Good day, and welcome to the Houlihan Lokey Fiscal 2016 Second Quarter Earnings Conference Call. Today's conference is being recorded..

At this time, I would like to turn the conference over to Christopher Crain, General Counsel for Houlihan Lokey. Please go ahead, sir. .

Thank you, operator, and good afternoon. By now, everyone should have access to our second 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 September 30, 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 supplemental package..

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 good afternoon. Welcome to our first quarterly earnings call as a public company..

To begin this afternoon, I will provide an overview of the company, the current market dynamics and our strategic priorities. I will then turn the call over to Lindsey Alley, who will discuss additional details about our financial results. .

While we've been public for less than 3 months, so far as expected, our profile has increased. Many executives and board members, referral sources and media outlets better understand our scope of services, breadth of expertise and financial success that Houlihan Lokey has achieved over its 40-year history..

We have especially noted an increased awareness of Houlihan Lokey outside the United States. Also while recruiting at undergraduate and graduate schools for our 2016 class, we've noticed increased interest by students in our brand.

Though it is too early to assess the impact our increased brand recognition will have on senior-level recruiting and business acquisitions, we do anticipate that positive benefits will occur in the months and years ahead which, in turn, we believe, can lead to increased revenues and profitability..

Corporate Finance, Financial Restructuring and Financial Advisory Services. We view ourselves as market leaders in all 3. Our Corporate Finance group is a leading global platform serving the mid-cap transaction space with expertise in Mergers & Acquisitions and Capital Markets Advisory, and we are the clear market leader in U.S.

M&A transactions below $1 billion..

Our business dynamics are certainly shaped by the volume of transactions in the M&A market, and we do see M&A as a long-term secular growth business. However, also consider that when we look at the overall U.S. M&A deal market, the mid-cap space accounts for over 90% of the volume of all the M&A transactions.

Historically, in addition to having a higher volume of transactions, mid-cap M&A has been a less volatile segment as compared with larger cap deals because it is less Capital Markets and interest rate-dependent. Even as the leader in this space, our current level of annual U.S. transactions amounts to only about a 2% market share.

So in addition to secular growth, we see a significant opportunity to continue to drive market share gains as we have over the last several years..

Our Financial Restructuring business is a global leader. We have worked on the vast majority of the largest and most complex restructurings. Over the past several years, leveraged loan and high-yield bond issuance have grown meaningfully. Such issuance are typically a precursor to Financial Restructuring opportunities.

And with each cycle and leveraged finance, we continue to see issuances increase both domestically and internationally to higher highs over the previous cycle..

Along with the increasing absolute amount of debt outstanding, we see balance sheet complexity increasing. These are trends we view as beneficial to the long-term growth potential of our Restructuring business. Our Financial Restructuring bankers remain active in restructuring work throughout business cycles.

Despite the fact that, today, default rates are at cyclical lows, there is usually some segment or sector that is out of favor as energy in the emerging markets are today.

We think that when the current cycle turns and default rates rise, which history tells us that they inevitably will, our Financial Restructuring business has significant operating leverage and is poised to take advantage of market opportunities..

The Financial Advisory service business has been around for decades, and we are one of the leading brand names in the financial opinions and valuation space. This business has many client relations and it's not unusual for us to be involved in more than 1,000 client matters in any given year.

In addition, roughly 1/3 of the business is a recurring revenue stream. The other 2/3 are Capital Markets and/or M&A transaction-driven. .

Now turning to results. During the second quarter, much like the first quarter, we were able to continue to execute on our strategy of growing our intellectual capital, expanding the breadth of our industry expertise and deepening our client relationships. Overall, this was a solid quarter for the company.

We reported $158 million in revenues, which is the highest second quarter revenues ever generated by the company. And we reported $305 million in revenues in the first 6 months of the fiscal year, which is also a record for the company.

Adjusting for extraordinary costs primarily related to our IPO, we achieved $17.4 million in net income or $0.28 per share for the quarter and $34.1 million in net income or $0.55 per share in the first 6 months of the 2016 fiscal year..

Our corporate finance unit continues to lead the way, representing 57% of our revenues for the quarter. The availability of financing for our clients remains robust, and corporate executives and financial sponsors continue to be active in pursuing M&A transactions.

The stock market turmoil in August and September has had no visible impact on our clients or our business. .

Our Financial Restructuring business represented 26% of revenues for the quarter but fell slightly short of expectations. Overall, default rates remain relatively low with discrete pockets of new business activity. Current growth areas for Financial Restructuring are in the energy sector and emerging markets.

