Q4 2024 Houlihan Lokey Inc Earnings Call

Operator: Please stand by; we're about to begin. Good day, ladies and gentlemen, thank you for standing by and welcome to Houlihan Lokey's fourth quarter and fiscal year 2024 earnings. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference call is being recorded today, May 8th, 2020. I will now turn the call over to you. Thank you, operator, and hello, everyone.

Please standby we're about to begin.

Speaker Change: Good day, ladies and gentlemen, thank you for standing by and welcome to Houlihan Lokey fourth quarter and fiscal year 2024 earnings Conference call.

Operator: At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation and please note that this conference call is being recorded today may eight 2024, I will now turn the call over to the company. Please go ahead.

Operator: By now, everyone should have access to our fourth quarter and fiscal year 2024 earnings release, which can be found on the Houlihan Lokey 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 the use of words such as will, expect, anticipate, should, or other similar phrases, are not guarantees of future performance.

Speaker Change: Thank you operator, and Hello, everyone by now everyone should have access to our fourth quarter and fiscal year 2024 earnings release, which can be found on the houlihan Lokey website at www Dot H L Dot com in the Investor Relations section.

Operator: 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 conditions. We encourage investors to review our regulatory filings, including the Form 10-K for the year ended March 31, 2024, when it is filed with the SEC.

Operator: 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.

Operator: 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.

Operator: 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.

Operator: We encourage investors to review, our regulatory filings, including the Form 10-K for the year ended March 31, 2024, when it is filed with the SEC.

Operator: During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. However, these measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP.

Operator: 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.

Operator: A reconciliation of these measures to the most directly comparable GAAP measures is available in our earnings release, and our investor presentation on the H L Dot com website.

Operator: A reconciliation of these measures to the most directly comparable gap measures is available in our earnings release and our investor presentation on the HL.com website. Hosting the call today are Scott Beiser, Houlihan Lokey's chief executive officer; Scott Adelson, co-president and co-head of corporate finance; and Lindsey Alley, chief financial officer of the company. They will provide some opening remarks, and then we will open the call to questions. And with that, I'll turn the call over to Scott. Thank you, Christopher.

Operator: Hosting the call today, we have Scott Beiser, Houlihan Lokey as Chief Executive Officer, Scott Adelson co President and co head of corporate Finance and Lindsey Alley, Chief Financial Officer of the company. 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.

Scott Lee Beiser: Welcome, everyone, to our fourth quarter fiscal 2024 earnings call. First of all, let me say how enjoyable it has been for the last 21 years to have had the pleasure of leading Houlihan Lokey on its journey to become a world-class investment banking firm. I'm incredibly thankful to the thousands of employees, clients, and shareholders who helped make this firm the success it is today. A special thanks to my co-executive officers, Scott Adelson, Lindsay Alley, Christopher Crain, Erwin Gold, and David Pryor, as well as our entire global leadership team. The partnership we have developed over the past decade has been extraordinary.

Scott Lee Beiser: Thank you Christopher and welcome everyone to our fourth quarter fiscal 2024 earnings call first of all let me say, how enjoyable and has been for the last 21 years I've had the pleasure of leading houlihan lokey on its journey to become a world class investment banking firm I'm incredibly thankful to the thousands of employees clients.

Scott Lee Beiser: Shareholders, who helped make this firm the success. It is today a special thanks to my co executive officers, Scott Adelson Lindsey Alley, Christopher Crain, Erwin Golden David Prizer as well as our entire global leadership team. The partnership we have developed over the decade has been extra ordinary I'm incredibly pleased.

Scott Lee Beiser: I'm incredibly pleased to be handing over the CEO title to my long-term partner, Scott Adelson, and a growing team of outstanding managers to lead the firm in the years ahead. I intend to remain involved with Houlihan Lokey, but in a different capacity to assist Scott and others in our continuing effort to build the best investment banking firm in the world. Now on to the business update. We ended the quarter with revenues of $520 million and adjusted earnings per share of $1.27.

Scott Joseph Adelson: To be handing over the CEO title to my long term partner, Scott Addison and a growing team of outstanding managers to lead the firm in the years ahead.

Scott Lee Beiser: Tend to remain involved with little Handlock eat but in a different capacity to assist Scott and others in our continuing effort to build the best investment banking firm in the world.

Scott Lee Beiser: Revenues were up 17% and adjusted earnings per share were up 14% compared to the same quarter last year. We also ended our fiscal year with revenues up 6% versus last year, a good result in a challenging market. One of our firm's strengths is our diversified business model. Over the past year, in an otherwise sluggish M&A market, our corporate finance and financial and valuation advisory businesses were relatively stable, while our financial restructuring business grew.

Scott Lee Beiser: Now onto the business update.

Scott Lee Beiser: Ended the quarter with revenues of $520 million and adjusted earnings per share of $1 27.

Scott Lee Beiser: Revenues were up 17% and adjusted earnings per share were up 14% compared to the same quarter last year.

Scott Lee Beiser: We also ended our fiscal year with revenues up 6% versus last year, a good result in a challenging market.

Scott Lee Beiser: One of our firm's strengths is our diversified business model over the past year, and otherwise sluggish M&A market, our corporate finance and financial and valuation advisory businesses were relatively stable, while our financial restructuring business grew.

Scott Lee Beiser: We begin the new fiscal year with momentum in all three of our business lines and remain optimistic that improving market conditions will continue throughout the year. As previously described, after reaching what we believe was the trough in the M&A markets in the spring of 2023, our corporate finance business has been steadily improving ever since. Some of the highlights in our last quarter include $288 million in corporate finance revenues, representing our highest fourth quarter corporate finance revenue in three years.

Scott Lee Beiser: We begin the new fiscal year with momentum in all three of our business lines and remain optimistic that improving market conditions will continue throughout the year as.

Scott Lee Beiser: As previously described after reaching what we believe was the trough in the M&A markets in the spring of 2023, our corporate finance business has been steadily improving ever since some of the highlights in our last quarter include 288 million in corporate finance revenues, representing our highest fourth quarter corporate finance revenues in <unk>.

