Houlihan Lokey (HLI) 26 Oct 232024 Q2 Earnings call transcript

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Houlihan Lokey's Second Quarter Fiscal Year 2024 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today, October 26, 2023. I will now turn the call over to Chuck Yamarone, Houlihan Lokey's Chief Compliance Officer. Please go ahead.

hello, and operator, you, everyone. Thank website should By second found access the Lokey, our have fiscal now, on Relations year Houlihan be you quarter can XXXX to which in all earnings section. www.hl.com at the Investor release,

operating statements formal materially forward-looking as we include performance. These the refer for to remind therefore, subject today These recent could quarter when results to filings, expect, use you We identified cause will, should more Form regulatory condition. not the by we or guarantees caution with the forward-looking a XX-Q risks investors September impact anticipate, statements, interpreting exercise the of we uncertainties everyone Before to our We of remarks, SEC need review such our SEC. expect. all the that other our ended encourage when our are and future discussion risks to usually should filings numerous phrases and and words actual is begin similar discussion filed them. of results detailed statements. will from financial of And you which are that for could XX, that the including to future it differ on what XXXX, relying are

directly isolation will Officer; over hl.com Chief call some company's our call GAAP. today's opening is we to performance. A and the in call investor measures our a Scott we financial we as Lindsey GAAP the these the Officer company. Chief be These measures the then non-GAAP remarks, most with considered in will website. Hosting Scott. Financial in financial discuss useful measures, not substitute Executive During prepared I'll reconciliation evaluating Alley, call, Beiser, They to turn open the today, financial in Houlihan of or available questions. With release presentation will results measures on can which to provide the we have for that, believe and should the Lokey's and accordance our of comparable earnings be

our Revenues earnings the Welcome, Thank $X.XX. adjusted $XXX share the earlier. to adjusted down per earnings quarter down of of from year share and quarter you, earnings X% million were everyone, quarter We Chuck. were call. and fiscal with ended per second revenues X% a XXXX

XX% However, to earnings per up in quarter, were were share up and comparison revenues June the XX%. adjusted

the world's enabled range million consistently revenues last in and produce model quarterly the to $XXX our quarters with million. has financial results, Over diversified of a a us X $XXX challenging during business in time to markets, steady

Our business measured activity but in sidelines and market Financial their the in environment. previous renewed clients and testing continue with optimism. The with that conditions than slow some on deal see to current result in of pace a XX at have capital our improvement in shown a fiscal and for M&A improvement third markets. We business exit commentary in from April, to from interest consistent financial we enter client sitting Consistent as experience momentum, after is for our since Corporate environment quarter likely result a Advisory is results market in improving, Finance Valuation improvement and this more a months. confidence and improving market quarter, the our we

of events, early spring in the war a recent late have and we and rates, Israel However, rising the in including market stock summer. experienced stalled interest momentum some slowed

exist today. remain continue macro pressures we forward, optimistic improve, about will we to conditions Looking realistic that that are but the market

increase from produced last $XXX revenues Finance for but Corporate a was This the business prior million year period in quarter. decline the quarter. Our from an

of market, pressure interest is to see access business. Strategic markets get first, we new to maintenance experience Also, a improving are it their to to business business, this diligence. With and increased increased back in a market, by interest improving a space. and sponsors rebound, seeking stable financial portfolio a has fickle the also activity versus of transact in sellers into to limited resilient to level in in and solid continued by was year-over-year, business availability a Financial markets still the partners continued deal tempered of companies managers our This is improvements have business credit, Capital taking XXXX, value time service increased an capital driven buoyed is transactions market, and stock capital, we opportunities. are particularly debt deeper buyers result equity by up M&A months, several of in our For PE performance. due liquidity by slowly proposition desire from improving of coming in then back which line. Historically, calendar Markets than the capital are to this a mid-cap longer availability revenues harder M&A respect for resulting follows. close our showing

a path. similar follow We expect to this rebound

of business quarter, million. revenues Our strong $XXX another Financial had producing Restructuring

