HLI Q3 Deep Dive: M&A Momentum and International Growth Shape Results

Investment banking firm Houlihan Lokey (NYSE:HLI) announced better-than-expected revenue in Q3 CY2025, with sales up 14.7% year on year to $659.5 million. Its non-GAAP profit of $1.84 per share was 9.3% above analysts’ consensus estimates.

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StockStory’s Take

Houlihan Lokey’s third quarter results were driven by strong execution in its Corporate Finance segment, which benefited from a rebound in M&A activity and improving capital markets. CEO Scott Adelson highlighted that transaction volumes reached their highest levels since late 2021, while contributions from capital solutions remained robust. Management noted that the environment for deal-making improved as macroeconomic volatility and tariff-related uncertainty eased, resulting in increased client confidence and engagement. The firm also pointed to significant growth in its international business, particularly in Europe and Asia Pacific, as a notable contributor this quarter.

Looking ahead, Houlihan Lokey’s leadership emphasized a positive outlook for continued growth, anchored by a healthy deal backlog and expanding international opportunities. Adelson stated, “If conditions remain on the current trajectory, we are well positioned to continue to experience year-over-year growth.” Management expects the Corporate Finance segment to see stronger performance in the fourth quarter, while the restructuring business should remain resilient despite a slight slowdown in new engagements. The company is also banking on new senior hires and a steady acquisition pipeline to drive expansion.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to a surge in M&A activity, capital availability, and international expansion, while noting a shift in typical business seasonality.

• Corporate Finance momentum: M&A transaction volumes increased, with the number of completed deals reaching levels not seen since 2021. Adelson described post-Labor Day activity as a “significant uptick,” attributing this to greater capital availability and steadier macroeconomic conditions.
• Capital Solutions contribution: The capital solutions business—focused on helping clients raise debt or equity—grew faster than the core M&A practice. CFO Lindsey Alley noted this segment now accounts for over 20% of Corporate Finance revenue, highlighting its rising importance during periods of shifting financing needs.
• Resilient restructuring: While new business formation in the restructuring segment has slowed due to improving markets and lower interest rates, Houlihan Lokey’s backlog remains robust. Management emphasized that episodic shocks across sectors, such as stress in healthcare and commercial real estate, continue to provide deal flow.
• International expansion: Growth in EMEA (Europe, Middle East, and Africa) and Asia Pacific outpaced U.S. Corporate Finance, though management cautioned this may reflect the smaller size of those businesses. New senior hires in these regions are expected to further accelerate international momentum.
• Operating discipline: Despite higher compensation expenses tied to increased deal activity and new hires, Houlihan Lokey maintained its target compensation ratio. Noncompensation costs were managed tightly, with per-employee expenses declining year over year, supporting healthy operating margins.

Drivers of Future Performance

Management expects continued growth, driven by a strong deal backlog, international expansion, and new senior hires, but noted potential risks tied to macroeconomic uncertainty and sector-specific shocks.

• Deal backlog visibility: The company’s current backlog of M&A and capital markets transactions provides visibility into growth for the remainder of this year and into next year. Management believes this positions Houlihan Lokey for above-average activity, especially if macro conditions remain stable.
• International and sector diversification: Continued investments in EMEA and Asia Pacific, as well as expansion into sectors like healthcare and commercial real estate, are expected to cushion the business against regional or sector downturns. However, management acknowledged that productivity in non-U.S. offices still lags U.S. counterparts.
• Cautious on restructuring trends: While the restructuring business remains strong, management observed that improving markets and lower interest rates have tempered new mandates. Still, the firm expects episodic shocks and sector-specific stress to sustain deal flow, but flagged that a sustained economic rebound could moderate restructuring revenues.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the pace of M&A recovery and whether Corporate Finance volumes continue to outpace historical trends, (2) expansion and productivity gains in EMEA and Asia Pacific following recent senior hires, and (3) sustainability of restructuring activity as macroeconomic conditions evolve. Execution on the acquisition pipeline and integration of new hires will also be key indicators.

Houlihan Lokey currently trades at $197.09, down from $199.93 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free for active Edge members).

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