Scott Lee Beiser: Three years.

Scott Lee Beiser: $155 million in financial restructuring revenues, representing our second highest quarterly revenues ever in restructuring, and $77 million in financial and valuation advisory revenues, also representing our second highest quarterly revenues ever in FVA. Overall, the market for our corporate finance and FBA businesses is steadily improving. Financing continues to be available in the marketplace, albeit at higher rates than in the last few years.

Scott Lee Beiser: Third and $55 million in financial restructuring revenues, representing our second highest quarterly revenues ever in restructuring and $77 million in financial and valuation advisory revenues.

Scott Lee Beiser: Also representing our second highest quarterly revenues ever in SBA.

Scott Lee Beiser: Overall, the market for our corporate finance and FAA businesses is steadily improving financing continues to be available in the marketplace, albeit at higher rates than in the last few years financial sponsors are gradually reentering the market and we've seen an uptick in opportunities to sell private equity portfolio companies.

Scott Lee Beiser: Financial sponsors are gradually re-entering the market, and we have seen an uptick in opportunities to sell private equity portfolio companies. Our pipeline of opportunities and backlog in corporate finance continues to grow, as does the size of our transactions. When the time frame to complete transactions returns to historical norms, it will have a further positive impact on performance.

Scott Lee Beiser: Pipeline of opportunities and backlog and corporate finance continues to grow as does the size of our transactions when the timeframe to complete transactions returns to historical norms. It will have a further positive impact on performance.

Scott Lee Beiser: Our financial restructuring business remains at elevated levels, and we reiterate our expectations that these elevated levels will continue through fiscal 2025, albeit with some level of quarterly volatility. In the quarter, we hired 11 new managing directors, a recent high water mark. Those hires were partially offset by mostly planned departures.

Scott Lee Beiser: Our financial restructuring business remains at elevated levels and we reiterate our expectations at these elevated levels will continue through fiscal 2025, albeit with some level of quarterly volatility.

Scott Lee Beiser: In the quarter, we hired 11, new managing directors a recent high watermark those hires were partially offset by mostly planned departures in our current quarter. We're pleased to announce the promotion of 14 directors to managing director and the closing of the tree I'll go acquisition, which added seven managing directors to our capital.

Scott Lee Beiser: In our current quarter, we are pleased to announce the promotion of 14 directors to managing director and the closing of the Triago acquisition, which added 7 managing directors to our capital markets business. I would like to close my comments today by introducing you to Scott Adelson. Many of you know that Scott has been a partner of mine in the leadership of the firm for the last 20 years. I've asked Scott to join this call and participate in the Q&A, and starting next quarter, you will hear from Scott as Houlihan Lokey's new CEO.

Scott Joseph Adelson: <unk> business.

Scott Joseph Adelson: I would like to close my comments today by introducing you to Scott Allison.

Scott Joseph Adelson: Steve You know that Scott has been a partner of mine and the leadership of the firm for the last 20 years I've asked Scott to join this call and participate in the Q&A. Starting next quarter, you will hear from Scott as Houlihan Lokey as new CEO with that I will hand, it over to Scott for a few additional comments. Thank you Scott I'm honored to be asked to hold this important.

Scott Lee Beiser: With that, I will hand it over to Scott for a few additional comments. Thank you, Scott. I'm honored to be asked to hold this important position at Houlihan Lokey and want to thank Scott and the Board of Directors for entrusting me with this role. Our team of executives has been managing this firm for over a decade. We have set out a vision of what we want this firm to be, and we have been executing on that shared vision for as long as I can remember.

Speaker Change: Physician that houlihan lokey and want to thank Scott and the board of directors for Entrusting me with this role our team of executives has been managing this firm for over a decade, we have set out a vision of what we wanted this firm to be and we've been executing on that shared vision for as long as I can remember I intend to continue down the same.

Scott Lee Beiser: I intend to continue down the same path with my colleagues with the goal of creating the finest independent investment banking firm in the world. This transition is happening at a unique time in our firm's evolution. We are emerging from two years of a sluggish M&A market with a record number of senior bankers, a strong backlog, momentum in all three of our business lines, increasing market share around the world, and the best shareholder base in our category.

Scott Lee Beiser: Pat with my colleagues with the gold, creating the finest independent investment banking firm in the World. This transition is happening at a unique time in our firm's evolution. We are emerging from two years of a sluggish M&A market with a record number of senior bankers strong backlog momentum in all three of our business.

Scott Lee Beiser: Lines, increasing market share around the world and the best shareholder base in our category.

Scott Joseph Adelson: Well, I've had the pleasure of spending time with a number of you. I look forward to working with all of you in this new role. And thank you for your continued support of Houlihan Lokey. And with that, I will hand it over to Lindsey. Thank you.

Speaker Change: Well I've had the pleasure of spending time with a number of you I look forward to working with all of you in this new role and thank you for your continued support of Houlihan Lokey and with that I will hand, it over to Lindsay.

Lindsey: Thank you Scott.

Lindsey Alley: Revenues in corporate finance were $288 million for the quarter, up 12% when compared to the same quarter last year. We closed 121 transactions in this quarter, a high for fiscal 2024. And our average transaction fee was higher for the quarter versus the same quarter last year. National restructuring revenues were 155 million for the quarter, a 29% increase versus the same period last year. We closed 35 transactions in the quarter compared to 38 in the same quarter last year, but our average transaction fee on closed deals increased significantly.

Lindsey: Revenues in corporate finance were $288 million for the quarter.

Lindsey Alley: 12% when compared to the same quarter last year.

Lindsey Alley: We closed 121 transactions in this quarter.

Lindsey Alley: For fiscal 2024, and our average transaction he was higher for the quarter versus the same quarter last year.

Lindsey Alley: Restructuring revenues were $155 million for the quarter and 29% increase versus the same period last year, we closed 35 transactions in the quarter compared to 38 in the same quarter last year, but our average transaction fee on closed deals increased significantly as.

