Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Houlihan Lokey's Second Quarter Fiscal 2020 Earnings Conference Call. I will now turn the call over to Christopher Crain, Houlihan Lokey's General Counsel.

Thank you, operator, and hello, everyone. 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 24, 2019. By now everyone should have access to our second quarter fiscal 2020 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-Q for the quarter ended September 30, 2019, 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. Hello, everyone, and welcome to our second quarter fiscal 2020 earnings call. Considering ongoing volatile macroeconomic and political factors, we are very pleased with the firm's financial performance in the second quarter of fiscal 2020. This quarter we generated $273 million in revenues with a record second quarter revenues in both Corporate Finance and Financial Advisory Services and we had a solid quarter in financial restructuring compared to an exceptional second quarter and financial restructuring last year. Adjusted earnings per share were $0.70 for the second quarter and we announced our quarterly dividend of $0.31 per share for the third quarter. Record first half revenues of $523 million, are up 6% when compared to the first half of last year and we enter the second half of fiscal 2020 with good momentum across all three of our business lines. We believe there are a handful of factors that have contributed to our continued solid results. We remain committed to a diversified business model that reduces our reliance on any one banker, one product, one geography, one client, one transaction or one industry. As a result of this differentiated platform, we believe we continue to gain market share and grow our Corporate Finance and Financial Advisory businesses while maintaining a natural hedge against an economic downturn with the largest and most diversified financial restructuring practice on the street. Despite the natural starts and stops of the restructuring marketplace, we believe that future business opportunity is very large and still growing. Our focus on the mid-cap space and corporate finance is unique among our publicly traded peers and results in less volatility, greater client diversification and provides a very attractive platform to continue to grow our business. And while we are not immune to the impact of current trade…

Thank you, Scott. Revenues in corporate finance were $156 million for the quarter up 7% when compared to the same quarter last year. We closed 69 transactions in the quarter compared to 62 in the same period last year and our average transaction fee unclosed deals was slightly lower this quarter versus last year. Financial restructuring revenues were $77 million for the quarter, a 17% decline from the same quarter last year which you'll recall was an exceptionally strong second quarter. We closed 17 transactions this quarter compared to 20 transactions in the same period last year and our average transaction fee on closed deals was lower compared to the same quarter last year. We would like to remind everyone of the lumpiness of our restructuring business across quarters as it is often driven by the timing of large fee events. In financial advisory services, revenues were $40 million for the quarter, a 9% increase from the same quarter last year. We closed on 523 fee events during the quarter compared to 469 in the same period last year. New business activity in FAS remained steady and we have continued to see improvements in managing director productivity in our FAS business. Turning to expenses, our adjusted compensation expenses were $165 million for the second quarter versus $169 million for the same period last year. Continuing this quarter, we adjusted for pre-IPO grants and for the deferred payments primarily related to acquisition agreements associated with our two fiscal 2019 acquisitions. The adjusted compensation ratio was 60.7% for the quarter within our targeted range between 60.5% and 61.5%. Our adjusted non-competition expenses in the second quarter were $44 million versus $41 million for the same period last year. Year-to-date our adjusted non-competition expense ratio declined 15.6% versus 15.8% in the same period…

[Operator Instructions] Our first question comes from the line of Devin Ryan of JMP Securities. Please proceed with your question.

So, the first question here. Last quarter you cited that there was kind of a lack of a clear trend, I think it's how you framed it in the middle markets at the moment and that was leading to a little bit less steady M&A activity And so you know when I listened to the call here in the prepared remarks, it sounds like there's been a little more clarity recently and the backlog has been growing so I'm just curious if something shifted today versus three months ago where you're feeling better about at least the business at the moment, I understand that obviously there's plenty of macro dynamics that could create uncertainty in the future but it felt like a bit of a different tone on this call. Maybe a little more constructive, so I'm just trying to ascertain if I'm hearing that correctly?

Yes, I think Devin that's a fair perspective. Probably feel a little better about our corporate finance, opportunities for the foreseeable future today than a quarter ago, but I still believe that we continue to see the changes in the winds from tailwinds to headwinds and vice versa. So yes, it's a little better today. I don't know what tomorrow will bring but opportunities do feel a little stronger today.

