Houlihan Lokey, Inc. (HLI) Q3 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong growth potential in Corporate Finance and non-U.S. markets, supported by strategic acquisitions. Despite some concerns in restructuring, the firm shows a solid long-term position and strong acquisition pipeline. The Q&A reveals optimism about M&A activity and sponsor engagement, with a focus on expanding capabilities globally. While management was vague on certain metrics, the overall sentiment remains positive, suggesting a likely stock price increase in the near term.
Key Financial Performance
Revenues $717 million, up 13% year-over-year. The increase is attributed to improving investor sentiment, stronger company performance, and expectations of declining interest rates, which fueled M&A recovery and private equity activity.
Adjusted Earnings Per Share (EPS) $1.94, up 18% year-over-year. The growth is linked to the same factors driving revenue growth, including improved market conditions and company performance.
Corporate Finance Revenue $474 million, up 12% year-over-year. Growth driven by higher average fees and increased new business activity.
Financial Restructuring Revenue $156 million, up 19% year-over-year. The increase was due to accelerated transaction timelines that moved deals into the third quarter.
Financial and Valuation Advisory Revenue $87 million, up 6% year-over-year. Growth attributed to an improving M&A climate and strong capital markets.
Adjusted Compensation Expenses $441 million, up from $390 million year-over-year. The increase includes $18 million for deferred retention payments related to acquisitions.
Adjusted Non-Compensation Expense Ratio 13.1%, consistent year-over-year. Adjustments included $2.2 million in integration and acquisition-related costs, $1.3 million in noncash acquisition-related amortization, and $600,000 for professional fees related to Project Solo.
Adjusted Effective Tax Rate 30.6%, down from 33.3% year-over-year. The decrease was due to reduced state taxes and nondeductible expenses.
Cash and Investments Approximately $1.2 billion at the end of the quarter. No year-over-year comparison provided.
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Operating Highlights
Corporate Finance Revenue: $474 million for the quarter, a 12% increase compared to the same period last year. Closed 177 transactions this quarter, up from 170 last year, with an increase in average transaction fee.
Financial Restructuring Revenue: $156 million for the quarter, a 19% increase compared to the same period last year. Closed 41 transactions, consistent with last year, with an increase in average transaction fee.
Financial and Valuation Advisory Revenue: $87 million for the quarter, a 6% increase compared to the same period last year. Conducted 1,103 fee events, a 10% increase from 1,005 last year.
European Market Expansion: Acquired Real Estate Advisory business of Mellum Capital, adding 11 colleagues in Munich and London. Announced controlling interest in Audere Partners, a French corporate finance firm, expanding the French office to 80 colleagues, making it one of the largest in Europe.
Adjusted Compensation Expenses: $441 million for the quarter, up from $390 million last year. Maintained a 61.5% adjusted compensation expense ratio.
Adjusted Non-Compensation Expenses: 13.1% of revenue, consistent with last year. Adjusted for integration, acquisition-related costs, and professional fees for global structure streamlining.
Strategic Acquisitions: Acquired Mellum Capital's Real Estate Advisory business and announced a controlling interest in Audere Partners to strengthen European operations.
Global Organizational Streamlining: Undertook Project Solo to streamline global organizational structure, incurring $600,000 in professional fees.
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Risk or Challenges
Restructuring Revenue Pressures: The company anticipates revenue pressures in its Financial Restructuring segment for fiscal 2027 due to an improving market environment, which could reduce demand for restructuring services.
Geopolitical Events Impact: Recent geopolitical events could introduce uncertainties and potentially drive restructuring activity levels higher, creating unpredictability in revenue streams.
Seasonal Revenue Variability: The company expects its fourth quarter results to deviate from typical seasonal patterns, with lower restructuring revenues compared to the third quarter, which could impact financial performance.
Integration and Acquisition Costs: The company incurred $2.2 million in integration and acquisition-related costs, which could continue to affect non-compensation expenses as it pursues further acquisitions.
Project Solo Costs: Professional fees associated with streamlining the global organizational structure (Project Solo) amounted to $600,000, adding to operational expenses.
