HLI - Earnings call transcript Q1 2022

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Operator

Thank you for standing by. This is the conference operator. Welcome to the Houlihan Lokey, Inc. Fiscal First Quarter 2022 Earnings Conference Call. [Operator Instructions] And the conference is being recorded. now Houlihan turn Lokey's would to conference I Crain, Christopher General Instructions] like the to over [Operator Counsel. Please go ahead.

Christopher Crain

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

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

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

Scott Beiser

Christopher. our to fiscal everyone, you, first XXXX earnings call. Thank Welcome, quarter

achieved another pleased up a are increase the to was a quarter. report of first ago. first year to We weak revenues, as strong This result million year XX% quarter in $XXX compared quarter from a relatively pandemic. last We significant

what well. our While quarter our in fiscal from were revenues first quarter Corporate lowest million very usually All market during is X and quarter. of continued fourth for Finance strength the seasonally exceptionally market a restructuring Advisory did Restructuring M&A environment. to down significant quarters, Valuation and Financial revenues robust market in strong first delivered continued and strong $XXX And and our challenging a our were ever third environment. its best segments XXXX business very share revenues exhibited maintain Financial

the business expense our compensation return from events travel. slowly On non-compensation maintaining as while in-person to we level low ratio historically last year's side, and expenses reduced we

up share, XXXX, the adjusted earnings year. For we quarter per $X.XX from XXX% fiscal reported of first last of

Our Corporate metrics with historically from to positive Finance experiencing market a business benefit strong continue all trends. key

New at activity record business remained levels.

environments. with and markets geography were average product and funds of transaction sector previous offerings improved industry And advisory year-over-year put M&A, transaction Close and showed Our core every per fewer Nearly higher were rates closed our capital hold. than size growth. years. average on up experienced fee market private transactions

growing at average years, FVA over the last has done compounded just under revenues X-year its growth Our a of well business rate few XX%. incredibly

of of average new levels. assignments clients, year's increased. fees our number our performed All FVA within And and clients, all complexity lines of number service recurring last clients, above the of

torrid pace business Our to Restructuring from the continues experienced year. slow Financial it last

now operating levels, that is Restructuring foreseeable and of we the to previously at Financial future. levels continue As expect pre-pandemic for business activity discussed,

However, amount term. coupled from technology, continued effects with business corporate provides disruption long pandemic optimism the and the from segment of leverage, and in an medium ever-increasing for this

first our Corporate announced largest MDs, XX quarter, and we mostly MDs hired promoted X ever, we Finance. the class newly in During

While remains and dialogue number believe we active key with remain we competitive, in the a market hiring of hires. prospective strong,

They and In in approximately anticipate our focus Asia for on of be the sectors, in Exchange. October. Their additional The of cash meantime, GCA to have region transaction on a to $XXX business. and offer our excited the to integration a related acquisition price all Regarding in expected well-known is expertise couple the planning commencement Tokyo offer successful significant total publicly we sheet. X our of funded tender global acquire of is a closing and U.S. tender activity, the offer the technology cash U.K. GCA our businesses. with shortly, Pacific our operations also started the GCA they for have firm balance Corporation to commence traded tender in and is have primary equity core we the Stock smooth for the of plan announce complementary existing but banking and we are outstanding shares a of the purchase beginning to industries investment of We Europe, a million.

our GCA to provided the offer Within the explains this a to yesterday press commence we acquisition. for tender and snapshot make that company wanting transaction, transaction summary of a issued gives a to strategic the that rationale link the the announcing release of

a offer, $X.X basis. annualized than will highlight me X,XXX more revenues presentation. over statistics forma Let generating employees in on the tender an Lokey billion from that of have pro few Upon Houlihan completion

XX% offices of combined and the XX be We States. will will outside of revenues have our in over countries, United

has dozen-or-so the industry under-weighted transactions the will to relative including most a and by As that completed media industry regards, and collaborative philosophy size run a global many team transaction of is group. our clients. have we on technology, becoming to Houlihan we we culture combined to business focus over entrepreneurial traits, a cultural largest approach, being Lokey number know our a firm, GCA revenues in a It's and thoughtful telecom the decade. a from go its this In independent similar advice industry group and last as share important do. similar and business a relentless management well,

but by we it successful are over believe This X this recognize effectively. outcome. is integrate our While transaction the up turn pursued, we also these shareholders, an the to for for that, on with Lindsey. take we challenge, we've clients, call employees a far focused exciting I'll the and effort are and largest ever transaction And to businesses time is we and collective the will