And then a follow-up here just on the restructuring business you know we hear some of the messaging there as well you know there's some high profile assignments that we can all see in the press that you guys have been named on and so I'm sure that helps a bit. But you know more broadly are you seeing an acceleration in activity and it sounds like you are finding pockets of dislocation. So I'm curious kind of where those are just again any other ways you can frame kind of what's happening in that business will be helpful?

I think we still see the - you know the long term opportunities that is continues to grow. Total amount of indebtedness up there potential problems that we feel may eventually evolve with certain circumstances and I think it's much what we've said in the last couple of quarters. There are some pockets clearly in a few industries, there's still all the various technology disruptors there are some companies which is ultimately too much debt management issues, fraud issues, the whole series of a issues that have occurred but we’re still by no means neither ourselves nor our peers do we believe we’re in a robust restructured environment. We think we've done very well in still a very low default rate and there's still I would say the ongoing trends are some new pockets of restructuring activity.

And then just last modeling one here. Lindsey I apologize if you went through this, but on the other operating expense, I know that can be a bit lumpy but I didn't hear anything flagged there but that did step up from last quarter decently? So I'm just curious what was in that number and can you think about it go forward for the other expense?

This is our kind of below the line other income and expense line item that you're talking about.

I'm looking at other operating expenses.

Within our non-compensation expense line.

Yes exactly within non-compensation.

Yes. So I think if you're looking at the GAAP results, part of the ad back relating to the London move is incorporated in both rent and then also in other operating expenses. So there is an increase in that primarily driven by the London move and that has been a part of our adjustment includes other operating expenses as well as rent.

Our next question comes from Michael Brown of KBW. Please proceed with your question.

So just a follow up on the non-comp, we were a bit surprised to see kind of the increase this quarter. So, appreciate the color, Lindsey, on the seasonality there. Could you just give some additional color on what was driving the increase in the IT and communication expenses this quarter, you saw that increase sequentially?

Yes. So, beginning -- gosh I don't remember one or two quarters ago we classified, historically we were classifying some consultants under professional service fees and we reclassified them up under IT service costs because we thought they were more related to that line item. And so, you're seeing an increase in IT and kind of - if you look back over quarters, probably a decrease in professional service fees and it's a simply a reclassification.

One of your peers had kind of mentioned that some of the some of the deals experienced some timing issues. It sounds like maybe the time to close was elongated on some of those transactions - I know that was an issue that you guys experienced at the beginning of the year, was kind of curious if you had seen any of that occurring in the quarter. Are you seeing any pickup in that or any deals being shelved at all?

We mentioned that, I think it was two quarters ago, that we saw some delays in timing, really have not seen that in the last quarter. And there's always a subset of clients that our transactions might not close or get a little elongated, but nothing out of the ordinary in this particular quarter.

That sounds like nothing systemic there. And then just one last one on Freeman & Co. just kind of curious how many employees and MDs are expected to join Houlihan once that transaction is closed.

We announced that there'll be two MDs and one senior adviser. And it's like many of the other acquisitions, it's effectively a mid-sized group that will add to our bench strength in the fig industry.

Our next question comes from Brennan Hawken of UBS. Please proceed with your question.

I just have one on restructuring. When you think about restructuring and modeling, this is obviously a really lumpy business. It's one that's prone to large events even though I believe recently you've indicated that there's been some diversity in the size, some smaller fee mandates in there and percentage completion and such. Is there a good way to think about modeling this quarter-to-quarter or is this just something where we should as analysts for the company just be resigned to understanding that quarter-to-quarter weaken not always understand how it might move around year-to-year and quarter-to-quarter and comparisons are tough and we should just look at a rolling average. Any insights on that front?

Yeah. I think we are all better off probably looking at some rolling average whether that's 12 months or whatever timeframe you want to use. We don't have a whole lot of control on that timing of closings and restructuring. And I think unlike in corporate finance they're not is often impacted by calendar year end issues for tax reasons or even fiscal year end issues. And so we do find it's a little tougher to predict that from a quarter-to-quarter standpoint. I think historically you could look at our corporate finance business and see that it does have certain seasonality to it much harder for us to gauge any particular quarter versus another quarter in restructuring.

