Houlihan Lokey(HLI) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported revenues of $514 million for the first quarter, a 24% increase compared to the same quarter last year, with adjusted earnings per share rising 37% to$ 1.22 [17] - The adjusted compensation expense ratio remained stable at 61.5% for both fiscal 2025 and 2024 [26] - Adjusted other income and expense produced income of approximately $5.1 million, up from$ 3 million in the same period last year, primarily due to a net increase in interest income [27] - The adjusted effective tax rate for the quarter was 31.2%, compared to 29.2% for the same quarter last year, driven by increased non-deductible expenses [44] Business Line Data and Key Metrics Changes - Corporate Finance generated $328 million in revenues, a 45% increase year-over-year, with 116 transactions closed compared to 95 in the same period last year [41] - Financial Restructuring revenues were$ 117 million, a 5% decrease from the previous year, with 33 transactions closed, up from 30 [21] - Financial and Valuation Advisory (FVA) produced $68 million in revenues, a 4% increase year-over-year, with 847 fee events compared to 786 in the same period last year [42] Market Data and Key Metrics Changes - The capital markets business is experiencing strong demand, particularly in the middle market, as capital providers seek to deploy capital [3] - The company noted that the European market is picking up, albeit at a slower pace than the U.S. market, following recent rate cuts by the ECB [63] Company Strategy and Development Direction - The company is optimistic about fiscal 2025, anticipating improved M&A and capital markets activity, and is well-positioned to capitalize on the recovery [23] - The acquisition of Triago has expanded the company's private funds capabilities, adding seven managing directors and enhancing its market presence [18] - The company continues to focus on filling underweighted sectors in the industry through both organic hires and acquisitions [116] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding the current market conditions driving improved M&A activity, despite macro uncertainties such as interest rates and political factors [1] - The restructuring business is expected to see fluctuations, with potential for increased activity if M&A picks up significantly [64] - Management indicated that the credit markets remain healthy, and they do not view recent restructuring events as indicative of broader market stress [32] Other Important Information - The company added 27 new managing directors in the quarter and promoted 14 from director to managing director [19] - The company has approximately$ 485 million in unrestricted cash and equivalents, with a decline in cash position due to bonus payments [28] Q&A Session Summary Question: What is the outlook for Corporate Finance? - Management noted continued improvement in Corporate Finance, with a focus on transaction size and close rates, benefiting from a stronger reputation in Europe [48][49] Question: How is the restructuring business performing? - Management indicated that the restructuring business can be lumpy, but they do not see recent restructuring events as a sign of broader market issues [32] Question: What are the growth opportunities in private funds? - Management highlighted the evolving nature of the private funds market, particularly in secondaries and directs, as areas of growth potential [36] Question: How is the company positioned for capital markets activity? - Management stated that the capital markets business is growing due to increased private capital market activity and is well-positioned for future opportunities [55] Question: What is the trajectory for restructuring in the coming years? - Management expects the distressed business to continue growing, with a stable percentage of defaults anticipated [64] Question: What is the outlook for non-compensation expenses? - Management expects non-compensation expenses to normalize, with a trajectory dependent on revenue growth [97]