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HL

HOULIHAN LOKEY, INC. (HLI)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY2025 revenue rose 24% YoY to $634.4M, with diluted EPS $1.39 and adjusted diluted EPS $1.64; strength was broad-based across Corporate Finance (+36% YoY), Financial Restructuring (+2%), and Financial & Valuation Advisory (+14%) .
  • Sequential momentum continued: revenue increased vs Q2 FY2025 ($575.0M) and Q1 FY2025 ($513.6M); adjusted non-comp ratio improved to 13.1% (Q2: 14.1%, Q1: 15.6%), while the GAAP effective tax rate rose to 34.3% and adjusted to 33.3% .
  • Management highlighted improving M&A/capital markets sentiment and sustained elevated restructuring; outlook is optimistic for the balance of FY2025 and positive for FY2026; dividend maintained at $0.57 for Q4 FY2025 .
  • Consensus (S&P Global) EPS and revenue estimates for Q3 FY2025 were unavailable at time of retrieval due to SPGI request limits; comparison vs Street cannot be made at this time (Values would be retrieved from S&P Global).

What Went Well and What Went Wrong

What Went Well

  • Corporate Finance delivered $421.6M (+36% YoY), with closed transactions up to 170 and improved close rates, time-to-close, and new business generation; “we have entered our last fiscal quarter with continued momentum across all 3 of our business lines” .
  • Financial Restructuring held elevated revenue at $130.9M (+2% YoY), with management confident backlog will sustain higher-for-longer activity amid elevated rates; “we continued to generate enough new business to maintain our backlog” .
  • Adjusted operating leverage showed progress: adjusted non-comp ratio fell to 13.1% (from 16.1% a year ago), adjusted other income improved (~$9M), and adjusted operating income reached $161.3M .

What Went Wrong

  • Effective tax rate increased: GAAP ETR to 34.3% (from 31.0% YoY) and adjusted ETR to 33.3% (from 30.3% YoY), driven by increased state taxes and non-deductible expenses; FY adjusted ETR now expected at 31–32% (higher than earlier indications) .
  • Average transaction fee declined in CF and FR due to mix effects despite higher volumes, modestly tempering revenue per deal; management emphasized this does not represent a trend in fees .
  • GAAP other income was a headwind (-$9.0M), partly from fair value changes and other items; adjusted “other income and expense” improved but GAAP remained negative .

Financial Results

Consolidated Results vs Prior Quarters

MetricQ1 FY2025Q2 FY2025Q3 FY2025
Revenue ($USD Millions)$513.609 $574.957 $634.428
Diluted EPS ($)$1.30 $1.37 $1.39
Adjusted Diluted EPS ($)$1.22 $1.46 $1.64
Operating Income (GAAP, $USD Millions)$95.568 $130.669 $136.102
Operating Income (Adjusted, $USD Millions)$117.410 $140.479 $161.253
Effective Tax Rate % (GAAP)10.9% 31.3% 34.3%
Adjusted Effective Tax Rate %31.2% 31.3% 33.3%
Adjusted Compensation Ratio %61.5% 61.5% 61.5%
Adjusted Non-Comp Ratio %15.6% 14.1% 13.1%

Segment Revenue Breakdown

Segment Revenue ($USD Millions)Q1 FY2025Q2 FY2025Q3 FY2025
Corporate Finance$328.417 $364.028 $421.602
Financial Restructuring$117.422 $131.568 $130.942
Financial & Valuation Advisory$67.770 $79.361 $81.884

KPIs and Capital

KPI / CapitalQ1 FY2025Q2 FY2025Q3 FY2025
CF Closed Transactions (#)116 131 170
FR Closed Transactions (#)33 33 41
FVA Fee Events (#)847 903 1,005
Cash & Investment Securities ($USD Millions)$485 $748 $903
Dividend per Share ($)$0.57 (Q2 payable Sep 15, 2024) $0.57 (Q3 payable Dec 15, 2024) $0.57 (Q4 payable Mar 15, 2025)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted Effective Tax Rate (%)FY2025“High end” of 28–30% range 31–32% Raised
Non-Comp Expense GrowthQ4 FY2025 (YoY)High single digits (ongoing commentary) High single digits (reaffirmed) Maintained
Adjusted Compensation Ratio (%)Long-term target61.5% 61.5% (maintained) Maintained
Dividend per Share ($)Q4 FY2025$0.57 (prior sequential quarters) $0.57 declared, payable Mar 15, 2025 Maintained
Seasonality (Revenue weighting)FY2025Historical ~46% H1 / 54% H2 proxy Expect similar seasonality Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 FY2025)Previous Mentions (Q2 FY2025)Current Period (Q3 FY2025)Trend
Corporate Finance momentumHighest first-quarter CF revenues; time-to-close slightly improving but still long Improving metrics; longer timelines to close; strong deal flow since Labor Day CF +36% YoY; improved close rates, time-to-close, and volume; broad-based across geographies/clients Improving
Restructuring elevatedExpect similar elevated levels to FY2024; supported by higher rates/political dislocation Strong quarter; elevated into fiscal 2026; activity strong Elevated; backlog maintained; likely “higher for longer,” limited growth if M&A robust Sustained elevated
Private Capital / Capital MarketsAggressive middle-market capital deployment; Triago acquisition ramps Capital Markets performed very well; private capital strength; Triago integration Continued investment/hiring in private capital; competitive landscape manageable Strengthening
Regional trendsEurope lagging US but picking up; global diversification benefits Broad-based momentum; more companies going to market Pickup across geographies; portfolio effect mitigates tariff/regulatory shifts Broad-based improvement
Tax rate trajectoryAdjusted ETR 31.2%; LT target 28–30% FY2025 at high end of 28–30% Adjusted ETR now 31–32% for FY; timing driving Q3 uptick Rising
Transaction fees mixCF/FR average fee decreased due to mix (not trend) noted in CF/FR FR average fees increased; CF average fees increased; mix effects CF/FR average fees modestly decreased due to mix; not a trend Mixed, mix-driven

