Houlihan Lokey, Inc. (HLI) Q3 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Houlihan Lokey Third Quarter Fiscal 2016 Earnings Conference Call. [Operator Instructions] Please note, this conference call is being recorded today, February 8, 2016. I will now turn the call over to Christopher Crain, Houlihan Lokey's General Counsel.

Thank you, operator, and hello, everyone. By now, everyone should have access to our third quarter fiscal 2016 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, 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 in interpreting and relying on them. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. We encourage investors to review our regulatory filings, including the Form 10-Q for the quarter ended December 31, 2015, 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 operating 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. Management will provide some opening remarks and we'll then open the call to questions. With that, I'll turn the call over to Scott Beiser.

Thank you, Christopher, and hello, everyone. Welcome to our third quarter fiscal 2016 earnings call. We are pleased to announce another quarter of growth as we increased our quarterly revenues compared to last year by 5% to $206 million and increased our 9-month year-to-date revenues by 3% to $510 million. Our Corporate Finance and Financial Advisory Services businesses continued to contribute to our growth for the year, offset by expected softness in Financial Restructuring. We delivered $0.47 per share in adjusted earnings for the quarter and $1.03 per share in adjusted earnings for the 9 months year-to-date. We also paid our first dividend as a public company of $0.15 per share on December 15, 2015. Our Corporate Finance business grew 5% in the 9 months year-to-date in an environment where the number of closed M&A transactions in the U.S. under $1 billion declined by approximately 3%. While there was a significant increase in the dollar value of M&A transactions in calendar 2015, this trend did not translate to higher deal volume. From our vantage point, these results suggest that the continued growth in our Corporate Finance business is being driven by market share gains. We attribute market share gains to the strength of our platform and a strong reputation that resonates with current and prospective clients. We are pleased to be ranked as the #1 M&A adviser by number of completed U.S. transactions in 2015 according to Thomson Reuters. This is the first time in our history at year-end that we've been ranked as the most active U.S. M&A adviser. Our Financial Advisory Services business continues to perform well and grew 18% in the 9-month year-to-date period, with revenue growth across all product lines, including transaction opinions, portfolio valuations, transaction advisory services and dispute resolutions. Also contributing to the growth of our Financial Advisory Services practice was the addition of our new strategic consulting business line in January 2015. In addition, over the last 18 months, we've made several key hires in FAS who have begun to contribute to the growth of the product line. As expected, our Financial Restructuring business declined year-to-date by approximately 8% due to a very slow Financial Restructuring marketplace during the first half of calendar year 2015. However, over the last several months, that trend has reversed, and we have seen a meaningful pickup in activity, driven primarily by the dislocation in the oil and gas and natural resource sectors. The extended duration of the decline in energy prices to date and the projected ongoing low prices are causing severe financial pressures for many companies. We continue to see a significant increase in new oil and gas mandates, and the revenues from our oil and gas group are up over 75% year-to-date over the same period last year. The distress in the oil and gas sector, coupled with an extended slowdown in the Chinese manufacturing sector, has caused ripple effects in demand for other commodities, resulting in a meaningful increase in demand for our Financial Restructuring services. However, these new engagements are not expected to have a significant impact on revenues until at least fiscal 2017. I want to spend a few minutes on some general observations about current market conditions and factors influencing our business, most of which should provide a positive contribution in the coming quarters. Number one, our Corporate Finance business strategy is built around growing our M&A and capital markets advisory market share for mid-cap transactions. To this end, over the last several years, we have continued to add bankers in a variety of industry sectors, additional geographies and expanded our service offerings. We've accomplished this with the seasoning of our internal bankers, hiring of new bankers and targeted acquisitions. Our drive to build market share has and will continue to be more important than