European Expansion Risks: The company is expanding its footprint in Europe, including a controlling interest in a French corporate finance firm. While this enhances capabilities, it introduces risks related to integration, cultural alignment, and market performance in new regions.
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Guidance & Outlook
M&A Recovery and Private Equity Activity: The company expects continued improvement in M&A recovery, driven by stronger company performance and expectations of declining interest rates. Private equity activity is anticipated to accelerate as more portfolio companies explore liquidity.
Corporate Finance Outlook: Corporate Finance revenues are expected to grow, with positive inflection in activity levels and increased optimism for fiscal year 2027. Current visibility into deal activity and backlog has improved compared to the previous quarter.
Financial Restructuring Outlook: Restructuring revenues are expected to face pressures in fiscal 2027 due to an improving market environment. However, geopolitical events could potentially increase restructuring activity levels.
Financial and Valuation Advisory Outlook: This segment is expected to benefit from an improving M&A climate and strong capital markets, with solid new business generation anticipated in the fourth quarter.
European Expansion: The company plans to expand its European operations significantly, with the acquisition of Audere Partners in France and the Real Estate Advisory business of Mellum Capital. These moves are expected to strengthen the European footprint, with the potential for the European Corporate Finance business to match the size of the U.S. operations.
Compensation and Expense Ratios: The company aims to maintain a long-term adjusted compensation expense ratio of 61.5% and expects consistent year-over-year growth in adjusted non-compensation expenses for the fiscal fourth quarter.
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Shareholder Return Plan
Share Repurchase Program: In the third quarter, the company repurchased approximately 418,000 shares as part of its share repurchase program. The company will continue to evaluate balance sheet flexibility for acquisitions versus excess cash for share repurchases.
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Key Q&A
Q:What is the outlook for restructuring activity given concerns around private credit markets?
A:The market is improving for M&A with plentiful capital and likely declining interest rates, leading to declining restructuring activity levels. While there are pockets of opportunities globally due to geopolitical events or specific industries, these are not consistently showing up as new opportunities.
Q:What are the expectations for Corporate Finance revenues for the end of the fiscal year and next fiscal year?
A:Corporate Finance revenues have shown solid growth year-to-date, which is a good proxy for Q4. The outlook for next fiscal year is improving, with increasing M&A activity, particularly in private equity, providing good visibility for fiscal '27 estimates.
Q:What is the growth potential for Corporate Finance in the U.S. versus non-U.S. regions?
A:The U.S. remains the largest and most important market, but the European business is growing significantly due to a differentiated product offering. Recent acquisitions in Europe, such as in France, are expected to lift revenues across the region.
Q:What is the strategy for expanding the European business and how do recent acquisitions fit into it?
A:The strategy involves aggressively growing the business in key markets like France, which was previously underweighted. The acquisitions in France and other regions are expected to benefit the entire European business under the Houlihan Lokey umbrella.
Q:What is the trajectory of sponsor engagement and the rate of change in activity levels?
A:Sponsor engagement has been improving quarter-by-quarter, with an accelerating rate of new opportunities since the beginning of the year. Activity levels are broad-based across sectors, with underperforming sectors showing stronger recovery.
Q:Where does the firm see the biggest opportunities for growth in terms of white space?
A:There is significant growth potential across all sectors, subsectors, products, and geographies. The firm is focused on building out capabilities globally and expanding its subsector coverage, which currently includes around 200 subsectors.
Q:What are the expectations for the restructuring business in the near term?
A:The restructuring business is in an ebb period, but the firm remains comfortable with its long-term position. The business is highly diversified globally, and growth could be triggered by specific geographies, industries, or products.
Q:What is the firm's approach to capital management and the acquisition pipeline?
A:The firm prioritizes strategic acquisitions for deploying excess cash, followed by dividends and share repurchases. The acquisition pipeline is strong, with multiple opportunities lined up for the future.
Q:What are the trends in non-compensation expenses and expectations for fiscal '27?
A:Non-compensation expenses have been slightly elevated due to factors like rent increases in Europe and acquisitions. Year-to-date growth is a good proxy for Q4, and fiscal '27 is expected to see high single-digit growth in non-comp expenses.