Today, revenues from our Energy group are up over 100% from this time last year. The size of our leveraged finance debt market is at record levels, and there are signs of growing financial distress in certain companies, industries and geographies.

But the eventual cyclical uptick in the Financial Restructuring business could still take some time to develop. However, the recent market volatility over the last couple of months has caused spreads to widen, especially for lower-rated or riskier credits..

Our Financial Advisory service unit represented 17% of our revenues for the quarter and continues to benefit from the strong M&A environment and expanding regulatory transparency needs of the marketplace.

All of the primary sub-product areas we focus on in Financial Advisory Services, including transaction opinions, portfolio valuations, tax and financial reporting and dispute resolution services, are experiencing year-over-year increases..

one, organic growth, including internal promotions and development of our bankers; two, opportunistic hires of additional managing directors; and three, tuck-in acquisitions that are building blocks to our platform, either in an industry, product or geography..

8 new MDs were promoted internally; 6 new MDs were hired net of terminations; and 24 new MDs were acquired through the acquisitions of Bridge strategy, MESA and McQueen. Externally, when whether hiring or acquiring, we look for entrepreneurial bankers that will excel in our platform. We take a very deliberate approach to acquisitions.

Typically, our transactions are cultivated over a long time period, an approach, we find, reduces cultural integration risk. .

The acquisition of McQueen during the second quarter is a good example of our approach and what you should expect going forward. McQueen extends our leading Consumer, Food & Retail industry group into Europe and significantly expands our capabilities to execute for our clients on a global basis..

Heading into the second half of our fiscal year, we continue to feel well-positioned in a strong M&A and financing marketplace. The U.S. still leads the way, but we see small steady improvements in Europe.

From our vantage point, in the mid-cap space, the recent stock market volatility has not terminated deals beyond normal experiences, has not extended the close date of transactions or slowed the number of new prospects we take to our committee each week.

Generally speaking, wide fluctuations in public stock prices tend to impact the mid-cap space and private companies far less than larger cap-focused firms..

On the financing front, we have witnessed no material slowdown in financing availability for mid-cap companies. And on the distress side of our business, we continue to see and have been successfully hired on a growing number of energy mandates, and our business activity in the emerging markets continue to grow..

Our Financial Advisory Service business continues to benefit from increased large-cap M&A activity and the growing need for independent advice and financial disclosure. .

In summary, the existence of our 3 business segments and diverse industry sector and geographic coverage adds a distinct bull-bear balance to our business. This provides us opportunities in virtually every market cycle. .

And with that overview, I'll turn the call over to Lindsey. .

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 period..

number one, adjustments related to the IPO, including IPO transaction costs, reorganization costs and pre-IPO grants issued to employees; number two, adjustments related to previous ownership agreements; and number three, adjustments related to transaction expenses on 2 acquisitions we closed since June of 2015. .

Our goal is to minimize the number of adjustments we make in any quarter, but in connection with our IPO and reorganization, we believe the included adjustments are necessary to better understand 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 company operating under previous ownership prior to our IPO, whereby, we maintain our revenue sharing model for the entire second quarter.

That model had us deliver a fixed pretax margin of approximately 18%, with compensation expense being the variable based on performance and expense management..

Historically, our compensation expense varied between 67% and 71%. Beginning October 1, we now target an awarded compensation ratio of between 65% and 66%. With our post October 1 compensation policy change, we are targeting an increase in our pretax margins when compared with what we have delivered historically..

Now onto the quarter. Revenue increased 1.3% from $156.3 million for the 3 months ended September 30, 2014 to $158.4 million for the 3 months ended September 30, 2015. Consistent with our IPO prospectus, we will continue to report revenues across our 3 business segments..

Revenues for Corporate Finance were $89.9 million for the quarter, a decrease of 2.8% from the prior year. The decline was a result of a comparison against an exceptionally strong quarter last year. .

Financial Restructuring segment revenues were $40.9 million for the quarter, a decrease of 2.9% from the prior year. The market for Financial Restructuring in the U.S. continues to remain soft, offset by continued success in overseas markets and the energy sector, as Scott mentioned earlier. .

In Financial Advisory Services, segment revenues were $27.5 million for the quarter, a 27.5% increase from the prior year.

The significant increase in revenues was a result of strong transaction-related opinion and board advisory work, driven by a continued robust M&A environment, increased business in our portfolio valuation group and 3 months of revenues from our Bridge acquisition, which was closed in January of 2015 and was not part of last year's quarter..

