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    HLI
    Earnings call· Jun 2026(Q1 FY27)

    HOULIHAN LOKEY Q1 FY27 earnings call HLI

    Jul 29, 2026 Source

    Executive summary

    Houlihan Lokey Q1 FY27 — Corporate Finance Headwinds Offset by FVA Growth

    Houlihan Lokey experienced a challenging Q1 FY27, primarily driven by headwinds in its Corporate Finance segment due to geopolitical uncertainties and AI-related disruption in the software sector, leading to delayed larger fee transactions. Despite this, the Financial and Valuation Advisory business delivered strong growth, and Financial Restructuring performed as expected. Management remains confident in the long-term outlook, citing record backlog and pipeline in Corporate Finance, viewing the current market disruption as temporary.

    Highlights

    4

    • Financial and Valuation Advisory (FVA) revenue increased 13% year-over-year to $89 million, with fee events up 9%.

    • Financial Restructuring revenue was $119 million, generally in line with expectations for a solid year.

    • Company maintains its long-term target for adjusted compensation expense ratio at 61.5% for FY27.

    • Corporate Finance backlog, pipeline, and new mandate activity are at record levels, indicating future potential.

    Concerns

    4

    • Total revenues were $511 million, with adjusted EPS of $1.35, described as 'disappointing' due to Corporate Finance underperformance.

    • Corporate Finance (CF) revenue decreased 24% year-over-year to $303 million, primarily due to delayed larger fee transactions.

    • Average transaction fee on closed CF deals decreased significantly, despite transaction volume being flat year-over-year.

    • Software sector business was down approximately 54% or $53 million for the quarter, impacting CF results.

    Guidance & targets

    5
    CategoryTargetConfidence
    Adjusted Compensation Expense Ratio
    61.5%
    high materiality
    High
    Non-Compensation Expense Growth
    similar to last year's growth
    medium materiality
    Medium
    Adjusted Effective Tax Rate
    between 26% and 28%
    medium materiality
    High
    Financial Restructuring Performance
    solid year, consistent with views at beginning of year
    medium materiality
    High
    Financial Restructuring Activity Levels
    elevated levels
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Corporate Finance
    Revenues suffered due to macro factors like the Middle East war and AI disruption in software. Deal momentum slowed, particularly in consumer-facing sectors and software, leading to delayed larger fee transactions. Client mix between sponsor and non-sponsor work has been stable. European business showed more softness than the U.S. since Q4 last year. Backlog, pipeline, and new mandate activity are at record levels.
    Transactions closed: 127Transactions closed YoY: flatAverage transaction fee on closed deals: decreased significantly
    		$303M-24%——
    Financial Restructuring
    Revenues were generally in line with expectations. Strong activity levels continue amid volatility in the energy market and dislocation in private credit and the software sector. Expected to have a solid year at elevated levels.
    Transactions closed: 23Transactions closed YoY: -34%Average transaction fee on closed deals: increased
    		$119M———
    Financial and Valuation Advisory
    Produced a strong quarter with growth across all three service lines, underscoring the general health of the economy. Benefiting from strong deal momentum in the large-cap space while experiencing some headwinds in mid-cap M&A. Investing in more sophisticated data tools and offerings for clients.
    Fee events: 1,042Fee events YoY: 9%
    		$89M13%——

    Operational metrics

    7
    Adjusted Compensation Expense Ratio
    61.5%constant YoY
    Q1 FY27

    Remained constant compared to Q1 FY26. Long-term target for FY27 is also 61.5%.

    Adjusted Non-Compensation Expenses
    $100Mup 6% YoY
    Q1 FY27

    Compared to $94 million in Q1 FY26. Expected to grow similar to last year's growth for the full fiscal year.

    Adjusted Effective Tax Rate
    13%vs -1% YoY
    Q1 FY27

    Increase primarily due to lower stock-based tax benefits from annual May vesting of compensation-related stock. Full year FY27 guidance is 26%-28%.

    Shares Issued to Employees
    1.3M
    Q1 FY27

    Issued as part of fiscal 2026 year-end compensation.

    Shares Repurchased
    1.1M
    Q1 FY27

    Total shares repurchased during the quarter.

    Technology Business Revenue Impact
    $53Mdown 54%
    Q1 FY27

    This impact was firm-wide, primarily affecting Corporate Finance, and contributed significantly to the overall revenue decline.

    Managing Directors Hired
    3
    Q1 FY27

    Hired during the quarter, reflecting continued strategic talent acquisition.

    Deals & partnerships

    2
    Intrepid Financial PartnersAcquisition of an independent investment bank specializing in the energy sector.

    The acquisition is expected to bring momentum to the energy business and is part of the company's strategy to diversify and expand into underweighted industry sectors.

    MorningstarCollaboration to establish a jointly branded industry benchmark for the fast-growing CLO market.

    This partnership is seen as a first step in a longer-term objective of utilizing unique data sets to drive client success and revenues, differentiating the company from smaller competitors.

