Q3 2025 Earnings Summary
- Restructuring business continues to perform better than expected and remains elevated, with interest rates remaining higher for longer supporting sustained activity in this segment. This suggests continued strong revenues from the Financial Restructuring division.
- Corporate Finance revenues grew approximately 24% compared to the same quarters last year, indicating a strengthening M&A environment and steady business growth. This consistent growth across quarters demonstrates improving market conditions and client confidence.
- Increased sponsor activity and dialogue suggest that transaction activity is picking up, particularly in the sponsor segment, which could drive further growth in the Corporate Finance business. The firm is feeling positive about where that's heading.
- Management predicts that restructuring revenues are unlikely to grow in the current market conditions, stating that "so long as the M&A markets are robust, it's just hard to grow a restructuring business" and they are "not comfortable saying there could be incremental growth."
- Transaction velocity in Corporate Finance is still below pre-pandemic levels, with management acknowledging that "it is continuing to improve... but we're not there yet," indicating potential slow growth in that segment.
- Increased competition in the private capital solutions space from larger banks could pose a threat to HLI's growth outlook, as management notes that "there is not a business we're in that doesn't have competition," and acknowledges that "there will obviously continue to be more players in the space."
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Non‑Compensation Expenses | Q4 2025 | no prior guidance | high single‑digit percentage | no prior guidance |
Adjusted Compensation Expense Ratio | FY 2025 | 61.5% | 61.5% | no change |
Adjusted Effective Tax Rate | FY 2025 | 28%–30% | 31%–32% | raised |
Seasonality in Revenue | FY 2025 | no prior guidance | 46% in H1 / 54% in H2 | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Elevated restructuring activity tied to higher interest rates | Previously emphasized from Q4 2024 to Q2 2025 as a major driver of revenue, fueled by “sick balance sheets” and high leverage. | Continues at elevated levels due to persistently higher rates, with caution on incremental gains. | Remains a core theme with strong but tempered outlook. |
Corporate Finance improvements vs. prolonged deal cycles | Showed steady growth in prior periods but was hindered by longer closing times; revenues increased steadily from Q4 2024 to Q2 2025. | Q3 2025 revenues up 36%; velocity improved but still not back to pre-pandemic levels. | Continuing to improve, though deal cycles remain elongated. |
Shifts in sponsor engagement as a driver of transaction activity | From Q4 2024 to Q2 2025, sponsor engagement grew, but was not always a major driver. | Sponsor activity has “materially picked up,” offering a positive future outlook. | Increasingly important growth factor. |
Strategic acquisitions (Prytania, Triago) expanding service offerings | Triago integration and Prytania discussed in earlier calls (Q4 2024–Q2 2025) to broaden global capabilities. | No mention in Q3 2025 of additional acquisitions or expansions. | Remains relevant historically, no new Q3 updates. |
Competition from larger banks in private capital solutions | Addressed in Q2 2025 as not significantly impacting mid-cap focus ; not explicitly mentioned in Q4 2024 or Q1 2025. | Acknowledged Goldman Sachs’s presence but minimal direct overlap. | Moderate competitive concern but no major effect on strategy. |
Integration challenges and Managing Director turnover | Q2 2025 noted slight decline in MD count offset by hiring; Q1 2025 showed departures vs. new hires. | No new information about MD turnover or integration challenges. | Issue dropped from Q3 discussion; not a current focus. |
Private funds business expansion introduced in Q1 2025 | Triago acquisition in Q1 2025 expanded private funds capabilities (primary, secondaries, directs). | Still highlighted in Q3 2025 as part of broader capital solutions with confidence in growth. | Continues to develop; seen as a strategic area of opportunity. |
Exposure to Europe (and tax implications) not mentioned after Q1 2025 | Q1 2025 noted higher taxes in UK/Germany; Q2 2025 cited foreign ops from Prytania’s UK base. | No discussion of European exposure or tax matters in Q3 2025. | Topic not revisited; overshadowed by other priorities. |
Financial and Valuation Advisory (FVA) growth concerns dropped in later periods | Steady growth from Q4 2024 to Q2 2025; initial concerns eased as revenues climbed. | FVA revenues up 14%; management optimistic on segment’s prospects. | Healthy performance, no major concerns cited. |
Evolving sentiment around restructuring (from strong growth to caution on incremental gains) | Q4 2024 was bullish, Q1–Q2 2025 added caution about further upside. | Remains robust in Q3 2025, but incremental expansion is uncertain. | Steady activity with a more measured outlook. |
Potential revenue impact from changes in interest rates on restructuring | Q4 2024–Q2 2025 highlighted high rates enabling defaults and creating restructuring mandates. | Elevated rates still drive activity, though leadership is uncertain about incremental upside. | Continues as key revenue driver with lingering caution. |
Longer-than-normal transaction closing times impacting revenue | Mentioned as prolonged in Q4 2024–Q2 2025 but improving, despite remaining above historical norms. | Closing times improved further in Q3 2025, though still not fully normalized. | Ongoing challenge but trending toward normal. |
Sponsor-driven transactions potentially shaping future growth | Cited from Q4 2024–Q2 2025 with gradual pick-up in sponsor deals. | Sponsor activity has “materially picked up,” hinting at a larger future impact. | Increasingly significant driver of growth. |
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Corporate Finance Growth
Q: How should we think about potential Corporate Finance revenue growth?
