what’s driving this and your confidence moving forward.
Scott Beiser, CEO
So a couple of comments. In our December quarter, I think we felt and commented that there were probably some unusual fact patterns, and maybe there were some catch-up type revenues that explained why we had such a great third fiscal quarter because we were light in the first and second and deals that were put on hold, came into play, et cetera, et cetera. Obviously, as you stated, our fourth fiscal quarter was almost right on top of what we did in the third, which is different and probably better than what most of our competitors have announced so far. Don't really view that this fourth fiscal quarter had any unusual activity where we gave you some of that commentary in the third quarter. So most of it is just the improved market environment, the improved efficiency of our staff. And it's really all over. There weren't a small handful of mega deals or fees that caused this. It's really in almost all of our industry sectors and all of our key geographies, reasonably spread out between M&A and capital markets. I won't really highlight a particular sub-area that did phenomenally better than others. Right now, we are just working on more projects with more talented people in a very strong marketplace. And sitting here today, five, six weeks, once again, into a new quarter, this activity continues to be out there. Yes, you always worry about what's going to happen on the stock market and what's going to happen with any new regulations or tax changes, et cetera. But as we sit here today, it's a very bullish environment. And yes, we feel that we can continue on the pace that we're at and hopefully continue to grow from there.
Lindsey Alley, CFO
Yes. I mean, I would caution you that we do have some seasonality in our business. And the first two quarters generally are lower than the last two quarters for us just given the way the calendar falls. But yes, I think to Scott's point, relative to same quarters last year, we had great momentum going into fiscal 2022.
Jim Mitchell, Analyst
And any thoughts maybe on just the SPAC market, that impact? I mean, there's almost $1 trillion of new buying power. The average size of transactions for SPACs tends to be smaller, the couple of billion range. Is that something that affects you? Or is that just a little too large to have a real impact in your business model?
Scott Beiser, CEO
Well, it's a great new, almost, if you might describe, asset class looking to do deals. And there's a host of ways that we are and can continue to participate in. But since we're not in the underwriting business, which is where I think a lot of fees so far have come from, I wouldn't say that our results have been statistically massively impacted by SPACs. But we do valuation work in the SPACs. We represent SPACs on the sell side, the buy side. At times, we can do some of the co-underwriting. We'll participate in PIPEs. We announced the formation of our SPAC a couple of months ago. So we're very aware of SPACs, and it is a brand-new class of group of would-be buyers and sellers that we can and will continue to participate in. But right now, it's not a large driving financial number within our results that we've posted in the last quarter or two.
Jim Mitchell, Analyst
No. Certainly not. Right.
Operator, Operator
Our next question is from Devin Ryan of JMP Securities.
Devin Ryan, Analyst
Okay. Great. Let me try again here. Most have been asked, but I do want to come back on the Corporate Finance and kind of the capital markets advisory business. I mean it feels like that business was a pretty important contributor to the prior year results of 2021. And I know you guys have made a concerted effort to scale that business. So you're scaling it, at the same time, it's a very active backdrop. So love to maybe just parse through kind of the outlook for that specifically. Like how large, if you can give us any context, that has become in terms of contribution, and then the ability to grow in those capabilities from here?
Scott Beiser, CEO
We understood your question. Is it specific to how well our capital markets business is doing within Corporate Finance?
Devin Ryan, Analyst
Yes. Correct.
Scott Beiser, CEO
Yes. We have been stating for the past couple of years that this is a major aspect of our business. It has remained a significant growth factor in Corporate Finance. It has benefited from being able to adapt during this unpredictable year. In the first half, we focused on financings in more distressed or troubled situations, and now we are shifting back to financings in healthier growth situations. The number of deals we are currently handling has increased across different industries and geographies within our clients’ capital structures. We strongly believe that from a long-term perspective, this area will continue to expand for us and our competitors, and we fully expect that as we define capital markets, it will become a growing and significant part of our Corporate Finance division and the essential services we offer to clients.
