Houlihan Lokey Inc (HLI) 2021 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Houlihan Lokey First Quarter Fiscal Year 2021 Earnings Conference Call.

(Operator Instructions)

Please note that this conference call is being recorded today, July 28, 2020. I would now turn the call over to Mr. Christopher Crain, Houlihan Lokey's General Counsel. Thank you. You may begin.

Thank you, operator, and hello, everyone. By now, everyone should have access to our first quarter 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 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 for the quarter ended June 30, 2020, when it is filed with the SEC. During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our earnings release and our investor presentation on the hl.com website.

Hosting the call today, we have Scott Beiser, Houlihan Lokey's Chief Executive Officer; and Lindsey Alley, Chief Financial Officer of the company. They will provide some opening remarks, and then we will open the call to questions. With that, I'll turn the call over to Scott.

Thank you, Christopher. Welcome, everyone, to our first quarter fiscal 2021 earnings call. The last few months have been unusual times. We feel compassionate for the millions of people around the world affected by COVID-19, and we are hopeful for successful treatments and a vaccine in the months ahead. I would like to offer our sincere appreciation to those who are working on the front lines to battle this disease and to all of you doing your part to keep yourself and others safe and healthy.

Also, we are coming to understand with greater clarity, the horrible injustices suffered by many of our fellow human beings, but we are hopeful true positive change can come about in America and abroad. Everyone at our firm understands we need to be part of the solution. We are making a concerted effort to continually improve diversity, inclusion and equality of opportunity within our organization. And we are increasing our involvement in our local communities to improve the quality of life for all. I will now turn from the vital issues affecting our society and our fellow citizens to our business results.

The current business environment continues to exhibit very tough near-term challenges, but also show signs of significant opportunities in the mid and long term. Our first quarter fiscal 2021 revenues were $211 million, down 16% versus our first quarter last year. Our adjusted earnings per share were $0.56, also down 16% compared with the same quarter last year.

Notwithstanding our performance in the first quarter and recognizing the continued short-term headwinds, our financial position is strong and our midterm and long-term outlook remains positive. As I mentioned on our last quarterly earnings call, our balanced business model is working as it was designed. The severe and abrupt dislocation caused by the pandemic has negatively impacted revenues in our M&A business, not unlike other downturns.

At the same time, the opportunities for us in Financial Restructuring have expanded significantly. However, as has been the case through other periods of financial change and disruption, the near-term impact on our M&A business has occurred faster than the anticipated growth in Financial Restructuring revenues. We believe growth in our restructuring revenues will become more evident over time as we work through the significant opportunities that currently exist and will continue to expand as the result of this pandemic.

I'll start by summarizing the challenges we are facing and then move on to our opportunities. By any measure, M&A, globally and in the U.S., large-cap and mid-cap, strategic and financial, analyzed by volume or deal count, is down and down by a lot. During our first quarter, we had a number of deals that died and even larger number that were put on hold, and we experienced a much slower pace in M&A new business activity.

This quarter, we closed 43% fewer corporate finance transactions compared to the same quarter last year, and new business activity levels in the quarter were down almost 50% versus the same quarter last year. In previous recessions, we have experienced dramatic declines in M&A activity, but never one as abrupt as the one we experienced during our first quarter.

Today, capital markets are strong and the stock market has held up well. However, the continued pressure to stay at home, the risk of a second shutdown and an uncertain U.S. election outcome loom over the M&A market. Mitigating these concerns is the fact that the number of deals on hold versus the number of deals that died is more favorable than in previous downturns. We believe this reflects the market's view of a temporary pause in M&A activity versus a prolonged disruption.

Notwithstanding the rather dramatic reduction in M&A activity over the past few months. Over the last 30 days, we begin to see some green shoots to recovery in the M&A marketplace. Equity markets have effectively regained their lost value and are trading generally flat from calendar year-end. Interest rates remain at historically low levels. The debt markets are liquid and lending for buyouts is gradually returning.

