Business Overview and Detailed History:

Houlihan Lokey, Inc. (HLI) is a global investment banking firm that has established itself as a leader in the financial services industry. With a diverse range of expertise spanning Corporate Finance, Financial Restructuring, and Financial and Valuation Advisory, the company has consistently demonstrated its ability to navigate complex market environments and deliver exceptional value to its clients.

Houlihan Lokey was founded in 1972 in Los Angeles, California, by Irwin Houlihan and Bruce Lokey, who had previously worked together at a large accounting firm. The company started with a small team and a focus on mergers and acquisitions, as well as corporate finance advisory work. Over the past five decades, the company has grown exponentially, expanding its geographical footprint and solidifying its position as a trusted advisor to a diverse clientele, including public and private institutions, financial sponsors, and other key stakeholders.

In the 1980s, Houlihan Lokey established a financial restructuring practice to advise companies and creditors in distressed situations, which became a core part of its business. The company also opened its first international office in London in 1988 to serve clients outside of the United States. Throughout the 1990s and 2000s, Houlihan Lokey continued to expand its service offerings and industry expertise. Notable acquisitions included Milestone Advisors in 2006 to enhance the firm’s financial restructuring capabilities, and Edgeview Partners in 2011 to bolster its middle-market mergers and acquisitions advisory services.

The company’s ability to provide critical advisory services across various economic environments has been a key competitive advantage. Houlihan Lokey successfully navigated the global financial crisis in the late 2000s, emerging as a stronger and more diversified firm. In 2015, the company went public on the New York Stock Exchange, providing additional resources to support its continued growth and development.

Financials:

The company’s robust financial performance is a testament to its strategic vision and operational excellence. As of the fiscal year ended March 31, 2024, Houlihan Lokey reported annual revenues of $1.91 billion, a 5.5% increase from the previous year’s $1.81 billion. Net income for the same period stood at $280.30 million, reflecting a healthy net profit margin of 14.7%. The company’s strong balance sheet, with $721.24 million in cash and cash equivalents as of March 31, 2024, and a debt-free capital structure, provides it with the financial flexibility to pursue strategic initiatives and capitalize on market opportunities.

For the fiscal year 2024, Houlihan Lokey generated operating cash flow (OCF) of $328.46 million and free cash flow (FCF) of $261.73 million, demonstrating its ability to convert earnings into cash effectively.

The most recent quarter (Q2 2025) showed even stronger performance, with revenue of $574.96 million, representing a 23% increase compared to the same quarter last year. Net income for Q2 2025 was $93.55 million, a 40% increase year-over-year. The company reported OCF of $289.22 million and FCF of $278.73 million for the quarter, underscoring its continued financial strength and operational efficiency.

Liquidity:

Houlihan Lokey’s impressive financial ratios further underscore its operational efficiency and financial discipline. The company’s current ratio of 1.41 and quick ratio of 1.41 as of September 30, 2024, indicate a robust liquidity position, enabling it to meet its short-term obligations. Additionally, the company’s return on assets (ROA) of 10.4% and return on equity (ROE) of 18.1% for the fiscal year ended March 31, 2024, highlight its ability to generate strong returns for its shareholders.

The company maintains a strong balance sheet with $691.41 million in cash and cash equivalents as of September 30, 2024. Houlihan Lokey has no outstanding debt, resulting in a debt-to-equity ratio of 0. Furthermore, the company has access to a $100 million revolving credit facility, which remained undrawn as of September 30, 2024, providing additional financial flexibility if needed.

Diversified Business Segments:

Houlihan Lokey’s business is organized into three core segments, each with its own unique value proposition and competitive advantages:

Financial Restructuring (FR): The FR segment offers advisory services to debtors, creditors, and other parties-in-interest involved in recapitalization or deleveraging transactions, including bankruptcy proceedings and out-of-court exchanges. This segment contributed 25.4% of the company’s total revenues in the fiscal year ended March 31, 2024. For the three months ended September 30, 2024, the FR segment reported revenues of $131.57 million, a 15% increase year-over-year, driven by an increase in the average transaction fee on closed transactions. The segment’s profit for this period was $60.92 million, up 87% from the previous year. The number of Managing Directors in the FR segment stood at 58 as of September 30, 2024.

