Houlihan Lokey(HLI) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported revenues of $666 million for the fourth quarter, representing a 28% increase year-over-year, and adjusted earnings per share of 1.96, up 54% compared to the same quarter last year [5] - For the fiscal year 2025, total revenues reached $2.4 billion, marking a 25% increase from the previous year and the highest annual revenue in the firm's history [5][6] - Adjusted compensation expenses for the quarter were $410 million, compared to $320 million for the same period last year, maintaining an adjusted compensation expense ratio of 61.5% [14][15] Business Line Data and Key Metrics Changes - Corporate Finance revenues were $413 million for the quarter, up 44% year-over-year, with 147 transactions closed, an increase from 121 in the same period last year [12] - Financial Restructuring revenues reached $165 million for the quarter, a 6% increase compared to the same period last year, with 38 transactions closed [13] - Financial and Valuation Advisory revenues were $89 million for the quarter, a 15% increase from the same period last year, with 1,224 fee events during the quarter [13] Market Data and Key Metrics Changes - The company noted that its Corporate Finance business outside the U.S. continued to show upward trends in transaction size and fees, with a strong performance in capital markets, now rebranded as Capital Solutions [6][7] - The company highlighted that certain sectors and geographies are more impacted by current market conditions, indicating a bifurcation in the M&A market [22][24] Company Strategy and Development Direction - The company emphasized that acquisitions are a significant driver of growth, having closed three acquisitions in the fiscal year, which expanded its industry, geographic, and product reach [6] - The management expressed confidence in the restructuring business, expecting elevated revenues in fiscal year 2026, supported by a strong fourth quarter performance [9][30] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges in forecasting due to market volatility but noted that pitch activity and deal processes are proceeding at a normal rate [22] - The company is optimistic about its diversified business model's ability to handle volatile market conditions, indicating that it is well-positioned to advise both winners and losers in the current environment [10][11] Other Important Information - The company ended the fiscal year with approximately $1.2 billion in unrestricted cash and equivalents, with a significant portion earmarked for accrued bonuses [18] - The Board approved a 5.3% increase in the quarterly dividend to $0.60 per share, to be paid in June [19] Q&A Session Summary Question: How have revenues been tracking quarter to date amidst volatility? - Management indicated it is too early to provide meaningful indications but noted that pitch activity and deal processes are moving at a normal rate [22] Question: What is the outlook for restructuring given recent events? - Management expects restructuring to remain at elevated levels, with confidence in continued activity in the restructuring arena [28][30] Question: How does the outlook differ between middle market and large scale M&A? - Management confirmed that mid-cap volumes are generally more resilient than large-cap volumes, a trend observed in previous cycles [42] Question: What is the state of the bolt-on acquisition pipeline for fiscal year 2026? - Management stated that there is an active dialogue regarding various opportunities, emphasizing the importance of acquisitions in their strategic direction [45] Question: How is the Capital Solutions business performing? - Management noted that the Capital Solutions Group continues to grow significantly, with various components driving results in the current market environment [50][52] Question: What factors are driving the strong performance in Financial and Valuation Advisory? - Management attributed the growth to less cyclical components like portfolio valuation and a ramp-up in transaction advisory services as M&A activity continues to recover [58]