Houlihan Lokey - Q2 2024

Transcript

Operator (participant)

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Houlihan Lokey's second quarter fiscal year 2024 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note that this conference call is being recorded today, October 26th, 2023. I will now turn the call over to Chuck Yamarone, Houlihan Lokey's Chief Compliance Officer. Please go ahead.

Chuck Yamarone (Chief Corporate Governance & Compliance Officer)

Thank you, operator, and hello, everyone. By now, you should all have access to our second quarter fiscal year 2024 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-Q for the quarter ended September 30, 2023, 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, Chuck. Welcome, everyone, to our second quarter fiscal 2024 earnings call. We ended the quarter with revenues of $467 million and adjusted earnings per share of $1.11. Revenues were down 5%, and adjusted earnings per share were down 7% from the quarter a year earlier. However, in comparison to the June quarter, revenues were up 12% and adjusted earnings per share were up 25%. Over the last 7 quarters and during a challenging time in the world's financial markets, our diversified business model has enabled us to produce steady results, with quarterly revenues consistently in a range of $416 million-$490 million. Our business activity and financial results have shown consistent improvement since April, and we enter our third fiscal quarter with measured optimism.

The market environment for our Corporate Finance and Financial and Valuation Advisory business is improving, but at a pace that is likely to result in a slow exit from this market environment. Consistent with their commentary in the previous quarter, we continue to experience improvement in client confidence as a result of improving capital markets. We see some improvement in deal momentum in M&A, and a renewed interest from our clients in testing current market conditions after sitting on the sidelines for more than 18 months. However, recent events, including rising interest rates, a stalled stock market, and the war in Israel, have slowed some of the momentum we experienced in late spring and early summer. Looking forward, we remain optimistic that market conditions will continue to improve, but we are realistic about the macro pressures that exist today.

Our Corporate Finance business produced $282 million in revenues for the quarter. This was a decline from the prior year period, but an increase from last quarter. For several months, we have continued to experience a solid level of new business opportunities. Financial sponsors are showing increased interest in taking their portfolio companies to market. This is a result of an improving availability of debt capital, a resilient stock market, pressure from limited partners seeking liquidity, and the desire by PE managers to get back into the deal business versus maintenance business. Strategic buyers and sellers are also slowly coming back, buoyed by an improving equity markets and continued stable financial performance. This increased interest to transact is still tempered by a fickle M&A market, resulting in a longer time to close transactions and deeper due diligence.

With respect to our capital markets business, our revenues are up year-over-year, driven by improvements in availability of credit, particularly in the midcap space. Also, capital is harder to access than it was in calendar 2021, which has increased our value proposition for this service line.... Historically, in a business rebound, we see capital markets improving first, then M&A activity follows. We expect this rebound to follow a similar path. Our financial restructuring business had another strong quarter, producing revenues of $115 million. While the restructuring business continues to benefit from higher interest rates and a fast-approaching debt maturity wall, the growth in new business slowed during the quarter, likely a result of improving capital markets.

While the U.S. restructuring market has leveled off a bit, causing a slowdown in new business activity, we have seen continued strength in our restructuring business in Europe, Asia, and South America, where we believe our brand and market presence is second to none. As we have said on previous calls, since this restructuring cycle is not the result of a one-off crisis, we expect to experience elevated revenues over the next couple of years versus a significant revenue spike and subsequent drop as we experienced in previous cycles. Financial and Valuation Advisory produced $71 million in quarterly revenues, down from the same quarter last year, but higher than anything we have reported for FVA in the last three quarters. Our market-neutral service lines continue to perform well in this environment, while our service lines that are tied to the M&A markets are lagging previous year results.

If the slow but general improvements we are seeing in Corporate Finance and the overall M&A markets produce an increase in M&A closings, we would expect FVA to see positive revenue momentum in calendar 2024. Although we resumed share repurchases this quarter, we continue to take a conservative approach to excess cash in order to give us plenty of balance sheet flexibility to take advantage of acquisitions that may arise. Also, during the quarter, we had two new managing directors start and believe that the market for hiring senior bankers remains attractive. Over the last seven quarters, our senior hires, acquisitions, and geographic expansions have resulted in significant value being added to our investment banking platform. We believe we are well positioned for growth as market conditions continue to improve, and we are well prepared to maximize that opportunity for the benefit of our employees and shareholders.