The number of financial sponsor pitches we are participating in is nearing pre-COVID levels and the prospects of higher corporate and individual tax rates in the U.S. are starting to positively influence M&A activity. Although we've experienced a decline in M&A activity, our capital markets business has been busy. We've closed a number of transactions across industries for companies seeking more flexible capital and for companies who intend to use capital to be opportunistic in this market environment.

Overall, the size of our average mandate and our average fee in capital markets is larger than pre COVID. Furthermore, as expected in current conditions with less plentiful capital, corporate and financial sponsors are more highly valuing the role of a capital market adviser, which bodes well for the long-term future of this business.

Overall, our Financial and Valuation Advisory business is holding up well. While revenues were down somewhat in the first quarter versus the same period last year, new business activity has stabilized, since the trough in the stock market earlier this year. Our portfolio valuation, transaction advisory and corporate valuation advisory service lines are up year-over-year, while our transaction and fund opinion service lines are lower. Historically, our valuation business segment has experienced single-digit declines in its annual revenues during a business downturn. Our Financial Restructuring business has benefited substantially from current market conditions.

At the outset of the COVID crisis, new business activity increased immediately as many firms across multiple industries were plunged into crisis mode. As government intervention in the bond market stabilized many situations, our outlook for Restructuring has changed since our last earnings call. 90 days ago, we would have anticipated a much steeper rise in bankruptcies, but over a shorter time frame.

Today, we expect that the overall business environment for many firms may be worse than first anticipated, but their ultimate need to restructure may take place over a longer period of time. Currently, we are working on more assignments than ever before, and we have a pipeline of developing situations that we believe will translate into engagements over the relative near term. As a reminder, it can take several quarters or years to complete a restructuring assignment.

Consequently, while we have had record first quarter revenues in Financial Restructuring, and we have seen a considerable increase in the monthly fee component of restructuring assignments, we expect the majority of our current Financial Restructuring transaction fees to be recognized as we move towards the latter part of this fiscal year and in subsequent years.

Turning to our acquisition activity. In June, we announced the acquisition of MVP Capital. MVP provides investment banking services to telecommunication firms. Their business has remained stable during the pandemic as infrastructure investment in telecom is as important as ever. As we all sit here in a Zoom-connected world, it seems fairly clear that all of us are benefiting from the rollout of 5G technology.

The combination of our 2 firms better positions us to serve our collective client base during this important technological transition. We expect this transaction to close in August, and we're excited about welcoming our new partners to the firm. Consistent with our historically acquisitive business model, strong business performance and a recent equity offering, we are in active dialogue with a number of companies interested in combining with our firm.

To date, the most promising opportunities are in the U.S. and Europe. Certain firms provide sector expertise where we are underweighted, while other firms we are looking at would expand coverage in current industry verticals. Generally speaking, several of our most active dialogues are with firms larger than our previous acquisitions. We don't expect to close on every transaction, and we may not close on any of them. But overall, we are quite pleased with the quality of firms we are talking to.

In closing, we expect more uncertainty in the economy and our financial results in the short term until we get more clarity in the resolution of COVID and the upcoming U.S. elections. However, we are as confident as ever in our balanced business model, the talent and perseverance of our employees and the advice we are giving our clients. Regardless of the length of this pandemic or the severity of the aftermath, we believe that as with previous cycles, we will come out of this a much stronger and even better positioned firm than when we went in. And with that, I'll turn the call over to Lindsey.

Thank you, Scott. Revenues in Corporate Finance were $88 million for the quarter compared to $134 million for the same quarter last year. Lower revenues were a result of a 43% decline in the number of closed transactions, partially offset by an uptick in our average transaction fee on closed transactions.

