HOULIHAN LOKEY, INC. Q3 FY2025 earnings call

• Revenues for the quarter were $634 million, up 24% year-over-year, with adjusted earnings per share of $1.64, up 34% year-over-year.
• Corporate Finance benefited from improvements in M&A and financing markets. Financial Restructuring continued to perform well due to record leverage and higher interest rates. Financial and Valuation Advisory saw growth due to improving M&A climate.
• Closed acquisition of Waller Helms in early December, with new partners contributing to results. Added 17 new managing directors in the quarter.
• Outlook for fiscal 2026 is positive with improving M&A sentiment, increased private equity activity, and strength in restructuring business.

Corporate Finance produced $422 million in revenue for the quarter, a 36% increase year-over-year, representing 66.56% of total revenue. Financial Restructuring generated $131 million, a 2% increase, accounting for 20.66% of total revenue. Financial and Valuation Advisory brought in $82 million, a 14% increase, making up 12.93% of total revenue. Corporate Finance closed 170 transactions vs. 117 last year. Financial Restructuring closed 41 transactions vs. 30 last year. Financial and Valuation Advisory had 1,005 fee events vs. 926 last year.

• Adjusted effective tax rate for the full fiscal year is expected to settle between 31% and 32%.
• Adjusted non-compensation expense ratio is expected to maintain the long-term target of 61.5%.
• As of quarter end, had approximately $903 million of unrestricted cash and equivalents, to be used for cash bonuses in May.

• Forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from expectations.
• Regulatory environment and macroeconomic pressures could impact operating results.
• Competition in business segments could affect growth.

Q: It sounds like from your comments and your tone here in the prepared remarks that we've seen continued strengthening in the corporate finance environment. Is there any period or a historical context that you could point to help us think about how we should be refining and thinking about the potential for revenue growth in that business moving forward?

A: I think it is very much following what we have anticipated which was going to occur, which is really just this steady progress of things improving and at the same time seeing a strong restructuring environment, or certainly elevated, and that is the same thing we see today and really nothing has changed from last three quarters. At least, to date, that has been a correct way to think about it.

Q: Starting with restructuring. Restructuring continues to surprise the upside. Maybe you could just comment on the likelihood that it could actually grow in calendar 2025, especially given that rates appear to remain higher for longer and the long end steepening we've seen recently.

A: We've been saying for a while and actually in the prepared remarks that it is performing better than we would have thought of a year ago and it continues to be elevated. Interest rates remain elevated and we expect that to continue. What that nets for actual numbers depends on an awful lot of factors that are kind of beyond our ability to completely predict.

Q: I wanted to ask a little bit more about the M&A outlook here. And as we have the administration change here, I tend to think that deregulation, less deal scrutiny will be a positive for the large cap strategic M&A activity. But what are kind of the potential knock on impacts here for the small mid-market portion of the market for M&A activity? I guess tariffs, of course, add some uncertainty here when we start to think about some of the international M&A activity and things like cross border. I'd be interested to hear about how that could impact your business. Or again, is it the size of deals you focus on are somewhat more immune?

A: A couple things. On just the overall environment, people being more receptive to M&A, I think, is just overall helpful. Just people's mindsets, thinking about it more is helpful regardless of size. Obviously we have not been as negatively impacted by regulatory environment as some of our brethren that are focused on large cap transactions. Having said that, it does just create a dampening on the market overall. The return of a far overused term, but the animal instincts of everybody wanting to get back to doing deals is something that is certainly noticeable. When you take a look at whether it be tariffs or threats of tariffs or any other elements of the landscape that I think everybody expect to change from what they have been, I think there will obviously be a number of winners in that and there will be some losers. And I think one of the benefits we have is in the diversity across industries, across geographies. We really get the benefit of that portfolio effect when those changes occur.