With that, I'll turn the call over to Lindsey.

Lindsey Alley (CFO)

Thank you, Scott. Revenues in Corporate Finance were $282 million for the quarter, down 11% when compared to the same quarter last year. We closed 117 transactions this quarter, compared to 114 in the same period last year. Although our transaction count increased, our average transaction fee was lower for the quarter versus the same quarter last year. This was a result of deal mix and not the result of any trends in transaction value or fee size. Financial Restructuring revenues were $115 million for the quarter, a 17% increase versus the same period last year. We closed 31 transactions in the quarter, compared to 24 in the same period last year, but our average transaction fee on closed deals declined slightly.

In Financial and Valuation Advisory, revenues were $71 million for the quarter, an 8% decrease from the same period last year. We had 852 fee events during the quarter, compared to 890 in the same quarter last year. Turning to expenses. Our adjusted compensation expenses were $287 million for the quarter, versus $301 million for the same quarter last year. Our only adjustment was $9.3 million for deferred retention payments related to certain acquisitions. Our adjusted compensation expense ratio for the second quarter in both fiscal 2024 and fiscal 2023 was 61.5%. We do not expect a change to our long-term target of 61.5% for our adjusted compensation expense ratio.

Our adjusted non-compensation expenses were $75 million for the quarter, an increase of $3 million over the same period last year, but flat from the previous quarter. This resulted in an adjusted non-compensation expense ratio of 16.1% for the quarter, compared to an adjusted non-compensation expense ratio of 14.8% for the same quarter last year. On a per-employee basis, our adjusted non-compensation expense was $29,000 per employee this quarter, versus $30,000 per employee for the same quarter last year. We typically see some seasonality in our adjusted non-compensation expenses, with the second half normally coming in modestly higher than the first half. We expect that trend to continue this year.

For the quarter, we adjusted out of our non-compensation expenses, $3.4 million in non-cash acquisition-related amortization, the majority of which was related to the GCA transaction, and $1.5 million for acquisition-related costs, primarily related to the 7 Mile acquisition, which is expected to close during our third fiscal quarter. Our adjusted other income and expense decreased for the quarter to income of approximately $2.5 million, versus an expense of approximately $1.2 million in the same period last year. The improvement in this category was driven by higher interest income on our cash balances across the globe as a result of higher interest rates. We adjusted out of our other income and expense a gain of $816,000 related to the payment of an earn-out on a previous acquisition.

Our adjusted effective tax rate for the quarter was 28.4%, compared to 27.9% for the same quarter last year. We maintain our long-term range for our effective tax rate of between 27% and 29%, but we expect that our effective tax rate for the year will be at the higher end of that range. Turning to the balance sheet, as of the quarter end, we had approximately $525 million of unrestricted cash and equivalents in investment securities.

...As a reminder, we will pay the deferred cash bonus related to compensation in fiscal year 2023 to employees in November, which will significantly reduce our balance sheet cash. In this past quarter, we repurchased approximately 239,000 shares at an average price of $104.33 per share as part of our share repurchase program. We continue to take a conservative approach to share repurchases as we are prioritizing balance sheet strength and flexibility to be able to take advantage of acquisition and hiring opportunities in this market. And with that, operator, we can open the line for questions.

Operator (participant)

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. The first question comes from the line of Brennan Hawken with UBS. Please go ahead.

Brennan Hawken (Managing Director and Senior Equity Analyst)

Good afternoon. Thanks for taking my question, guys. Wanted to start with the comments on the Corporate Finance market. So totally appreciate the environment's been challenging and somewhat fluid, but I'm curious about your perspective on sponsors. We're hearing that sponsors have been a bit slow to return to the M&A market, and I'm curious about what you're seeing there, and with this, maybe a little bit of caution added to the more positive outlook. You know, do you think that it's reasonable to expect some seasonality here this year in the Corporate Finance line?