Devin Ryan, Analyst
Okay. Great. And then a follow-up here. Scott, you talked about kind of the fees are increasing on deals and kind of the deal sizes are increasing and your clients are growing. But are you guys taking proactive steps to, call it, increase your average deal size, whether that's increasing the minimum fee that you'll take or just obviously when times are busy, you can kind of take the assignments you want to work on and get the best return on time? So I guess just any kind of proactive steps that are having a meaningful impact on kind of the average fees that you're seeing and expect to see over the next six years or so, if the backdrop remains favorable.
Scott Beiser, CEO
All of our businesses, whether you define it on a product or an industry or a geography standpoint, all have a variety of new business committees. And so they're always looking at the potential to take on a new assignment. Do we think we can complete it? What's the probability of completing it? What do we think is the fees? What kind of staff we're going to need? In more busy times like now, you're going to be a little more critical and sharpen your pencil and answering all those questions. And in slower times, you're a little more relaxed. We never per se focused on the size of the deal, probably much more focused on the absolute fee or the probability of achieving that fee. And we also recognize that probably each industry group or some project or geography needs to have its own unique discipline. And so there isn't a one size that fits all for everything and our firm. But yes, I would say that right now, we're scrutinizing what we take on and whether we think we can complete it and what's the time frame and the amount of staffing that we need. All of that is helping to improve close rates and thus average fees.
Devin Ryan, Analyst
Okay. Great. And just one more quick one here, if I may, just on the expenses and the commentary around kind of the scaling up over the coming year and particularly into the back half. I mean do you guys have any sense in the absolute like how much of the delta in the travel, meals and entertainment may come back in? Or kind of any framework for us to think about how that could kind of evolve once we get maybe into the back half of the year and hopefully, people are traveling and meeting again in person?
Scott Beiser, CEO
I would categorize it into two areas: the general travel, meals, and entertainment, and the conferences or marketing at those conferences. It seems that we will eventually return to in-person conferences, possibly with half being in person and half still virtual, which I expect will lead to some additional costs. We're also starting to see increased travel, but I anticipate it will take several quarters before we reach a new normal run rate. From what we can predict, it doesn’t seem like our travel will return to pre-pandemic levels on average, as our clients currently do not necessitate that. We do foresee a rise in conference costs and in travel, meals, and entertainment, although not reaching the levels we experienced before the pandemic. The second quarter of fiscal '22 will likely see higher costs in these categories compared to the first, with the third quarter also expected to show increased costs over the second. We're gradually observing some travel and discussions about in-person conferences, probably post-summer rather than before. Whether this actually happens is uncertain. This situation is why we haven’t set targets on non-comp, as we are unsure of where we will settle, except that it’s clear we will incur lower costs in these categories than before, but certainly more than what we saw in fiscal '21.
Operator, Operator
Our next question is from Jeff Harte of Piper Sandler.
Jeff Harte, Analyst
A couple of cleanups from me. One, same-day announcements and completions are somewhat more unique in the middle market space. How has that performed in this recovery versus kind of past recoveries? And can you give us any kind of idea of how much kind of that immediate announcement and completion has kind of contributed to Corporate Finance here over the last six months since we've been recovering?
Lindsey Alley, CFO
I’m not sure if the same-day announcements and completions as a percentage of our overall completions have changed. Therefore, I don't see a clear trend there. In Corporate Finance, there are three broad categories: public deals, which you can track but are a small part of our business; private deals that require Hart-Scott, which can be completed in about 15 to 25 days, still within the same month; and same-day completions. I don’t believe the mix of these categories has changed much. I can see why you're asking this question, but I think the data logic and information services that monitor our deal pipelines are still as inadequate today as they were before the pandemic. I don’t think they have improved.
Jeff Harte, Analyst
Okay. That's clear. And one other. On the M&A front, and I guess I'm talking you guys as acquirers, we've kind of gone from M&A is dead environmentally to all of a sudden, M&A is back. How big of an impact does that have or have you found that having on target's potential willingness to sell? I'm just kind of trying to get a feel of six, eight months ago, there were probably a lot of boutiques looking to sell. I'm wondering if there's a lot less looking to sell today.