And generally, it seems – it seems as though the outlook you know remains pretty steady there continuing to see good levels of activity despite the low default environment. Is that fair, is there any shift in that business since last quarter, any additional color that you can give on how that market has developed?

Yes. I mean I think Brennan as we sit here today similar to Scott's comments regarding corporate finance, we probably feel a little bit better about our restructuring business for the bouncy year than we did three months ago.

Our next question comes from Jim Mitchell of Buckingham Research Group. Please proceed with your question.

Maybe just a question on the – you have a pretty big exposure to the private equity client base. Any sense on how they're feeling, I think earlier in this year, there were some hangover from that group and worried about valuations as the market tanked and rebounded, what's your sense with that client base, they reengage pretty aggressively with lower rates, how do we think about the activity levels among the private equity buyers?

Yes. I think they've clearly picked up from the negative stock market activity point to kind of December 2018 of kind of recent lows. That being said, I think for the last year or so when they're out buying businesses, they do model in some kind of a downturn in the economy case that they might not have done three, four, five years ago. So that's a vantage point that they have. But in terms of activity both buying, selling, raising capital being able to procure capital for transactions they're doing, we still see it as a effectively a healthy marketplace.

So there is not a lot of valuation discrepancies holding to expect what you’re saying.

No. Don’t really think there is a huge disconnect between the buying and selling the world at least as of now.

And then maybe Lindsey just another question on just the geography of the charges and how do we think about the London office you said it's split between other and rent. I think you only disclosed it in aggregate. Is there a way for us to know can you help us with the run rates in both those expense lines for modeling purposes?

Yes. I'm not. This is not going to be exact, but I would say it's probably about a $1 million of the add back is in your other operating expenses and the balances in rent. And there's maybe a little bit in a couple of other categories, but that's probably the easiest way to think about it.

Our final question comes from the line of Jeff Harte of Sandler O'Neill. Please proceed with your question.

A couple from me. I mean we were kind of beaten on non-comp a lot here, but as we look at non-comp is the current quarter, the last quarter is $44 million, a pretty clean starting point for us to think about trending forward and to kind of historical seasonal trends that we've seen as far as this quarter rolling into next quarter. Do you think that general historical trends should still hold the percentage wise?

No. I think the historical trend no reason to believe that shouldn't hold and I think this is a pretty clean on an adjusted basis. Pretty clean quarter for non-comp expense -- as relative to second quarters of previous years.

And as far as the competitive environment goes, and I'm thinking primarily in kind of the middle market corporate finance, but I suppose restructuring as well. We keep hearing more and more from multi firms kind of trying to move into the middle market, and really focusing on smaller transactions. Have you noticed a change in terms of the competitive environment there? And I guess just as much specifically, are you seeing more of the bolt bracket firms trying to compete in the middle markets?

So, we get this question a lot. And you may be hearing about it, but we're not seeing it. I think that largely the disconnect is when the bulge bracket talked about the middle market, they're still aiming higher than our average transaction size. That's not to say we don't compete against bulge bracket firms, but when we're competing against bulge bracket firms, that's at the very high end of our range or I would say our normal range of clients. And for the vast majority of the transactions that we work on, we just don't see the bulge bracket, and I don't believe that when they talk about middle market, that's the size range they're talking about.

Then I suppose, but a lots of comparable environment, we've touched on restructurings well And I am thinking more from you guys are established leader there but it seems like every boutique we talked to, is now kind of building up restructuring. Have you noticed a meaningful change in the competitive environment there, is more and more firms seeing meaningful kind of restructuring now?

We still think the core competitors that we run across to are pretty much the same today as they were three years ago or five years ago. That's not to say that there are some other probably newer entrants or smaller firms that are in it. But, the core players, I think it's a very stable group over the last half a dozen or so years, and haven't really seen any new competition meaningfully impacting the type of business that we're pursuing or winning.

Thank you for your questions. I will now hand the call over to Scott Beiser for any closing remarks.

So I want to thank you all for participating in our second quarter 2020 earnings call and we look forward to updating everybody on our progress when we discuss our third quarter results for fiscal 2020 this coming winter.

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