Restructuring benefit the markets. slowed the new interest and to While a higher of during result growth business maturity a debt from likely approaching in the fast continues rates quarter, business wall, capital improving

presence Europe, restructuring While off where in we causing to Asia our a and new the brand has bit, slowdown continued second have in none. restructuring we business leveled is and our U.S. business believe South strength seen market activity, market in America,

the same year drop in on in reported last for expect as X couple quarters. previous have FVA significant next previous than a from is cycle and of years of higher last said produced elevated result and we subsequent Valuation over calls, anything crisis, we experience since the to $XX have not the quarterly spike revenue this versus one-off in cycles. Financial experienced restructuring a but million the revenues we down Advisory we As revenues, quarter

lines previous the M&A FVA continue markets revenue we the overall in environment, are calendar lagging improvements Our seeing market XXXX. see are to to tied would momentum produce are to in an Corporate and M&A expect Finance but positive service in general results. If lines neutral the that M&A closings, service well this while in markets year our slow perform we increase

excess Although that sheet we to us of resumed in repurchases approach take the during had flexibility to market for arise. Also we that to remains conservative the balance quarter, directors cash attractive. to managing order and start a senior X quarter, of believe give share acquisitions we advantage this continue plenty new may take hiring bankers

we maximize that well turn I'll shareholders. And the conditions investment to to as senior improve, to Over resulted of with employees call we over market Lindsey. being our that, for well continue hires, have and added are We and benefit for our the prepared opportunity significant believe quarters, banking the to and X last value geographic expansions are acquisitions growth our in positioned platform.

year. Revenues for Finance closed the down XX% this the you, when quarter XXX were in Thank Scott. Corporate in to to quarter $XXX last compared last same XXX transactions We compared the million same year. quarter, period

declined average We for result same but count year. the last X% We the decrease during quarter size. Financial to quarter, compared quarter events transaction period the same revenues XX Advisory, period were Valuation million period This our the transaction same last our or value of XXX Restructuring deal in for XX year. fee last closed the slightly. In versus revenues our $XX transaction the any million of deals were XXX increased, was was versus in quarter the compared year. not a from XX% quarter quarter, same Financial on year, closed an last had increase in result average and trends last and same the for fee transaction in a fee lower fee quarter transactions the the year. Although mix the $XXX to

Turning to expenses.

the quarter the Our for adjusted same for compensation versus million $XXX $XXX last expenses year. quarter were million

only was adjustment to million Our payments deferred certain for $X.X related retention acquisitions.

fiscal fiscal was expect in XX.X%. long-term the a We do for second our to target adjusted adjusted and of Our ratio XXXX expense XXXX compensation change expense for compensation XX.X% our quarter both not ratio.

$X for million same for $XX non-compensation over ratio for non-compensation an XX.X% the quarter, the were but the in year, expense the million to resulted of ratio quarter the expenses expense This non-compensation of adjusted adjusted adjusted previous XX.X% from of an last flat quarter. compared period an basis, increase We per expenses, see $XX,XXX seasonality coming normally first than employee in the half in non-compensation higher a the modestly for with year. On non-compensation expense adjusted adjusted our last quarter quarter this our the typically per same employee second some same year. employee last versus $XX,XXX half. per was Our quarter

year. We to this continue expect that trend

adjusted was costs, acquisition, to fiscal quarter, which the we close transaction $X.X acquisition-related noncash expenses, Mile For of related to during our of related out For third $X.X million in Seven the GCA expected acquisition-related million our quarter. primarily the to is which majority non-compensation and the amortization,

income result this in the million period of of in cash Our to expense approximately on for of earn-out interest last adjusted expense, decreased income other We out higher category approximately higher interest our expense the a $X.X acquisition. was our quarter, across rates. income to of previous other a on the $XXX,XXX adjusted same the and $X.X an payment The related of balances income year. driven by million a improvement gain versus as globe an of and

of that quarter for our long-term the expect tax Our year. our range will tax We between our of the for adjusted XX.X% year but the higher was for maintain at XX.X%, rate effective we be and that tax to for same end effective the effective rate last compared XX% XX%, rate quarter range.