    Risks & headwinds

    5
    Geopolitical uncertainty (Middle East conflict)Q1 FY27, with potential for continued impact

    Impacted deal momentum, particularly in March, April, and May; caused delays in transactions.

    Mitigation: Company believes the disruption is temporary and has a diversified global business that adapts to market conditions.

    AI disruption in software sectorQ1 FY27, with ongoing impact

    Reduced valuations and reassessment of technology deals; software business down ~54% or $53 million.

    Mitigation: Company is adapting by focusing on 10x improvements from AI, differentiating through technology, and seeing a bifurcation in the software market where smart investors are re-engaging.

    Inflation and consumer sentimentQ1 FY27

    Impacted consumer-facing sectors, leading to deal delays.

    Mitigation: Company has a diversified business model and expects these macro uncertainties to be temporary.

    Extended transaction timelines and delayed larger fee dealsQ1 FY27, with potential for near-term uneven closings

    Disproportionately affected larger fee transactions, leading to a significant decrease in average transaction fees and a 24% YoY decline in Corporate Finance revenue.

    Mitigation: Vast majority of delayed transactions are still moving through the pipeline; company is confident in its record backlog and pipeline in Corporate Finance.

    Softness in European businessQ1 FY27

    Relatively more softness in European Corporate Finance business compared to the U.S. since Q4 last year.

    Mitigation: Company's global business varies quarter-to-quarter; overall diversified model provides resilience.

    What to watch in Q2 FY27

    5

    Corporate Finance revenue recovery

    next quarter
    CurrentDown 24% YoY to $303M
    TargetImprovement from Q1 FY27 levels

    Why it matters

    Corporate Finance is the largest segment and its underperformance significantly impacted Q1 results; recovery is key to overall growth.

    Revenues in Corporate Finance were $303 million for the quarter, down 24% compared to the same period last year.

    Q&A highlights

    7

    Can the company adjust to the challenging environment and extended timelines, or does it just have to wait it out?

    Management continuously works on process improvement, but many factors are client-driven or due to broader market alternatives. The elongation of timelines is mostly driven by external macro factors, but the company is always seeking to improve its business.

    “The answer is we are constantly doing things to attempt to improve the business. I mean that kind of process improvement, if you will, is something that has always been part of our culture. Much of this is things that are driven by our clients, not by us and their willingness to move things forward.”

    asked by Brennan Hawken · answered by Scott Joseph Adelson

    2 min read5 chapters

    Detailed Narrative

    01

    Corporate Finance Headwinds and Market Dynamics

    The Corporate Finance business faced significant challenges in Q1 FY27, with revenues down 24% year-over-year. This was primarily attributed to macro factors such as the Middle East conflict and AI disruption in the software sector, which led to extended timelines and delays in larger fee transactions. While transaction volume remained flat, the business mix shifted towards lower fee advisory products, impacting average transaction fees. Management noted that these headwinds, which started in February and March, persisted into April and May, particularly affecting consumer-facing sectors sensitive to inflation and software deals reassessed due to reduced valuations.

    02

    Resilience and Growth in Other Segments

    Despite the Corporate Finance slowdown, the Financial and Valuation Advisory (FVA) segment delivered a strong quarter, with revenues increasing 13% year-over-year and fee events up 9%. This growth was seen across all three FVA service lines, underscoring the general health of the economy and FVA's diversified business model. The Financial Restructuring business performed generally in line with expectations, generating $119 million in revenue, with strong activity levels driven by volatility in the energy market and dislocation in private credit and the software sector.

    03

    M&A Market Outlook and Mid-Cap Recovery

    Management characterized the broader M&A market as 'K-shaped,' with large-cap deals proceeding at a strong rate while the mid-cap market has not yet returned to normal. They described the mid-cap cycle as being in its 'early innings' or a 'rain delay,' suggesting that while conditions are improving from a new mandate perspective, the pace of recovery remains uneven. The company believes that once geopolitical uncertainties clear, the market could rebound, though not instantaneously, and the timing remains difficult to predict📌.

    04

    Strategic Investments and Talent Acquisition

    Houlihan Lokey continues to invest strategically, as evidenced by the announced acquisition of Intrepid Financial Partners, specializing in the energy sector, which is expected to close by the end of Q2 FY27 and add 32 colleagues. The firm also hired three new managing directors in the quarter, highlighting a robust market for senior talent. These investments aim to diversify and expand into underweighted industry sectors, geographies, and product lines, further differentiating the company from smaller competitors.

    05

    Impact of AI and Technology Adoption

    The company views AI as a meaningful component of its business, focusing on '10x improvements' rather than incremental gains. While acknowledging that technology can drive down average pricing in some valuation services, it also expands the total addressable market and increases the frequency of engagements. Management believes that being technology-forward creates a differentiator for larger players, allowing them to thrive by investing in sophisticated data tools and offerings for clients.

    AI-generated summary of the company’s earnings call. Not investment advice.