Executive Summary / Key Takeaways

• Diversified Business Model Drives Consistent Growth: Houlihan Lokey's strategic emphasis on its three core segments—Corporate Finance (CF), Financial Restructuring (FR), and Financial and Valuation Advisory (FVA)—coupled with a robust acquisition strategy and global expansion, has enabled it to achieve record revenues and maintain strong performance even in volatile market conditions.
• Strong Financial Performance and Liquidity: The company reported record annual revenues of $2.4 billion in fiscal year 2025, with Q2 fiscal year 2026 revenues up 15% year-over-year to $659 million and adjusted EPS up 26% to $1.84. This growth is supported by healthy operating cash flows and a strong liquidity position of $1.1 billion in unrestricted cash and investment securities.
• Capital Solutions and Restructuring as Key Pillars: The rebranded Capital Solutions business (part of CF) is a significant, high-growth, and less volatile revenue driver, now representing at least 20% of Corporate Finance. The FR segment continues to perform at elevated levels, with a persistent backlog suggesting sustained strength, potentially establishing a "new trough" for the business.
• Strategic Global Expansion and Talent Acquisition: HLI is actively expanding its global footprint, particularly in EMEA and Asia Pacific, where non-U.S. business has shown solid growth. The firm's continuous focus on attracting and integrating senior talent through both organic hires and strategic acquisitions is central to its long-term growth strategy.
• Positive Outlook with Measured Optimism: Management anticipates continued year-over-year growth for the second half of fiscal year 2026, driven by improving M&A markets, increasing private equity activity, and sustained restructuring demand. However, a measured approach acknowledges ongoing macro uncertainty and volatility.

The Architect of Advisory: Houlihan Lokey's Enduring Strategy

Houlihan Lokey, Inc. ($HLI), established in 1972 and headquartered in Los Angeles, California, has evolved into a global investment banking powerhouse, offering specialized financial services across more than thirty offices spanning the Americas, Europe, the Middle East, and Asia-Pacific. The firm's enduring strategy centers on a diversified business model, meticulously structured around three core segments: Corporate Finance (CF), Financial Restructuring (FR), and Financial and Valuation Advisory (FVA). This diversification is not merely a structural choice but a foundational strength, enabling HLI to deliver consistent performance and adapt to the inherent complexities and uncertainties of global financial markets. The company's ability to advise both "winners and losers" in dynamic market environments underscores its strategic resilience.

HLI's historical trajectory highlights a deliberate expansion, culminating in record annual revenues of $2.4 billion in fiscal year 2025, surpassing its previous high-water mark set in fiscal year 2022. This growth has been significantly propelled by an active acquisition strategy, with fiscal year 2025 marking the most acquisitive year in the firm's history, expanding its industry, geographic, and product reach. Key acquisitions, such as Waller Helms Advisors LLC in December 2024, have immediately contributed to the firm's results, demonstrating the success of this inorganic growth approach. The firm also strategically rebranded its Capital Markets business to Capital Solutions in fiscal year 2025, reflecting a broader offering and creating a diversified, high-growth, and less volatile revenue stream within Corporate Finance.

Leveraging Technology for Operational Excellence

While Houlihan Lokey's core strength lies in its human capital and advisory expertise, the firm consistently invests in technology to enhance its operational efficiency and client service capabilities. Information technology and communications are recognized as significant operating expenses, and the company's property and equipment includes substantial investments in computers and software. These investments are crucial for supporting its global platform, streamlining complex advisory processes, and maintaining a competitive edge in an increasingly digital financial landscape.

The strategic intent behind HLI's technology investments is to empower its financial professionals, improve data analytics for deal-making, and ensure robust communication infrastructure across its extensive network. This commitment to technological enablement, while not involving proprietary "core differentiated technology" in the manufacturing sense, is vital for a service-oriented business. It allows HLI to maintain high levels of client responsiveness and operational effectiveness, which are critical competitive factors. For investors, this translates into a more efficient cost structure and the ability to scale advisory services effectively, contributing to sustained profitability and market positioning. The firm's "better SONAR" in identifying acquisition targets, as described by management, is an analogy for sophisticated market intelligence tools and processes, implicitly supported by technological capabilities.

Competitive Dynamics in a Fragmented Market

Houlihan Lokey operates within a highly competitive investment banking landscape, contending with both larger, full-service institutions and specialized boutique firms. Its primary direct competitors include Lazard Ltd. (LAZ), Evercore Inc. (EVR), PJT Partners Inc. (PJT), and Moelis & Company (MC), all vying for mandates in M&A, restructuring, and advisory services.

HLI's competitive positioning is qualitatively strong, particularly in the middle-market segment, where it is often perceived as a leader. The firm's diversified segment mix, especially its robust Financial and Valuation Advisory business, provides greater revenue stability compared to peers with a heavier M&A focus. For instance, while Lazard and Evercore often target larger, high-profile cross-border transactions, HLI's middle-market specialization allows it to penetrate segments where these larger firms may not delve as deeply. HLI's strength in valuation advisory, including fairness and solvency opinions, offers a comprehensive solution that can differentiate it from firms like PJT Partners, which are more singularly focused on restructuring. This specialized expertise can lead to superior profitability through recurring advisory work and enhanced client loyalty.