Lindsey Alley: 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. This quarter benefited from some larger transactions and favorable timing. In financial and valuation advisory, revenues were $77 million for the quarter, a 14% increase from the same period last year. We had 1,025 fee events during the quarter compared to 957 in the same period last year.

Lindsey Alley: 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. This quarter benefited from some larger transactions and favorable timing.

Lindsey Alley: In financial and valuation advisory revenues were $77 million for the quarter, a 14% increase from the same period last year, we had 1025 events during the quarter compared to 957 in the same period last year.

Lindsey Alley: Funding to expense. With higher revenues comes adjusted compensation expenses, which were $120 million for the quarter versus $274 million for the same period last year. Our only adjustment was $9.4 million for deferred retention payments related to certain acquisitions. In both fiscal 2024 and 2023, our adjusted compensation expense ratio for the fourth quarter and fiscal year was 61.5 percent. We expect to maintain our long-term target of 61.5% for our adjusted compensation expense ratio.

Lindsey Alley: Turning to expenses.

Lindsey Alley: With higher revenues, our adjusted compensation expenses were 320 million for the quarter versus 274 million for the same period last year are only adjustment was $9 4 million for deferred retention payments related to certain acquisitions.

Lindsey Alley: Both fiscal 'twenty 'twenty, four and 2023 our adjusted compensation expense ratio for the fourth quarter and fiscal year was 61, 5% we.

Lindsey Alley: We expect to maintain our long term target of 61, 5% for adjusted compensation expense ratio.

Lindsey Alley: Our adjusted non-compensation expenses were $81 million for the quarter, an increase of $13 million over the same period last year, but relatively flat compared with last quarter. This resulted in an adjusted non-compensation expense ratio of 15.6% for the quarter compared to an adjusted non-compensation expense ratio of 15.3% for the same period last year. On a per employee basis, our adjusted non-comp expense was $31,000 this quarter versus $26,000 for the same period last year.

Lindsey Alley: Our adjusted non compensation expenses were 81 million for the quarter, an increase of 13 million over the same period last year, but relatively flat compared with last quarter. This resulted in an adjusted non compensation expense ratio of 15, 6% for the quarter compared to an adjusted non compensation expense ratio of 15, 3%.

Lindsey Alley: For the same period last year.

Lindsey Alley: On a per employee basis, our adjusted non comp expense was 31000 this quarter versus 26000 for the same period last year.

Lindsey Alley: For the last couple of fiscal years, our adjusted non-compensation expense has grown significantly as we invested heavily in real estate and technology, our bankers returned to travel post-pandemic, and we experienced inflation across all of our non-comp categories. A significant increase in our employee headcount also contributed to increases in our non-compensation expense. For the fiscal year, on a per-employee basis, our adjusted non-compensation expense grew 8 percent, from $112,000 per employee in fiscal 2023 to $121,000 per employee in fiscal 2024.

Lindsey Alley: For the last couple of fiscal years, our adjusted non compensation expense has grown significantly because we invested heavily in real estate.

Lindsey Alley: Technology, our bankers returned to travel post pandemic and we experienced inflation across all of our non comp categories.

Lindsey Alley: The significant increase in our employee head count also contributed to increases in our non compensation expense for the fiscal year on a per employee basis. Our adjusted non compensation expense grew 8% from 112000 per employee in fiscal 2023 to 121000 per employee in fiscal 2024.

Lindsey Alley: We expect that absolute dollar growth in our non-compensation expense will moderate in fiscal 2025. For the quarter, we adjusted out of our non-compensation expenses $2.5 million in non-cash acquisition-related amortization, $1.3 million for acquisition-related costs primarily related to the Triago acquisition, which closed during our first quarter of fiscal 2025, and $3.5 million pertaining to professional fees associated with streamlining our global organizational structure, which we refer to as Project Solo, as we discussed on our last quarterly call. We are more than halfway through Project SOLO and expect that the bulk of the work will be completed by the end of calendar year 2024.

Lindsey Alley: We expect the absolute dollar growth in our non compensation expense will temper in fiscal 2025.

Lindsey Alley: For the quarter, we adjusted out of our non compensation expenses $2 5 million in noncash acquisition related amortization $1 3 million for acquisition related costs, primarily related to the triage of acquisition, which closed during our first quarter of fiscal 2025, and $3 5 million pertaining to prefer.

Lindsey Alley: <unk> PS associated with streamlining our global organizational structure, which we refer to as project solo as we discussed on our last quarter's call.

Lindsey Alley: We are more than halfway through projects solo and expect that the bulk of the work will be completed by the end of calendar year 2024.

Lindsey Alley: Our adjusted other income and expense produced income of approximately $5.8 million versus income of approximately $3.9 million in the same period last year. The improvement in this category was primarily due to a net increase in interest income generated by our investment securities. We also adjusted out of other income and expense a gain of approximately $9.6 million related to the reduction in value of an earn-out liability associated with one of our prior acquisitions.

Lindsey Alley: Our adjusted other income and expense produce income of approximately $5 8 million versus income of approximately $3 9 million in the same period last year. The improvement in this category was primarily due to a net increase in interest income generated by our investment securities. We adjusted out of other income and expense again.

Lindsey Alley: Approximately $9 6 million related to the reduction in value of an earn out liability associated with one of our prior acquisitions.

Lindsey Alley: We treat all acquisition-related earn-outs as 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 29.9%, compared to 28% for the same quarter last year. Our taxes increased year-over-year, primarily as a result of increased taxes due to our foreign operations.

Lindsey Alley: Treat all acquisition related earn outs as purchase price and adjust out of our P&L any significant changes in the value of these earn outs.

Lindsey Alley: Our adjusted effective tax rate for the quarter was 29, 9% compared to 28% for the same quarter last year, our taxes increased year over year, primarily as a result of increased taxes due to our foreign operations. Our long term targeted range for our adjusted effective tax rate is between 28 and 30%.

Lindsey Alley: Our long-term targeted range for our adjusted effective tax rate is between 28% and 30%. Turning to the balance sheet, As of the quarter end, we had approximately $759 million of unrestricted cash and equivalents and investment securities. As a reminder, a significant portion of our cash is earmarked to cover accrued but unpaid bonuses for fiscal year 2024 that will be paid this month and in November. Shares issued this month as part of our fiscal 2024 compensation will vest into the fully diluted share count over a four-year period from the date issued.