the volume of mid-cap transactions in any year or dollar value of transactions in any year. Our Corporate Finance business model targets both strategic and financial transactions. On the strategic front, executives continue to use acquisitions and divestitures as a means to grow and redefine their business. We believe the recent stock market volatility or changes in the capital markets have not yet meaningfully altered the volume of potential transactions in the mid-cap environment. Regarding financial sponsors, they remain very focused on the mid-cap marketplace. The total dollar value of their dry powder remains at record levels. Overall, we believe that access to financing for mid-cap transactions remains available, and interest rates for most transactions are only modestly higher than a few months ago. Based upon these and other factors, our Corporate Finance backlog continues to grow. Part of the increase is the result of our acquisitions and the balance is organic. To give you some quantitative perspective, over the last 2 quarters when stock market volatility has increased, our monthly average of new Corporate Finance engagements added to backlog are, in fact, above our monthly average of what we had experienced over the previous record 18 months. Number two, the recent increase in stock market volatility has shifted the pendulum from primarily a sellers' marketplace to a balanced sellers' and buyers' marketplace. The impact we see is that buyers are being more deliberate in their pricing and diligence of targets. The effect of this and that the average -- the effect of this is that the average time to complete a transaction has increased slightly over the last few quarters. While transactions are not being canceled, the increased time to close may have the effect of extending some revenue recognition. Item 3, the amount of leveraged loans and high-yield debt outstanding remains at record levels. However, the amounts of new leveraged loans and high-yield debt issued has recently slowed, potentially impacting future opportunities for companies in need of refinancings. While the overall default rate remains at near historic lows, there are growing pockets of distress in the oil and gas, natural resources and retail industries. Primarily as a result of the severe distress in the oil and gas industry, the number of new restructuring engagements added to our backlog over the last several years is -- excuse me, over the last several months is significant. Our total number of active restructuring engagements as of December 31, 2015, is now the highest since the Great Recession and up over 25% from 1 year ago. While the recent growth trends are significant, to date, most of these new mandates reflect mid-cap size debt levels as we still have not experienced the extraordinary large-size restructurings like we saw in the last economic downturn. Next, I'd like to recap 2 significant developments that occurred for us in the last quarter. Item #1 is in mid-November, we announced the acquisition of Leonardo & Co., a leading mid-cap investment banking firm in Continental Europe. The transaction enables Houlihan Lokey to provide a much greater breadth of services and coverage to our clients, both in Continental Europe and across the globe. In this transaction, we added an office in Amsterdam, significantly increased our staff size and capabilities at our existing offices in Frankfurt and Madrid and also established a joint venture in Italy with offices in Milan and Rome. Overall, through the acquisitions we have now made over the last several months, we have more than doubled the number of bankers we have in Europe compared with 12 months ago. Item 2 is in early December, we expanded our energy industry presence with the hiring of several Houston-based professionals specializing in the asset and divestiture business in the oil and gas industry. Combined with existing personnel, we now have an expanded platform in Houston to better serve our oil and gas clients. We enter calendar 2016 excited about the future and proud of what we've accomplished in the last 12 months. As a reminder for everybody, in calendar 2015, we opened a Sydney office, we developed a Houston presence. We acquired a strategic consulting business, a digital media business and made 2 significant acquisitions in London and Continental Europe. Our financial staff headcount increased by nearly 200 professionals year-over-year, and 6 months ago, we went public. As we begin calendar 2016, our management team remains focused on the successful integration of the new employees and businesses we have recently brought onto the Houlihan Lokey platform. In summary, we believe our balanced business and cycle-tested model, which is diversified by product line, industry sector, geography and banker, will continue to distinguish our financial results in the months and years ahead. With that overview, I'll now turn the call over to Lindsey Alley, our CFO.

