Houlihan Lokey Defies Seasonality, Restructuring Revenue Surges 19%

Date of Call: Jan 28, 2026

Financials Results

• Revenue: $717M, up 13% YOY
• EPS: $1.94 adjusted earnings per share, up 18% YOY

Guidance:

• Expect Fiscal Q4 restructuring revenues to be lower than Q3, reversing typical seasonality.
• Expect Corporate Finance to continue strong growth, with visibility into Fiscal 2027 being positive.
• Expect adjusted compensation expense ratio to remain at long-term target of 61.5% for balance of year.
• Expect adjusted noncompensation expense growth in Q4 to be consistent with year-to-date trend.
• The French acquisition with Audere Partners is expected to close in Q4, adding to European footprint.

Business Commentary:

Revenue and Earnings Growth:

• Houlihan Lokey reported revenues of $717 million for Q3 2026, up 13% compared to the same period last year, with adjusted earnings per share of $1.94, up 18% year-on-year.
• The growth was driven by improving investor sentiment, stronger company performance, and expectations of declining interest rates, which have fueled M&A recovery and increased private equity activity.

Corporate Finance Performance:

• Corporate Finance produced $474 million of revenue for the quarter, representing a 12% increase over last year's third quarter.
• The increase was due to higher average transaction fees and increased new business activity, with positive inflection in activity levels boosting optimism for fiscal 2027.

Financial Restructuring and Seasonality:

• Financial Restructuring produced $156 million of revenue for the third quarter, a 19% increase versus the same period last year.
• Accelerated transaction timelines moved several deals forward into the third quarter, disrupting typical seasonality and leading to stronger-than-expected results. However, restructuring revenue may face pressures in fiscal 2027 as the market environment improves.

Geographic Expansion and Acquisitions:

• The company hired 6 new managing directors and closed the acquisition of the Real Estate Advisory business of Mellum Capital, adding 11 new colleagues in Munich and London.
• These moves, along with an agreement for a controlling interest in Audere Partners, are part of a strategy to strengthen capabilities in Europe, reflecting a commitment to expanding the firm's geographic footprint.

Capital Management and Share Repurchase:

• Houlihan Lokey repurchased approximately 418,000 shares as part of its share repurchase program and ended the quarter with approximately $1.2 billion in cash and investments.
• The company continues to evaluate balance sheet flexibility for acquisitions versus excess cash for share repurchases, maintaining a preference for strategic acquisitions, followed by dividends and share repurchases.

Sentiment Analysis:

Overall Tone: Positive

• We are pleased with our results... our current visibility... gives us more confidence in fiscal 2027... our outlook for the future is positive. The expansion of our workforce... will continue. Our relentless focus... will continue, and our drive to create value... will continue.

Q&A:

• Question from Brennan Hawken (BMO Capital Markets): Would love to drill down on the outlook for restructuring... Can you maybe help us bridge the gap in between increasing concerns around the private credit markets... and then the outlook for the restructuring activity to slow?
  Response: Structurally, as M&A and capital markets improve, restructuring activity is expected to decline, though pockets of opportunity may arise from geopolitical events or sector-specific issues.

• Question from Brennan Hawken (BMO Capital Markets): ...Could you maybe help us understand what -- if there's like a comparable period that we should think about when we're considering magnitude of potential growth that seems to be shaping up here as we think about next fiscal year?
  Response: Corporate Finance is continuing to grow stronger, with year-to-date solid growth a good proxy for Q4, and activity levels provide comfort for Fiscal 2027 estimates.

• Question from James Yaro (Goldman Sachs): ...maybe you could just talk a little bit about compare and contrast the growth potential of [U.S. vs. non-U.S.].
  Response: The U.S. is the largest and most important market, but European business is growing incredibly well, with a differentiated product and strong market traction.

• Question from James Yaro (Goldman Sachs): ...the overall strategy for Europe and how these 2 acquisitions fit into completing the Mosaic for your European business?
  Response: The acquisitions address underweight positions in France and real estate advisory, aiming to grow the business aggressively in key markets like France and enhance the overall European footprint.

• Question from Devin Ryan (Citizens JMP Securities): ...just would be good to get a little bit of a better sense of kind of the rate of change that you're seeing with sponsors... is it broad-based across verticals?
  Response: Sponsor engagement has been accelerating, especially after Labor Day and New Year's, with activity broad-based across sectors, including a strong rebound in underperforming sectors.

• Question from Devin Ryan (Citizens JMP Securities): ...where do you still see the biggest opportunities? ...where you feel like there's still nice white space...
  Response: Opportunities exist everywhere: in every sector (with significant room to grow subsectors globally), on the product side (especially Capital Solutions), and in geographies.

• Question from Brendan O'Brien (Wolfe Research): ...given the longer lead time for the business, you should have a pretty good baseline for how revenues will track... just given it does tend to see higher highs, higher floors...
  Response: Restructuring is in an ebb period, with decent visibility but cyclicality means ebbs and flows; the business is globally diversified and comfortable with its long-term position.

• Question from Brendan O'Brien (Wolfe Research): ...just given revenue should only accelerate from here and you already have a fairly strong cash position... I just want to get an update as to how you're thinking about capital management...
  Response: Preference remains for strategic acquisitions first, then dividends and share repurchases; share repurchases will continue in smaller increments to maintain flexibility for acquisitions, as the pipeline is strong.

• Question from Ryan Kenny (Morgan Stanley): ...can you give more color on the non-comp expenses... Anything that we should think about in terms of puts and takes in non-comp in the quarter and as we look forward...
  Response: No specific puts and takes in Q3; Q4 non-comp expense growth likely similar to year-to-date trend, with a bit higher rent in Europe due to acquisitions; fiscal 2027 expected high single-digit growth.