Lindsey Alley: Turning to the balance sheet.

Lindsey Alley: As of quarter end, we had approximately $759 million of unrestricted cash and equivalents and investment securities. As a reminder, a significant portion of our cash is earmarked to cover accrued but unpaid bonuses for fiscal year 2024 that will be paid this month and in November shares issued this month as part of our fiscal 'twenty 'twenty Court.

Lindsey Alley: Compensation will burst into the fully diluted share count over a four year period from the date issued.

Lindsey Alley: In this past quarter, we did not repurchase any shares in the open market. We continue to take a conservative approach to share repurchases as we are prioritizing balance sheet strength, liquidity, and flexibility to be able to take advantage of acquisition and hiring opportunities in this market. And finally, the board approved a 3.5% increase to our quarterly dividend to $0.57 per share. And with that, Operator, we can open the line for questions.

Lindsey Alley: This past quarter, we did not repurchase any shares in the open market. We continue to take a conservative approach to share repurchases as we are prioritizing balance sheet strength liquidity and flexibility to be able to take advantage of acquisition and hydro hiring opportunities in this market.

Lindsey Alley: Finally, the board approved a three 5% increase to our quarterly dividend to <unk> 57 per share.

Speaker Change: And with that operator, we can open the line for questions.

Operator: Thank you, Mr. Alley. Ladies and gentlemen, at this time, if you would like to ask a question, please press the star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question. We go first this afternoon to Brennan Hawken of UBS.

Speaker Change: Thank you Mr Alley, ladies and gentlemen at this time, if you would like to ask a question. Please press the star one on your telephone keypad, you may remove yourself from the queue at any time by pressing star to once again that is star one to ask a question. We go first this afternoon to Brennan hawken of UBS.

Brennan Hawken: Good afternoon, Scott and Lindsay. Thank you for taking my questions.

Brennan Hawken: Good afternoon, Scott and Lindsey. Thank you for taking my questions.

Brennan Hawken: Wanted to start with restructuring you spoke to the fact that there were larger deals and some timing that benefited the quarter, but could you take a step back and talk about the near term outlook for structure and it seems as though.

Scott Lee Beiser: I wanted to start with restructuring. You spoke to the fact that there were larger deals and some timing that benefited the quarter, but, you know, could you take a step back and talk about the near-term outlook for restructuring? It seems as though the environment is pretty solid from comments that some of your competitors have made. We hear a lot about the maturity level this year and in 2025. And so how should we be thinking about restructuring revenues and the potential for growth off the base to be established this year? Thanks.

Scott Lee Beiser: The environment is pretty solid can you comment on some of your competitors made you hear a lot about the maturity this year and in 2025, and so how should we be thinking about restructuring revenues and the potential for growth as the base to be established this year.

Scott Lee Beiser: Thanks.

Scott Lee Beiser: So, Brennan, it sounds like you're on some construction equipment. It was a little hard to hear you, but I think we got the gist of your question. I think the market environment for restructuring is similar to what we've seen really over the last couple quarters, as we've described. We think it's going to stay at an elevated level for a while, still driven by a number of companies that are going to need to implement some form of solution.

Speaker Change: So brendan it sounds like you're on some construction equipment.

Scott Lee Beiser: A little hard to hear you, but I think we got the gist of your question.

Scott Lee Beiser: I think the market environment for restructuring is similar to what we've seen really over the last couple of quarters. As we've described we think it's going to stay at an elevated level for a while still driven by a number of companies.

Scott Lee Beiser: That are going to need to do some form of our solutions and well there is some opening of the capital markets. As we've described it's still going to be at a higher interest rate environment and what they've experienced in the past so that isn't necessarily the solution that one's could've had before there's still all the technology disruptors that were occurring over the last couple of years.

Scott Lee Beiser: And while there is some opening of the capital markets, as we've described, it's still going to be in a higher interest rate environment than what they've experienced in the past. So, that isn't necessarily the solution that they could have had before.

Brennan Hawken: There are still all the technology disruptors, you know, that were occurring over the last couple years that are still continuing. We're seeing a lot of work, not only in the United States and Western Europe but really in other parts of the globe, as our restructuring franchise is one of the most global components of our firm. And we think we're just, not only ourselves, but probably the industry in general, is going to be in an uptick in this area for some time.

Brennan Hawken: That are still continuing we're seeing a lot of work not only in United States.

Brennan Hawken: <unk> and western Europe, but really in other parts of the globe.

Brennan Hawken: Our restructuring franchises one of the most global components of our firm.

Brennan Hawken: And we think we're just at not only ourselves, but probably the industry in general is going to be in an uptick in this area for some time, we do note. It is the most volatile of our businesses and so.

Brennan Hawken: We do note it is the most volatile of our businesses. And so, you know, we're going to have some quarters that are probably a little higher than normal, and some quarters maybe a little lower than normal. But we think kind of the operating level we've been at for a while is probably going to exist for the next year or two.

Brennan Hawken: We're going to have some quarters that are probably a little higher than normal in some quarters, maybe a little lower than normal but.

Brennan Hawken: But we think kind of the operating level, we've been at it for a while.

Brennan Hawken: Can exist for the next day, a year or two.

Scott Lee Beiser: Okay, got it. I switched it on. Sorry, I'm actually in an airport dealing with flight delays, so I switched off Bluetooth. Hopefully, it's a little easier to hear now. So, I appreciate all that color.

Speaker Change: Okay got it I I switched sorry, I'm actually I'm in airport [laughter] dealing with quite delayed so that.

Speaker Change: [laughter] switched off Bluetooth hopefully at school easier T. Here now so I appreciate all that color. Thank you for my follow up.