Thank you, Scott. I would like to take a few minutes to highlight some of the key metrics from this afternoon's press release. As you will see, we have presented our quarterly and year-to-date results on an adjusted basis in order to provide you with an easier way to interpret our performance when compared with last year during the same periods. The adjustments we included in our financial results fall into 3 primary categories: pre-IPO grants issued to employees in connection with our IPO; adjustments related to previous ownership agreements; and adjustments related to transaction expenses on the Leonardo acquisition that we closed in November. Our goal is to minimize the number of adjustments we make in any quarter, but in light of our recent IPO and reorganization, we believe the included adjustments are helpful to investors in better understanding our performance. Going forward, we expect to highlight adjustments to earnings that are related to pre-IPO grants and any transaction expenses associated with acquisitions. Also, it is important to note that the financial results presented today reflect the first quarter of the company operating under our new post-IPO business model, whereby we are no longer using a fixed revenue sharing model that delivers an 18% return to shareholders but instead targeting a long-term awarded compensation and non-compensation ratios. Now on to the quarter. Fee revenue increased 5% to $206 million for the 3 months ended December 31, 2015, up from $197 million for the 3 months ended December 31, 2014. In Corporate Finance, revenues were $124 million for the quarter, an increase of 15% from the prior year. Activity during the quarter was strong as we saw a 24% increase over the prior year in the number of closed transactions in Corporate Finance. Financial Restructuring revenues were $50 million for the quarter, a decline of 19% from the previous year. The decline in revenues was primarily driven by fewer closed transactions. This is simply due to the slower restructuring environment over the last couple of years, which impacted current quarter closings and revenues. In Financial Advisory Services, segment revenues were $31 million for the quarter, an 18% increase from the prior year. Revenues in FAS increased primarily as a result of continued activity in the M&A markets, particularly in large-cap M&A, continued strength in the non-transaction-based product lines with the addition of new clients and growth from existing clients and the inclusion of strategic consulting revenues which were not included in the prior year's quarter. Turning to expenses. Our adjusted compensation expense was $128 million for the quarter versus $139 million for the same period last year. The decrease in adjusted employee compensation and benefits expense was primarily a result of our change on October 1 from a revenue sharing model to a target-adjusted awarded compensation ratio. This resulted in an adjusted awarded compensation ratio of 65% for the quarter versus 71% for the third quarter last year and an adjusted compensation ratio of 62% for the third quarter versus 71% for the third quarter last year. Our adjusted non-compensation expense in the third quarter was $24 million versus $21 million in the third quarter last year. The increase in adjusted non-compensation expenses was primarily a result of increases in general operating expenses associated with the growth of our Corporate Finance staff. These increases in operating costs are the result of our significant employee expansion in the last 12 months and are not yet offset by normalized revenues from these new employees. If we annualize this quarter's adjusted non-compensation ratio, we are running slightly above our targeted non-compensation ratio of between 12% and 13%. However, we do believe that with our integration efforts, we will achieve our target in the coming quarters. Our GAAP effective tax rate for the third quarter of fiscal 2016 and 2015 was 47% and 36%, respectively. This is above our assumed tax rate of 41% as a result of the fact that a significant portion of the professional service fees associated with the IPO were not tax-deductible. Under GAAP, these nondeductible expenses are spread over the year and impact our effective tax rates in quarters 2, 3 and will for quarter 4. Adjusting out the nondeductible IPO costs, our effective tax rate for the quarter was 40.7% and just under 41% for the 9-month period. Moving to the balance sheet. We paid an approximate $9 million or $0.15 per share dividend to shareholders in the third quarter. Today, we announced our fourth quarter regular cash dividend, also equal to $0.15 per share will be paid on March 15, 2016. As Scott mentioned, during the quarter, we acquired Leonardo, and as part of the acquisition, we issued $15.2 million in seller notes to the Leonardo shareholders. Under certain circumstances, the notes amortize over a 5-year period in equal annual installments and are paid approximately 50% in cash and 50% in Houlihan Lokey stock. The rest of the terms of the transaction were not disclosed. As of December 31, 2015, we had $158 million of cash and equivalents, including $26 million in receivables from affiliates. We have debt of approximately $78 million, resulting in a net cash position of a positive $80 million. While we do not provide specific guidance to investors, we remind everyone that the key drivers of our financial performance are revenues and our compensation ratio. Unchanged from last quarter, we continue to target an awarded compensation ratio of between 65% and 66%, which we have achieved this quarter. We also continue to target a non-compensation expense ratio of between 12% and 13% over the fiscal year and expect a tax rate of approximately 41%. With that, operator, we can open the lines for any questions.