Management Commentary

  • “We ended the quarter with revenues of $634 million and adjusted earnings per share of $1.64… we have entered our last fiscal quarter with continued momentum across all 3 of our business lines… outlook for fiscal 2026 is positive.” — Scott Adelson, CEO .
  • “Our adjusted compensation expense ratio… was 61.5%, and we expect to maintain our long-term target of 61.5% for this ratio.” — J. Lindsey Alley, CFO .
  • “We expect our adjusted effective tax rate for the full fiscal year to settle between 31% and 32%.” — J. Lindsey Alley, CFO .
  • “Financial Restructuring… continues to benefit from record leverage and persistently higher interest rates… we continued to generate enough new business to maintain our backlog.” — Scott Adelson, CEO .
  • “We added 17 new managing directors in the quarter, 14 through acquisitions and 3 through individual hires.” — Scott Adelson, CEO .

Q&A Highlights

  • Corporate Finance outlook and seasonality: Management expects typical 46%/54% first-half/second-half seasonality similar to history, but refrained from specific March-quarter commentary; confidence supported by improving sentiment post-election .
  • Restructuring trajectory: Elevated levels expected to persist; growth difficult in robust M&A environments, but holding revenues flat is viewed positively; higher-for-longer rates support continued activity .
  • Capital Markets competition/private capital: Competition acknowledged across the space; HLI’s focus remains mid-cap; private capital ecosystem growth supports continued expansion and hiring .
  • Non-comp expense guidance: CFO reaffirmed high single-digit YoY growth for Q4 non-comp, noting favorable timing benefits in Q3; adjusted non-comp ratio improved to 13.1% .
  • Acquisition pipeline/capital allocation: Ongoing dialogues; disciplined, culture-fit focus; capital allocation priorities remain dividend first, acquisitions second, share count maintenance third .

Estimates Context

  • S&P Global consensus for Q3 FY2025 EPS and revenue was unavailable due to request limits at retrieval time; therefore, we cannot assess beats/misses versus Street for this quarter (Values would be retrieved from S&P Global).
  • Given sequential and YoY momentum, sell-side models may need to reflect: higher FY adjusted ETR (31–32%), improved adjusted non-comp ratio trajectory, and sustained restructuring revenues despite strengthening M&A .

Key Takeaways for Investors

  • Broad-based strength with CF +36% YoY and adjusted EPS $1.64 suggests improving deal flow and execution; momentum spans geographies and sponsor/strategic clients .
  • Adjusted non-comp ratio fell to 13.1% while comp ratio held at 61.5%, indicating operating discipline; CFO reaffirmed long-term comp ratio target .
  • Tax headwind: FY adjusted ETR raised to 31–32%; near-term EPS could be dampened vs prior assumptions, even with stronger revenue .
  • Restructuring remains elevated and likely sustained, offering earnings ballast while CF/FVA benefit from improving M&A and capital markets; mix-driven fee variability should be monitored but is not viewed as trend .
  • Private capital remains a key growth lever; continued hiring and platform expansion (e.g., veteran MD addition) point to share gains in mid-cap financing solutions .
  • Dividend durability: $0.57 declared for Q4 FY2025; HLI continues to prioritize dividends, then acquisitions, then maintaining share count — supportive for income-focused holders .
  • Near-term setup: seasonality implies a stronger fiscal Q4; watch for sustained transaction velocity improvements and backlog conversion; absent consensus data, stock reaction likely hinges on narrative strength around CF momentum and FY tax reset .

Additional Documents Reviewed (Q3 FY2025 Window)

  • Q3 FY2025 8-K 2.02 and press release: revenue/EPS detail, segment KPIs, dividend declaration, balance sheet .
  • Q3 FY2025 earnings call transcript: management tone, drivers, guidance updates, Q&A clarifications .
  • Relevant press releases: Veteran MD hire in Capital Markets (Jan 27, 2025), reinforcing private capital growth strategy .

Prior Two Quarters (Trend Analysis Sources)

  • Q2 FY2025 press release and call: revenue $575.0M; adjusted EPS $1.46; capital markets strength; restructuring elevated into FY2026; dividend $0.57 .
  • Q1 FY2025 press release and call: revenue $513.6M; adjusted EPS $1.22 (GAAP tax benefit); CF highest first-quarter; time-to-close modestly improving; dividend $0.57 .