Houlihan Lokey NYSE: HLI reported first-quarter fiscal 2027 revenue of $511 million and adjusted earnings per share of $1.35, with management characterizing the quarter as a temporary disruption rather than a fundamental change in its outlook.
Chief Executive Officer Scott Adelson said Corporate Finance results were pressured by extended transaction timelines, particularly for larger-fee assignments, amid geopolitical uncertainty in the Middle East and disruption in the software sector as investors evaluate the longer-term effects of artificial intelligence. Financial Restructuring performed generally in line with expectations, while Financial and Valuation Advisory posted growth across its service lines.
Corporate Finance Fees Fall Despite Stable Deal Volume
Corporate Finance revenue totaled $303 million, down 24% from the prior-year quarter. The firm closed 127 transactions, essentially unchanged from a year earlier, but average fees on completed deals declined significantly.
Adelson said the delays were concentrated in consumer-facing businesses sensitive to inflation and consumer sentiment, as well as software companies where lower valuations prompted transactions to be reassessed. He said many transactions expected to close during the quarter were delayed into later periods and that larger-fee assignments were disproportionately affected.
“The vast majority of delayed transactions continue to move through the pipeline, but timelines remain extended,” Adelson said. He added that Corporate Finance new-business activity and backlog were at record levels and that the company had not seen a meaningful change in typical rates of transactions being terminated or placed on hold.
Chief Financial Officer Lindsey Alley said the company has experienced relatively greater softness in Europe than in the United States since the fourth quarter of fiscal 2026. She said deal closings could remain uneven in the near term if macroeconomic events continue to affect transaction timing, but noted that pipeline, backlog and new-mandate activity had not deteriorated in the way they typically would in recessionary markets.
Management described the broader M&A market as “K-shaped,” with large-cap activity remaining strong while the middle market has not returned to normal conditions. Adelson said the firm continues to see improvement in new mandates, the types of assignments being signed, and the percentage of deals entering the market.
“The party’s been going on for a while in the large cap,” Adelson said. “The party either hasn’t started or is just about to start on the midcap side.”
Restructuring Outlook Remains Elevated
Financial Restructuring revenue was $119 million, generally meeting the company’s expectations. The group closed 23 transactions during the quarter, down 34% from a year earlier, though average fees on completed transactions increased.
Adelson said restructuring activity remains strong amid volatility in energy markets and dislocation in private credit and software. He said the firm expects restructuring activity to remain elevated through fiscal 2027 and that opportunities continue to increase, although it can take time for assignments to progress through the pipeline.
Software has been one driver of restructuring demand, according to management. Alley said the company’s investments in technology and software advisory could position it to benefit from potential software restructurings over the next two to three years, given the number of highly leveraged businesses in that sector.
FVA Growth Offsets Some Advisory Weakness
Financial and Valuation Advisory revenue increased 13% year over year to $89 million. The business recorded 1,042 fee events, up 9% from 957 in the prior-year period.
Alley said FVA has benefited from strong momentum in large-cap transactions, though it is also seeing some of the same mid-market M&A headwinds affecting Corporate Finance. Adelson said the segment’s balanced model across industries and transaction sizes supported its performance.
The company also highlighted its partnership with Morningstar to establish a jointly branded benchmark for the collateralized loan obligation market. Management said any near-term revenue contribution from the partnership would be minimal, describing it instead as an initial step toward using the company’s data resources to support clients and potentially generate revenue over the longer term.
Adelson said the firm sees AI as a meaningful opportunity across its businesses. In valuation services, he said technology could widen the competitive gap between larger firms able to invest in technology and smaller competitors. Management noted that technology can reduce average pricing in some valuation services while expanding the volume and frequency of client work.
Expenses, Hiring and Acquisition Plans
Houlihan Lokey’s adjusted compensation expense ratio was 61.5%, unchanged from the prior-year quarter. Alley said the firm expects to maintain its long-term 61.5% target for the full fiscal year, while Adelson said management sees no reason to alter that approach despite the softer Corporate Finance quarter.
Adjusted non-compensation expenses rose 6% to $100 million. Alley said the quarterly figure was largely consistent with expectations and reflected timing rather than a specific unusual expense item. The company expects full-year non-compensation expense growth to be similar to the prior year.
The adjusted effective tax rate was 13%, compared with negative 1% a year earlier, primarily due to lower stock-based tax benefits associated with the company’s annual May vesting of compensation-related stock. Management expects a full-year adjusted tax rate of 26% to 28%.
During the quarter, the company issued about 1.3 million shares to employees as part of fiscal 2026 year-end compensation and repurchased approximately 1.1 million shares, including roughly 800,000 shares withheld to cover obligations and 300,000 shares through its share repurchase program.
Houlihan Lokey announced the acquisition of Intrepid Financial Partners, an energy-focused independent investment bank, during the quarter. The transaction is expected to close by the end of the second fiscal quarter and add 32 employees. The company also hired three managing directors and said its acquisition pipeline remained active.
Adelson said management remains confident in the company’s longer-term growth prospects despite uncertainty around the timing of a normalization in middle-market M&A conditions.
About Houlihan Lokey (NYSE:HLI)
Houlihan Lokey, Inc is a global investment bank and financial services firm founded in 1972 and headquartered in Los Angeles, California. The company specializes in advisory services across a broad range of transaction types and financial matters. Since its founding, Houlihan Lokey has grown to serve corporations, financial sponsors, and government entities worldwide, providing expertise in complex and high-stakes engagements.
The firm's core service offerings include mergers and acquisitions advisory, capital markets advisory, financial restructuring and distressed M&A, and valuation and fairness opinions.
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