Houlihan Lokey, Inc. (HLI) Earnings & Analysis

Latest quarter

Houlihan Lokey reported Q2 FY2027 revenue of $692.0 million, above the consensus estimate of $609.9 million. Adjusted earnings per share of $1.85 also exceeded the consensus estimate of $1.58. Revenue rose from $659.5 million a year earlier, while diluted earnings per share increased to $1.64 from $1.63.

The company’s filing attributed the revenue increase primarily to Corporate Finance, where revenue rose to $481 million from $439 million. It said higher average fees on closed transactions more than offset a decline in the number of deals closed. Financial Restructuring revenue fell to $118 million from $134 million, primarily because of the timing of transaction closings. Financial and Valuation Advisory revenue rose to $93 million from $87 million, which the filing attributed to growth in its non-cyclical businesses.

Houlihan Lokey’s operating margin was 22.3%, compared with 22.9% a year earlier. Its filing said non-compensation expenses increased, primarily because of higher rent and other operating expenses. CFO Lindsey Alley said the company ended the quarter with approximately $888 million in unrestricted cash and investment securities.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Scott Adelson said the quarter reflected a normalizing market that continued into October, with growth returning in Europe and the U.S. and across industry groups other than technology and healthcare. He remained cautious about macroeconomic volatility, citing interest rates, geopolitical instability and disruption in software. Adelson said transactions continued to move through the pipeline to closing despite higher interest rates.

In Corporate Finance, CFO Lindsey Alley said the firm closed 142 transactions, down from 171 a year earlier. She attributed the higher average fee to a greater proportion of higher-fee transactions, the reverse of the previous quarter’s mix. Adelson said backlog and activity pointed to growth for the balance of the year, while acknowledging macroeconomic volatility.

Adelson said Financial Restructuring performed in line with expectations. He pointed to recent deal activity and backlog when describing the outlook, and said software-sector engagements were expected to begin contributing revenue in calendar 2027. He also said portfolio valuation primarily drove growth in Financial and Valuation Advisory.

On costs, Alley said the adjusted compensation expense ratio remained 61.5% for the quarter, while adjusted non-compensation expenses grew 11% to $91 million. Adelson said Houlihan Lokey added 12 managing directors, including eight from its Intrepid Financial Partners acquisition, which closed in September. Alley said the company would continue weighing acquisitions against share repurchases when considering its balance sheet.

In the question-and-answer session, Alley said she expected Europe and the U.S. to look similar by year-end and did not expect a divergence between M&A and non-M&A businesses through fiscal 2027. Asked about the second half, she said it could be better than normal, but that the company needed market cooperation. On expenses, she expected full-year non-compensation cost growth to resemble the prior year’s rate.

Guidance

Adelson said backlog and recent deal activity pointed to a stronger second half for Financial Restructuring, after the company previously expected a solid fiscal 2027 for the business. He also expected elevated restructuring revenue through fiscal 2028, with software engagements beginning to contribute in calendar 2027.