Financial Restructuring had a record first quarter, delivering $89 million in revenues, a 12% increase from the same period last year. Higher transaction volume and higher monthly retainer fees drove the increase in Financial Restructuring revenues this quarter compared with the same period last year. We closed 29 transactions compared to 25 in the same period last year, and the increase in retainer fees is a result of a significant increase in the number of current engagements driven by the pandemic.

Although we have started to see an uptick in monthly retainer fees, the bulk for the revenue associated with COVID-related restructurings will not be realized until the transactions close in subsequent quarters and years. In Financial and Valuation Advisory, revenues were $35 million for the quarter compared to $37 million for the same period last year. FDA saw mixed results across its service lines, as Scott mentioned, with several of the product lines positively affected by the increase in volatility caused by the pandemic and a couple of the product lines negatively affected by the steep decline in M&A activity.

Turning to expenses. Our adjusted compensation expenses were $132 million for the first quarter versus $153 million for the same period last year. We had one adjustment this quarter for deferred payments related to certain acquisitions. And as a reminder, we will have no more adjustments relating to our pre-IPO grants as the last tranche was expensed in the fourth quarter of fiscal 2020.

Our adjusted compensation ratio was 62.5% for the quarter. We experienced upward pressure on our compensation ratio relative to last year's first quarter for 2 primary reasons. First, there is continued uncertainty around the length of the pandemic and the severity of its aftermath, which is applying some upward pressure on our compensation ratio.

Second, we are experiencing materially lower reimbursable expenses, which are a component of our gross revenues. And since our employee compensation is driven by fee revenues and not gross revenues, we are adjusting upward our compensation ratio to account for the lower reimbursable expenses.

Offsetting this decrease in our revenues is a decline in our adjusted non-compensation expenses, which ended the quarter at $30 million versus $37 million for the same period last year, a decline of 20%. This resulted in an adjusted non-compensation expense ratio of 14.2% versus 14.9% in the same quarter last year. This decline is a direct result of reduced travel, meals and entertainment expenses and other operating expenses associated with recruiting and marketing events, all related to stay-at-home orders implemented as a result of the pandemic.

We expect to continue to see significantly reduced non-compensation expenses in these 2 categories, at least through the balance of the calendar year. This quarter, we adjusted 2 items out of our non-compensation expenses, $418,000 in costs related to our primary stock offering in May and $1 million in acquisition-related amortization.

We will continue to adjust for similar types of expenses in the quarters in which they occur. Our adjusted other income and expense decreased for the quarter to income of approximately $1.2 million versus income of approximately $1.7 million in the same period last year. This was primarily a result of lower interest earned on our cash and investment balances. Our adjusted effective tax rate for the quarter was 25.3% compared to 28.8% during the same period last year.

As a reminder, a portion of the deferred stock that we issue as compensation to employees vest during the first quarter of our fiscal year. This vesting had a significant effect on our GAAP effective tax rate this quarter as expected, which we adjusted for in order to give a more normalized effective tax rate for the quarter. Our adjusted effective tax rate of 25.3% is below our long-term target of between 27% and 29%, driven by a couple of discrete items that likely won't repeat in subsequent quarters. But also because there are lower nondeductible expenses expected this year as a result of the COVID crisis.

Nondeductible expenses include certain meals and entertainment, employee parking and certain nondeductible compensation associated with our named executives. As a result of lower nondeductible expenses, we expect our tax rate for fiscal 2021 to be closer to 27%.

Turning to the balance sheet and uses of cash. As of the quarter end, we had $546 million of unrestricted cash and equivalents and investment securities, which includes $189 million in cash from the equity offering we completed in May. To Scott's earlier comments regarding our acquisition activity, we believe we have enough capital to take advantage of attractive acquisition opportunities as they arise.

In addition to having adequate cash in our business, we have effectively no debt and an undrawn revolver of $100 million. In our first quarter, we issued approximately 900,000 net new shares to employees as part of their bonus compensation for fiscal 2020, and as we had in previous years, we intend to offset this dilution through share repurchases throughout fiscal 2021.