Scott Beiser (CEO)

Brendan, well, I think there's two questions there. I'll, I'll take at least the first one on the sponsors. I think we have continued to see, really over the last several months, an improved interest by sponsors to start doing things with their portfolio companies. We see that in terms of number of pitches that we have participated in. We've seen that in their attendance in our various industry conferences. We've seen that in terms of them asking us to get started in, you know, processes. We've, you know, continued to hear from them that there is some nudging by LPs to start returning capital, and there's issues, I think, you know, from the employee base of sponsors, that they eventually need to start getting back into the, what we'll call the deal business.

Having said all that, they're still not going at the pace that I think, you know, we all experienced in the industry three years ago, five years ago, seven years ago. So I wouldn't quite say they're exactly at the normal pace yet, but we do think it's improved from where they were three months, six months, nine months ago. And on your question on seasonality, for as long as I could remember, except for calendar 2022, you know, the December quarter is almost always the best quarter for the industry, and not too dissimilar for Houlihan Lokey, either. Calendar 2022, the December quarter did not stand out like other quarters.

So maybe a host of reasons, and once again, kind of unclear where the lawyers and bankers and accountants and all the other service providers, are they going to be pushing for, various, probably compensation or tax-related reasons to get something done by this, quarter? Or will they be more motivated to, slip things where they do have control into, the next quarter? I don't know. We know what historically has happened, and we also know that calendar 2022 was the aberration, and I guess we'll find out pretty soon what calendar 2023 holds.

Brennan Hawken (Managing Director and Senior Equity Analyst)

Yeah, that's fair. Thanks. Thanks for that, Scott. When we think about the MD count in Corporate Finance, noticed that it was down quarter-over-quarter. Could you maybe speak to what drove that decline and whether or not you'd expect that to continue or you know, what was behind that slip?

Scott Beiser (CEO)

So what I think we do, like in every year, and remember, we're a March 31 company, so it's that time period where we are talking to always a small subset of our MDs that maybe we think they're in the wrong platform or aren't performing at the level we'd like, and there is some involuntary departures as well. And then they typically occur, you know, some in the June quarter, some in the September quarter. So I think that's just a normal year-end, you know, component. Offsetting that is obviously, we promoted a number of MDs in April. We hired a number of new MDs in the June quarter, as well as the September quarter. And much like others in the industry, we have other offers that have been accepted, but they just have not started yet.

So effectively, our head count is pretty similar over the last really year, and I think it's just a little bit of typical transition of some departures and then, you know, filling in with incremental either through promotions or external hirings.

Brennan Hawken (Managing Director and Senior Equity Analyst)

Yep. Great. Thanks for the color.

Operator (participant)

Thank you. Next question comes from the line of James Yaro with Goldman Sachs. Please go ahead.

James Yaro (VP of Equity Research)

Good afternoon, Scott, Lindsey, and thanks for taking my questions. Maybe we could just start with restructuring, which, you know, was a little bit weaker in the quarter than I think, you know, the quarter before, but against this, obviously, rates continue to rise. So how do you think about the move in the long end of the curve and its impact on restructuring, and do you think the opportunity set has, you know, improved?

Scott Beiser (CEO)

I think it's pretty hard to make a case that things do not look good for the restructuring industry for at least the next couple of years... just on where certain businesses are performing, where interest rates are, just the maturity wall, a whole host of dynamics. We've always found that that business, at least for us, is probably the most lumpy, where sometimes you get more sizable projects that may close in one quarter versus another. We did note in our remarks there was a bit of a slowdown in new business activity, albeit was only in the United States. And I think it continues to ramp up in other parts outside of the United States, and we expect, you know, that we will be operating at this higher level for the foreseeable future.

As you mentioned, yes, a continuation of the theme now probably on interest rates, which might be higher for longer. Net-net is good for the restructuring environment.

James Yaro (VP of Equity Research)

Okay, thank you. And then, as a follow-up, just, you know, M&A continues to, you know, maybe it's about to trough. It's increasing slowly, however you want to think about it. But, you know, I would imagine that perhaps opens up the window for you to contemplate more acquisitions as some of the smaller firms, you know, haven't seen revenue recover. So maybe you just talk about, you know, how you're thinking about the potential for, you know, bolt-ons from here.

Scott Beiser (CEO)

Lindsey, do you want to cover that? You've been talking to a number of the acquisition targets we've been pursuing.

