Houlihan Lokey Q4 Earnings Call Highlights

Key Points

• Houlihan Lokey posted record fiscal 2026 results, with revenue rising 10% to $2.6 billion and adjusted EPS up 20% to $7.56. Fourth-quarter revenue came in at $636 million, with adjusted EPS of $1.63.
• Management said geopolitical uncertainty and software-sector pressure delayed some transactions in the fourth quarter, especially in Corporate Finance. The company expects those headwinds could continue into fiscal 2027 and may moderate near-term growth.
• Despite short-term disruption, the outlook remains strong thanks to record backlog and pipeline levels, plus an improved restructuring environment. Houlihan Lokey also raised its quarterly dividend 17% to $0.70 per share and said acquisitions remain its top capital allocation priority.

Houlihan Lokey NYSE: HLI reported record fiscal 2026 revenue and higher adjusted earnings, while management said uncertainty tied to geopolitical events and sector-specific pressures affected the timing of some transactions in the fourth quarter.

Chief Executive Officer Scott Adelson said the investment bank ended fiscal 2026 with $2.6 billion in revenue, up 10% from the prior year, and adjusted earnings per share of $7.56, up 20%. Fourth-quarter revenue was $636 million, with adjusted earnings per share of $1.63.

Adelson said Corporate Finance and Financial and Valuation Advisory each produced record annual revenue, and Financial Restructuring had “one of the strongest years on record.” He added that Corporate Finance and Financial and Valuation Advisory each posted their highest fourth-quarter revenue ever.

Fourth-Quarter Results Show Growth in Corporate Finance and FVA

Chief Financial Officer Lindsey Alley said Corporate Finance revenue was $434 million in the fourth quarter, up 5% from the same period a year earlier. The segment closed 171 transactions, compared with 147 in the prior-year quarter, while the average transaction fee on closed deals declined.

Alley said M&A deal timelines extended because of geopolitical uncertainty related to the war in the Middle East and its ripple effects. She said Houlihan Lokey expects that dynamic to persist as long as uncertainty remains, potentially moderating growth in the first quarter of fiscal 2027, similar to the fourth-quarter impact.

Financial Restructuring revenue was $110 million in the quarter, and the segment ended fiscal 2026 with $529 million in revenue, down 3% from fiscal 2025. The business closed 30 transactions in the quarter, down 21% from the same period last year, and its average transaction fee declined.

Financial and Valuation Advisory revenue was $91 million, up 3% year over year. Alley said the segment recorded 1,248 fee events in the quarter, up 2% from 1,224 in the same period last year.

Management Points to Strong Backlog, But Notes Software Pressure

Adelson said quarterly results can be more volatile than annual results because of macroeconomic events and revenue timing. In Financial Restructuring, he said two larger transactions extended beyond quarter-end. In Corporate Finance and Financial and Valuation Advisory, he said fourth-quarter growth was affected by external market disruptions, including renewed geopolitical uncertainty tied to the Middle East conflict and volatility affecting the software sector.

Despite those pressures, Adelson said the company’s business is “in the best shape in its history,” citing record backlog and pipeline levels, a record number of managing directors and a record number of corporate acquisition opportunities in various stages of potential completion.

In Corporate Finance, Adelson said backlog continued to grow and transaction metrics improved across most industry groups, with technology as an exception. He said Corporate Finance revenue outside the U.S. grew significantly faster than U.S. revenue in both the fourth quarter and the full fiscal year.

During the question-and-answer session, Adelson said sponsor activity had been improving before the Middle East conflict created a pause. He said recent go-to-market activity has been the most active the company has seen in years. However, he said software remains an area of uncertainty and pressure.

“Software is clearly a sector that is going to be impacted, and I don’t think anybody really has an answer on how much yet,” Adelson said. Alley added that the company has assumed software will be affected in fiscal 2027.

Restructuring Outlook Improves

Management’s tone on Financial Restructuring improved from the prior quarter. Adelson said the same market disruptions that created challenges for Corporate Finance also generated opportunities in restructuring.

He cited multiple tailwinds for fiscal 2027, including widening credit spreads, dislocation in private credit and the software sector, and energy volatility. Those factors are driving higher activity levels and “several notable recent wins,” he said.

In response to an analyst question, Adelson said restructuring activity had picked up materially after events in software, the war and energy markets began to converge. Alley said the company continued to use the term “elevated levels” to describe the restructuring outlook, consistent with its language over the past three years.

Asked about two restructuring transactions that slipped beyond the fourth quarter, Alley said Houlihan Lokey expects them to close in fiscal 2027, likely in the first half, though she declined to identify a specific quarter. Adelson said it was unlikely both would close in the same quarter based on current information.

Expenses, Tax Rate and Capital Return

Alley said adjusted compensation expense was $391 million in the quarter, compared with $410 million a year earlier. The adjusted compensation expense ratio was 61.5% in both fiscal 2026 and fiscal 2025, and the company expects to maintain its long-term target of 61.5% in fiscal 2027.

Adjusted non-compensation expenses rose 10.5% to $94 million in the quarter. For the year, adjusted non-compensation expenses increased 10.7%, and the adjusted non-compensation expense ratio was 13.9%. Alley said Houlihan Lokey expects similar growth in adjusted non-compensation expenses in fiscal 2027.

The adjusted effective tax rate for fiscal 2026 was 23.7%, down from 29.8% in fiscal 2025. Alley said the decrease was primarily tied to a policy change under which the company no longer adjusts out the impact of stock compensation deductions on its effective tax rate.

Houlihan Lokey ended the quarter with about $1.4 billion in cash and investments. Alley noted that a significant portion of cash is earmarked for accrued but unpaid fiscal 2026 bonuses to be paid in May and November. The company repurchased about 300,000 shares during the fourth quarter.

The board approved a quarterly dividend increase to $0.70 per share, 17% higher than the fiscal 2026 quarterly dividend. Alley said the dividend increase reflects the company’s continued growth and outlook, while acquisitions remain the top capital allocation priority, followed by share repurchases.

Hiring, Acquisitions and Technology Investment

Adelson said Houlihan Lokey closed two previously announced transactions in the fourth quarter, adding colleagues from Audere Partners and Mellum Capital. The company also hired four managing directors in the quarter, bringing total hired and acquired managing directors for the fiscal year to 33. It promoted 25 colleagues to managing director in the first quarter of fiscal 2027.

Management said the acquisition pipeline is highly active. Adelson said potential deals span geography, product and industry, but cultural fit remains the company’s most important criterion.

Alley said recent transactions illustrate that flexibility, pointing to Waller Helms in financial institutions coverage, a Capital Solutions acquisition in real estate in Europe, and a transaction that addressed the company’s underweight position in France.

On technology and artificial intelligence, Adelson said Houlihan Lokey is investing across front-end, workflow, operational and longer-term “moon shot” initiatives. Alley said technology spending has been incorporated into the company’s non-compensation expense outlook and can benefit Corporate Finance, Financial and Valuation Advisory and Financial Restructuring.

Adelson closed the call by thanking employees, clients and shareholders and said the company would update investors on fiscal 2027 first-quarter results this summer.

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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