A: Executives indicated that Corporate Finance is experiencing steady improvements, with growth of roughly 24% in each of the first three quarters compared to last year, showing no acceleration but a continuation of progress. They expect this trend to continue, with historical seasonality patterns likely repeating, as they saw 46% revenue in the first half and 54% in the second half of fiscal '24, and anticipate similar seasonality this year. -
Restructuring Outlook
Q: Can restructuring revenues grow in calendar 2025?
A: Management noted that restructuring continues to perform better than expected and remains elevated due to higher interest rates. However, actual numbers depend on many factors beyond their ability to predict. They feel confident that restructuring activity will stay elevated for longer, but significant growth may be challenging if M&A markets remain robust. -
Acquisitions and Hiring Plans
Q: Will you do more deals and hiring in the next 12 months?
A: With improving markets, the company continues to find opportunities to acquire talent and companies. They are increasingly organized in pursuing acquisitions and are in dialogue with various parties, although timing depends on multiple factors. They have "better sonar" today and are "fishing where the fish are," suggesting more active engagement in potential acquisitions. -
Competition in Capital Markets
Q: Does increased competition threaten your capital markets growth?
A: While acknowledging competition, management believes the significant growth in private capital markets allows for continued expansion. They feel confident in their ability to grow meaningfully despite new entrants like Goldman Sachs, which they see competing more with larger firms, while Houlihan Lokey focuses on mid-cap companies. -
Deal Size Evolution
Q: Are you winning larger deals and increasing fees?
A: The company remains focused on the mid-cap space but continues to see a steady year-over-year increase in both deal sizes and fee sizes within that segment. This trend has been directionally correct for a long time and is expected to continue. -
Non-Compensation Expense Guidance
Q: What's the outlook for non-compensation expenses next quarter?
A: Management expects non-compensation expenses to grow at a high single-digit rate in the fourth quarter compared to last year. The current quarter benefited from timing and other favorable factors, but they anticipate returning to the previous growth trend. -
Sponsor Activity Momentum
Q: Is sponsor activity picking up more than overall M&A?
A: Sponsor activity and dialogue have picked up materially, with sentiment showing significant improvement. This increase appears to be even more pronounced than the gradual improvement seen in the broader M&A environment. -
Transaction Velocity
Q: Is transaction velocity back to pre-pandemic levels?
A: Transaction velocity is continuing to improve but has not yet returned to pre-pandemic levels. Management believes it will take time to reach traditional levels, as people are gradually re-engaging in deal-making. -
Regional Differences in Corporate Finance
Q: Are you seeing different engagement levels by region?
A: Engagement is picking up across all regions, including North America, Europe, and Asia. While certain pockets may be moving faster at times, overall improvement is observed globally. -
Impact of Tariffs and Administration Change
Q: How will the new administration and tariffs affect mid-market M&A?
A: The overall environment, with people being more receptive to M&A, is helpful regardless of deal size. The company has not been as negatively impacted by regulatory changes affecting large-cap transactions. Shifts like tariffs will yield winners and losers, but their diversified industry and geographic presence helps mitigate risks. -
Liability Management and Restructuring
Q: How does liability management activity affect restructuring outlook?
A: While the tendency for companies undergoing liability management transactions to file Chapter 11 later does factor into their outlook, it's just one piece of the puzzle. Elevated interest rates have led to more distressed balance sheets needing attention, and they feel confident restructuring activity will remain higher for longer.