Brennan Hawken: Thank you for my follow-up. You know, FBA actually came in a little bit better, even though, quote, "thin" was a little lighter, and those businesses have historically moved together. Are you seeing an emergence of maybe some divergence between those two businesses, or maybe some greater resilience or unique drivers for the FBA business that could allow for that historical relationship to diverge a little, and we could see a little bit more strength in FBA, even though, quote, "Thin is still a bit of a waiting game"?

Brennan Hawken: No.

Brennan Hawken: F B, a actually came in a little bit better even though corp. Fin was a little lighter and in those businesses have historically moved together are you seeing an emergence of maybe some divergence in between those two businesses or maybe some greater resilience of our unique drivers to the SBA business that.

Brennan Hawken: Could allow for that.

Brennan Hawken: That historical relationship to diverge, a little and we could see a little bit more strength in that see a even the corp. Fin is still a bit of a waiting game.

Scott Lee Beiser: Yeah, I don't think so, Brennan. I think the measurement period's too short. I think one quarter doesn't tell the story. I think all of the sort of, you know, movement of SBA and corporate finance that we've talked about is still kind of consistent. There's been no structural change.

Speaker Change: Yeah, I don't think so Brad I think it's just the measurement periods to short I think one quarter doesn't tell the story I think all of this sort of.

Scott Lee Beiser: Movement of FCA in corporate finance that we've talked about is is it still kind of consistent theres been no structural change.

Brennan Hawken: Okay, great. Thank you for taking my question.

Brennan Hawken: Okay, great. Thank you for taking my questions.

Brennan Hawken: Thank you. We'll go next now to Devin Ryan of citizens JMP.

Operator: Thank you. We go next now to Devin Ryan of Citizens JMC. Hi, Scott, Scott, and Lindsey. This is Alex Jenkins stepping in for Devin Ryan.

Alexander Scott Jenkins: Hope you're all doing well. I guess just to start on the GCA acquisition that closed right before the market downturn. Can you talk about the momentum you're seeing in Europe today and how the GCA team has enhanced your offering and position in the market? Yeah, happy to do that. This is Scott Adelson.

Operator: Hi, Scott Scott and Lindsey This is Alex Jenkins stepping in for Devin Ryan Hope, you're all doing well I guess just to start on the G. C. A acquisition that closed right before the market downturn.

Scott Joseph Adelson: Can you talk about the momentum you're seeing in Europe today, and how the GCI team has enhanced your offering and our position in the market.

Scott Joseph Adelson: So clearly, the type of business that we are doing within Europe has evolved as a result of that transaction very materially. We have gone; our importance in the European marketplace has fundamentally changed as a result of that transaction. While we had an emerging business that was doing well prior to that acquisition, we are now kind of just steps behind, at least from a deal count standpoint, institutions that have been at it for hundreds of years longer than we have in Europe.

Alexander Scott Jenkins: Yeah happy to do that this Scott Adelson said.

Scott Joseph Adelson: Clearly the type of business that we are doing with in Europe has evolved as a result of that transaction very materially we have gone.

Scott Joseph Adelson: Our importance in the European marketplace is fundamentally changed as a result of that transaction, while we had an emerging business that was doing well prior to that acquisition. We are now it kind of just steps behind at least from a deal count standpoint.

Scott Joseph Adelson: Institutions that have been at it for hundreds of years longer than we have in Europe.

Scott Joseph Adelson: Awesome. Thank you for that, Collar. I guess, generally speaking, on sponsors, can you give us any insight into the dialogues you're currently having? I'm sure the conversations are picking up given where we are in the cycle, but just want to get a better sense of your expectations going forward from here. Thank you. The level of sponsor conversations does continue to pick up by the day and has been for quite some time. It really is the velocity of that and how quickly deals are working their way through the pipeline, but there clearly continues to be a steady increase in dialogues across the sponsor spectrum.

Speaker Change: Awesome. Thank you for that color I guess generally on sponsors can you give us any insight into the dialogues you're currently having I'm sure. The conversations are picking up given where we are in the cycle, but just wanted to get a better sense of your expectations.

Scott Joseph Adelson: Going forward from here. Thank you.

Scott Joseph Adelson: The the level of sponsor our conversations does continue to pick up buying today and has been for a while it really is the velocity of that debt and how quickly deals are working their way through the pipeline, but there is clearly continues to be steady increasing in dialogue.

Scott Joseph Adelson: Across the sponsor spectrum.

Alexander Scott Jenkins: Okay, great. Thank you guys so much. Thanks, Alex. We'll go next to Ken Worthington of JPMorgan.

Speaker Change: Okay, great. Thank you guys so much.

Kenneth Brooks Worthington: Thanks, Alex.

Alexander Scott Jenkins: Yeah.

Alexander Scott Jenkins: We'll go next now to Ken Worthington of JP Morgan.

Operator: Hi, good afternoon, guys. This is Michael Cho, in for Ken Worthington today.

Alexander Scott Jenkins: Hi, Good afternoon, guys. It says that Michael Chow in for Ken Worthington today I guess.

Michael Cho: I guess, first, I just wanted to touch on productivity, MD productivity. So, you know, you've been adding to your talent base. Clearly, GCA was one that you just talked to as well, but key hires and then some other bolt-ons as well.

Michael Cho: First I just wanted to touch on productivity and productivity.

Michael Cho: <unk> been adding senior talent base clearly TCA was one that he just talked to as well.

Michael Cho: But key hires and then some other bolt ons as well so the MD count dropped considerably over the last couple of years, if we think about the.

Michael Cho: So, the MD counts are up considerably over the last couple of years. But, you know, if we think about, you know, the corporate finance business, if we think about average revenue per MD, it's trending a little bit less than half or about half of peak COVID periods. And how should we think about the upside to revenue per MD if activity picks up given the larger and upgraded talent pool at Houlan today?

Michael Cho: Corporate finance, it and feed it not average threatening per M D.

Michael Cho: It's trending in kind of a little bit less than half or about half of off peak COVID-19 periods, how should we think about the upside to that.

Michael Cho: Revenue per MD, if that could be quick stop getting larger and upgraded the talent bench at the line today.

Scott Lee Beiser: That's a good question. My quick response is, you know, corporate finance is loaded for bear.