Scott Beiser, CEO
Yes. I think we've commented in the past quarters, but if you contrast May of 2021 to, call it, May of 2020, there are probably less companies either anxious or necessarily needing to sell to something like our firm or others, and the price of those companies interested in selling has risen, as has the stock market, as has our peers' stock price, et cetera. So we think all of that has caused us to be a little slower than what we would have anticipated a year ago. There's still a lot of activity out there, but it is slower than it was a year ago for the reasons that I mentioned, and price expectations have risen as well.
Operator, Operator
Our next question is from Michael Brown of KBW.
Michael Brown, Analyst
So I wanted to start off on Corporate Finance and maybe just take a bit of a longer-term perspective here. So Scott, we're looking at the data. Obviously, we've seen a record from a management perspective. So a record fourth quarter. The first quarter on a global basis came in a little bit above that. And 2Q is on track for another record quarter. If I play devil's advocate here and I try and look a little bit further out and figure out what could cause activity to really hit a wall, just curious what you see is at risk now? Because it's certainly not very clear to me at this stage, but I'm curious what may be coming up in conversations. And if you could, just characterize what the C-suites are kind of talking about in terms of top of mind today. Is it still the lingering effects of the virus? Or have any other items kind of taken center stage in terms of key risks?
Scott Beiser, CEO
We'll take your question in two paths. Actually, I think the conversations we're having in the C-suite and/or the private equity shops, they're all focused on positive attributes, and they're really not fretting over negative attributes. So I won't tell you that if we pull all of our clients or prospects, they'd say, oh, here's the top three or five things they're worried about. Having said that, the host of, I'll call it, normal things out there, which could spook or change negatively the marketplace in no particular order is a significant rise in interest rates, lack of availability of especially debt capital, a meaningful drop and a longer time frame in that drop in the stock market, increase in tax rates, some new regulatory changes. All of those things, I'd say, are always out there that people consider and worry about. I think in the mid-cap space and in the private space, we're not as positively impacted by favorable comments and not as negatively impacted by some of those things out there. But right now, the client base is not overly focused on many negative attributes. They're more focused on a very good marketplace, whether they're buyers, sellers, lenders, or borrowers.
Michael Brown, Analyst
I appreciate your input. My second question is related to restructuring as well, with a focus on the long-term perspective. Looking ahead to fiscal 2023 and beyond, I wonder about the ongoing impact of COVID. Do you anticipate a new wave of restructuring activity? What might drive that? Could we see an earlier increase if stimulus measures eventually diminish? Or could the rising interest rates start to put significant pressure on those with high levels of debt? I'd like to hear your thoughts on this.
Scott Beiser, CEO
Yes. I think if you look at the damage done by the pandemic, there are going to be in our certain fundamental negative impacts on many businesses and industries, many of which we would have thought would have entered into a restructuring in April, May, June, July, et cetera, of 2020. And for a variety of reasons, a lot having to do with the government interventions and stimulus which, in certain cases, have postponed potentially the inevitable. And in certain cases, companies probably will survive and do well. But we always look at it as does the business plan that you have, will it succeed in the go-forward world? And if it won't, it's just a matter of time when eventually it will hit the wall. If, on the other hand, the business plan can't evolve and succeed in today's new world, whether it's because of the pandemic or because of its ongoing technology disruptors and relative to the amount of debt you have in interest rates, that's what feeds our restructuring business. So to your specific question, we do think there's another wave, not necessarily the same size that we saw 6, 9, 12 months ago. But there's still companies out there that we believe have some trouble ahead. They've just been able to at least kick the can down the road, and we'll see how long that will last.
Operator, Operator
We have reached the end of the question-and-answer session. I will now turn the call back over to Scott Beiser for closing remarks.
Scott Beiser, CEO
I want to thank you all for participating in our fourth quarter and fiscal year 2021 earnings call, and we look forward to updating everyone on our progress when we discuss our first quarter results for fiscal 2022 this coming summer. Thank you, everyone.
Operator, Operator
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.