[Operator Instructions] We go first to Michael Carrier with Bank of America Merrill Lynch.

This is Mike Needham in for Mike Carrier. And I guess first, when you see a market sell off like this, just on the acquisition front, I know you've done a lot in the last year. But do you tend to be more opportunistic or maybe a little bit more defensive on the inorganic side?

Thank you, Mike, for your questions. We've always looked at where we want to pursue, where we think we should be making acquisitions and whether it's additive from a geographic or industry or some sub-product. So I don't think we really change our views on what we're going to look for depending upon whether the marketplace gets more pricey or less pricey. So we're always actively in dialogue with a handful of companies, and I think we continue to look for different kinds of acquisitions. It's not really any different today than what it was 6 months ago or a year ago. Recognizing that obviously, as I said before, we've made several acquisitions in Europe in certain industries. So at that -- for those particular areas, we're not as focused on trying to build out beyond -- just really wanting to integrate what we've got, but we'll continue to look for new industry groups.

Okay, fair enough. And then just as a follow-up with respect to the restructuring business. And I appreciate the comments you gave on the backlog in that business being the highest since the Great Recession, I think you said. But can you just give us an idea of the revenue contribution from that business in past cycles either in terms of like absolute revenues or a percentage of total revenues? And if not, just compare the opportunities that you see today to past cycles.

Yes. In our current reported financial results where our Corporate Finance business is bigger than our Financial Restructuring. If you went back into our fiscal '10 or fiscal '09 or call it, when we were in the Great Recession, our restructuring revenues were, in fact, bigger than our Corporate Finance business. So we've clearly seen our restructuring business be in excess of 50% of our revenues in a couple of cycles. So that's kind of a little bit about, I think, how big it's been. And we've clearly seen through different troughs to peaks a sizable increase really predicated on probably how much there is in potential debt out there that could default and what the default rates will be and the speed of which some level of distress occurs. So we've clearly seen in previous cycles, having been in the business for 3 decades, significant changes in where restructuring revenues can be when the market turns more negative.

And we'll go now to Joel Jeffrey with KBW.

Just want to follow-up on some of your comments on the M&A market. I think we've heard from a number of lead managements at some of your peers that we haven't really seen the confidence levels of managements be impacted by the volatility of the market sell-off yet. I'm just kind of wondering, I mean, if this market continues, is it just a matter of time before that does happen? Or do you think something else needs to happen for the confidence to be shaken?

I think a couple of things. If you do have ongoing or increased volatility, month after month, quarter after quarter, eventually I do think it will further shake confidence of executives. The second thing that I think is important is access to capital. And what we clearly saw in the Great Recession was it was very difficult for many companies to get capital, especially financing capital. At this point, while the financing marketplaces have changed, there still is access to capital at least for the mid-cap space that we see. And right now I think it's too early to tell. We've obviously had more volatility and the public stock markets are not acting as healthy as they were several months ago, but it's still not a significant decline or at least not yet. So I think we are like many of our other competitors. To date, we still see good confidence by executives and people thinking about acquisitions and divestitures.

Okay. And then just a follow-up on your non -- the comments you made about the non-comp ratio declining in future quarters. Is this going to be more a result of sort of increased revenues as new employees kind of ramp up their productivity or will it be due to more of the integration cost savings?

I think -- this is Lindsey, it will be both. I think right now, we have not realized any of the synergies that exist when bringing 2 businesses together like ours, and so you are running in parallel for at least a quarter or 2. But I think the real sizzle here is going to come from the revenue growth as these bankers mature on our product line. So it's going to come from both, but you'll see the real benefit in the next couple of quarters on the integration side or the synergy side.

Okay. And then just lastly for me. On the Financial Advisory Services business, if we were to see a pretty meaningful pullback in M&A activity, how is that -- how would that correlate in that revenue line item?

Remember that business is highly diverse with hundreds of different projects. If we saw a pullback in M&A, we would see a pullback in our transactional opinion work. We probably have not much, if any, impact on our portfolio valuation work. Litigation probably increases and just some of the reasons. I mean, in healthy times, we do fairness opinions on mergers and acquisitions. And in unhealthy times, you do fairness opinions and down round financing. So that business tends not to be as volatile as some of our other businesses. And like I said, I think a subset of our business in FAS would be harmed by a prolonged impact on M&A, and other parts of the business would not be harmed and other parts could, in fact, grow.

We'll go now to Devin Ryan with JMP Securities.

Just maybe starting on restructuring. You alluded to the size of debt outstanding impacting the size of the restructuring opportunity, clearly. So with respect to energy specifically, it's remained about 20% of high-yield issuance but high-yield issuance is essentially doubled or more over the past handful of years relative to the prior cycles. So just -- we're trying to see if we can get any more perspective around how big the opportunity just in kind of those sectors, energy-related sectors could be relative to the past, just given that it's such a bigger market today.

