Houlihan Lokey, Inc. (NYSE:HLI) Q4 2024 Earnings Call Transcript

Houlihan Lokey, Inc. (NYSE:HLI) Q4 2024 Earnings Call Transcript May 8, 2024

Houlihan Lokey, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, ladies and gentlemen. Thank you for standing by and welcome to Houlihan Lokey’s Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. And please note that this conference call is being recorded today, May 8th, 2024. I will now turn the call over to the company. Please go ahead.

Unidentified Company Representative: Thank you, operator, and hello, everyone. By now, everyone should have access to our fourth quarter and fiscal year 2024 earnings release, which can be found on the Houlihan Lokey website at www.hl.com in the investor relations section. Before we begin our formal remarks, we need to remind everyone that the discussion today will include forward-looking statements. These forward-looking statements, which are usually identified by use of words such as will, expect, anticipate, should or other similar phrases are not guarantees of future performance. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. And therefore, you should exercise caution when interpreting and relying on them.

We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. We encourage investors to review our regulatory filings, including the Form 10-K for the year-end in March 31, 2024, when it is filed with the SEC. During today’s call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company’s financial performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our earnings release and our investor presentation on the hl.com website.

Hosting the call today, we have Scott Beiser, Houlihan Lokey’s Chief Executive Officer, Scott Adelson, Co-President and Co-Head of Corporate Finance, and Lindsay Alley, Chief Financial Officer of the company. They will provide some opening remarks, and then we will open the call to questions. And with that, I’ll turn the call over to Scott.

Scott Beiser: Thank you, Christopher. Welcome everyone to our fourth quarter fiscal 2024 earnings call. First of all, let me say how enjoyable it has been for the last 21 years to have the pleasure of leading Houlihan Lokey on its journey to become a world-class investment banking firm. I’m incredibly thankful to the thousands of employees, clients and shareholders who helped make this firm the success it is today. A special thanks to my co-executive officers, Scott Adelson, Lindsay Alley, Christopher Crain, Erwin Gold and David Preiser, as well as our entire global leadership team. The partnership we have developed over the decade has been extraordinary. I’m incredibly pleased to be handing over the CEO title to my long-term partner Scott Adelson and a growing team of outstanding managers to lead the firm in the years ahead.

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Q&A Session

I intend to remain involved with Houlihan Lokey, but in a different capacity, to assist Scott and others in our continuing effort to build the best investment banking firm in the world. Now on to the business update. We ended the quarter with revenues of $520 million and adjusted earnings per share of $1.27. Revenues were up 17% and adjusted earnings per share were up 14% compared to the same quarter last year. We also ended our fiscal year with revenues up 6% versus last year, a good result in a challenging market. One of our firm’s strengths is our diversified business model. Over the past year, in an otherwise sluggish M&A market, our corporate finance and financial and valuation advisory businesses were relatively stable while our financial restructuring business grew.

We begin the new fiscal year with momentum in all three of our business lines and remain optimistic that improving market conditions will continue throughout the year. As previously described, after reaching what we believe was the trough in the M&A markets in the spring of 2023, our corporate finance business has been steadily improving ever since. Some of the highlights in our last quarter include $288 million in corporate finance revenues, representing our highest fourth quarter corporate finance revenues in three years, $155 million in financial restructuring revenues, representing our second highest quarterly revenues ever in restructuring, and $77 million in financial and valuation advisory revenues, also representing our second highest quarterly revenues ever in FVA.

Overall, the market for our corporate finance and FVA businesses is steadily improving. Financing continues to be available in the marketplace, albeit at higher rates than in the last few years. Financial sponsors are gradually re-entering the market, and we have seen an uptick in opportunities to sell private equity portfolio companies. Our pipeline of opportunities and backlog in corporate finance continues to grow as does the size of our transactions. When the timeframe to complete transactions returns to historical norms, it will have a further positive impact on performance. Our financial restructuring business remains at elevated levels, and we reiterate our expectations that these elevated levels will continue through fiscal 2025, albeit with some level of quarterly volatility.

In the quarter, we hired 11 new managing directors, a recent high water mark. Those hires were partially offset by mostly planned departures. In our current quarter, we are pleased to announce the promotion of 14 directors to managing director, and the closing of the Triago acquisition, which added seven managing directors to our capital markets business. I would like to close my comments today by introducing you to Scott Adelson. Many of you know that Scott has been a partner of mine in the leadership of the firm to the last 20 years. I’ve asked Scott to join this call and participate in the Q&A, and starting next quarter, you will hear from Scott as Houlihan Lokey’s new CEO. With that, I will hand it over to Scott for a few additional comments.

Scott Adelson: Thank you, Scott. I’m honored to be asked to hold this important position at Houlihan Lokey and want to thank Scott and the board of directors for entrusting me with this role. Our team of executives has been managing this firm for over a decade. We have set out a vision of what we wanted this firm to be, and we have been executing on that shared vision for as long as I can remember. I intend to continue down the same path with my colleagues with the goal of creating the finest independent investment banking firm in the world. This transition is happening at a unique time in our firm’s evolution. We are merging from two years of a sluggish M&A market with a record number of senior bankers, strong backlog, momentum in all three of our business lines, increasing market share around the world, and the best shareholder base in our category.

While, I have had the pleasure of spending time with a number of you, I look forward to working with all of you in this new role, and thank you for your continued support of Houlihan Lokey. And with that, I will hand it over to Lindsay.

Lindsey Alley: Thank you, Scott. Revenues in corporate finance were $288 million for the quarter, up 12% when compared to the same quarter last year. We closed 121 transactions in this quarter, a high for fiscal 2024, and our average transaction fee was higher for the quarter versus the same quarter last year. Financial restructuring revenues were $155 million for the quarter, and 29% increase versus the same period last year. We closed 35 transactions in the quarter compared to 38 in the same quarter last year, but our average transaction fee on closed deals increased significantly. As we’ve mentioned in the past, given the nature of the business, revenues in our financial restructuring business can be lumpy quarter-to-quarter.

This quarter benefited from some larger transactions and favorable timing. In financial and valuation advisory, revenues were $77 million for the quarter, a 14% increase from the same period last year. We had 1,025 fee events during the quarter compared to $957 million in the same period last year. Turning to expenses. With higher revenues, our adjusted compensation expenses were $220 million for the quarter versus $274 million for the same period last year. Our only adjustment was $9.4 million for deferred retention payments related to certain acquisitions. In both fiscal 2024 and 2023, our adjusted compensation expense ratio for the fourth quarter and fiscal year was 61.5%. We expect to maintain our long-term target of 61.5% for our adjusted compensation expense ratio.