Houlihan Lokey (HLI -2.31%), an independent financial advisory services firm, announced its fiscal 2025 third-quarter results after the close of trading on Jan. 28. The firm exceeded expectations with an adjusted EPS of $1.64, topping the $1.52 forecast and well above the prior-year period's $1.22. Revenues rose 24% year over year to $634 million, outpacing the $604 million expected. Overall, Houlihan Lokey delivered a strong quarter, underpinned by growth across its core service lines.
| Metric | Fiscal Q3 2025 | Fiscal Q3 2025 Analysts' Estimate | Fiscal Q3 2024 | % Change |
|---|---|---|---|---|
| Adjusted EPS | $1.64 | $1.52 | $1.22 | 34.4% |
| Revenue | $634 million | $604 million | $511 million | 24.1% |
| Net income | $95 million | N/A | $71 million | 34.6% |
| Operating income | $136.1 million | N/A | $96.5 million | 41.0% |
Source: Analysts' estimates for the quarter provided by FactSet.
Houlihan Lokey offers tailored advisory services across three core business sectors: corporate finance, financial restructuring, and financial and valuation advisory. Its emphasis on mid-cap mergers and acquisitions (M&A) keeps it focused largely on transactions under $1 billion, which sets it apart from larger competitors. The company's business model emphasizes advisory independence -- it avoids conflicts of interest by not engaging in non-advisory financial activities.
Recently, Houlihan Lokey has been expanding its global footprint and harnessing artificial intelligence (AI) to enhance its valuation and analytical capabilities. Through strategic acquisitions like Prytania Solutions, it aims to reinforce its competitive edge as it grows geographically.
During its fiscal Q3, which ended Dec. 31, the corporate finance segment showed impressive growth, with revenues rising 36% year over year to $422 million. This growth was driven by an increase in closed mergers and acquisitions and capital market transactions, despite a decrease in average transaction fees due to shifts in the transaction mix. The financial restructuring segment reported more modest 2% growth -- a stable performance amidst potential segment saturation.
The financial and valuation advisory segment increased its revenues by 14% to $82 million, benefitting from a favorable M&A market and an increase in transaction volumes. Houlihan Lokey also noted a rise in employee compensation and benefits, reaching $403 million, reflecting its increased headcount in the wake of acquisitions.
Additionally, strategic acquisitions and expanded AI integration are supporting its financial and valuation advisory sectors. However, increased non-compensation costs of $95 million, compounded by climbing rent and depreciation expenses, suggest areas where vigilant cost management could be warranted.
The company's effective tax rate saw a notable increase, with its adjusted effective tax rate climbing from 30.3% to 33.3%, influenced by timing differences that are expected to stabilize in future periods.
Management is optimistic about Houlihan Lokey's outlook, projecting growth through improving M&A markets and enduring financial restructuring activities. It plans to maintain its focus on middle-market mergers and acquisitions, consolidating its leadership in transactions under $1 billion. Management foresees global expansion and a strategic focus on AI-driven services as key levers for sustained growth.
Investors should monitor any shifts in forward guidance as the firm navigates competitive pricing pressures and market evolutions.
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