sheet. balance Turning to the

and investment had approximately unrestricted securities. of $XXX As equivalents of the we quarter and million cash end,

we price sheet program. XXX,XXX will our share to repurchase in As which repurchased a $X.XX past cash related year an the approximately November, share of will reduce pay -- XXXX our compensation significantly cash. In average this in part $XXX.XX reminder, to bonus per we quarter, deferred as at employees of shares fiscal balance

to conservative questions. and prioritizing repurchases the of strength line balance we We with opportunities are continue take in be can hiring this sheet advantage we share open able for a to market. And acquisition and to as approach that, flexibility to operator, take

[Operator comes Brennan Instructions] Hawken line The UBS. first of with from the question

to the Finance on wanted comments the start Corporate with market. I

environment been on the So -- totally appreciate challenging I'm fluid. curious and But your perspective has sponsors. about somewhat

seeing bit market. return in this, little year bit positive some here what Corporate maybe caution to sponsors Finance do to the outlook, that We're this I'm a a And have the it's added you the to seasonality slow with hearing think And to of expect about curious more reasonable MA been that line? you're there.

the sponsors. first on take well, I there. least think Brennan, X the there's I'll questions one at

in. several continue in We've over last that that participated with think asking processes. pitches conferences. in companies. to them the see their of industry We've in us interest that in terms doing start have started I sponsors see by number terms their an improved in attendance to of get to seen of we We that various seen we've our things portfolio months, really

what base employee [indiscernible] that start from sponsors getting eventually hear think, the the call all deal them X start we to think to is that capital. years that, going business. Having I all years they continue And that there experienced at ago. to X X into We the industry not years issues, in returning back some ago, of need ago, we the buy said pace there's I still from LPs they're

and something lawyers compensation also bankers probably -- providers, and and this are other or be more tax-related going by all the quarter. stand they're and the motivated XXXX, for host there's get quarters, Or once did for done think quarter pushing service reasons pace at accountants the will to for be they quite they where exactly industry were calendar of to where various XXXX, into X, unclear not what reasons. And the they again, quarter other as for the Houlihan from is improved to the quarter? XXXX they historically your soon So calendar say guess calendar on not a we'll remember was wouldn't operation? months Calendar find We do we long December normal happened, like know XXXX Lokey the quarter and could where know. on either. things And control we it's have best too but December maybe ago. And pretty for dissimilar what I I I as kind don't the always holds. X of I out next except out do the yet, question seasonality, has X, that slip know

what when continue? what fair. And decline That's to about behind expect that not speak in count that that the slip? quarter-over-quarter. or noticed drove you that it you'd Okay. to was whether Corporate was we think MD Or and down Finance, Could maybe

we are some year, So a XX well. it's is the time departures as some in -- maybe then And like. every occur the in think March in of wrong at they're always our platform, in September they level typically company, what outperforming and do, aren't we June that remember, the we MDs, I the -- And we'd where some to involuntary there quarter. that quarter, like subset small so we're period think talking a

the component. Offsetting number a yet. offers number just well MDs that started So that's the normal the September in we promoted as And but industry, been April, we not hired a quarter think other others of just in is, I like year-end obviously, June have quarter. as have new the accepted, that MDs, in of they we have much