Lindsey Alley (CFO)

Sure. Yeah, look, I think the pipeline is as robust as it's ever been. I think the longer this M&A recession, if you want to call it that, continues, as you suggested, the tougher it is on smaller firms that don't have a restructuring practice in particular. But I think for us, it's very important we don't rush it. You know, we, our acquisition process is usually a long one. We like to get to know the management teams. We like to make sure that there's a good cultural fit, and there's normally a, you know, process of, for lack of a better word, dating that we go through, and we're doing that, and we're not rushing it, given the circumstances.

So I think acquisitions will continue to be an important part of our nonorganic growth. It does provide some opportunities in a market like this, but we do have to move at a speed that makes sense for both parties, and we continue to do that.

James Yaro (VP of Equity Research)

That's very clear. Thank you.

Operator (participant)

Thank you. Next question comes from the line of Devin Ryan with JMP Securities. Please go ahead.

Alex Jenkins (Equity Research Associate)

Hey, guys, this is Alex Jenkins stepping in for Devin Ryan. Hope you guys are doing well. I guess just to follow up on that restructuring question, obviously, we've been talking a lot about the maturity wall coming in 2024 and 2025. Can you just talk about how you're proactively getting ahead of clients and what the catalyst is gonna be for them to take action? Meaning, should we expect a flurry of activity leading up to that, or will we see a step-up function of activity as time kind of runs out? Thank you.

Scott Beiser (CEO)

I think consistent with our comments, that this just isn't the crisis mode, it's just a probably a little bit of playing catch up, as well as just a higher interest rate world. I think you're gonna see more of a steady flow of business. And, you know, some companies, more proactively early on, will try to do things before they hit that maturity walls. Some take a little longer. I think the major difference today versus what we've seen over the last couple of years, there is an ability to do refinancings that maybe didn't even exist six or nine or 12 months ago, but refinancings are at a higher interest rate, so it doesn't necessarily solve their problem.

And I think we continue to chat with companies that we know maybe have some struggles in their business plan and their financial results, and a balance sheet, which in today's world and today's interest rate causes them to need to come to some solution. And this is the reason I think the industry will just have some elevated results in restructuring for the next couple of years.

Alex Jenkins (Equity Research Associate)

Sure. That makes sense. Thank you for that color. I guess as a follow-up, just on the expenses, you guys have been able to hold the line on expense ratios, particularly relative to your non-middle market peers. If the M&A market doesn't recover, do you see a scenario where you might have to take that comp ratio structurally higher, or is this just an example of the difference of your business models? Thanks for the time.

Lindsey Alley (CFO)

You know, I think it's probably the latter. I mean, we do have some structural differences that allow us some flexibility in how we run the compensation ratio. And in market conditions like the one we're in, we're clearly confident enough to suggest on the earnings call that we have no plans to change that. Are there market conditions that might impact our compensation ratio? Well, of course, there is. Are we in one now? No. And so I think we are, you know, still comfortable suggesting that we won't change our target, and we've been pretty consistent over the last, certainly the last several years at maintaining this tighter range.

Scott Beiser (CEO)

I would add, you know, the firm's been in business for 50 years. We've gone through some very, you know, bullish cycles and some very bearish cycles, and we have just always, partly to the way we think about our business, the way we manage our business, the diversity of our business, the amount of deferrals we have, whether they're stock, cash, and all of that adds to reasons why we've always had, I think, a relatively tight range of what our compensation payout ratio is. And, you know, we've, for the last really several quarters, have been in a very consistent ratio, expect that's what we'll do for the, you know, for the foreseeable future.

But as Lindsey mentioned, there's always things I guess we could never predict that could get us to change our point of view to properly run the business. But right now, we're happy with how we're running it, and think that the compensation payout ratio that we've been at for quite a few quarters feels like the right, you know, range that we should be in.

Ken Worthington (Senior Equity Research Analyst)

Great. Thank you. We appreciate it.

Operator (participant)

Thank you. Next question comes from the line of Ken Worthington with JPMorgan. Please go ahead.

Ken Worthington (Senior Equity Research Analyst)

Hi, good afternoon, and thanks for taking the question.

Operator (participant)

Thank you.

