Houlihan Lokey Earnings Call Highlights Growth Momentum

Houlihan Lokey Inc. ((HLI)) has held its Q3 earnings call. Read on for the main highlights of the call.

Houlihan Lokey Signals Confident Growth Despite Macro Crosswinds

Houlihan Lokey’s latest earnings call carried a distinctly upbeat tone, as management highlighted double-digit revenue and earnings growth, robust performance across its core advisory franchises, and continued strategic expansion in Europe. While executives acknowledged rising costs, uncertainty in restructuring demand, and broader macro and geopolitical risks, the overall message was that the firm’s deal pipeline, market share gains, and balance sheet strength leave it well positioned for continued growth.

Strong Quarter: Revenue and EPS Push Higher

Houlihan Lokey reported a solid third quarter, with total revenue rising 13% year-over-year to $717 million and adjusted EPS climbing 18% to $1.94. Management emphasized that the growth was broad-based across business lines and reflects improving deal activity as capital markets thaw. The firm’s ability to translate higher revenue into even faster EPS growth underscored operating leverage and disciplined cost management, even as absolute expenses moved higher.

Corporate Finance Momentum and Improving Deal Environment

Corporate Finance, the company’s largest segment, delivered revenue of $474 million, up 12% from a year earlier. Deal volume rose modestly, with 177 transactions closed versus 170 last year, but the more important driver was higher average transaction fees. Executives pointed to rising new-business activity and an improving M&A environment, supporting a more constructive outlook into fiscal 2027. The tone suggested that Houlihan is gaining share in a gradually recovering market, with growing visibility into the deal pipeline.

Restructuring Outperforms, but Seasonality Flips

Financial Restructuring revenue climbed 19% year-over-year to $156 million, despite the number of closed transactions holding flat at 41. Higher average fees and the acceleration of several deals into the quarter drove an unusually strong Q3 that broke the firm’s typical seasonal pattern. Management cautioned that this pull-forward of activity is likely to make Q4 look more like Q1 and Q2, rather than delivering the traditional end-of-year bump, and highlighted timing risk for investors looking at quarter-to-quarter trends.

Financial & Valuation Advisory Delivers Steady Growth

The Financial & Valuation Advisory segment posted revenue of $87 million, up 6% from the prior year. Activity was solid, with 1,103 fee events compared to 1,015 a year ago, a 10% increase. Management described the business as an important recurring and diversified revenue contributor, noting healthy new-business trends heading into Q4. This division continues to provide a more stable revenue base within the firm’s overall advisory mix.

Strategic M&A and European Expansion Accelerate

Houlihan Lokey is continuing to use its strong balance sheet to expand its global footprint, particularly in Europe. The firm closed the acquisition of Mellon Capital’s real estate advisory business and announced an agreement to acquire a controlling interest in France’s O’Dare Partners, expecting to own 51% at closing. Management also highlighted the addition of six new managing directors in the quarter and 11 professionals in Munich and London. These moves are designed to deepen sector coverage and regional capabilities, reinforcing the firm’s offensive posture in a competitive advisory landscape.

Balance Sheet Strength Supports Flexible Capital Deployment

The company ended the quarter with approximately $1.2 billion in cash and investments, giving it ample flexibility for both strategic and shareholder-focused capital allocation. Houlihan repurchased roughly 418,000 shares during Q3 and reiterated that its first priority is to deploy capital into attractive acquisitions that can enhance the franchise, with buybacks and dividends remaining a steady but secondary use of funds. The balance sheet was repeatedly framed as a strategic asset in executing the firm’s growth agenda.

Industry Recognition Reinforces Competitive Position

Management underscored Houlihan Lokey’s leading industry position, noting that the firm has been ranked the most active M&A investment bank and the most active financial restructuring investment bank globally for 2025. Alongside these rankings, the company continues to invest in talent across geographies and products, including six new managing directors in Q3. This combination of market recognition and ongoing hiring is intended to support long-term market-share gains and sustain the firm’s deal flow across cycles.

Tax Efficiency Provides an Earnings Tailwind

An improvement in the company’s tax profile provided a modest support to earnings. The adjusted effective tax rate declined to 30.6% from 33.3% a year ago, driven by lower state taxes and reduced non-deductible expenses. While not the main driver of EPS growth, management framed tax efficiency as a helpful tailwind that complements the firm’s operating performance.

Restructuring Outlook: Strong Today, Less Certain Tomorrow

Despite the strong performance in Q3, management expressed caution about the medium-term outlook for Financial Restructuring. Historically, demand for restructuring services softens as M&A activity improves and capital becomes more available. The company expects this pattern could create revenue pressure in restructuring as markets normalize into fiscal 2027. At the same time, executives acknowledged that geopolitical tensions and stresses in private credit markets could still spark episodic spikes in restructuring activity, making visibility more limited than usual.

Expense Growth and Acquisition-Driven Cost Pressure

Total adjusted compensation expense increased to $441 million from $390 million year-over-year, reflecting higher headcount and performance-driven pay. Importantly for investors, the adjusted compensation ratio remained steady at 61.5%, in line with management’s target, meaning compensation is rising in proportion to revenue. Non-compensation costs are also moving higher, up 11% year-to-date, and the company expects Q4 non-comp growth to remain consistent with these levels. Recent acquisitions have added localized cost pressure, particularly higher rent and related expenses in Europe, along with $2.2 million in integration and acquisition-related charges and additional adjustments. While manageable, these costs are a reminder that Houlihan’s growth strategy comes with near-term margin friction.

Macro and Market Uncertainties Cloud Visibility

Management acknowledged that several external factors could influence results in unpredictable ways. Geopolitical risks and stresses in private credit markets could either dampen overall transaction activity or drive surges in restructuring mandates, making near-term forecasting more challenging. The firm also pointed to the atypical timing of restructuring deals this quarter as a source of volatility in reported results. Still, executives conveyed confidence that the diversified business mix, strong brand, and global platform position Houlihan Lokey to navigate these uncertainties better than many peers.

Guidance and Outlook: Building Momentum into Fiscal 2027

Looking ahead, Houlihan Lokey guided to continued momentum into fiscal 2027, underpinned by improving M&A markets and rising visibility in the deal backlog. Management expects Corporate Finance and Financial & Valuation Advisory to benefit most from the upturn in transaction activity, even as restructuring likely faces some pressure as conditions normalize. The firm intends to maintain its disciplined compensation ratio, while non-comp expenses should grow at a rate comparable to the year-to-date trend. With roughly $1.2 billion of cash and investments and an active pipeline of potential acquisitions, capital deployment will remain tilted toward strategic deals, complemented by ongoing share repurchases and dividends. Overall, the guidance implied confidence in sustaining growth, even with some segment-level and macro uncertainties.

In sum, Houlihan Lokey’s earnings call painted a picture of a firm in offensive mode: growing revenue and earnings, expanding its global footprint, and reinforcing its industry leadership while keeping a close eye on costs and macro risks. Investors will need to watch for the expected moderation in restructuring and seasonal shifts in quarterly results, but the company’s diversified business mix, strong balance sheet, and active acquisition strategy suggest it is well placed to capitalize on a recovering deal environment into fiscal 2027 and beyond.