Turning to expenses. Our adjusted compensation expense was $107 million for the quarter versus $109.4 million for the same period last year. The adjusted compensation expense was lower as a result of slightly higher noncompensation expenses, which reduced the compensation expense available to our employees under our fixed pretax margin ratio. .

This resulted in an adjusted ratio -- compensation ratio of 67.6% for the quarter -- for the second quarter versus 70% for the second quarter last year, and an adjusted awarded compensation ratio of 69.5% for the second quarter versus 70.2% for the second quarter last year..

Our adjusted noncompensation expense in the second quarter was $21.5 million versus $19 million in the second quarter last year. The increase was mostly due to increased client activity, continued business expansion and an increase in employee headcount..

Our effective tax rate for the second quarter of fiscal 2016 and 2015 was 45.9% and 41.7%, respectively. This is above our assumed tax rate of 41% as a result of the fact that a significant portion of the professional fees associated with the IPO were not tax-deductible..

Moving to the balance sheet. We require minimal capital to run our business. And as we mentioned in the IPO prospectus, we made a $270 million dividend to shareholders in the second quarter, made up of cash, a note to shareholders and nonoperating assets that had accumulated on our balance sheet..

As of September 30, 2015, we had $154 million of cash and equivalents, which includes a receivable from our affiliate. And we had debt of $62 million resulting in a cash net of debt position of $92 million. As we set forth on our IPO prospectus, we intend to pay a quarterly dividend initially equal to $0.15 per share payable on December 15, 2015..

As part of our quarterly presentation of financial performance, we do not intend to provide specific guidance to the investor or analyst community. The key drivers of our financial performance are our revenues and our compensation ratio.

As we stated in the IPO prospectus, we intend to target an awarded compensation ratio of between 65% and 66% beginning this quarter -- our third quarter of fiscal 2016. If we continue to grow, we expect that our adjusted compensation ratio, after adjustments for pre IPO grants, would be below that range.

We also expect to target a noncompensation 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 line for questions. .

[Operator Instructions] We do have our first question from Brennan Hawken with UBS. .

Could you speak to your experience in the mid-cap M&A market this cycle and maybe how this cycle has compared to prior cycles and maybe why some of that is different? It's been a big focus and conversation amongst some of the investment banks and some of your competitors. .

I think the cycle that we see today is -- it just got larger. There are more companies out there that are participating in transactions. The importance of financial sponsors has gotten greater. The total availability of debt has gotten much larger and is being provided by a larger and larger number of institutions.

So in terms of what we're seeing in the marketplace, that's continued to grow. And then I'd add to it, from the Houlihan Lokey perspective, we've been able to add and strengthen the bench for this cycle versus the previous cycles that we've participated in.

So we continue, both with the market growing as well as been able to increase market share because of all of that. .

Okay.

So saying it another way, you guys aren't seeing any particular weakness or lack of activity in the mid-cap market this cycle around, versus prior cycles?.

No. As I've mentioned earlier, I think we still see a lot of activity, a lot of inquiry, a lot of people are still contemplating the new transactions. And we've got a -- just a broader bench both globally as well as from an industry sector to continue to participate in that. .

Terrific. You hit on, in your prepared remarks, the fact that you're getting some energy mandates, but also that restructuring is still on the come. We've got really low interest rates which is obviously a headwind there.

How should we think about restructuring over the medium-term, the next -- the 6 to 12 months or so? Can you help us think about how the backlog looks versus previously and how the -- what your outlook is for the market from here?.

The -- as we've said, the total amount of indebtedness in the high-yield marketplace and leveraged loan is much greater. But it's caused us to have to search further along different industries, along different countries to go find that work. The number of projects we're working on, in fact, is very significant.

You just don't have some of the mega-sized defaults that we saw in the last cycle. And it's still just maybe a little too early in the cycle yet to see some of those. .

Okay. So last one for me on the comp ratio, and I know, Lindsey, you touched on it, that your new policy started October 1. So that helps clear that up.

Just curious, is there going to be a true-up in order to get the fiscal year in to line with the new targets as you approach year end? Or should we think about the fact that you've got basically 2 quarters in the old regime, 2 quarters in the new regime and, therefore, when we think about the full fiscal year, it will probably be somewhere in between the two?.

It's the latter, Brennan. We're going to -- it will be a weighted average of kind of our first half of the year under the old model and then the second half of the year under the new model. .

Our next question comes from Devin Ryan with JMP Securities. .