Q:What is the strategy and outlook for the DataBank product and data monetization?
A:The DataBank product is in early stages, with some data available to existing clients. The firm sees significant potential in monetizing proprietary data and is working on technological solutions to make it more accessible.
Q:How have recent geopolitical events impacted Corporate Finance activity levels?
A:Clients have shown a strong ability to look through geopolitical noise and continue business activities. The willingness to proceed despite uncertainty is stronger than ever.
Q:What is the progress and outlook for the Capital Solutions group?
A:The Capital Solutions group is in early stages of growth, with significant demand across traditional business, secondaries, directs, and primary markets. The group is expected to continue expanding its capabilities.
Q:What is the firm's view on the broader M&A advisory cycle and its preparedness for a rebound?
A:The firm agrees that the M&A advisory cycle is in early innings, with significant pent-up demand. It is well-positioned to capitalize on the rebound through subsectorization, global reach, and expanded capabilities.
Q:How does the firm plan to capitalize on the middle market M&A space?
A:The firm focuses on taking market share in the middle market through its business model, platform size, and expertise. It aims to grow with the market while continuing to outperform competitors in this space.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the magnitude of decline in the restructuring business, citing uncertainty and cyclicality. They also did not provide clear metrics or timelines for the DataBank product's monetization strategy.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Advisory Mellum
Advisory increase
Audere Partners
Capital capital
Estate Advisory
Europe potential
Europe transaction
Finance climate
Finance investment
Finance visibility
France colleague
Houlihan Lokey
London partner
Mellum Capital
Munich London
Partners finance
Real Estate
Restructuring increase
Scott Welcome
acquisition Real
activity inflection
activity level
activity number
addition week
advice client
agreement interest
assessment Financial
backlog confidence
bank world
business Corporate
capability colleague
commitment
investment bank
HLI Transcript
Houlihan Lokey, Inc. (HLI) Q4 2026 Earnings Call Transcript
Positive5-6
The earnings call revealed strong financial performance with a 10% revenue increase, 8% net income growth, and improved EPS. Operating margin and cash flow also showed positive trends. Despite acknowledging risks in forward-looking statements, the financials indicate effective cost management and profitability. No significant negative sentiment was observed in the Q&A, suggesting a generally positive outlook. However, the absence of discussions on strategic initiatives and shareholder returns limits the potential for a stronger positive rating.
Houlihan Lokey, Inc. (HLI) Q3 2026 Earnings Call Transcript
Positive1-28
The earnings call highlights strong growth potential in Corporate Finance and non-U.S. markets, supported by strategic acquisitions. Despite some concerns in restructuring, the firm shows a solid long-term position and strong acquisition pipeline. The Q&A reveals optimism about M&A activity and sponsor engagement, with a focus on expanding capabilities globally. While management was vague on certain metrics, the overall sentiment remains positive, suggesting a likely stock price increase in the near term.
Houlihan Lokey, Inc. (HLI) Presents at Goldman Sachs 2025 U.S. Financial Services Conference Transcript
Neutral12-16
Houlihan Lokey, Inc. (HLI) Q2 2026 Earnings Call Transcript
Positive10-30
The earnings call summary indicates strong financial performance across multiple sectors with optimistic guidance. There is a notable increase in corporate finance and restructuring revenues, alongside robust acquisition opportunities. The Q&A highlights ongoing momentum in corporate finance and a resilient restructuring backlog, despite some slowdown. While management avoided specifics in certain areas, the overall sentiment remains positive. The company's strong cash position and decreased tax rate further bolster financial health. Given these factors and the absence of a market cap, the stock price is likely to experience a positive movement in the short term.
HLI Slides
Houlihan Lokey FY2026 slides: record revenue amid market leadership2026-05-06
Houlihan Lokey Q3 2026 presentation slides: market leadership drives 13% revenue growth2026-01-28
Houlihan Lokey Q2 2026 slides: revenue growth accelerates, market leadership expands2025-10-30
Houlihan Lokey Q3 2025 slides: Corporate Finance drives growth, M&A leadership affirmed2025-05-07
HLI Report
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