Yes, what we've commented is, I think many have and recently it's all been about the energy sector. But I think we look at, first of all, total amount of leverage loans or high-yield is as you mentioned higher than it was in the previous cycle. We're still at the lower half, probably even still the lower quadrant of default levels. So depending upon where the economy goes, where default rates go, access to capital, especially where our larger transactions goes, one would expect over time that you will see increased default rates in all forms of industries. On the energy side, it's already happening. Many, many companies are running into levels of distress. And I think the issue is the longer oil and gas prices stay down, more and more companies are going to run into difficulties. And how deep and how long this goes, I don't think anybody knows because nobody's really seen this kind of a decline either period or for probably a couple of decades. But a lot of businesses are hurting, and we and our peers are probably finding more increased activity in the energy side clearly above and beyond any of the other sectors that we've got.

Great. Helpful color. And then just to your comments on financial sponsors, obviously, you guys have a great practice there. And it seems on one hand, valuations are lower at least right now, which has been one impediment to deals, higher valuations. So lower valuations, I would suspect, are good. On the other hand, stress in the leverage finance market could at least, I think, impact business on the margin. It sounds like it's not yet. So just on a net basis, does it feel like those clients are gearing up to take advantage? Or is it a wash? Just trying to get some more perspective around what's happening in the markets currently, the stress, is that a good thing for your financial sponsor clients?

At the moment, I might say it's a wash but you got to piece through that. To some extent, when you talk about availability of capital or what's happening in the leveraged loan and high-yield marketplace, in the mid-market space, we're still seeing access to capital. It's different as you get to larger and larger deals. So that's one item we mentioned. Two, as I said, I think, whether it's financial buyers or strategic buyers, people are just being a little more deliberate in thinking about what they want to do, how they want to analyze a transaction, so they're still active but they're taking a little longer in making decisions to close transactions. And we continue to see new private equity firms being formed every year. And most of these are in the small mid-sized type firms. And as there's more participants, we find more people looking to do transactions. So -- and to your comment, have stock prices or values dropped enough to get people who were not buyers before to be buyers? I think they're starting to think about it. I don't think there is a wholesale new trend yet in terms of people who have been on the sidelines. But I think they continue to study the marketplace and where they think is a good entry point.

We'll go now to Daniel Paris with Goldman Sachs.

I think you mentioned that the restructuring backlog is up around 25%, which is encouraging for future revenue. Can you give us a sense for how long it could take that backlog to translate into a corresponding revenue uplift? And whether you think the backlog will ultimately continue to grow and maybe diversify a bit outside of the energy space?

Yes, first of all, what I mentioned was actually the number of active engagements we have is up 25%, I didn't really comment on backlog. And what I did also, though, mention is the average size deal that we are working on today is not of the same size average deal that we saw in the Great Recession. You can look at the size companies that are so far filing for bankruptcy or having some level of distress. Historically, in the cycles, we typically would see restructuring mandates can take 1 to 3 years to actually come to a close, depending upon the crisis that the company's in. Sometimes, it really needs to get done in months, and sometimes, it could take even more than 3 years. And our business typically is both monthly retainers as well as transaction fees. So even if transactions do take a little longer, we do continue to get fees. So I think all these new engagements that we've got will take a couple of quarters before they'll start producing material new revenues. And like I said, we've seen it in a, I'll call it, in the last downturn things actually got accelerated due to the liquidity crisis. In previous downturns, it probably followed the 1- to 3-year cycle that I mentioned in terms of closing of transactions.

Got it. That's very helpful. And I guess maybe as a follow-up, there's a lot of debate in the market whether both M&A and restructuring can work at the same time. We've never seen that historically. But do you think there's an argument to be made that, that can happen over the next year or 2?

Yes, it can happen but you're going to need a couple of fact patterns. I think you will need either the global economy or the U.S. economy to at least still stay okay. It doesn't have to grow at the pace that it's done in the past but it can't enter a recession. And then you need certain industries and clearly in a case now, we'd be taking on the energy sector to stay in a large level of distress. At least for our business, we are much more heavily weighted in doing distressed work on the energy side than healthy work. But you could have a scenario where our M&A or Corporate Finance revenues continue to grow and restructuring revenues continue to grow. As you said, normally, that's not what happened as the financial results of companies in totality start to deteriorate and across different geographies and eventually it slows down M&A and financing but picks up restructuring work.

Got it. Okay. And maybe last one for me. We've obviously seen some big moves in credit markets. I just wanted to get a sense of how it's impacting your typical middle-market client. I think you mentioned no material changes yet, but are there any indicators we should watch? Any kind of breakpoints where you think it will really start to have an impact?