Lindsey Alley

quarter Revenues deals million to to XXX% the the last Scott. the $XXX were increased. Corporate XX you, last quarter, in Finance closed quarter period Thank same up year, in on transactions our this same for We XX closed average and fee when compared year. transaction compared

Corporate closed from same As same transaction XX an quarter deals the quarter. the Restructuring was last impacted period negatively year's last higher. $XX We in a our year, by million last Finance our closed period XX% for was Financial year. reminder, significantly to average in on pandemic and the compared business XX fee this quarter, first increase the revenues were transactions

the more changes, million Financial period the for per and solid XXXX. year. the were to to returned revenues we now the events Advisory, XXX revenues $XX lower restructuring last fee had pre-pandemic increase to quarter, quarter in increase balance we of significantly continue year, see to the last Valuation same event. same revenues compared unless fee from We but an in XXX XX% period an In normal and during expect has for activity restructuring levels. Our see And something fiscal

Turning the for same versus expenses our compensation first to period were $XXX million year. the adjusted last expenses, $XXX for quarter million

was certain acquisitions. related for Our only payments adjustment to deferred

XX.X% expense was ratio for adjusted quarter. compensation the Our

million in adjusted quarter for $XX non-compensation $XX XX.X% the year, X.X% X%. same adjusted for an quarter ratio This expense of versus increase period for last year. Our non-compensation million expenses the resulted in the were versus an of same last quarter the

in non-compensation out This of amortization. our expenses adjusted $X.X million acquisition-related we quarter,

more as but of travel expect expect do to significant occur in non-compensation normalized We see operations, XXXX and fiscal in a that fiscal begin half we second the to return year. increase we until to the expenses to not

income income same primarily investment of a period our approximately for cash result the million to was This earned and lower of and $XXX,XXX year. balances. adjusted in approximately last versus expense $X.X decreased income Our the on quarter other of interest

Our adjusted last compared quarter effective was XX.X% quarter year. rate for tax the during the to same XX.X%

we first quarter a As for get quarter. as effective more order fiscal to of to year, adjusted vest for of reminder, deferred a the in compensation during the each rate tax which stock the employees was to normalized portion that a issue

closer be although XX%, rate tax long-term XXXX range. the between our target to our fiscal effective of the and Our tax rate targeted is for we expect lower end for adjusted XX% to

and sheet balance cash. the to Turning of uses

securities. shares repurchased of repurchases throughout either an we end, to our in share first of vesting of had open-market shares bonus new this quarter approximately unrestricted fiscal shares $XXX at and repurchases cash price million the dilution cover part net for fiscal through we And approximately We average on quarter, first and their investment as offset million In XXXX. of per X.X to our share. million issued $XX.XX X.X taxes employees we intend As XXXX. meant compensation approximately to quarter, equivalents or through repurchases

of moving Finally, to the GCA. acquisition

our to with we the answer financial We plan we expect with shareholder timing the to for to targets. value And the that to questions questions. and you long-term pro appropriate drive of and regarding company length integration will of future and open that, of in X position shareholders these combination profile, accumulation you we be cash, the achieve this closing, acquisition in our forward to through Given tender the be strategy, operator, will businesses. quarter, to better combined forma offer can at the accretive believe deployment look have a line the our process, the sharing next

Operator

first JPMorgan. Worthington Our Instructions] question Ken comes of from [Operator

Ken Worthington

quarter. that a wanted of bit the of GCA growth next said deal, to more the focus some talk on acknowledging you about strategic rationale us you'd company. I the to get little the But into

like stagnant and company for start looks So clearly, growth, of a it yet line 'XX. looks it to in the was to M&A Is over XXXX would What could you that. it 'XX. but a the down don't last looks look of I for great have having have it as It sort is great more like revenue is years? this company? growth GCA like does time -- a fast-growing globally, just It see X enough like characterize a

about So talk me to first, the growth.