So I a year. with promotions hirings. little effectively, And filling last over the departures external it's some of really our head count then just or typical similar is bit think through in of transition and incremental either pretty

comes James Yaro from the question Next with of Sachs. line Goldman

continue obviously, the restructuring, than could Lindsay. just I with start quarter rise. before, bit against rates quarter this, a we Scott and was the weaker Maybe which think to in little but

move curve end about its has impact long in restructuring? And opportunity how the and think set you So the improved? on the do the think of do you

pretty more it's be industry are think that maturity dynamics. is I the versus continues the couple albeit to bit probably ramp that for case things whole restructuring where foreseeable our is continuation think for the this States, for on to close level look in just we yes, for future. interest you at hard get States. of that most performing, the United are, where new the parts lumpy net-net of theme a outside was in did wall, now, do activity, a next higher in at operating sizable in up a may only longer, rates, there other found host it rates on and in note for was be for And I a higher good at quarter the And X of least probably as sometimes that, make of which the the United of we certain We've business, a or businesses slowdown interest the mentioned, business that expect us, projects it years not environment. just restructuring always good remarks, another. We least you will might

-- follow-up, the acquisitions the But It's to past that maybe it. want would as contemplate opens some Okay. increasing And the for up -- imagine revenue think recover. you slowly, a window as firms then perhaps you trough. I haven't however M&A it's continues more smaller of to just about to seen

thinking So maybe you could bolt-ons for about just talk about the potential how here? from you're

cover that? targets a been to been You've to want you of number do Lindsey, talking the we've acquisition pursuing.

robust Sure. ever Look, I think been. the pipeline is it's as as

a I is as want restructuring think our that have the for process firms we given And us, We that M&A if there's that. rushing management it. process you sure we we're practice we're one. that, normally in on is longer lack go through, like think rush this long important to there's the to particular. But don't to -- cultural fit. of And the very and a call I not that like suggested, acquisition of, it you doing to word, it it the for smaller better it's usually We make circumstances. recession, know a get teams. a We continues, don't a dating, tougher good

makes So be sense do that. speed and acquisitions some does nonorganic like an of part will parties I do think we a for to we move in but that growth. to continue continue at a have this, opportunities It important to both market our provide

of Next JMP question with comes Devin from the Securities. line Ryan

This them should you're catalyst will a getting leading runs what clients kind talk Or question. of Devin 'XX. Can wall as about the on take to action, how be up is is doing I activity activity and going just of lot Obviously, well. stepping expect the coming are for a to ahead to flurry proactively we meaning, we follow up talking I hope we've guess the of function of you Jenkins 'XX step-up you for in maturity and restructuring about a guys see just Alex been time Ryan. in out? that? to

well rate a a just it consistent crisis the as little our of mode, isn't interest I think, higher catch-up, comments, probably plain it's as with bit just world. a just

I think business. of see to you're flow a steady going more of

more And some try walls, do that things early proactively on. hit take some We'll maturity to a little companies they longer. before

versus rate. do the I years, seen today we've think to or couple XX difference an refinancings X higher that there major over are what didn't of the X but a interest ability exist even ago, months last is maybe at refinancings or

to interest -- sheet, business I we their necessarily financial struggles rate, the in with some is And doesn't which problem. to the come solution. continue in I companies reason for And world it years. today's and we and balance elevated So that think just and to in their solve will of results industry, have restructuring and in know to their have a plan couple results need the next -- them some causes maybe chat today's this some think

been That do Sure. just to market difference peers. If market is a to might just an see Thanks structurally of line your expense guess hold scenario ratio recover, example color. expenses, M&A this follow-up, on you I you on of for the business the take able sense. a particularly where non-middle to guys that makes have that higher? doesn't your models? as the you relative ratios, comp the have Or

No. now? earnings enough in compensation that. Are there course, conditions call how allow we're probably the we latter. our that I Of there conditions market And plans have mean, it's compensation market the is. run I us clearly no some like do change some that structural might on we're ratio. think one the to ratio? in, impact we flexibility in the to Are one confident differences suggest we that have in we

our consistent target, comfortable think are maintaining certainly been suggesting I still change the the last last over we've at tighter won't and so pretty several years we -- that this range. And we

add, [indiscernible] bullish our some and I just we we always through for bearish would business, there's very the the cash, about the have, our firm's we way business business, et very cycles. gone cycles stock And -- our the years. manage amount way of to of some the deferrals we think have partly whether We've XX diversity And business, cetera.

