Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Houlihan Lokey Inc (HLI, Financial) reported a 23% increase in revenues to $575 million and a 32% rise in adjusted earnings per share to $1.46 compared to the same period last year.
- Corporate Finance revenues increased by 29% year-over-year, driven by improvements in the M&A markets and strong new business generation.
- Financial Restructuring revenues rose by 15% year-over-year, with strong new business activity in both large cap and middle market opportunities.
- The Financial and Valuation Advisory segment saw a 12% increase in revenues, supported by growth in non-cyclical business lines and a rebound in M&A-related services.
- The company successfully integrated recent acquisitions, such as Triago and Prytania Solutions, enhancing its capabilities in private capital and tech-enabled valuation services.
Negative Points
- Despite improvements, the transaction velocity in Corporate Finance remains slower than in previous recoveries, with longer timelines to close deals.
- Interest rates, although lower than recent peaks, remain high, posing challenges to clients' financial performance.
- Geopolitical volatility, including potential conflicts in the Middle East and Ukraine, and the upcoming U.S. presidential elections add complexity to the business outlook.
- The adjusted effective tax rate increased to 31.3% from 28.4% in the same quarter last year, primarily due to higher state and foreign taxes.
- Adjusted non-compensation expenses rose by 7% year-over-year, impacting the overall expense ratio.
Q & A Highlights
Q: Can you discuss the outlook for Corporate Finance and any potential risks to seasonality in the fourth quarter?
A: Scott Adelson, CEO, noted that Corporate Finance has been improving consistently, with more companies going to market. However, external factors like geopolitical conflicts and the U.S. election could impact this trend. The transaction closing period remains longer than usual but is gradually shortening.
Q: Could you elaborate on the strategic rationale behind the Prytania Solutions acquisition?
A: Scott Adelson, CEO, explained that Prytania Solutions enhances their portfolio valuation business with superior technology, particularly in structured products. The acquisition, based in the UK, also helps expand their business outside the U.S., offering potential synergies across other areas over time.
Q: How should we view the contribution of the Capital Markets business to Corporate Finance, especially after recent acquisitions?
A: J. Lindsey Alley, CFO, stated that the Capital Markets business typically contributes 15-20% of Corporate Finance revenues annually. Recent momentum in M&A and the integration of Triago support this range, depending on the pace of M&A recovery.
Q: What is the impact of the current interest rate environment on restructuring opportunities?
A: Scott Adelson, CEO, mentioned that the elevated interest rate environment continues to present restructuring opportunities due to many companies with distressed balance sheets. This trend is expected to persist, supporting their restructuring business.
Q: How does the election impact your business, particularly with small businesses?
A: Scott Adelson, CEO, noted that clients are not waiting for election outcomes to make decisions, continuing to engage in transactions. J. Lindsey Alley, CFO, added that their mid-cap focus and industry diversification mitigate regulatory pressures, with capital gains being a primary concern for clients.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