In addition, at our Board meeting this month, we replaced our previous share repurchase program with a new share repurchase program totaling $125 million. Finally, we are pleased to announce that we are increasing our dividend to $0.33 per share payable on September 15 to shareholders of record as of September 2. And with that, operator, we can open the line for questions.

(Operator Instructions)

The first question comes from the line of Brennan Hawken with UBS.

So just wanted to clarify something. The comments on the comp ratio, it's a little elevated versus the range that we normally think about for the quarter. It sounded like there was some noise. Was the -- is the message that you expect that noise to sustain through the year? And so we should be thinking about a higher comp ratio? Or is it that this is noise that will be passing and things will revert back to the normal range? Just wanted to maybe just put a finer point to that.

Yes. So very briefly, I'll try to make it quick. We -- when the accounting change occurred 2 years ago and they insisted that we increase our revenues to account for reimbursable expenses. Last year, we had about $34 million in reimbursable expenses in our revenue number. And as you know, there's a dollar-for-dollar offset in that number in our non-compensation expenses. And so this year, we think our reimbursable expenses may be as much as half of that number. And we don't pay compensation expenses based on reimbursable expenses. We only do it based on fee revenues. And so we essentially -- we may lose up to $17 million of pass-through revenues that we had normally tied our compensation expense ratio to. So we are adjusting upward our compensation expense ratio to -- with the expectation that we're going to see a much lower reimbursable expense number in revenues.

The flip side of that is that our non-compensation expenses are going to decline dollar per dollar for that loss, reimbursable expense revenue. So we may see slightly higher as a result of the accounting change, compensation expense, offset by lower non-compensation expense. Does that make sense?

Okay. I think so. And then is -- when we think about the Restructuring business, understood that and -- sorry to start off the questions with such a geeky accounting question about reimbursable expenses, but pulling back and thinking about the Restructuring business and thinking about the -- you guys touched on the level of uncertainty and the fact that you think that things might take a little longer to come to fruition. Is the understanding that there could be an extended time frame to the cycle? Is the -- has the opportunity set changed? Do you think that the expected revenue that all of us should be considering for the upcoming year that you just kicked off? Should we calibrate that and be pushing off some of the revenue into subsequent years? How should we think about the potential ramp at this stage? Is what you're seeing now enough to adjust those views? Or is it still too early?

What we've said is today compared to 90 days ago, we probably think that our Restructuring revenues in fiscal '21 will be less than maybe what we thought 90 days ago. But conversely, we probably think our Restructuring revenues in '22, '23, maybe some additional years, will be higher than what we once thought. So we think the government intervention has slowed down the pace of some of the restructurings that we would have thought would have occurred 90 days ago.

On the other hand, as this pandemic is not a short-term blip and it's going to be something much longer and probably more damaging to the economy, we think there's going to be ultimately more opportunities, but over a longer period of time.

Excellent. That's very clear. Scott. I appreciate it. One last one for me. When you think about the green shoots that you referred to in M&A, how should we think about that as we try to adjust our models? Normally, given that you focus on the deals that are in the middle market, a lot of times, you have announcements and closings that happen in the same quarter. So how should we think about when those green shoots can actually translate to real revenue opportunity for you guys?

So a couple of things, I think we would say, the decline in the M&A marketplace over the last quarter was as severe in a singular quarter as probably anybody has seen. Having said that, like I said, we're starting -- albeit it's only been, call it, the last 30 days, some of these green shoots, we're reasonably confident they will turn into new business, whether the deals will close or when they'll close is much more uncertain. We know there is some push because the potential changes in tax policy that's going on. We are starting to see some of the private equity firms who've said, look, we will go forward on some transactions, even if at the moment, we can't actually physically meet with management or visit plants. So humans are starting to evolve with this new order, if you might. And those are some things that we're seeing. And clearly, I think the equity markets and bond markets have been much more buoyant and strong than probably what anybody would have thought 90-or-so days ago.