several never in adds foreseeable tight could at the there's we right for for do predict we've a now, point to how should like view for I quarters feels properly that's could that guess we're Lindsay things few happy payout compensation ratio. reasons think, But a we're we'll that ratio Expect have why the we've of last been we've future. But relatively business. to that payout our as change think that And -- our been us always is. with to running consistent range what that really it. I of And get had, what All a always very the compensation ratio right quarters in. be the range quite run of the we mentioned,

the from comes of Ken question line Worthington JPMorgan. Next with

up wanted the higher on impact middle rates M&A. long-term follow of I market on to

So financed the you X deal evidence impact X, we lasting But think or financed seeing you maybe good improving. portion we versus that they this maybe smaller large-scale will of in over deals next than are months. given having months year remarks have what ago. bit negative these of financing that again are prepared of And that -- Are activity, look equity? compare differently? And a cost XX to how M&A, X to debt I is higher out So financing possibly of more on higher market the availability as financing are middle sort guess costs market by maybe and that debt mentioned ago first, a or financial were, the does M&A? a middle deals as is about the the equities, and loans

there, So curious I your to thoughts. think but there's a hear bunch

Good Ken. Sure. question,

higher that in putting of others First In they kinds tougher in rate a normally capital, world all, we've the would. or to of do I when are interest a than think sponsors statistics all more excess debt these surveys. equity seen,

some equity on previous structure percentage So basis we've has capital a the than now the more percentage seen years. of in

that be So the comment. would first

in comment a space some equal it a kind valuation tied and call all lower to world, raised that of we'll a achieve principal IRRs rate and is that then was banks participate that, is of sponsors when standpoint private buyers we today interest obviously especially several into growing that we there this, second of being impact financing. things has are is the ever The ago. from debt find, in sellers are on is greater substantially And number at in in higher what is. think the It look years you environment. What nontraditional providing capital you amount it, mid-cap that than the by going

sellers with I impact the believe just the as have and rate. world a we're borrowers and So deals into to But it IRRs ultimately vantage stalled. valuations. that's that time kind some of interest higher have done it getting what entrants gets do point. new they and goes Yes, get deals when marketplace. same Yes, on should when points, comes on, the ultimately, therefore, completely closer and through seeing vantage And lenders and different that's closer buyers

those point. it closer the do that improving. And activity but to prior therefore, people said, is is pace like of to getting and reasons, at still, we maybe level the upon expected not closer previous see that I all increasing in quarterly the so calls, are probably equilibrium we suggest think we've periods, describe that I based tried do And

levels. sure thing peers And doing transaction, is Lokey I'm not typical any if of the than a what publicly traded one look different at Ken, type in terms versus would it's the leverage I add, take are of you our Houlihan equity.

doing significant you markets robust transactions very and the likely that either I does the a credit larger market, hearing transaction. bank a on behave slightly or difference that firm how Houlihan the than debt participants. high think might X public environment this private in the that's credit be all market And why is billion, syndicate more the from billion differently. is think different the versus been either private are market, $X just a yield $X The the I versus syndicate billion, capital bank or $X billion, market. Lokey views $X And markets has

Next Morgan with the Kenny line Stanley. from comes of question . Ryan

noncomp the color comment we second half around the the rate on Any there of think could puts on to high seasonally into year. So get, the and a expecting about the be heading in fiscal run should year? next side, noncomp there's and how it how higher the takes

mean, I don't a specifics. to want give there's I fair amount of public information.

are If X over noncomps, maybe X look bad COVID not the you even get a the unique. a a little XXXX. But and pre-COVID, at breakdown first ratio second look half the and and last a proxy. years, or was throughout last years, year you X sense, that's look versus at noncomp and or take you'll And XXXX they half, then at of X when

And among fair Is shift us then a tone where Is environment. of be as on quarter? segment slow the comments last that seeing negative it hear from a around Corporate client for hesitation exit And you or geography? the are group? the from a your to expecting pace most there so, this to certain more if Finance

just improvement. describe everybody has now, pushed I way a feels guess, some out well, like it meaningful it it getting And next several just we'll is keeps quarter when is, for felt, really start I quarters seeing the always would little.