Maybe following up on Brennan's question, I think that the concept of relatively flat number of deals in the market while the volume has been expanding, a lot of that volume is being driven by large cap end. And so it seems Houlihan is doing quite well, and you guys are optimistic about the outlook.

But how should we think about capacity from here, meaning you're busy -- how much more room can bankers -- how many more assignments can bankers take on -- or are you thinking about increasing productivity versus the growth outlook from here having to be driven more by hiring?.

As I mentioned earlier, we have, either through acquisitions or hiring, brought on a number of people over in the last quarter and the last 12 months. So I think we feel very good about the size of the team. And we can continue to grow with the marketplace.

Don't feel any significant pressures on needing to specifically add people for what we see in capacity. And at any given time, you have different industry sectors are performing better than others. And there's always some rotation out there. So I think we can continue to grow with the market.

And as you said -- what we all know is the total number of deals, at least in the U.S., has been flat. What you've seen over the last year has been a rise in the dollar value of those deals. Yet we've still been able to grow, notwithstanding that.

And I think that comes from the fact that we continued to add people in core areas that can continue to bring business into the platform. .

Got it, okay, that's very helpful. With respect to the current M&A backdrop, I think some have the view that M&A could continue to move along kind of on a similar trend. But we could also start to see restructuring coming off of the low level. And it sounds like the outlook is that restructuring will remain subdued but has potential.

So do you see a scenario where M&A is improving but restructuring is also starting to pick up at the same time? So you kind of have both businesses moving in the same direction. And obviously that hasn't typically been the case cyclically, but just curious if you think that's a reasonable outlook. .

I think you're going to continue to find different pockets, whether it's by sectors or geographies, that are already experiencing some weakness and will likely continue to experience weakness. So those areas will grow in the restructuring, and you could still have a very buoyant M&A and financing marketplace.

And so yes, we believe that, in fact, in the next couple of years, you could see both our corporate finance and our restructuring business potentially grow. .

And there's so much leverage out there that just a small uptick in the default rate won't have a significant impact on the M&A markets but would have, in our view, a meaningful impact on our restructuring business. .

Got it. Okay, great. And then just lastly, with respect to the IPO effects that you alluded to, that's good to hear. Are you seeing more opportunities, whether it be recruiting or even deal flow, looking at transactions than you had anticipated at the time of the deal.

Just trying to think through, are more things coming together than maybe you had even anticipated?.

Really, too early to be able to specifically say the following x number of projects came about because we're now public. But I think we do find -- well, we've been in business for decades. And we're bigger than many of the other companies we compete against.

We've gotten an enhancement and brand reputation and experience just in going public in the 2 months or so that we've been public.

So I think all signs, whether it's with meeting with new board members at companies, whether it's executives, especially, like I said, outside of the United States, we are clearly seeing an increased level of interest and exposure on the firm. And we're seeing that on the recruiting level as well. .

Yes. And even for this next 2016 class, we're seeing it immediately on the recruiting side. .

Our next question comes from Joel Jeffrey with KBW. .

As you think about further global expansion, I know you've done an acquisition recently, what is your preference? Is it for acquisition type deals or is it more a JV approach?.

On a geographic basis, we've done all kinds from just hunting people to specifically hiring in those geographies, to doing a joint venture or making an outright acquisition. So I think it's all just case-specific on what we're looking to do and what's available out there.

The more we move away from probably countries that we're familiar with or have the right kinds of contractual and governing laws, the more likely we might do a joint venture. But it really -- like I said, we've done both joint ventures and outright acquisitions in a host of different countries, and it just depends upon the facts at the time. .

Okay, great. And then just lastly for me, on the non-comp side, I mean, you guys have historically run your non-comp ratios at a much lower level than your peers. A question we get asked a lot is kind of how we're going to be able to do that going forward given that the ORIX agreement is no longer in place.

Can you just talk a little bit about your approach to the non-comp side of the business?.

Look, philosophically, how we run the business isn't changing on the non-comp side, whether we were part of the ORIX arrangement or public. It's just setting part of our DNA to run on an efficient basis.

I think as we mentioned everybody on -- we'll have a small amount of incremental cost as being public, but not really that significant compared to when we were private.

And of course, you've got to remember that the Houlihan Lokey employee management team are still roughly 50% owners of the business, and so we have a large stake and wanting to make sure that the business is financially successful for all shareholders. .

Our next question comes from Mike Carrier with Bank of America Merrill Lynch. .

