Houlihan Lokey Inc Q3 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Brennan Hawken - UBS Securities LLC - Analyst : Good afternoon, Scott, Lindsey. How are you?

Question: Brennan Hawken - UBS Securities LLC - Analyst : 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 a period or a historical context that you could point to, to help us think about how we should be refining and thinking about the potential for revenue growth in that business moving forward?

Question: Brennan Hawken - UBS Securities LLC - Analyst : Got it. Thanks for that. And then when we think about the typical seasonality that you see in corporate finance, normally the back half of your fiscal year's strongest and we haven't really seen that sort of typical cycle here recently. But is it normally fair to think about the March quarter being in a similar ballpark to the December quarter, is there upside? Is it a little slower because you don't have the year? How would you think about those dynamics? I would think it would be pretty constructive, given how you said that the confidence is improving on the back of the recent election, but just wanted to flesh that out a bit.

Question: Brennan Hawken - UBS Securities LLC - Analyst : Great. Thanks a lot. Appreciate it.

Question: James Yaro - Goldman Sachs - Analyst : Good afternoon and thanks for taking my questions. Starting with restructuring. So restructuring continues to surprise the upside. Maybe you could just comment on the likelihood that could actually grow in calendar 2025, especially given that rates appear to remain higher for longer and the long end steeping we've seen recently.

Question: James Yaro - Goldman Sachs - Analyst : Okay, that's very clear. So we're now entering another year of I think, as you describe it sort of a steadily improving but clearly it's not snapping back M&A environment. And so that probably has some negative ramifications on smaller competitors given the deal environment has been somewhat weak for a number of years now. So if activity continues to improve at this slow and steady pace, how does that impact your hiring and acquiring backdrop? Does that mean that you should be able to continue to potentially do more deals and I guess your outlook for you know, acquisitions and hiring for the next 12 months, let's say.

Question: James Yaro - Goldman Sachs - Analyst : Great. That's very clear. Thank you.

Question: Michael Brown - Wells Fargo - Analyst : Great. Good afternoon, Scott and Lindsay. 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 the deregulation, less deal scrutiny will be a positive for the large cap sponsor or -- not sponsor -- 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? And then 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 is again, is it the size of deals you focus on some of the more than the other? Thank.

Question: Michael Brown - Wells Fargo - Analyst : Okay, great. And then just switch gears, Lindsay, the adjusted non-comp expense has been in that low $80 million range. Any comment on or maybe guidance for the non-comp expense for next quarter, like what's the right range we should think about?

Question: Michael Brown - Wells Fargo - Analyst : Okay, great. Thank you both.

Question: Ken Worthington - JPMorgan - Analyst : Hi, good afternoon. Thanks for taking the question. I wanted to talk about the deal environment from the perspective of Houlihan as an acquirer. Your stock is near the highs. The funding environment is quite good. Is now a good time for Houlihan to be a buyer. And what sort of feedback are you getting from potential targets and partners and given all the puts and takes, is it reasonable to think that Houlihan will be more or less or similarly active in calendar '25 versus what you were in '24? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 28, 2025 / 10:00PM, HLI.N - Q3 2025 Houlihan Lokey Inc Earnings Call

Question: Ken Worthington - JPMorgan - Analyst : So let's try it in a fishing analogy. Do you have more lines in the water now, acknowledging you don't know if a fish is going to bite or not depends on, as you said, a lot of different factors? But it is there more dialogue happening now or is it just continuous?

Question: Ken Worthington - JPMorgan - Analyst : Perfect. Okay, I love the analogy. And then maybe in terms of client dialogue and corporate finance, I'm thinking about this from a geography perspective. Curious to hear if you're seeing engagement differ by region at all. I'll try it back to Trump and elections and so on. But are you getting different engagement and dialogue, North America versus Europe versus Asia? Like anything that strikes you as interesting or curious that's worth calling out.

Question: Ken Worthington - JPMorgan - Analyst : Okay, great. Thank you much.

Question: Devin Ryan - Citizens JMP - Analyst : Great. Hi Scott. Hey, Lisy. How are you?

Question: Devin Ryan - Citizens JMP - Analyst : Question on just deal size and the evolution there. In the presentation, one of the drivers of corporate finance growth you guys have highlighted is just increasing deal size and deal fees. And so let me just flush that out a bit more and really kind of get a sense of how much it is a concerted effort around winning larger deals versus, just how much is that natural progression of your private equity firms buying a company and then selling it a few years later at twice the size. So there's just that natural growth or, you know, is there anything else that the Houlihan Lokey is doing here to drive higher fees per deal.

Question: Devin Ryan - Citizens JMP - Analyst : Got it. Thanks guys. And then just a follow up on the private capital financing efforts. Obviously some news of more hires there recently, you guys continue to invest. I love to just get an update on the optimism for that part of the business and expectations there over the next year. Thanks.

Question: Devin Ryan - Citizens JMP - Analyst : All right, thanks so much. Appreciate it. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 28, 2025 / 10:00PM, HLI.N - Q3 2025 Houlihan Lokey Inc Earnings Call

Question: Brendan O'Brien - Wolfe Research - Analyst : Good afternoon and thanks for taking my questions. I guess to start, just to follow up on the capital markets business. One of the bold bracket banks announced that they're creating their own private capital solutions group that seems to be going after a similar TAM as you guys. I just wanted to get a sense as to whether you see increased competition in the space and whether that could pose a threat to the growth outlook for the business. And also, if you could give some color on the size or type of companies that you're working with. I would imagine that competition for these types of services will be much further down, much lower, the further down market you move.

Question: Brendan O'Brien - Wolfe Research - Analyst : That's helpful color. And then for my follow up, I just wanted to touch on the restructuring outlook. There's been a significant divergence in traditional restructuring and liability management activity this cycle. However, historically speaking, anywhere from 15% to as high as I think, 35% of companies that undergo LME transaction end up filing chapter 11 within the next two years. How much does this dynamic inform your optimistic outlook for restructuring? And how do you expect the mix between traditional restructuring versus liability management to evolve over time.

Question: Brendan O'Brien - Wolfe Research - Analyst : Thank you for taking my questions.

Question: Ryan Kenny - Morgan Stanley - Analyst : Hi. Thanks for taking my question. Just wanted to dig in a little bit more on your conversations with sponsor clients in the corporate finance business. Is that pick up also more gradual, like what you're seeing broad based across M&A or should we expect some more outsized momentum on the sponsor side?

Question: Ryan Kenny - Morgan Stanley - Analyst : Thank you.

Question: James Mitchell - Seaport Global Securities LLC - Analyst : Hey, good afternoon. Scott, I think on the last call you talked about transaction velocity improving but not back to pre pandemic levels. It sounds like it got a little better this quarter. So are we getting much closer or getting back to more traditional velocity levels or are still aways away?

Question: James Mitchell - Seaport Global Securities LLC - Analyst : And so what gets it there. It seems like financing is pretty wide open. What causing still this hesitation or slower reaction?

Question: James Mitchell - Seaport Global Securities LLC - Analyst : Are bid as spreads still wide relative to where in terms of expectation.

Question: James Mitchell - Seaport Global Securities LLC - Analyst : Right. Okay. And just one follow up on restructuring. Is the story here, higher for longer rates and everything else you've described this sort of keeps these elevated levels going but maybe incrementally tougher to grow or do you still feel like in the next couple of years, you can still see some decent upward trajectory and in revenues and restructuring?

Question: James Mitchell - Seaport Global Securities LLC - Analyst : Yeah. Okay. Understood. Thanks for your color, Lindsay and Scott.