Houlihan Lokey, Inc.

Now everyone should have access to our first quarter fiscal year 2025 earnings release, which can be found on the Houlihan Loki 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-Q for the quarter ended June 30th, 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 Adelson, Houlihan Loki's Chief Executive Officer, and Lindsay Alley, Chief Financial Officer. They will provide some opening remarks, and then we will open the call to questions. With that, I'll turn the call over to Scott.

Thank you, Christopher. Welcome, everyone, to our first quarter fiscal 2025 earnings call. We ended the quarter with revenues of $514 million and adjusted earnings per share of $1.22. Revenues were up 24% and adjusted earnings per share were up 37% compared to the same quarter last year. We began the new fiscal year with strength in all three of our business lines, and we concluded the first quarter with a solid increase in corporate finance, improving financial and valuation advisory services, and continue elevated levels of financial restructuring revenues. Overall, we remain optimistic the current market conditions will drive improved M&A activity throughout the year, even as macro elements of uncertainty, including the interest rate environment and U.S. presidential elections persist. Corporate finance produced $328 million in revenues for the quarter, a 45% increase over last year's first quarter, and our highest first quarter corporate finance revenues ever. Key metrics for our corporate finance business continue to see steady improvement. Our transaction size and average fee per transaction is increasing, especially outside the U.S. The average close rate on transactions is increasing, and the time it takes to close a transaction is seeing slight improvements. though still lengthier than historical norms. As long as these trends remain, we should see improvement in our corporate finance business versus the same periods last year. Finally, capital providers in the middle market are aggressively seeking to deploy capital, benefiting middle market M&A and resulting in a strong start to the year for our capital markets business. Financial restructuring produced 117 million in revenues for the first quarter, the second highest first quarter revenue for this business. As we have mentioned in previous calls, for fiscal 2025, we expect our financial restructuring business to perform similarly to the first three quarters of fiscal 2024. These elevated levels of financial restructuring activity are supported by persistently higher interest rates, political dislocation, especially in Europe, and accelerated refinancings due to corporate maturities occurring over the next couple of years. However, as general market conditions continue to improve, some of this restructuring activity could turn into healthy refinancing activity, and our capital markets business is well positioned to take advantage of this opportunity. Financial and valuation advisory produced 68 million in revenues for the first quarter, a 4% increase versus the first quarter last year. Many of the same underlying trends that are affecting our corporate finance business are starting to positively impact our FBA business. Our less cyclical services, like portfolio valuation, have continued to perform well throughout this challenging economic backdrop. while our more pro-cyclical businesses have started to gain momentum. In the quarter, we completed the acquisition of Triago, making a significant expansion of our private funds capabilities and adding seven managing directors to our business. The team has had positive early momentum and success in marketing our new fully integrated capabilities across primary, secondary, directs, and GP advisory markets. More than 70 finance professionals now make up our private funds practice globally, positioning us to be a holistic advisor across products and geographies. In total, we added 27 new managing directors in the quarter, hiring six new managing directors in addition to the seven who joined us through the Triago transaction. And we would like to congratulate the 14 managing directors who were promoted from director during the first fiscal quarter as part of our year-end process. Also, as part of the year-end process, we had 11 mostly planned managing director departures. We continue to see a very strong hiring market for new senior talent and a steady flow of new candidates as we add to the most talented workforce in our firm's history. We are optimistic about fiscal 2025 given the signs of improving M&A and capital markets activity. Given the investments we have made across our businesses over the last several years, we are especially well positioned to capitalize on this recovery as it unfolds. Lindsay, over to you. Thank you, Scott. Revenues in corporate finance were $328 million for the quarter, up 45% when compared to the same quarter last year. It closed 116 transactions this quarter, compared to 95 in the same period last year. And our average transaction fee was higher for the quarter versus the same quarter last year. Net restructuring revenues were $117 million for the quarter, a 5% decrease versus the same period last year. We closed 33 transactions in the quarter, compared to 30 in the same quarter last year, but our average transaction fee on closed deals decreased. 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. For financial and valuation advisory, revenues were $68 million for the quarter, a 4% increase from the same period last year. We had 847 fee events during the quarter, compared to 786 in the same period last year. Turning to expenses, our adjusted compensation expenses were $316 million for the quarter versus $256 million for the same period last year. Our only adjustment was $14.2 million for deferred retention payments related to certain acquisitions. Our adjusted compensation expense ratio for the first quarter in both fiscal 2025 and 2024 was 61.5%. We expect to maintain our long-term target of 61.5% for our adjusted compensation expense ratio. Our adjusted non-compensation expenses were 80 million for the quarter, an increase of 6% over the same period last year. This resulted in an adjusted non-compensation expense ratio at 15.6% for the quarter compared to 18.2% for the same period last year. On a per-employee basis, our adjusted non-compensation expense was 31,000 this quarter versus 29,000 for the same quarter last year. For the quarter, we adjusted out of our non-compensation expenses 3.5 million in non-cash acquisition related amortization, and 3.6 million for acquisition related costs, which was primarily related to the write-down of the assumed lease in New York as part of the Triago acquisition. We also had an adjustment of 500,000 pertaining to professional fees associated with streamlining our global organizational structure, also referred to as Project Solo. Our adjusted other income and expense produced income of approximately 5.1 million versus income of approximately $3 million in the same period last year. The improvement in this category was primarily due to a net increase in interest income. We adjusted out of other income and expense a loss of $828,000 related to the increase in value of an earn-out liability associated with one of our prior acquisitions. We treat all acquisition-related earn-outs at purchase price and adjust out of our P&L any significant changes in the value of these earn-outs. Our adjusted effective tax rate for the quarter was 31.2%, compared to 29.2% for the same quarter last year. The increase in our adjusted tax rate was driven primarily by increased non-deductible expenses for the quarter. We adjusted out of our GAAP effective tax rate a significant benefit that we received as a result of our stock vesting in the first quarter, and we also adjusted out a one-time reversal of a deferred tax asset. A long-term target for our adjusted effective tax rate is between 28 and 30%, and we expect fiscal 2025 to end up at the high end of that range. Turning to the balance sheet, as of quarter end, we had approximately $485 million of unrestricted cash and equivalents and investment securities. Our cash position declined this quarter as we paid a significant portion of our fiscal 2024 bonuses to employees in May. Also in our first quarter, We issued approximately 1 million new shares to employees as part of our fiscal 2024 year-end compensation, and we repurchased through Withhold to Cover approximately 800,000 shares during the month of May. And with that, operator, we can open the line for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. The first question comes from the line of Brennan Hawken with UBS. Please go ahead.