Speaker Change: It's a good question I mean, my my quick response is corporate finance is loaded for bear we have a very high indeed count relative to our revenues are youre seeing it in productivity.

Scott Lee Beiser: We have a very high MD count relative to where revenues are, and you're seeing it in productivity. You know, do we see productivity levels getting as high as they did during COVID? You know, I think that's tough because during COVID, no one was traveling. So, you know, we are seeing some improvements in our average transaction size that will help make the argument that you could see COVID-level productivity, but I think it's too early to tell.

Scott Lee Beiser: Do we see productivity levels getting as high as they did during COVID-19.

Scott Lee Beiser: I think that that's tough because during COVID-19 no. One was traveling so we are seeing some improvements in our average transaction size that will help make the argument that you could see.

Scott Lee Beiser: Covid level productivity, but I think it's too early to tell but I think we all will tell you that it is low on a relative basis and expectations are that we'll see productivity improvements I think where that caps out if it ever caps out is it a little hard to tell.

Scott Lee Beiser: But I think we all would tell you that it is low on a relative basis and expectations are that we'll see productivity improvements. I think where that caps out, if it ever caps out, is a little hard to tell. But some of the momentum in average transaction size, average fee size is certainly winding behind us, and expectations are that it will help us drive productivity once the markets get back.

Scott Lee Beiser: But the some of the momentum and average transaction size average fee size.

Scott Lee Beiser: It is certainly.

Scott Lee Beiser: Wind behind us and expectations are that will help us drive productivity once the markets come back.

Michael Cho: Great. No, thanks for all that color.

Speaker Change: Great. Thanks for all that color and then just a quick follow up on that topic around kind of sponsor activity.

Michael Cho: Just kind of pick up and overall again conversation I mean are there any particular geographies or sectors.

Michael Cho: You would call out.

Michael Cho: Today in terms of having more more of an acceleration versus some other sector, the geos, where you're not seeing as much.

Michael Cho: Yeah.

Michael Cho: Again.

Speaker Change: Not really I mean again, there's something that I can point to in any sectors that are particularly strong or particularly weak.

Michael Cho: And geography, and geography, and geography, I mean, I think that there has been some ebbs and flows between the U S and Europe and at least right now there's no discernible difference in our Asian business. It is still just at a different scale level in U S and Europe.

Speaker Change: Yes, that's correct. Thank you.

Michael Cho: Yeah.

Michael Cho: Thank you well go next now to James Yarrow at Goldman Sachs.

Michael Cho: And then just a quick follow-up on the topic around kind of the sponsor activity, and just kind of pick up on that overall and in the conversation. I mean, are there any particular geographies or sectors that you would call out today in terms of having more, more of an acceleration versus some other sectors or geographies where you're not seeing as much?

Speaker Change: Hi, good afternoon, and thanks for taking my questions.

Scott Joseph Adelson: Again, Scott Allison, not really, I mean I can't, there's nothing that I can point to in any sectors that are particularly strong or particularly weak. And geography, geography, geography.

Scott Joseph Adelson: On the non M&A parts of corporate finance, maybe if you could just provide some color on how these businesses are performing in this environment and the outlook for those going forward.

Scott Joseph Adelson: Sure.

Michael Cho: I mean, I think that there have been some ebbs and flows between the US and Europe, but at least right now, there's no discernible difference. And our Asian businesses are still just at a different scale level than us in Europe. Yep, thanks. That's great.

Speaker Change: The capital markets business I think as we have discussed.

Michael Cho: Continued to grow quite nicely.

Michael Cho: We're feeling good about where that is going and continues to be a strong growth area for us.

Michael Cho: And obviously with the acquisition of <unk> and the addition of individuals earlier in the year.

Michael Cho: Two our PFG business. That's another area that we think in conjunction with the capital markets business will have.

Michael Cho: A meaningful impact on growth within the non M&A areas of corporate finance and the AR in the periods to come.

Speaker Change: Okay. Thanks, and then maybe just one on the on the <unk> acquisition any ability to give.

Michael Cho: Any sort of.

Michael Cho: Contribution to your results now Thats closed and then maybe you talked a little bit about how there's a strong trajectory for that business going forward, perhaps just how youre thinking about the synergies of that business with the rest of your sponsored sponsor franchise and how you might be able to grow the business beyond what it was a standalone entity.

Michael Cho: Yeah.

Speaker Change: Thanks, a lot.

Michael Cho: And the synergies between the obviously, we have a very large sponsor a set of sponsor relationships and we do believe that our ability to offer them an integrated solution.

Michael Cho: Of advice it ranges from primary secondaries directs GP Stakes LP Stakes and financings in general.

Michael Cho: Is something that we really are feeling very good about the opportunity that lies ahead, obviously, we need to execute on that but we are feeling very good about that in terms of the.

Speaker Change: Contribution of that particular group, that's not something that we disclose.

Operator: Yep, it makes sense. Great. No, thank you.

Speaker Change: Okay. Thanks, a lot.

Operator: And ladies and gentlemen, just a reminder, star one please for any questions. This afternoon with the next now to Ryan Kinney with Morgan Stanley.

James Edwin Yaro: Thank you. We go next to James Yaro at Goldman Sachs.

James Edwin Yaro: Hi, good afternoon.

James Edwin Yaro: Good afternoon, and thanks for taking my questions. On the non-M&A parts of corporate finance, maybe you could just provide some color on how these businesses are performing in this environment and the outlook for those going forward.

James Edwin Yaro: So my question is on the M&A environment, specifically the comment in the press release around being realistic on the pace of recovery in the sluggish M&A environment can you just unpack that a bit as the realism more around the size of the pipeline is it more around the timing of the lag is it more around sponsors on strategics any color there would be helpful.

Scott Joseph Adelson: Thanks. The capital markets business, I think, as we have discussed, has continued to grow quite nicely. And we are feeling good about where that is going and continues to be a strong growth area for us. And obviously, with the acquisition of Triago and the addition of individuals earlier in the year to our PFG business, that's another area that we think, in conjunction with the capital markets business, will have a meaningful impact on growth within those non-M&A areas of corporate finance in the years to come.

