Houlihan Lokey Inc (HLI) Q3 2025 Earnings Call Highlights: Strong Revenue Growth and Strategic ...

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Fri, Jan 31, 2025, 12:11 AM 4 min read

Revenue: $634 million, up 24% year-over-year.
Adjusted Earnings Per Share (EPS): $1.64, up 34% year-over-year.
Corporate Finance Revenue: $422 million, a 36% increase year-over-year.
Financial Restructuring Revenue: $131 million, a 2% increase year-over-year.
Financial and Valuation Advisory Revenue: $82 million, a 14% increase year-over-year.
Adjusted Compensation Expenses: $390 million, up from $314 million year-over-year.
Adjusted Compensation Expense Ratio: 61.5% for both fiscal 2025 and 2024.
Adjusted Non-Compensation Expenses: $83 million, slightly up from $82 million year-over-year.
Adjusted Non-Compensation Expense Ratio: 13.1%, down from 16.1% year-over-year.
Adjusted Other Income and Expense: $9 million, up from $6 million year-over-year.
Adjusted Effective Tax Rate: 33.3%, up from 30.3% year-over-year.
Unrestricted Cash and Equivalents: Approximately $903 million at quarter end.

Warning! GuruFocus has detected 8 Warning Signs with HLI.

Release Date: January 28, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Houlihan Lokey Inc (NYSE:HLI) reported a 24% increase in revenues and a 34% increase in adjusted earnings per share compared to the same period last year.
Corporate finance revenues grew by 36% year-over-year, with improvements in key metrics such as close rates and transaction volume.
The company successfully closed its acquisition of Waller Helms, contributing positively to the quarter's results.
Houlihan Lokey Inc (NYSE:HLI) added 17 new Managing Directors, enhancing its leadership team and capabilities.
The company maintains a positive outlook for fiscal 2026, driven by improving M&A market sentiment and increased private equity activity.

Negative Points

The average transaction fee in corporate finance decreased due to transaction mix, despite an increase in the number of transactions.
Financial restructuring revenues only increased by 2% compared to the same period last year, indicating slower growth in this segment.
Adjusted compensation expenses rose significantly to $390 million, up from $314 million in the same quarter last year.
The adjusted effective tax rate increased to 33.3% from 30.3% in the same quarter last year, primarily due to timing issues.
Despite improvements, transaction velocity has not yet returned to pre-pandemic levels, indicating a gradual recovery.

Q & A Highlights

Q: Can you provide historical context for the strengthening corporate finance environment and potential revenue growth? A: Scott Adelson, CEO: The corporate finance environment is improving as anticipated, with strong restructuring remaining elevated. Growth has been consistent, with revenues increasing by about 24% each quarter compared to the previous year. This trend is expected to continue without significant acceleration.

Q: How should we think about the seasonality in corporate finance, especially in the March quarter? A: J. Lindsey Alley, CFO: Historically, our fiscal year shows a 46% revenue in the first half and 54% in the second half. We expect similar seasonality this year, although macroeconomic pressures could influence this.

Q: What is the outlook for restructuring given the current interest rate environment? A: Scott Adelson, CEO: Restructuring is performing better than expected due to elevated interest rates. While exact numbers are hard to predict, the environment remains favorable for continued restructuring activity.

Q: How does the improving M&A environment affect your hiring and acquisition strategy? A: Scott Adelson, CEO: We continue to find opportunities to acquire talent and companies, regardless of market conditions. The improving environment supports our strategy to grow through acquisitions and hiring.

Q: How does the current administration's policies impact M&A activity, particularly in the mid-market? A: Scott Adelson, CEO: A more receptive M&A environment is beneficial overall. While we are less impacted by regulatory changes than large-cap transactions, the general increase in M&A activity is positive for our business.

Q: Is Houlihan Lokey planning to be more active in acquisitions given the favorable market conditions? A: Scott Adelson, CEO: We are continuously in dialogue with potential acquisition targets. While market conditions are favorable, the timing of deals depends more on individual circumstances than market factors.

Q: Are you seeing different levels of client engagement across regions? A: Scott Adelson, CEO: Engagement is increasing across all regions, with both private equity and strategic clients showing more activity. While some regions may pick up faster, the overall trend is positive globally.

Q: How is the increase in deal size and fees impacting corporate finance growth? A: Scott Adelson, CEO: We focus on the mid-cap space, and deal sizes and fees have been steadily increasing. This trend is expected to continue, contributing to corporate finance growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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