Scott Beiser

Ken, its pandemic they're our not in a especially volatility, but over in similar calendar growth and the impact, having their performance obviously, think of banking space we a been And only if couple continue There's firms of last marketplace. the which industry, very technology, in XXXX I other of firm very in else They're not is everyone for good diversity in the year a the some XXXX growth. to years. one to lot good clearly to has most think, think been help investment and I they leading, with geographical leading them. is, as clearly have the

Ken Worthington

Houlihan fit that seems the does the class me does by -- market advisory more you there. synergies not attractive understand The I'm with how this like business? attraction financial then cross-border M&A into are envision. And Okay. deals cost there's sure for synergies this business middle me simple existing the be think an technology, diversifies is But complement anything help geography. do vision? here? or there Are there you side asset anywhere? would synergies. the are It restructuring it Do of to synergies can there company? And your you Like existing

Scott Beiser

get synergies. regards, larger in a this very look mentioned we dozen-or-so at scope. the time deals other we But to business experienced Well, acquired we’ve it revenue that a we almost that Obviously, do eventually, in every whenever and we’ve scale is business done. similar many we’ve some

the of we clearly don’t have really putting X experiences. business set the that They group the a teams of have. that clients we the don’t together have the different We geographical that same have. of have level financial restructuring bench. level They add have They to got. and strengthened We’re group sponsor We industry. the the don’t really that of depth same we’ve valuation TMT

what the get energy it of our revenue And we all deal. expectations So synergies with both said Having time, to deals. on say, of it we’ve stronger takes very that, we these make and post and, to things, believe, would that’s there. our I’d takes experienced combined kind the know past similar businesses

Operator

next question Steven comes Wolfe Chubak Research. Our from of

Steven Chubak

million of pretty So early have I I with from the I just curious, wanted some slowdown. the just have term? were the $XXX prior your near reasonable given on off a optimism To be should underwriting to recognizing based of on your in million increasingly of given that to was guidance you restructuring just out the $XXX in still a start the range, we The some question signs peers long you calling your pace think guys of activity that outlook. opportunity on level term, is been being the tepid. the credit, updates

Lindsey Alley

that's mean sure very $XXX with we we were gave specific look, I'm activity the at are million $XXX But I that think Yes, not I million. did consistent guidance. say, we levels pre-pandemic. to

have any think of look at were in not market into from of restructuring sit a fiscal pandemic, XXXX. and years we kind changed and And the I And the expectations comments terrible we so for year calls you prior that's as couple can to our of today, previous where take our a here proxy. think a I terms of don't entering

Steven Chubak

talking active Understood. unpack, is the less Finance. appears to hoping is to and pretty it optimism context mix. pro like how Scott, also balanced for compelling, be around does Any it can little some thinking on relative their is relating I and your And financially revenue was more bullishness your I cyclical like, although really increased how it prospects to appear it gearing to hoping that evolving the to to that revenue changes does activity, us them but sponsor alluded cyclicality can Houlihan big you increase many I gearing streams. recognizing sounded revenue being your to follow-up, the a it well. was bit for know GCA, Corporate there my maybe think at give I around they're you just transaction better part mix as you to context around of a like give least helpful. feel And investors, indexed forma would the

Scott Beiser

Yes.

expertise. the lot we financial Houlihan So as buy do. Finance, Steven, They we comment, or while, they have this They with markets have think capital dedicated an clearly sponsors additional middle don't Corporate They to just and many just industry sponsor add a financial our M&A, in the being similar market they've financial been and side. Lokey do more focused both market historically, also as work officers it's than to activities. those sponsors. that opportunity on the tend middle to clarify They like subsector we does. work In space. bankers We upper does, restructuring as is valuation of And not firm sell what predominantly as at on look very just have those coverage side capabilities.

versus corporate it I yes, think statistically we comment, the restructuring overall adding the are enhance activity finance of we I'll business. your revenues. So recognize growth valuation call it, will more, adding or incremental do

Lindsey Alley

benefits that to our deep industry technology, as might enables technology been entire not that the in think benefits know, them in benefits do like go as It business acquisition go with with this win credibility do I an previously. But clients. it’s transactions important That you our of we expertise to space have when able to would terms industry we folks, of because restructuring sophisticated firm. FVA

that acquiring revenue reasons So predominantly like the I the mix, is basis. here, corporate – that corporate improve yes, for finance. their Lokey of it’s so like industry a one – for GCA on not transactions go-forward But this depth do mean, that, are we revenues finance Houlihan given and we’re their will

Operator

of next KBW. Michael Brown question Our from comes

Michael Brown

wanted the about GCA, bit on a I guess, transaction. ask I I If structure the to could start of first, little

of that's wanted there to component to in the I deals in tender, retention Obviously, any to success kind ask, space. deal? this a it's key is Given

contemplated just And down here so maybe that or road. if curious comes if that's the

Scott Beiser

Yes, point. The we completely details this do exact not contemplated. have are a retention at pool defined