that just be hit we year spring back views get from but than think can things of it's a that they is the that people slower pipeline and quarter ago, to pace the matter we of to improvement and are maybe that kind of And know, They're when I a thought the evidence are of been ourselves, and be just to do maybe longer going it's not What to do to pace ago. We are the probably a what -- things significant. from So line. necessarily the what improving we've improving. says have taking of what in time, lawyers, cycle, most eventually get finish think trough queue improvement, in then. backlogs, rather the in thought kind forecasting this our peers since talking things in only not just but

we'll starting dead deals We are getting amount of not any call, become from to to or get that longer just to taking significant close. hold deals, experiencing abnormal still hired they're deals

I think and a that that's view are different not description ago. today of were they necessarily our quarter meaningfully than the markets better the what

So building, but are lags pipeline's longer.

Yes.

the from line comes with Chubak Wolfe of Steven question Next Research.

in we're Steven. terms This and guess growth think get to sense is we or as O'Brien as would as get been what we feels on encouraging of I filling Brendan hearing can the you levels? the to a for here, based at like know to to back to that that M&A you is about when I exit in bit the us It's consistent worst last behind activity peers. But I what think a exit rate it's question, question. a it follow bottom start, or just at wanted up wanted from normal and you activity, tough but that's of rate I with on characterize what know today, we've

answer. in I that know we we'd be if guess really business another

be the improving things XXXX that if what from XXXX, will a to improve. But least at see describe harder environment you happen, what maybe much summer in at at XXXX. it a good I to the peak peak December caused of then we're we will XXXX, is to December you of coming the same pickup -- a if the that of declining from going and and COVID, lasted the don't about the in started process growth and or in to trough to happening rapidly year it's probably We And an is, improving. looked thing think by of of think for you that improving While a might. to trough velocity, thought X.X from that created years switch the

sees crystal it So out pace ball, the out that's see of maybe we going just to ago. It's is I X of the come of some same similarities our out came at -- guess years coming not super more that doldrums. this

guess I so then on restructuring, run And the so. the pointed right the rate know you next being or to context. past, or helpful $XXX in That's as you. Got million level for year that I

given in has in slowed, makes remarks sense which noted your improvement you the that However, prepared activity capital markets.

I markets XXXX on to and the a to is Or that you like to to rate? spoke So of in maturity the the a risk that debt potentially significant could to dynamics into just $XXX million sustain beyond? want present run -- earlier environment as whether improvement enough capital sense some get

to why of One, in logical it think things. still hugely a activity because changed. there. in doesn't it has the make factors impacting I'd restructuring there's say, macro slowdown X been sense new us are necessarily U.S. Nothing we lot a a the of in bit

you all the On patterns, markets the capital open. of are capital start improvement for Corporate market their side, not Finance fact when worst is with

it's necessarily you say, we've I should a restructuring to or we doesn't the have are As do while they're down, at. go continue because higher think but would just open restructuring open open rate hugely cause what refinancing be capital interest and business described, helpful than now, to more not hugely still markets to people more

of to in being is what So the capital the would -- I interest normalization restructuring as markets, because we where a don't rates see, I'll expect environment are. for while detriment call it, the

were the have substantially Feds to expecting, view down tone restructuring. is what a different were on not where somehow X that we'd years if bring rates ago, and close which is to thought conclusion happen, they a different if but going you anybody You have were to interest and

back today's session. would to like concludes Instructions] the floor I Scott [Operator to closing This Beiser over for question-and-answer comments. turn

we progress earnings thank updating quarter everyone this fiscal on to discuss call, for and you participating third our when XXXX winter. in fiscal coming our results forward quarter all second want I our for look we year XXXX to

Thank teleconference. concludes you. This today's

at your you lines disconnect may Thank your You participation. this time. for