Houlihan Lokey (NYSE:HLI) reported second-quarter fiscal 2027 revenue of $692 million, up 5% from a year earlier, while adjusted earnings per share were unchanged at $1.85. Management said results reflected a “normalizing market environment” that continued into October, though it maintained caution over macroeconomic volatility, geopolitical instability and continued dislocation in the software sector.
Chief Executive Officer Scott Adelson said the firm has returned to growth in the U.S. and Europe and across most industry groups, excluding technology and healthcare. He said activity and backlog metrics point to growth through the remainder of the fiscal year across the company’s three businesses.
Corporate Finance Revenue Rises Despite Fewer Closings
Corporate Finance generated $481 million in quarterly revenue, a 10% increase from the prior-year period. The business closed 142 transactions, compared with 171 a year earlier, but higher average fees on completed deals supported revenue growth.
Chief Financial Officer Lindsey Alley said the quarterly divergence between transaction volume and revenue followed an unusual first quarter, when revenue declined 25% while the number of closed transactions was flat. On a year-to-date basis, Corporate Finance revenue was down roughly 6% and completed transactions were down about 9%, she said.
Management said the company has not changed its middle-market strategy or shifted toward pursuing substantially larger transactions. Rather, Adelson said Houlihan Lokey is using its internal data more selectively to pursue transactions with higher probabilities of closing. He said the firm remains squarely focused on its traditional market, generally involving transactions in the hundreds of millions of dollars and, in some cases, up to a couple of billion dollars.
Adelson said higher interest rates have not materially affected the firm’s middle-market business, provided capital remains available. He said geopolitical shocks have had a greater influence on deal activity by creating delays, but clients have increasingly resumed transactions after concluding that conditions are not deteriorating further.
“Right now, we are seeing a willingness to do deals,” Adelson said, adding that sponsor clients, which represent the company’s largest client cohort, are showing a greater willingness to transact.
Management expects Corporate Finance activity to support growth in the second half, although Adelson said software remains under pressure. Conditions in software have improved from earlier levels, he said, but the firm does not expect to generate the same level of software revenue this year as it did last year. Healthcare weakness was characterized as largely a timing issue.
Restructuring Outlook Strengthens
Financial Restructuring revenue totaled $118 million, down 12% year over year. The group completed 27 transactions, down 27% from the prior-year period, though average fees on closed deals increased.
Alley said restructuring is inherently lumpy, making disconnects between transaction volume and revenue more common than in Corporate Finance. Management expects stronger restructuring revenue in the second half of fiscal 2027 and said it is entering calendar 2027 with record backlog and strong activity levels.
Adelson said the outlook for restructuring has improved meaningfully from the beginning and end of the prior fiscal year. Software-related distress is a significant contributor to the pipeline, alongside higher interest rates and geopolitical dislocation, he said.
Alley said the firm is seeing both active and verbally mandated restructuring engagements, with software the leading industry driver but not the only source of activity. She said software restructuring engagements are expected to begin contributing revenue in calendar 2027, with further impact anticipated in calendar 2028 as assignments progress through the pipeline.
Management also expressed optimism about restructuring opportunities in Europe, citing approaching debt maturity walls. Alley compared the potential effect of software distress to the oil-and-gas disruption that affected the company’s restructuring business in fiscal 2017, while noting that software is a larger market.
Advisory Growth, Expenses and Capital Deployment
Financial and Valuation Advisory revenue rose 7% to $93 million. Fee events were essentially unchanged at 1,071, compared with 1,075 a year earlier. Adelson said growth was driven primarily by the portfolio valuation business, which he described as non-cyclical. The firm’s opinion and advisory businesses are more tied to M&A conditions, he said.
The adjusted compensation expense ratio was 61.5%, unchanged from a year earlier. Alley said the company expects to maintain its long-term 61.5% compensation ratio target for fiscal 2027.
Adjusted non-compensation expenses increased 11% to $91 million, and the adjusted non-compensation expense ratio rose to 13.3% from 12.5%. Management said it expects full-year non-compensation expense growth to be similar to the prior year. The adjusted effective tax rate was 30% for the quarter, and the company forecast a fiscal-year adjusted effective tax rate between 26% and 28%.
Houlihan Lokey ended the quarter with about $888 million in unrestricted cash and investment securities. The company repurchased approximately 397,000 shares for about $50 million during the quarter and said it will continue weighing acquisition opportunities against share repurchases.
The firm added 12 managing directors during the quarter, including eight through its acquisition of Intrepid Financial Partners, which closed in September. Management said its acquisition pipeline remains strong and that it continues to seek culturally compatible strategic additions.
Looking ahead, Alley said the company expects a stronger-than-normal seasonal second half, contingent on supportive market conditions. “We do expect a good, solid second half that’s better than normal for us,” she said.
About Houlihan Lokey (NYSE:HLI)
Houlihan Lokey, Inc is a global investment banking and financial advisory firm that provides services to corporations, institutions, financial sponsors and governments. The company advises clients on mergers and acquisitions, capital raising, financial restructuring and other strategic and corporate finance matters.
Its business also includes valuation and financial opinions, including fairness opinions, solvency opinions and other transaction-related analyses. Houlihan Lokey serves clients across a range of industries, with particular expertise in areas such as technology, media and telecommunications; financial services; healthcare; industrials; consumer products and services; and energy and natural resources.
Founded in 1972 by Roger Houlihan and O.