Ken Worthington (Senior Equity Research Analyst)

I wanted to follow up on the impact of higher long-term rates on middle market M&A. So maybe first, as we think about middle market M&A, what portion of these deals are financed by debt and loans versus equity, and how does that compare maybe to large scale M&A? So are the smaller middle market deals financed differently? And, I guess you mentioned in the prepared remarks that the availability of financing or debt financing is improving, but given that the financial costs are a good bit higher than they were, I don't know, five, six months ago and a year ago, are you seeing evidence that this higher cost of financing is having or possibly will have a more lasting sort of negative impact on deal activity as we look out again, maybe over the next six to 12 months?

I think there's a bunch there, but curious to hear your thoughts.

Scott Beiser (CEO)

Sure. Good, good question, Ken. You know, first of all, I think in all the statistics that we've seen when others, you know, do these kinds of surveys, in a higher interest rate world or a tougher to, access debt capital, sponsors are putting in more equity than they normally would. So the percentage of the capital structure now has more equity on a percentage basis than we've seen in some previous years. So that would be the, the first comment. The second comment then tied into that is all things being equal in a higher interest rate world, you are going to achieve lower IRRs, from kind of a principal, standpoint. That obviously has some impact on what buyers and sellers think the valuation is.

What we find, and especially in the mid-cap space that we participate in, is there is a growing number of non-traditional banks that are providing that financing. And when you look at the amount of raised by sponsors in this, you know, we'll call it private debt, capital environment, it is substantially greater today than it ever was, you know, several years ago. So we're getting new entrants into the marketplace. Yes, it comes with a higher interest rate. Yes, therefore, it should have some impact on IRRs and valuations. But ultimately, as time goes on, I do believe that buyers and sellers, and lenders and borrowers just get closer and closer to seeing the world through the same, you know, vantage point, and that's what ultimately gets deals done. When they have completely different vantage points, that's when deals kind of stall.

And so all of those reasons I think we've tried to describe in previous quarterly calls do suggest that people are getting closer and closer to that equilibrium point, and therefore, we do see the activity level is increasing. Still, like I said, not probably at the pace that maybe we expected based upon the you know prior periods, but it is improving.

Lindsey Alley (CFO)

And one thing I would add, Ken, is, you know, if you take a look at the typical Houlihan Lokey transaction, the type of leverage versus equity, I'm not sure it's any different than what our publicly traded peers are doing in terms of, in terms of levels. I think the significant difference is the participants. You know, the larger transactions is likely either high yield or bank syndicate market versus the private credit market, and all three behave very differently. And the private credit market in this environment has just been more robust than either the public debt markets or the bank syndicate market.

I think that's why you might be hearing slightly different views on how the capital markets are doing from a Houlihan Lokey versus a firm that does $3 billion-$6 billion transactions.

Ken Worthington (Senior Equity Research Analyst)

Perfect. Okay. Thank you very much.

Operator (participant)

Thank you. Next question comes from the line of Ryan Kenny with Morgan Stanley. Please go ahead.

Ryan Kenny (VP of Equity Research)

Hi, good afternoon. Thanks for taking my question. So on the non-comp side, there's a comment around expecting non-comps to be seasonally higher in the second half of the year. Any color on the puts and takes there, and how high it could get, how we should think about the run rate heading into next fiscal year?

Lindsey Alley (CFO)

Yeah, I don't wanna give specifics. I mean, there's a fair amount of public information. If you look at over the last 5 or 6 years, you'll get a sense. COVID was a little unique in the breakdown of non-comps, so maybe throw out one or two years there, 2020 and 2021. But, you know, look at pre-COVID and then even last year and take a look at the non-comp ratio, first half versus second half, and that's not a bad proxy.

Ryan Kenny (VP of Equity Research)

Thanks. And then on the comments around the pace of corporate finance expecting to be a slow exit from this environment, is it fair for us to hear that as a more negative tone shift from last quarter? And if so, where are you seeing the most hesitation among your client group? Is there a certain, you know, segment or geography?

Scott Beiser (CEO)

I guess the way I would describe it is, you know, for several quarters now, everybody's always felt, well, next quarter is when we'll start really seeing some meaningful improvement... and it just feels like it just keeps getting pushed out a little. So things are improving, they're just taking longer to get to that improvement, and maybe the pace of the improvement, the evidence just says it's gonna be maybe slower than, not necessarily what we thought a quarter ago, but I think what most people probably thought, you know, when forecasting and views of a year ago. We do think that we've kinda hit the trough in this cycle, you know, back in the springtime, and things have been improving since then.