So all of those are positive signs. Like I said, we're clearly seeing activity, which is getting us to have more dialogue, getting us to probably have more new engagements than what we saw 90 days ago. But whether they will turn into closed deals or when they'll close, too early to tell.

Our next question comes from the line of David (sic) [Devin] Ryan with JMP Securities.

It's Devin for the record. Just maybe a follow-up to the last question for Brennan and make a finer point on just the M&A backdrop and the ability to do deals when people still really aren't traveling much, at least in the U.S. And how critical is that to getting back to something that's maybe not a great market, but just even a reasonable market? Can -- or people have an appetite to buy an asset without actually seeing it in person or sitting down with the management team or talking to employees. Is that happening? Is this kind of an evolution of the ability to do an M&A transaction, people are more comfortable with technology? I'm just kind of curious if -- one, if it's possible, but two, are there kind of lasting -- maybe some benefits where people become more comfortable doing some things that historically -- or parts of the process that they weren't comfortable doing remotely where that may actually become a lasting effect of the pandemic.

I think there were 6 questions there. But clearly, I think technology is evolving and the human behavior is evolving, I mean several things we would point to. You clearly have seen our workforce and other professional service organizations workforce. They're working remotely. We're seeing audits by the accounting firms getting done all remotely without having to go in the offices. We're seeing people actually thinking about how you buy a house or how you purchase things. People are willing to do things remotely without actually physically going and seeing it, which was not commonplace a couple of years ago, a couple of quarters ago.

I still think the general view to buy a 100% business is -- ultimately, buyers want to physically meet with management and physically go visit the factory. But we're also doing videos of the factory so that you can minimize the amount of travel that needs to get done or when they need to do it. And the longer this stay at home, lack of travel exists, I think people will continue to be willing to do deals without kind of a normal procedure that you once did.

So it is something that would be great if traveling could occur immediately tomorrow. But I think now that we're 4 months into this process, we are clearly seeing buyers, sellers, lenders, borrowers, are more willing to do a certain number of things remotely that they would have never contemplated doing even a year ago.

Got it. Interesting. Okay. And then just a follow-up here on some of the commentary on acquisitions. Obviously, you issued 3 million shares in the quarter, raising nearly $200 million. You announced the MVP deal, which appears kind of more regular sized compared to what you've done in the past, maybe on the -- reasonably small.

It sounds like you're still -- and you mentioned this last quarter, you're having conversations with some larger firms. Now it sounds like firms versus -- it sounds like maybe there's something that was more specific, last quarter. To the extent you've raised this capital, do you think that this kind of is sufficient for several deals that are larger? Or how should we think about that? Or funding kind of to the extent you actually would be willing to execute on more than one of the larger deals that it sounds like you're talking about this moment? Just trying to get a little flavor for that since it sounds like a slight nuance from last quarter.

Several things that we said. We're talking to numerous firms, as you pointed out, yes, several of them are larger, maybe and much larger than what we've talked to in the past, not necessarily because we've raised the money. It's just where the opportunities are. And due to the general size of our firm today versus 3 or 5, et cetera, years ago, makes it a little bit different from a cultural standpoint.

Having said that, I think, either with the capital that we have on our balance sheet right now, through the lending capabilities when we're still doing acquisitions, it's always been a combination of cash stock earn-outs, et cetera. There's nothing that tells us for the foreseeable future if we needed to and wanted to close on a couple of deals. We've got enough capital tools to be able to do that. So if your question was, do we have enough money to actually close on a few deals and especially if there are more sizable deals? I think that answer is yes.

Our next question comes from the line of Matt Coad with Autonomous Research.

So kind of a cleanup question based on your restructuring commentary before. Is it fair to say that, say, relative to 90 days ago, that you believe the total addressable market for your Restructuring team in this cycle is now larger?

Yes.

Simple enough. I think that's all I got.

