HOULIHAN LOKEY, INC. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Results: Ended the quarter with revenues of $666 million and adjusted earnings per share of $1.96. Revenues for the quarter were up 28% and adjusted earnings per share were up 54% compared to the same quarter last year. Fiscal year 2025 ended with $2.4 billion in revenues, the highest annual revenue in the firm's history, up 25% versus last year.
• Acquisitions: 2025 was the most active year ever for acquisitions, closing three acquisitions that expanded industry, geographic, and product reach. Acquisitions remain an important part of the growth strategy.
• Business Lines: All three business lines performed well in the fourth quarter. Corporate Finance outside the US had positive indicators with growing transaction sizes and fees. Capital Markets rebranded to Capital Solutions, enhancing the Corporate Finance platform.
• Hiring and Promotions: Hired 37 Managing Directors in fiscal year 2025 and promoted 16 colleagues to Managing Director in the fourth quarter.
• Expenses: Adjusted compensation expenses were $410 million for the quarter. Adjusted non-compensation expenses had changes in ratios and are expected to grow in high-single-digits for fiscal 2026. Adjusted other income and expense produced income of approximately $9 million.
• Dividend: Board approved a 5.3% increase to the quarterly dividend to $0.60 per share, payable in June.

Segment Performance

• Corporate Finance: Fourth quarter revenues were $413 million, up 44% compared to the same quarter last year. For fiscal year 2025, Corporate Finance had its second best year ever with $2.4 billion in revenues, up 25% versus the prior year.
• Financial Restructuring: Fourth quarter revenues were $165 million, a 6% increase versus the same period last year. The business had a strong fourth quarter to close the year, with record revenues for the fiscal year.
• Financial and Valuation Advisory (FDA): Fourth quarter revenues were $89 million, a 15% increase from the same period last year. FDA ended the year with a strong fourth quarter performing well in a challenging environment.

Guidance

• Revenues: Current market volatility makes near-term forecasting difficult, but backlogs in Corporate Finance remain strong and deals are moving through processes at a normal rate.
• Expenses: Adjusted non-compensation expense is expected to grow in the high-single-digits for fiscal 2026 as headcount, technology, and brand investments continue.
• Dividend: Board approved a 5.3% increase in the quarterly dividend to $0.60 per share.

Risks

• Market Volatility: Current market volatility makes meaningful near-term revenue forecasting difficult.
• Economic Uncertainty: Different sectors and geographies are impacted differently by economic conditions, complicating revenue prediction.
• Non-Cash Expenses: Adjusted non-compensation expenses include $9.7 million in non-cash acquisition related amortization and $1.8 million in professional fees for Project Solo.

Question and Answer

• Q: Brendan O'Brien asks about revenue tracking quarter-to-date and dispersion between sponsor and strategic clients.

A: Scott Adelson responds that it's too early to predict, but activity and deal processes are proceeding at normal rates with varying impacts across sectors and geographies.

• Q: James Yaro inquires about restructuring mix (liability management vs Chapter 11) and fundraising trends.

A: Scott Adelson states restructuring activity remains elevated, and fundraising for private equity is constrained but filled by continuation vehicles and directs. Lindsey Alley mentions seasonality in restructuring.

• Q: Benjamin Rubin asks about outlook for M&A in middle market vs large scale and deal backlog.

A: Scott Adelson notes mid-cap M&A is more resilient than large cap. Lindsey Alley mentions active bolt-on pipeline dialogue.

• Q: Devin Ryan asks about capital solutions business and restructuring capacity.

A: Lindsey Alley states capital solutions business is growing, and restructuring has capacity to handle larger deals in a stressed environment.

• Q: Kenneth Worthington asks about FDA results and policy impact.

A: Scott Adelson explains FDA components (portfolio valuation, opinion business, transaction advisory) and mentions potential tailwind from new US Administration.

• Q: Ryan Kenny asks about restructuring inbounds and Europe business.

A: Lindsey Alley states it's too early to tell on restructuring inbounds, and Europe business is different with mid-market focus less impacted by US actions.