Speaker Change: Yes, I think.

Scott Joseph Adelson: We did purposely think about the words that we wanted to use we don't believe that we are in a robust environment like we were probably a couple of years ago and we're also not in as a depressant environment.

Scott Joseph Adelson: We've been kind of slugging it along I'd say for the last year or two we continue to actually be able to grow the business in terms of head count in terms of quality of the clients in terms of number of mandates that were engaged on kind of average size everything is making I would say slow but sure progress. The one thing that we continually.

Scott Joseph Adelson: First if we could snap our fingers and change it would probably be the timeframe.

Scott Joseph Adelson: From when you get hired when you get started on the mandate and when you close it and it's still taking longer than what we think is the.

Scott Joseph Adelson: Normal time period.

Scott Joseph Adelson: Almost all the measures that we look at our more positive today than they were a year or two ago and we're not yet in a robust environment and when we think we are I guess well will describe that to you as well, but we're not where we weren't a year ago and I think we kind of called the bottom and said that was about it.

Scott Joseph Adelson: The negative is the environment that we had seen Ryan another way to think about it is the commentary was more macro than micro.

Scott Joseph Adelson: I think us and probably many of our peers have seen activity levels improve have seen reasonable momentum in their business and yet we have this sluggish macro environment that makes deals getting closed much harder and so hard for us to control that and so we are in.

Scott Joseph Adelson: And I think most of US thought we would've come out of the months or quarters ago, and it's just taken longer than I think any of US expected. So I think we're just being realistic that this year, we think it's going to look better than last year, but it's anyone's guess just given the macro environment.

Scott Joseph Adelson: And on the macro that fed funds futures curve has moved meaningfully since the last call.

Scott Joseph Adelson: When the curve is pricing in fixed rate cuts this year and now we're at one or two how are your clients thinking about that change is it having any impact on the pipeline or not really because there arent any type of price downs.

Speaker Change: Yeah, I mean really it has been and I've said this many times, it's much more about the availability of capital and the cost of that capital and today capital is very available to our clients and people are actually being aggressive about deploying it that is a good thing.

Scott Joseph Adelson: In terms of pricing.

Scott Joseph Adelson: Obviously, it makes a difference in valuations, but it is really in terms of activity levels is much more about the availability and the cost of it.

Speaker Change: Great. Thank you.

Scott Joseph Adelson: We'll go next now to Steven <unk> of Wolfe Research.

Scott Joseph Adelson: Thanks. And then maybe just one on the Triago acquisition, any ability to give any sort of, you know, contribution to your results now that it's closed? And then, you know, maybe you talked a little bit about how there's, you know, a strong trajectory for that business going forward, but perhaps just, you know, how you're thinking about the synergies of that business with the rest of your sponsor franchise and how you might be able to grow the business beyond when it was a standalone entity. Thanks.

Scott Joseph Adelson: Good afternoon. This is Brendan O'brien filling in for Steven I guess to start so on touch on sponsors while activity has been subdued for much of the past couple of years. One dynamic that is apparent from the data publicly available data is that call. It 1 billion plus activity has been much stronger.

Scott Joseph Adelson: Thanks a lot. Obviously, we have a very large sponsor network and set of sponsor relationships, and we do believe that our ability to offer them an integrated solution of advice, which ranges from primary, secondaries, direct, GP stakes, LP stakes, and financings in general, is something that we really are feeling very good about the opportunity that lies ahead. Obviously, we need to execute on that, but we are feeling very good about it.

Scott Joseph Adelson: In terms of the contribution of that particular group, that's not something that we've disclosed. Okay, thanks a lot. And ladies and gentlemen, just a reminder, star one, please, for any questions this afternoon. We go next now to Ryan Kenny with Morgan.

Ryan Michael Kenny: More resilient relative to smid cap no that you're you tend to be more focused on smid cap activity, but just wanted to get a sense as to what might be driving this divergence in trends between these two buckets.

Ryan Michael Kenny: So my question is about the M&A environment, specifically the comment in the press release around being realistic about the pace of recovery and the sluggish M&A environment. Can you just unpack that a bit?

Ryan Michael Kenny: Yeah, I think the way that we think about it is that globally. There are tremendous number of deals to take place around the world and in the vast vast preponderance of those are mid cap and we still have a very small market share of that overall number of deals and they'd be.

Ryan Michael Kenny: Is the realism more around the size of the pipeline? Is it more around the timing of the lags? Is it more around sponsors and strategic partners?

Ryan Michael Kenny: The fact that a relatively small handful of large cap deals are getting done.

Ryan Michael Kenny: Oh impact the overall denominator, if you will of the total number of M&A deals and we are much more focused on total volume of deals than we are deal value in any given period of time.

Scott Lee Beiser: Any color that would be helpful.

Ryan Michael Kenny: Think that's probably the key point that we'd always want to make the press.

Scott Lee Beiser: At times, maybe investors or the analyst you focused on the dollar value of announced or completed transactions.

Scott Lee Beiser: And its ways your view of what may be more or less healthy in the marketplace. We're much more focused on the number of transactions that gets done.

Scott Lee Beiser: Yeah, I think we purposely thought about the words that we wanted to use. We don't believe that we are in a robust environment like we were probably a couple of years ago. And we're also not in a depressing environment. We've been kind of slugging it along, I'd say, for the last year or two. We continue to be able to grow the business in terms of headcount, in terms of quality of clients, in terms of number of mandates that we're engaged on, and in terms of average size.

Scott Lee Beiser: And that has probably more of a trending importance to us so.

Scott Lee Beiser: We don't actually see our experienced what you may be described.

Scott Lee Beiser: Which is is there at this juncture any meaningful difference between the healthiness buoyancy, whatever you want to call. It of the larger cap deals versus the mid cap deals.

Speaker Change: That's great color. Thank you and then just for my follow up I just wanted to touch on you know the time to complete deals and the deal cycles. So you noted in your prepared remarks that the timeframe to close remains elongated I just wanted to get a sense as to what could drive that normalization of deal timelines in your view is it just more certainty on the ray.