You didn't ask a time period for me to put on. Yes, I mean, over the -- I'll call it the next couple of years, I think we think the addressable market is bigger today than it was, like I said, a quarter ago. But it's just going to take a longer period of time for all of that potential business to come our way and our competitors' way.

Our next question comes from the line of Richard Ramsden with Goldman Sachs.

This is James Yaro filling in for Richard. Perhaps we could dig in a little bit on some of the trends in the Corporate Finance business. You saw a reduction in the number of MDs here. They were down by 6 this quarter. And obviously, the number of completed transactions were down given the weaker environment. So maybe we could just -- digging on how the fact that the MDs have fallen, could it have any impact on the Corporate Finance business going forward, if any?

I think you -- typically, there is some seasonality to our hiring departures. Part of it, you've got when promotions come in. Part of it is, since we are a March 31 company and are doing our reviews with our employees in April and May, you'll start to see some turnover, both voluntary and involuntary. So that's a typical time period you get. And kind of looking at it quarter-over-quarter, even year-over-year, kind of the total MDs by all of our product lines is not materially different. So I would not look at the potential for us to get business or close business has been impacted at all by the handful of departures that you've alluded to.

Okay. Got it. And then 2 quick bigger picture ones. So I guess maybe if you could just comment on your -- on the opportunity for there to be -- in fiscal year 2021 -- or sorry, calendar year 2021 and perhaps into 2022, for there to be both simultaneously strong Restructuring environment as well as the strong M&A outlook? Or do you think one or the other is going to slow down, like in prior cycles?

Well, each downturn in each cycle has its own unique story to it. All I would tell you is the last couple downturns that we've experienced that the, I'll call it number of quarters, that our Restructuring business grows is more than the number of quarters that our Corporate Finance business shrinks. Whether that will repeat itself and what's the magnitude of each of those, don't know, but typically due to the duration of restructuring projects and the more quickly either putting on hold, dying or re-gearing back up in Corporate Finance is quicker, you do tend to typically get at the early stages of the downturn.

Like I said, the Restructuring business does not exceed -- the growth in Restructuring does not exceed the shrinkage in Corporate Finance. Yet we have seen in the past, there is that potential for the Restructuring business to ultimately start playing catch up.

Okay. Got it. And then the last one is -- I appreciate your comment on how you'll see a lower non-comp ratio in the near term, but perhaps you could talk about how the faster adoption of technology over the course of this pandemic, as people have been forced to work from home, could have a more permanent impact on your non-comp costs over the longer term, if any?

Yes. And we've talked about this quite a bit internally. You're going to likely see some incremental costs for all of the firms in our business on information technology. And if we manage this effectively, you'll see reduced costs in items like real estate, you'll see reduced costs in items like TM&E over the long term. As people realize, you don't have to jump on a plane and fly 6 hours to New York or Los Angeles for a 2-hour meeting anymore. So we hope, honestly, that we're going to see structural changes in our non-comp expense that are attractive to investors over the next 5 to 10 years. It will take a while. Real estate, unfortunately, we sign long leases. So that will take time, but we expect that to happen as a result of what's of -- the changes that are occurring and the way we all do business.

Our next question comes from the line of Jeff Harte with Piper Sandler.

A couple for me. One, on the commentary about maybe looking at larger acquisitions than before, should we think of that as kind of relative to the average? Because you've historically made a lot of small transactions, or even relative to some of your historically larger transactions like a Leonardo?

I think what we're looking at is like I said some, I'll call it, normal sized acquisitions for Houlihan Lokey and some acquisitions, if completed, would be larger than deals we've done in the past. But there's still more kind of tuck-in, rightsized what we are, nothing that we're looking at is so big that I think puts a change or at risk kind of the culture of the organization. So it's a combination of, like I said, I'll call it, normal sized deals and deals that would be, yes, equal to or even bigger than the Leonardo one that you mentioned.