What we do know, not only from ourselves, but from our peers and talking to lawyers, is kind of pipeline backlogs, things that are in the queue are rather significant. You know, it's just a matter of at what pace that they can eventually get to the finish line. We are not experiencing any abnormal amount of deals that we'll call become dead deals or significant hold deals. They're just still taking longer to get from getting hired to starting to close. I think that's the better description, and not necessarily that our view of the markets today are meaningfully different than you know, what they were a quarter ago.

Ryan Kenny (VP of Equity Research)

Pipeline's building, but lags are longer?

Scott Beiser (CEO)

Yes.

Ryan Kenny (VP of Equity Research)

Thanks.

Operator (participant)

Thank you. Next question comes from the line of Steven Chubak with Wolfe Research. Please go ahead.

Brendan O'Brien (SVP)

Good afternoon. This is Brendan O'Brien, filling in for Steven. I guess to start, I just wanted to follow up on the last question. You know, it's encouraging that it feels like we're at the bottom or the worst is behind us in terms of M&A activity, and that's consistent with what we've been hearing at peers. But as we think about that exit rate or exit growth rate from here, I know this is a bit of a tough question, but based on what you know today, I wanted to get a sense as to when you think that we can get back to what you would characterize as normal activity levels.

Scott Beiser (CEO)

I guess we'd be in another business if we really knew that answer. But, one way, at least the way I've thought about it, is in summer of 2020, you started to see a pickup that lasted for probably a good year or year and a half from the, you know, the trough created by COVID, to maybe the peak in, you know, December of 2021. And much harder to describe what caused that, you know, switch from a declining environment to an improving and then a rapidly improving. We think the same thing is happening and will happen, that, we're in the process of improving and things will improve.

But if you looked at the growth coming from the trough of 2020 to the peak of December 2021, we don't think it's gonna be at that, you know, velocity, if you might. So I guess that's the best our crystal ball sees, is we see some of the similarities of coming out of this more doldrums. It's just not gonna come out at the same maybe super pace that it came out, you know, three years ago.

Brendan O'Brien (SVP)

Gotcha. That's, that's helpful context. And then I guess on restructuring, I know in the past you've pointed to that $120 million or so run rate as being the right level for the next year or so. However, you noted in your prepared remarks that activity has slowed, which makes sense given the improvement in capital markets. So I just wanted to get a sense as to whether like, significant improvement in the capital markets environment could potentially present a risk to that $120 million run rate, or is the debt maturity wall on some of the dynamics you spoke to earlier enough to sustain that, you know, into 2024 and beyond?

Scott Beiser (CEO)

You know, I'd say two things. One, it doesn't necessarily make a lot of logical sense to us of why there's been a bit of a slowdown in restructuring new activity in the U.S., because we think the macro factors impacting it are still there. Nothing, nothing has hugely changed. On the capital market improvement side, you know, you start with the worst of all fact patterns for corporate finance is when their capital markets are not open, as we've described, and we do think they're open now. But it's not necessarily hugely helpful to restructuring, or I should say hugely, you know, doesn't cause restructuring business to go down, because while the capital markets are, are more open and continue to open more, you still just have a higher interest rate than what people would be refinancing at. So I don't see...

I'll call it what we would expect is normalization for the while in the capital markets as being a detriment to the restructuring environment because of where interest rates are. You'd have a different conclusion if you somehow thought the Feds were going to bring interest rates down substantially, you know, and close to where they were two years ago, which is not what anybody's expecting. But if that were to happen, we'd have a different tone and view on restructuring.

Brendan O'Brien (SVP)

Got it. That makes sense. Thank you for taking my questions.

Operator (participant)

Thank you. A reminder to all the participants that you may press star one to ask a question. This concludes today's question and answer session. I would like to turn the floor back over to Scott Beiser for closing comments.

Scott Beiser (CEO)

I want to thank you all for participating in our second quarter fiscal year 2024 earnings call, and we look forward to updating everyone on our progress when we discuss our third quarter results for fiscal 2024, this coming winter.

Operator (participant)

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.