Financial and Valuation Advisory (FVA): The FVA segment primarily provides financial advisory and valuation services, including fairness opinions, solvency opinions, and other types of financial opinions, as well as diligence, tax, and transaction accounting services. The FVA business accounted for 18.5% of the company’s total revenues in the fiscal year ended March 31, 2024. For the three months ended September 30, 2024, the FVA segment reported revenues of $79.36 million, a 12% increase year-over-year, due to an increase in the number of Fee Events and an increase in the average fee per Fee Event. The segment’s profit for this period remained relatively flat at $19.39 million. The number of Managing Directors in the FVA segment increased to 41 as of September 30, 2024, up from 40 in the prior year period.

This diversified business model has been a key driver of Houlihan Lokey’s success, as it allows the company to navigate changing market conditions and capitalize on opportunities across different economic cycles.

Quarterly Performance and Outlook:

Houlihan Lokey’s most recent financial results, as reported in its 10-Q for the quarter ended September 30, 2024, demonstrate the company’s resilience and adaptability. For the second quarter of fiscal year 2025, the company reported revenues of $575 million, a 23% increase compared to the same period in the prior year. Adjusted earnings per share (EPS) for the quarter stood at $1.46, up 32% year-over-year.

The company’s performance was driven by strong growth across all three of its business segments. Corporate Finance revenues increased by 29% to $364 million, with 131 closed transactions compared to 117 in the same period last year. Financial Restructuring revenues grew by 15% to $132 million, with 33 closed transactions compared to 31 in the prior year quarter. Financial and Valuation Advisory revenues rose by 12% to $79 million, with 903 fee events compared to 852 in the same period last year.

Looking ahead, Houlihan Lokey’s management has expressed cautious optimism about the company’s prospects, citing the continued strength in the M&A markets, sustained activity in the restructuring space, and the resilience of its diversified business model. The company expects the second half of fiscal year 2025 to follow the improving trend they have seen, particularly in Corporate Finance, though they note transactions are still taking longer to close compared to previous recovery periods. In Financial Restructuring, the company anticipates heightened activity levels to benefit the business well into fiscal 2026. For Financial and Valuation Advisory, management noted an uptick in new business generation in the first half of the year and improving demand for M&A-related services.

However, the company also acknowledged the potential risks posed by macroeconomic factors, such as geopolitical tensions, rising interest rates, and the upcoming U.S. presidential election, which could impact the broader business environment.

Competitive Landscape and Risks:

Houlihan Lokey operates in a highly competitive investment banking industry, with firms such as Goldman Sachs, JPMorgan Chase, and Morgan Stanley vying for market share. The company’s ability to maintain its competitive edge relies on its specialized expertise, global reach, and reputation for delivering exceptional client service.

One of the key risks facing Houlihan Lokey is its reliance on the successful completion of transactions, particularly in its Corporate Finance and Financial Restructuring segments. The failure to complete a transaction can significantly impact the company’s revenues and profitability. Additionally, the company’s international operations expose it to currency fluctuations and geopolitical risks, which could adversely affect its financial performance.

Despite these challenges, Houlihan Lokey’s track record of resilience, its diversified business model, and its strong financial position have positioned the company well to navigate the complexities of the investment banking industry and continue delivering value to its shareholders.

Geographic Markets and Industry Trends:

Houlihan Lokey has a global presence, with operations in the United States, South America, Europe, the Middle East, and the Asia-Pacific region. While the company does not provide a breakdown of revenue or profit contribution by geographic region, its international expansion has been a key driver of growth and diversification.

The investment banking industry has experienced moderate growth, with a compound annual growth rate (CAGR) of approximately 5-7% over the past five years. The demand for financial advisory services has been driven by increasing M&A activity, continued strength in the restructuring market, and growing demand for valuation and strategic consulting services. Houlihan Lokey’s diverse service offerings and global footprint position it well to capitalize on these industry trends.

Conclusion:

Houlihan Lokey’s compelling history, robust financial performance, and diversified business segments make it a compelling investment opportunity in the financial services sector. The company’s ability to adapt to changing market conditions, combined with its strong balance sheet and operational efficiency, positions it well to capitalize on future growth opportunities and create long-term value for its shareholders. With a positive outlook for its core business segments and a proven track record of navigating complex market environments, Houlihan Lokey remains a formidable player in the global investment banking landscape.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.