Michael Brown

Okay. and rebound seeing in improving there. Europe the Great. U.S., in have And obviously, that then, been and lagged we're activity M&A it's Asia and Europe, steadily

as look continuing some and of kind but more pent-up your there. Asia you just outlook there's each a little expectations for forward? regions is to of there bit speak you Can your to demand those clearly lag,

Scott Beiser

a growth of been X which has know Having view some say XX star I’d have I or is said years a the we lot potential that, Europe, in the business years, for last the don’t it’s of Asia. of the in if et probably very there’s quite time. similar growth, U.S. for recovery, kind cetera,

we’re opportunities those clearly So grow we only touching over hope to eventually all because really Asia, in additional to of there’s access into time work we but geographies. would and key to in and on the clearly think in be like Europe, able there’s that globe to the have in United in still other States, do places not some just geographies

Operator

comes next Richard from of Our question Sachs. Ramsden Goldman

Richard Ramsden

about this given just deals looked minutes due bigger talking and Just and that on the the you what one of as diligence that you given process restrictions is, done? could GCA, that a few spend have you obviously, fact said, the the like, travel

Scott Beiser

start of in been with that's the them we've many We've a company with helped. will known dialoguing key for decent amount so some of I people the years, for time.

person our we we in have more Sure, feel been to clients and comfortable other. equation to each what the accomplished more person, get here. lot do said, you with both do out the been And telephonic not the for diligence us like, diligence. business, do typical in but you how to we've much able of like As done in-person got same Zoom the not but that all deals we've we'd prefer things figured all investment sides would of feel always on to of and way banking in we've able a needed to

Richard Ramsden

FVA years? should new what you much increase how business extent just I very, is is an business touched important do obviously continues base some in you that of getting the through very Okay. driver It's that the on the your nature can Great. but think just remarks, which you growth on for from of this it you expect future we business, to the a to think grow know revenue or this do of this help you. can in given of well. And in So upfront then recurring mandates just that us briefly you're FVA?

Scott Beiser

you really I’d I’d that repeat say what’s about similar probably the revenues almost in task exact But optimistic to much not X may We you could question you Number X/X very X a the profile at we a look potential the of ways. overall in do what argue it now, our year-by-year, under first, repeat that work totally lot really much, or category. would happening of is work truly you a We meaning lot from of the is clients business. any do clients, we’re standpoint, the of would at financial a FVA. When I of work identify lot from So it’s I in but if ask can companies. put of months growth or various about know clients, lot years number the contract for a a now we from repeat that sponsors. of – higher ½ do X for that of almost look

existing years. growing by handful of as both adding more work by it’s well as So adding additional the clients, last clients over services doing additional for

Operator

comes UBS. Brennan Hawken question of next Our from

Brennan Hawken

of the next low teens. the understanding at to you that run about quarterly profit but this margins speak we'll of when get like to on margins, maybe business, double they GCA, that call, on operating look Houlihan's of So we and combined look half digit forma more pro the they the can't entity

something and combine something, a there business? that? that diligence, company the due margin did overhead we that Is as when is just you this company Or this the of to operating there's Or is look there think deliver structural you Houlihan, duplication at this idea reducing when into your profitability -- scale at you likely fold that should you you about of whatever scaled took whatnot is enough So longer this Houlihan? overlapping, can benefit? the run and when

Scott Beiser

most, couple lower not acquisitions done, previous if Look, Brennan, companies we've than of all say. of a Lokey. maybe things Houlihan One, had the margins those I'd

performing. is we public, this like much us. So size not we're we margins prior that unusual going were an the Two, currently than lower had much to pattern for

combined clients, think will historically And occurs. our we've I just higher close operated. that once by be find I'd some So while we'll adding said with I've of similar do that is a for that's of that's we incremental do none experienced again increase there's and time, And it do size the but And this the transactions. bench And work theirs, able have with issue what it's unusual they've particular to most rates. scale think take for strength to three, fees effectively how more with more and clients what transaction. say we previous