• Question from Ryan Kenny (Morgan Stanley): ...Can you give more color on what the strategy is with DataBank? And is it something they're charging for?
  Response: DataBank is early days, with some data available to existing clients; monetizing proprietary data is a top priority, with technological front ends in development for broader access.

• Question from Alexander Bond (KBW): ...just curious if you've seen activity levels impacted at all really by recent geopolitical happenings... Or have clients really been willing to look through these issues...
  Response: Clients' willingness to look through geopolitical noise and get on with business is stronger than ever, supporting continued activity levels.

• Question from Alexander Bond (KBW): ...maybe just moving over to Capital Solutions. ...what inning you think you might be in, in terms of the build-out for the Capital Solutions group more broadly.
  Response: Capital Solutions is in very early innings (third or fourth), with strong growth and demand across all fronts (traditional, secondaries, directs, primary).

• Question from Nathan Stein (Deutsche Bank): ...we're in the third inning of the broader capital market cycle... I wanted to address -- I wanted to ask you guys your thoughts on that...
  Response: Agreed it's early innings (third or fourth), with significant pent-up demand remaining in the market; the firm is well-positioned to take advantage with its expanded capabilities and global reach.

• Question from Nathan Stein (Deutsche Bank): ...do you guys agree with that statement? And how prepared do you feel for the cyclical rebound?
  Response: Agree the market is in early innings with pent-up demand; the firm is well-prepared, having taken share consistently, and is focused on executing its long-term strategy regardless of cycle phase.

Contradiction Point 1

Outlook for Restructuring Activity

Contradictory signals on whether restructuring activity is in a sustained "ebb" period or remains resilient, impacting business strategy and market expectations.

How do increasing concerns about private credit markets align with your expectation of slower restructuring activity? - Brennan Hawken (BMO Capital Markets)

2026Q3: As the broader M&A market improves... it is structurally likely that restructuring activity will decline. - [Scott Joseph Adelson](CEO)

What trends in Financial Restructuring, comparing liability management and Chapter 11 transactions, are expected in the future? - James Edwin Yaro (Goldman Sachs)

2026Q1: Restructuring activity remains elevated and consistent. - [Scott Joseph Adelson](CEO) & [J. Lindsey Alley](CFO)

Contradiction Point 2

Sponsor Engagement Trends

Inconsistent characterization of sponsor activity's current strength and future expectations, affecting deal pipeline and growth outlook.

What is the trend in sponsor engagement—steady or accelerating—and is it sector-wide? - Devin Ryan (Citizens JMP Securities)

2026Q3: Sponsor engagement has been improving consistently quarter-by-quarter, with an acceleration in the last few quarters. - [Scott Joseph Adelson](CEO) & [J. Alley](CFO)

Will sponsor activity increase after Labor Day, aligning with broader market trends? - Alexander Scott Bond (Keefe, Bruyette, & Woods)

2026Q1: Sponsor activity has been muted but is continuing to pick up. - [Scott Joseph Adelson](CEO)

Contradiction Point 3

European Market Growth Outlook

Contradiction on whether the European market is inherently slower or if the lag is just a timing cycle, influencing geographic growth strategy.

How do recent European acquisitions affect U.S. vs. non-U.S. growth outlooks? - James Yaro (Goldman Sachs)

2026Q3: The European business is growing very well... part of a strategy to build out the European footprint. - [Scott Joseph Adelson](CEO)

Despite strong revenue, deal growth has slowed. What is the current state of asset breadth and quality, and when might the market expand? - Brendan James O'Brien (Wolfe Research)

2026Q1: EMEA... has been slower than the U.S. over the last 3-6 months, a trend not expected to change this summer. - [J. Lindsey Alley](CFO)

Contradiction Point 4

Outlook for Corporate Finance and Restructuring Seasonality

Contradiction on whether Q4 seasonality weakness is a general trend or specific to Restructuring, impacting quarterly performance expectations.

Could you clarify the outlook for Corporate Finance, including the impact of Q4's lack of seasonal strength on restructuring and growth expectations for the next fiscal year? - Brennan Hawken (BMO Capital Markets)

2026Q3: The lack of typical seasonality (strong Q4) was specific to Restructuring, not Corporate Finance. - [Scott Joseph Adelson](CEO) & [J. Alley](CFO)

What factors are driving improved Corporate Finance performance in Q4 compared to Q3? - James Yaro (Goldman Sachs Group, Inc., Research Division)

2026Q2: The overall view for the year hasn't changed, with a notable difference in transaction timing between Q3 and Q4. - [J. Alley](CFO)

Contradiction Point 5

Seasonal Outlook for Corporate Finance

The expected seasonal pattern for Corporate Finance deal activity appears to have changed, affecting annual growth projections.

Could you clarify the outlook for Corporate Finance, including whether the Q4 seasonal weakness is solely due to restructuring and the expected growth for next fiscal year? - Brennan Hawken (BMO Capital Markets)

2026Q3: Corporate Finance is continuing to strengthen... - [Scott Joseph Adelson](CEO) & [J. Alley](CFO)

What is driving the expectation of a stronger CF fourth quarter versus a weaker third quarter? - James Yaro (Goldman Sachs)

20251031-2026 Q2: It's a bit unusual seasonally. The general view for the year hasn't changed, but you'll see a difference in seasonality between Q3 and Q4. - [Scott Joseph Adelson](CEO) & [J. Alley](CFO)