Key to us much more is the availability of capital and less about the cost of that capital as long as it doesn't get materially higher from where it is today. And so far, like I said, I think the cost of capital has risen whether it's interest rates, covenants or different conditions but not to the point that it's significant from where it was, call it, 6 months ago and there's still capital available to close deals. And that's, I think, what we really look at is whether the capital markets shut down or whether they just get a little pricier.

We go now to Brennan Hawken with UBS.

Just a couple of follow-ups at this point. You gave some helpful color on the economic sensitivity for the FAS business. But maybe could you help us maybe size some of those various puts and takes within your business? How large are the businesses that are going to be a headwind in a downturn versus those that could pick up? And how could those -- could you help us frame how to think about that?

And is your question strictly on the FAS or Financial Advisory business?

Yes.

I guess the way we would look at it is if we really tracked what our FAS revenues were heading into the recession, coming out of the recession, it's just the volatility from peak to trough or trough to peak is just so much less than what you see in Corporate Finance or Financial Restructuring. I would tell you still net-net, I think our FAS business does better during good economic times than poor economic times. But order of magnitude may be $10 million, $15 million types of swings, whether it helps a positive or negative. It's just not tens and tens or hundreds of millions of dollars like we might see in our other 2 product lines.

Okay. All right. And then hopeful and certainly interesting to hear about financing availability in the middle-market M&A staying available, which is great. Are you seeing though the pressure on comps from equity markets coming down weighing on the willingness of sellers to participate in that market or has that not had a material impact yet?

I think we always see when prices change, buyers tend to react more quickly than sellers. You see that whether it's in the housing marketplace or whether you see it in companies. So that's something we do look at and people are cognizant of the fact that equity prices are lower today than they were 1 month or 2 ago. But like I said, I think it really depends upon the duration of a downturn or how far the downturn goes before you start getting executives either on the sell side or buy side to dramatically change their point of view. I mean, it is somewhat different. We tend to work with a lot of private companies, and their businesses aren't necessarily mark-to-market on a daily basis like public companies.

Okay, great. Last one for me, can you talk about how you're thinking about the current environment and maybe some of the changes, some of the large competitors are going through and how that impacts your ability and outlook to hire and recruit?

We've been actively recruiting for years, and I think we tend to probably recruit not necessarily from the places like the bullish bracket firms that I think you're referencing to. And so I think what's been going on with many of the bullish bracket firms, whether it's in the U.S., Europe or otherwise, hasn't meaningfully changed our interest or appetite to hire what we're hiring. And we probably hire from a broader base of potential places than some of our other public peers that tend to focus on the larger-sized transactions.

And we go now to Vincent Hung with Autonomous.

So for the M&A deals that you worked on last year, what percentage of that was funded by leverage loans or high-yield bonds?

Yes, I don't think we actually have that statistic. I think we do tend to look at more what percentage of all of our work is touched by financial sponsors, whether that's private equity firms, hedge funds, but that runs the gamut from our M&A to Corporate Finance to portfolio valuations. But I don't think we've really got anything that could answer directly your question of what percentage is with leverage loans or high-yield financing.

Yes, I mean, I think one comment that I would make is high-yield financing has tended not to be a significant way that our buyers are financing the companies that we're selling. So that's probably a very small percentage of the transactions we've worked on are funded by high-yield public financing. I think leverage loans, if you think about leverage loans from the big "large money center type" banks versus what I'd call nonfinancing or nonbank financial institutions, it's probably a larger percentage of the loans for the businesses we're selling are from nontraditional bank financial institutions. So it's not necessarily the guy with the branch at the corner, it's financial institutions, Vince, that you made not have heard of that are financing our transactions. So without giving you specifics, that's at least a little bit of color to help with the answer.

Very helpful. And just going back to restructuring. Can you tell us how the number of active engagements has trended since the end of December?

Don't really know that figure, but I know business continues to be growing in terms of new active engagement versus what we're closing.

And at this time, there are no further questions in queue. I'll turn the call back over to Mr. Scott Beiser for closing remarks.

Thank you, everybody, for participating in our call, and we look forward to speaking with you all next quarter. Have a good day.

This concludes our conference. Thank you for your participation.