Brennan Hawken

the why but introduce history, for you that from were the to that finance-oriented, in going good basically XXXX outlook revenue between where just last your back them revenues to this wrong diverse geographically clear a unique And cycle were now And had these mentioned And And well is into go be virtuous you have geographic outlook benefits more grown probably back think slower markets, businesses. one you across bit. -- continue word, versus there being necessarily that pretty little it's get to think when around is substantially units have a you previously the this really going Houlihan as should all some revenues different business, back year, when is where When of about synergy I -- the a that for very focused of I a the clear, business look and while middle lot corporate and benefits in came pace. things X of proposition is you much Okay. and to if push at XXXX. diversity, XXXX the look a when at we this that APAC you firms But the businesses? that they together feed could on deal. was on a you are European

though seems morning. diversity more it hearing what So as is I'm of this where this you profile attractive from And tailwind? is why is that's And that lot you're actually lower. do of be think growth the Why that the asset investors business can a buying wrong? that a a

Scott Beiser

asked questions couple of a there, you think Brennan. I So

take on geographical the me growth. Let

would XX-XX for it's S. will more that as some as more much gets and quite to work do said our much smaller have continually the the time. non-U. in to ourselves, where us grow makes our across increase say, We I a the we've poured, money, many really so well, S. is work just to over in been fact is, of place, has it many finance, And much the is positioning, time do we is And We U.S. to continued roughly globe. larger with parts our business. an and and a business. investors increase effort not the our many, pattern believe different access more U.S. S. we We in finance actually, non-U. important we've statistical non-U. deals, to globe. probably growing much, just wanted presence. we The very as global recognize mix consistent on activity news. it that -- this That's good think to at but years we've some have

we years. very think it we we the been on to do those grow think the So looked it we're And be do I we time doing ourselves said, like to can well, we are at of well, for growth will, we ourselves. profile, space take we've again, they're when But that and this looked like well, fills over with in. acquisitions, We do everybody, once in collectively, some caution much has good deal to the for make we us. markets some the past opportunities doing think all does the in. think kick We they're synergies to we know able the that space at they potential holes. of And continue like think think well continue made terms We've in. a acquisitions in

Lindsey Alley

And We the with particular, Brennan, growing platform other take think thing States. a lines, we can think, We of Corporate overseas. our Finance. here I that we the think add, overseas for built, a incredibly Restructuring, effectively. things just overseas X the exact have an of United of phenomenal has in to do not I ability all we’re product in shown growing in couple to think sake same

have We we’re long-term get this and a kind step. of going how one view is of there, to

clients And vision on corporate is not a it’s just Asia Europe, so not is for it’s I sake today. long-term taking platform of of it. think growing, how Europe our just U.S. doing relative globally. the And finance It kind that to insisting to it’s are to because on and the

Operator

[Operator Devin Instructions] Our next question comes from Ryan of Securities. JMP

Devin Ryan

that the then the a of several And but the are Clearly, being largest the of you think, intermediate like year the market probably a to deals And out guys of there can curious, GCA, was Houlihan. just active to term? kind little in that bit transaction, different you kind actually had kind large you larger this other picture front. this continue put than feel your here contemplated? because This included are it's M&A over deal, large do do you is for a contemplation? deals bigger another on does been deals? some integration you guys Or of here I'm alluded so. a M&A just I on incredibly strategy one have Just on or of ago deals and is, other

Scott Beiser

We're still talking expect still companies, future other to potential acquisitions. to be pursuing

a to if continue historical present most much, next the et But of much term near unrealistic acquisition similar over And probably patterns of our transactions. GCA. pursue size right to it's fact over itself think the we'll have I next quarter, do type as been the cetera, deals year, smaller.

Devin Ryan

on Okay. M&A market And a middle broadly. follow-up just Great.

longer both I'm and been in If you more guys have firms with little it are the firms the independent dynamics [indiscernible] been what as leading have the sponsors. more But doing brackets talk quarters deeper earnings and share. calls, firms. you markets, Clearly, come broadly, competitive few [indiscernible] middle can, a how take than building there about and position bit Many but and curious bulge a Scott, many firms competitive capabilities, out have talking dynamics. to trying large just you're and and shifting the their in on last throughout

Scott Beiser

do any But don't more it The year X or think and the landscape is greater I not from the against, space who to in the been in where to more I do. competition, last we deals terms so there's at say of focus it's do dramatically would we in competitive or least see years we today from or X have that more year market for X. is we areas a compete robust, Yes. who different activity do it's was to win, ago. and everybody on than do what

Operator

would question-and-answer closing to over I the conference for back Beiser the remarks. concludes session. to turn any Scott like This

Scott Beiser

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

Operator

today's conference concludes This call.

participating, for disconnect Thank may a have lines. you pleasant You day. and your

Houlihan Lokey (HLI) 7 Aug 212022 Q1 Earnings call transcript