In the Corporate Finance business, just wanted to get a sense. You mentioned having about 2% market share.

So when you look at sort of the opportunity in front of you in terms of the sectors that you cover and where you think you can take a firm, just wanted to get the outlook, I guess, more on the acquisition side and what the environment is out there for transactions? And you mentioned, I think the 1 acquisition that you recently closed on in Europe.

And when you look at the mid-cap space, is there more cross-border activity that's going on? And so does the geographic expansion start maybe sooner versus the sector side?.

So is your question whether we've seen more cross-border activity?.

Yes. I think it's both on the sector side in the U.S.

and then, just given that you made that acquisition, are you starting to see more demand on the cross-border side in the mid-cap space?.

Yes. So I think, look, as clients get more sophisticated, as they get bigger, as they have access to more capital, as the products and services they sell become more global, we too become more global in assisting them. And we do that in corporate finance, primarily along sector lines.

And so what we have done is we look at where our strengths are both in the U.S. and outside of the U.S. And when we find capabilities that we can add to the platform, that's what we'll continue to do. And clearly, what we see today versus 3 years ago, 5 or 10 years ago, is an increased amount of cross-border activity. Still the U.S.

tends to lead a lot in M&A activity. But it also, over time, becomes a smaller percentage of total activity or total market capitalization. So we do see our clients growing internationally as we will. .

Okay. And then, Lindsey, just 2 things for you. Just on the seasonality of the business, generally in the second half, you see more activity. Just wanted to make sure when we think about the environment, nothing's changing on that front? And then on the tax rate, the 41% obviously sits on the high-end when you look across corporate tax rates.

So anything over time that can be done to reduce that rate?.

Yes. So I'll address the first one, Mike. The seasonality this quarter was really no different than any of our other quarters in previous years. We do have a seasonal business. It's back half-weighted, and the first and second quarter tend to be lighter than the third and fourth quarters for us.

On a percentage of revenues basis, we expect it'll be the same this year versus previous years. And as Scott mentioned, this was a record second quarter for us anyway. So I think, again, it will follow the same seasonal flow. With respect to the tax rate, I think that is obviously a priority for us.

I think there's 2 things somewhat unique about our business. The first is that we tend to have a lower percentage of revenues versus some of our peers in overseas markets which have lower corporate tax rates. And so on a blended basis, we don't get the benefit of those lower tax rates overseas.

We think, over time, as we continue to increase internationally our presence, our tax rate will obviously come down assuming tax rates remain current in the overseas markets.

I think second is we do have a significant amount of employees and business generated out of 2 very high taxed states, in California and New York, which affects our tax rates above our corporate tax rate of 35% in the U.S., more so than it would in other territories in the U.S.

So those 2 things drive our slightly higher tax rate and, again, it's something that we think about. And as we said, I think during the IPO process, we believe there's more downside pressure on that than there is upside pressure. .

Our next question comes from Daniel Paris with Goldman Sachs. .

So from what I can see publicly, it looks like your average deal size continues to tick a little bit higher each quarter. And I'm curious if that's true from where you sit as well. You obviously have a lot better visibility than we do.

And then second, if that's the case, is that kind of an intentional shift in strategy for you or maybe just a function of where the market is today?.

Yes. I wouldn't overly read much into a particular quarter's worth of results. We've provided both what our revenues are by sector -- by segment as well as the number of transactions closed. So you can do the math that you're talking about.

But what has been happening, really, probably for the last 10 years, is each and every year, we do find that the average size company we're working for continues to slightly grow and the fees that we get slightly grow. But it's not a significant shift on what we're trying to accomplish today from what we were doing a year or two ago. .

Got it, that's helpful. And then, maybe just as a follow-up. You obviously had a big presence in the sponsors space. And one of the things that we've heard over the past year or 2, at least in the bigger cap space, is that high valuations and low leverage capacity is constrained.

Maybe at the margin, the leverage factor has gotten a little bit worse this quarter, the valuations have come down.

Curious what you're seeing in that space and what your expectations are going forward?.

Yes. There is a bit of a bifurcated market in the financial sponsors space that you talked about in the larger cap, both due to valuation and ongoing regulatory issues. We probably have seen some slowdown or the amount of debt that they'll provide has been, at times, impacted.

And the mid-cap space that we're operating in really have not seen any significant change in the availability of debt or who's providing it or the terms and rates that they are providing it.

So -- and even through the August and September months which were much more volatile, just did not see much of any change from the financial sponsor community that we focus on. .