Okay. And on non-comp, I mean, $30 million for the quarter is really low. We typically see kind of a seasonal step-up into the second quarter of the fiscal year. Just given what's going on COVID-wise, should we expect to see a step-up like that again quarter-over-quarter?

It's a little hard to tell because we're kind of midway through, but I think the way we're thinking about our next sort of couple, 3 quarters is that you'll be in that $30 million to $35 million range for all the quarters. So year-over-year, a pretty significant decline in non-comp expense.

Okay. And finally, maybe I'm trying to be overly optimistic, but looking at the Corporate Finance business and kind of the declines in revenues you guys saw year-over-year, putting it in the perspective of -- in the middle market, you tend to have a lot of same-day signings and closings, it's kind of a unique dynamic. To what extent is kind of the pain or the bulk of the pain of the slowdown kind of already felt by you guys? Because compared to peers that don't have that middle-market kind of change, it seems like their revenues have held up better in the 2Q. So I'm trying to get at whether you felt most of the pain already. Or is there potentially more to come?

Well, it's hard to tell whether we felt most of the pain already because we don't see the end in sight yet. But as I've said to others, Jeff, we are the first into the recession in the middle market because we have such small windows between signing and closing, and we'll be the first ones out. So yes, we were affected in March. We had a significant number of revenues go away for us in March. And we had almost nothing sort of -- we had very little kind of closing in Q1 that were baked by the end of February.

Having said that, to -- this was to an earlier question, if the market comes back in September, October, and we go to market on a number of transactions, it is possible those transactions close for us by the end of March, and you see them in FY '21 revenues. And so it's just -- it's -- because we don't have to go through the shareholder vote that most public companies do for the vast majority of our transactions, we just have a much slower -- much faster sign to close.

And I'd add, Jeff, in the early months of this health crisis, we saw, as we mentioned, a number of deals go on hold and a number of deals die. That pace of acceleration of deals going on hold and died has clearly slowed down. The real question, I think, that we have, to answer your question, on are there more down quarters or not? I think is at what pace will those number of projects on hold, will they stay on hold? Will they slip into the dead category? Or in fact, will they hit the -- let's go to the marketplace category. So there is a lot out there that is not dead, but it's not yet been given the go-ahead sign. And that's the big, probably, bucket that's a little harder to predict from a timing standpoint.

Our next question comes from the line of Manan Gosalia with Morgan Stanley.

I was wondering, do you have a time frame in mind within which you would deploy the capital you raised in May? And if you don't see any major opportunities, when you would decide to return that to shareholders? And you also -- you had a nice increase in your dividend this quarter. I was wondering if that is a reflection of the upcoming strength you see in your restructuring revenues? Or if it meant that your opportunity to deploy capital was somewhat diminished?

Yes. So I'll take the -- this is Lindsey. I'll take the second one first. I think we, along with all the rest of the companies that we're reporting in the middle of May, were in shock on what was happening. And I think we didn't think it was prudent to increase our dividend, which was our normal cadence, which is our -- right after our fiscal year, we have, I think, for lack of a better word, figured out the environment that we're in. It is a heck of a lot more stable than it was back in May. And so we felt more comfortable increasing our dividend. It has really nothing to do with the fact that we raised the equity and didn't have anywhere to spend it.

Regarding your question one, I think that it's really hard to answer it. We do not rush our acquisitions. It is like a very long dating process before we decide to get married. And for a lot of these companies that we're in conversations with, we've been dating them for a while. But it really is kind of the stars need to align before we make the decision to come together. And we -- that could be measured in quarters, it could be measured in years. And at the time we did the equity offering, we weren't sure how long the pandemic was going to last or what the aftermath looked like.

We wanted to make sure we had enough capital certainly for the next couple of years to do acquisitions as they came about. And whether we can spend that in 1 year or 3 years, I don't think we're thinking about it that way. We just believe that there are enough opportunities out there that we wanted the flexibility.

