Houlihan Lokey Signals Confidence Despite Market Volatility

Houlihan Lokey Inc. ((HLI)) has held its Q4 earnings call. Read on for the main highlights of the call.

Houlihan Lokey’s latest earnings call struck an upbeat tone despite choppy markets. Executives highlighted record annual revenue and earnings, a strong backlog, growing headcount and a cash-rich balance sheet as reasons for confidence. They acknowledged softer fees, restructuring volatility and rising costs, but framed these as manageable and largely cyclical rather than structural.

Record Annual Revenue and Earnings

Houlihan Lokey closed fiscal 2026 with record revenue of $2.6 billion, up 10% year over year. Adjusted earnings per share climbed 20% to $7.56, underscoring improved profitability and operating leverage even as some business lines saw uneven conditions.

Strong Fourth Quarter Performance

Fourth quarter revenue reached $636 million, supporting adjusted EPS of $1.63. Corporate Finance and Financial & Valuation Advisory each delivered their highest fourth quarter revenue on record, showing broad-based momentum heading into fiscal 2027.

Corporate Finance Momentum and Deal Flow

Corporate Finance revenue rose 5% year over year to $434 million in the quarter as the firm closed 171 transactions versus 147 a year earlier. Management pointed to a growing backlog and better transaction metrics, with international regions outpacing the U.S. in growth.

Restructuring Outlook Turns More Constructive

Financial Restructuring revenue for fiscal 2026 slipped 3% to $529 million, but activity levels climbed and recent mandates improved. Executives cited widening credit spreads, private credit dislocation and sector volatility as reasons to expect restructuring to run at elevated levels in fiscal 2027.

Valuation Advisory Growth and Market Opportunity

Financial & Valuation Advisory generated $91 million of quarterly revenue, up 3% year over year, on 1,248 fee events. The firm emphasized a growing addressable market and investments in technology and AI to drive higher volume and offset pricing pressure.

Balance Sheet Strength and Shareholder Returns

The company ended the quarter with about $1.4 billion in cash and investments, giving ample flexibility for growth initiatives. It repurchased roughly 300,000 shares and lifted the quarterly dividend by 17% to $0.70 per share, signaling confidence in future cash generation.

Talent Expansion and M&A Execution

Houlihan Lokey added or acquired 33 managing directors during the year, including four in the fourth quarter, and promoted 25 more in early fiscal 2027. Management also highlighted a busy acquisition pipeline and recent tuck-in deals that deepen sector and geographic coverage.

Expense Discipline and Tax Efficiency

Adjusted compensation expense declined to $391 million in the quarter, keeping the adjusted comp ratio at 61.5% in line with the firm’s target. The adjusted effective tax rate improved to 23.7% for fiscal 2026 from 29.8% the prior year, boosting net earnings.

Restructuring Volume and Fee Pressures

Restructuring closed 30 transactions in the quarter, down 21% versus the prior year, and average transaction fees declined. Management noted that two large mandates slipped past quarter-end, weighing on Q4 results, and that fee pressure was also evident in Corporate Finance.

Macro Headwinds and Sector Weakness

Executives pointed to renewed geopolitical tensions and market volatility as factors delaying deals and tempering near-term growth. The software sector was a notable weak spot, with expectations for continued pressure on demand and pricing into fiscal 2027.

Rising Non-Compensation Costs and Volatility

Adjusted non-compensation expenses increased 10.5% in the quarter to $94 million and grew at a similar pace for the year, and management signaled comparable growth ahead. They also reminded investors that quarterly performance can be lumpy as deal closings and macro shocks drive timing risk.

Forward Guidance and Fiscal 2027 Outlook

Management expects fiscal 2027 to bring further growth in Corporate Finance and Financial & Valuation Advisory, with restructuring running at elevated levels. They plan to hold the long-term adjusted comp ratio near 61.5%, accept continued non-comp cost growth, and benefit from a lower tax rate, while leveraging a record backlog, expanded MD roster and strong cash position.

Houlihan Lokey’s call framed near-term volatility and fee pressure as the price of operating in turbulent markets, not a structural shift in its model. With record earnings, a deep bench of senior bankers and substantial liquidity, the firm is positioning for continued growth even as it navigates geopolitical risks, sector-specific weakness and rising operating costs.