Okay, got it. And then just this last one, last one for me, I know you mentioned you don't need to grow headcount to continue to grow.

But to the extent you do, how do you think about balancing it between acquisitions versus hiring organically? You've had a couple of deals close this year, so wondering how those are tracking and how it kind of impacts your decision-making going forward. .

I think when we've spoke to others historically, we very much look at all avenues on how to grow, from just individual hires to could be a few group hires, it could be through joint ventures, alliances or acquisitions. This particular -- last kind of 12 months, we've done more acquisitions than we've done in the past.

It's not a specific focus, it's just kind of how things have lined up. And all of our acquisitions, we go through a process and talking and meeting with the ownership and management team members for months and years. So a lot of it just happens to be timing of when they ultimately close.

But I think we will continue to see a mix of both ordinary opportunistic hiring as well as internal promotions as well as acquisitions. .

Our next question comes from Vincent Hung with Autonomous. .

First question for me, so I probably know the answer to this already, but is there anything you can say about the press release or press reports 2 weeks ago on Leonardo?.

Yes. We're talking all the time to a number of prospective individuals to hire, companies to buy, people to do ventures with and have no particular comment on any of those fact patterns and just don't talk about potential clients that we might be getting hired by, or employees that we might hire, or acquisitions we might make.

So don't comment to any releases or comments that others might be providing in the marketplace. .

Okay. And just to touch upon your comments earlier about the energy and emerging market mandates you've been hired on in restructuring.

How long do you think those mandates will go on for, like at least a year?.

Most of our restructuring engagements historically last well longer than a year.

But I think the answer, as it pertains to oil or gas prices, is "Will they stay at these levels for many more months, many more years?" And kind of the duration of all of that will kind of dictate how long it'll take to resolve some of the restructurings that we're working on and might be working on in the future.

But most of them do tend to take generally longer than a year. .

Okay. And just last one for me.

Can you call out any particular sector driving the revenues this quarter or within the backlog right now?.

There's nothing unique that we would describe and it is just a rotation that occurs between the industry sectors. And there's not 1 or 2 that I would highlight were significantly strong or significantly weak.

And like I said, at this point, I think we participate in most of all of the core industry sectors, and we'll continue to build out in those sub-industry sectors. So nothing that I would highlight from this quarter to previous quarters. .

[Operator Instructions] And our next question comes from Jeff Harte with Sandler O'Neill. .

A couple for me. One, how should we think about -- I guess, I'm ultimately going to kind of get at margin expansion. But the revenue growth has been really good, not surprising it's come with expense growth.

How should we think about kind of operating leverage going forward and the potential for that revenue growth to fall through to the bottom line from the top line?.

So I think on the noncompensation expense side, Jeff, you will obviously see some margin improvements as the revenues continue to grow. We say 12% to 13% on a targeted basis, given kind of where we are with respect to revenues. But as we significantly grow our revenues, we will get economies of scale like we have in the past.

And if you look back on our kind of '13 through '15 results, you saw some of that noncompensation expense margin expansion during that time period.

On the noncompensation side, we're -- given our business size, our product mix -- we're very comfortable with the 65% to 66% on an awarded basis and don't expect a lot of margin expansion in our non-comp ratio in the short to medium term.

Over time, I think that's a question for the future, but for right now, we -- I wouldn't put a lot of thought in the margin expansion as it relates to the non-comp -- the compensation expense and certainly in the short term. .

And separately, as you try to kind of get our arms around what revenues may be or may not be, as I look back historically, and if I look at kind of the number of deals and the revenues per deal as maybe a metric, it seems like my historical calculations get me something south of $2 million a deal-ish.

But recently, you've been running quite a bit above $2 million a deal-ish.

I mean is that a reasonable way to think about it? And if so, why have -- why have the fees per deal been up last 3 quarters?.

As Scott said it earlier, I would not try to gauge our average transaction size.

It really does vary -- hello?.

[Technical Difficulty].

It varies pretty significantly quarter-to-quarter. But I think as Scott mentioned, our longer-term trends are for small increases in average transaction size and small increases in average transaction value.

But it will fluctuate quarter-to-quarter, and we have some quarters where they're abnormally high as a result of a single large transaction fee, but it generally will balance out for the year with the right trend. .

That does conclude our question-and-answer session. I would like to turn the call back over to CEO, Scott Beiser, for closing comments. .

All right. Thank you, everybody, for participating in our first call, and we look forward to speaking with you all next quarter. .

Once again, that does conclude today's call. We appreciate your participation..