Fair enough. And then I was just curious, how much is the -- I appreciate there's a lot of uncertainty in the environment right now, but I was wondering how much of the elections factoring into your conversations with clients, are clients who are otherwise maybe managing well through this environment, are they citing policy uncertainty is one of the reasons for holding back? And maybe you could see an uptick after the election?

I think it's mixed. And the larger probably the company is and the more they're worried about antitrust issues and changes on what one administration will look at some industries versus another, they're probably more holding back to wait and see. The more it is a family held business or privately held business, and there is a capital gain tax consideration, it's probably going in the other direction, which is let's give ourselves the optionality to be able to potentially actually close prior to the outcome of the elections or outcome of the change in tax policy. So it varies, I think, on probably the size of the company, public versus private.

Got it. And maybe given you're skewed to the smaller and midsized spectrum, that would be like slightly positive for the cohort that you're looking at.

Yes. I mentioned in our -- in my remarks, we probably think it's net a positive to our client base, at least as we sit here today.

Our next question comes from the line of Michael Brown with KBW.

I just wanted to start with Restructuring. So as we think about Restructuring, you've been very clear that it does take time for those revenues, the success fees to come through. Could you just share with us some insight into how those trends could play out as you think about which industries will see deals kind of close first or which -- I guess, which industries or regions or types of transactions types of roles that could be kind of the first deals that we see come through and deliver those success fees? That way we can maybe have a better understanding as to how this plays out and what we're looking at as we look at things in the public realm.

Yes. I don't think it's an easy question to answer. I mean the reality is we probably all know which industries have been hurt the most so far in this downturn. But even if you pick on those industries and whether it's oil and gas, retail, travel, entertainment related, et cetera, then you'd have to go into the actual structure of the company and the capital structure and what the dynamics are. So you could have a really bad industry fact pattern, but the balance sheet says that it's okay if it takes 2 years to solve. And you can have something much different, which is a somewhat troubled industry, but not maybe a devastated industry. But the capital structure and the stakeholder situation says it really needs to get solved in the next couple of months. So it's not a -- you can't answer it. It's so unique on each and every unique transaction and assignment.

Okay. And just one quick clarification on the expenses. Appreciate all the background color on the impact of the comp ratio. Was that meant to be a change in the kind of full year guidance? Or is that just kind of an explanation as to what happened this quarter? And maybe it's an impact next quarter? But is that the right way to think about it? Or is it truly that you do think it's going to be kind of above the historical range this year?

Yes, given the stay-at-home orders and what we think are going to be a significant impact to our reimbursable expenses, we expect that it's going to be a change that is in place so long as we have stay-at-home orders, which is anyone's guess, but likely certainly through the calendar year and probably through the entire year.

(Operator Instructions)

Our next question comes from the line of Ken Worthington with JPMorgan.

I'm not sure you disclosed, but I'll ask anyway. In terms of restructuring this quarter, can you give us a sense of the revenue mix between retainers and success fees and maybe how this quarter compares to other quarters in the past, either a year ago or last quarter or average? Just to get a sense of how this pipeline is building.

We don't disclose the mix between retainers and transaction closings. But I think as we both alluded to in our comments, you're just going to have, as a percentage of overall revenues and Restructuring, a higher percentage of retainer fees in this quarter relative to transaction fees compared to other quarters. And so you're -- exactly intuitively, the Restructuring is acting the way you'd intuitively believe it would, which is we're starting to see a real buildup in our retainer fees. That's going to take place through the balance of our fiscal year. And until those transaction fees start occurring, those incremental ones related to COVID, you're just going to see a heavier weight in retainer fees relative to overall fees than you -- certainly than you did last year.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Mr. Scott Beiser for closing remarks.

I want to thank you all for participating in our first quarter fiscal 2021 earnings call. And we look forward to updating everyone on our progress when we discuss our second quarter results for fiscal 2021, this coming fall.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.