Scott Lee Beiser: Everything is making, I would say, slow but sure progress. The one thing that we continually, you know, discussed that if we could snap our fingers and change, it would probably be the time frame from when you get hired, when you get started on a mandate, and when you close it. It is still taking longer than what we think is the normal time period.

Scott Lee Beiser: But almost all the measures that we look at are more positive today than they were a year or two ago, and we're not yet in a robust environment. And when we think we are, I guess we'll describe that to you as well. But we're not where we were a year ago when I think we kind of called it a bottom and said that was about as negative as the environment that we had seen.

Scott Lee Beiser: Ryan, another way to think about it is that the commentary was more macro than micro. I think us and probably many of our peers have seen activity levels improve, have seen reasonable momentum in their business, and yet we have this sluggish macro environment that makes deals getting closed much harder. And so hard for us to control that. And so we are, and I think most of us thought we would have come out of it months or quarters ago, and it's just taken longer than I think any of us expected. So I think we're just being realistic that this year, we think it's going to look better than last year. But, you know, it's anyone's guess, just given the macro environment.

Scott Lee Beiser: Trajectory or the Mac or.

Scott Lee Beiser: Global economic backdrop or anything else.

Scott Lee Beiser: It is really that is the.

Scott Lee Beiser: We're still in a buyer's market at this point and as that begins to shift to equilibrium you will start to see velocity pick up right now buyers are able to say I'd like to see that one incremental piece of information I'd like to wait one more quarter to see results.

Scott Lee Beiser: Enlist array of things that cause it to drag on but it is clearly that we are still in an environment, where buyers have that leverage that it but that is changing lit.

Scott Lee Beiser: Literally week by week at this point.

Scott Lee Beiser: And on the macro, the Fed Funds Futures curve has moved meaningfully since the last call when the curve was pricing in six rate cuts this year, and now we're at one or two. How are your clients thinking about that change? Is it having any impact on the pipeline, or not really because there aren't any hikes? Yeah, I mean, really.

Ryan: Alright, Thank you for taking my questions.

Scott Lee Beiser: Yeah, I mean, really, it has been, I've said this many times, much more about the availability of capital than the cost of that capital. And today, capital is very available to our clients. And if people are actually being aggressive about deploying it, that is a good thing.

Operator: In terms of pricing, it obviously makes a difference in valuations. But it is really, in terms of activity levels, much more about availability than cost. Great, thank you. We'll go next to Steven Chubak of Wolf Research. Good afternoon. This is Brennan O'Brien filling in for Steven.

Unknown Executive: I guess to start, I want to touch on sponsors. While activity has been subdued for much of the past couple of years, one dynamic that is apparent from the data or publicly available data is that the so-called 1 billion plus activity has been much stronger and more resilient relative to SMIDCAP. I know that you tend to be more focused on SMIDCAP activity, but just wanted to get a sense as to what might be driving it. You know, I think the way that we think about it is that globally, there are a tremendous number of deals that take place around the world, and the vast, vast, vast preponderance of those are mid-capitalization, and we still have a very small market share of that overall number of deals.

Unknown Executive: And they The fact that a relatively small handful of large cap deals are getting done doesn't impact the overall denominator, if you will, of the total number of M&A deals, and we are much more focused on the total volume of deals than we are deal value in any given period. And I think that's probably the key point that we always want to make in the press.

Scott Lee Beiser: Thank you for taking my question. And, gentlemen, it appears we have no further questions this afternoon. Mr. Beiser, I'd like to turn things back to you, sir. For any reason, I will end today's call with a thank you to all the employees at Houlihan Lokey. It is all of you that have made this firm's success possible. We've truly made my time as CEO enjoyable, and I look forward to continuing our journey together over the coming years.

Unknown Executive: And gentlemen, it appears we have no further questions. This afternoon, Mr. Biser I'd like to turn things back to you Sir for any closing comments.

Scott Lee Beiser: At times, maybe investors or analysts, you're focused on the dollar value of announced or completed transactions, and it sways your view of what may be more or less healthy in the marketplace. We're much more focused on the number of transactions that get done, and that has probably more of a trending importance to us. So we don't actually see or experience what you maybe describe, which is, is there at this juncture any meaningful difference between healthiness, buoyancy, whatever you want. Thank you.

Unknown Executive: And then for my follow-up, I just wanted to touch on the time to complete deals and the deal cycle. So you noted in your prepared remarks that the time frame to close remains elongated. I just want to get a sense as to what could drive that normalization of deal timelines in your view, or the macro or global. Microsoft Office Word Microsoft Office Word Document MSWordDoc Word

Scott Lee Beiser: Document.8, It is really that we are still in a buyer's market at this point, and as that begins to shift to equilibrium, you will start to see velocity pick up. Right now, buyers are able to say, I'd like to see that one incremental piece of information. I'd like to wait one more quarter to see results. There are an endless array of things that cause it to drag on, but it is clearly that we are still in an environment where buyers have that leverage, but that is changing, literally week by week at this point.

Scott Lee Beiser: And finally, we look forward to updating everyone on our progress when we discuss our first quarter results for fiscal 2025 this summer. Thank you, Mr. Beiser. Ladies and gentlemen, that will conclude today's Houlihan Lokey fourth quarter and fiscal year 2024 earnings call. Again, thank you so much for joining us. We wish you all a great remainder of your day. Goodbye.

Speaker Change: I will end today's call with a thank you to all employees and Houlihan lokey. It as all of you that have made this firm's success possible you've truly made my time as CEO enjoyable and I look forward to continuing our journey together over the coming years and finally, we look forward to updating everyone on our progress when we discuss.

Scott Lee Beiser: Our first quarter results for fiscal 2025 this summer.

Scott Lee Beiser: Thank you Mr Visor, ladies and gentlemen that will conclude today's houlihan lokey fourth quarter and fiscal year 2024 earnings call again. Thank you so much for joining US we wish you all a great remainder of your day Goodbye.

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Operator: [inaudible] THANK YOU FOR WATCHING

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