Against Moelis & Company, which shares a similar focus on client relationships and M&A, HLI's depth in FVA provides a distinct advantage, potentially leading to better client retention in complex engagements. HLI's Capital Solutions business, now contributing at least 20% of Corporate Finance revenues, also operates on a "different playing field" than the capital solutions groups of bulge bracket banks like Goldman Sachs (GS), which tend to compete for larger-cap transactions. This strategic focus on the mid-cap space, which has historically shown greater resilience than large-cap volumes across economic cycles, positions HLI favorably. However, HLI's smaller global scale compared to some larger competitors could limit its revenue opportunities in certain international deals and potentially increase customer acquisition costs. The firm actively mitigates this by leveraging its extensive global network and pursuing strategic acquisitions to expand its reach.

Financial Performance and Operational Strength

Houlihan Lokey's recent financial performance underscores its strategic effectiveness. For the second quarter ended September 30, 2025, the company reported revenues of $659.45 million, a 15% increase from the same period last year. Adjusted earnings per share rose 26% year-over-year to $1.84. For the six months ended September 30, 2025, revenues reached $1.26 billion, up 16% from the prior year. This growth was primarily driven by strong performances in the Corporate Finance and Financial and Valuation Advisory segments.

Segmental Contributions:

• Corporate Finance (CF): Q2 fiscal year 2026 revenues were $438.66 million, a 21% increase year-over-year. This was fueled by an increase in closed transactions, marking the highest volume since late 2021, driven by favorable M&A and capital solutions market conditions. Segment profit for CF also saw a significant 34% increase to $147.33 million.
• Financial Restructuring (FR): Q2 fiscal year 2026 revenues grew 2% year-over-year to $133.80 million. Despite easing interest rates, FR continues to perform at elevated levels, supported by a persistent backlog and ongoing macro uncertainty. Segment profit, however, decreased 18% to $50.10 million, primarily due to an increase in compensation expenses as a percentage of revenues.
• Financial and Valuation Advisory (FVA): Q2 fiscal year 2026 revenues increased 10% year-over-year to $86.99 million, driven by an increase in "Fee Events" and an improving M&A market. Segment profit for FVA rose 31% to $25.41 million. This segment benefits from a non-cyclical portfolio valuation business, a hybrid opinion business, and transaction advisory services.

Profitability and Efficiency:
The firm maintains a disciplined approach to expenses. The adjusted compensation expense ratio for Q2 fiscal year 2026 was 61.5%, consistent with its long-term target. Adjusted non-compensation expenses for the quarter were relatively flat at $82 million, resulting in an adjusted non-compensation expense ratio of 12.5%. For the six months ended September 30, 2025, non-compensation expenses increased 20% primarily due to revaluation of acquisition contingent consideration and increased depreciation and amortization. The adjusted effective tax rate for Q2 fiscal year 2026 was 29.7%, down from 31.3% in the prior year, mainly due to decreased state taxes and foreign operations.

Liquidity and Capital Allocation:
As of September 30, 2025, Houlihan Lokey held approximately $1.11 billion in unrestricted cash and investment securities. The company's liquidity is highly dependent on the successful completion of transactions and timely collection of receivables, typically within 60 days.

The firm has access to a $150 million revolving line of credit (expandable to $200 million) maturing in August 2030, with no outstanding principal. Operating cash flow for the six months ended September 30, 2025, was $193.42 million. Capital allocation prioritizes supporting its acquisition strategy, with share repurchases primarily aimed at offsetting dilution from employee compensation. The board's recent approval of a 5.3% increase in the quarterly dividend to $0.60 per share signals confidence in the firm's financial health.

Outlook and Strategic Trajectory

Houlihan Lokey's management expresses a positive outlook for the second half of fiscal year 2026, anticipating continued year-over-year growth. This optimism is grounded in an improving macro environment, characterized by stable interest rates, quieting tariff volatility, and plentiful capital, all contributing to a stronger deal-making appetite.

For Corporate Finance, the firm expects a strong fourth quarter relative to the third, a departure from typical seasonality, driven by building momentum and strong new business generation that provides visibility into fiscal year 2027. Sponsor activity, which has been muted, is expected to pick up significantly after Labor Day, further fueling CF growth. The Capital Solutions business is projected to continue its rapid growth, outpacing the M&A business in the current cycle.

Financial Restructuring is expected to maintain elevated revenue levels throughout fiscal year 2026, supported by a robust backlog. While new business activity may be tempered by improving market conditions, the persistent presence of overleveraged companies and higher interest rates suggests a sustained need for restructuring services. Management believes the current environment could represent a "new trough" for the business, demonstrating resilience even as M&A markets strengthen.

The Financial and Valuation Advisory segment is also projected for continued year-over-year growth, benefiting from both improving M&A markets and the consistent performance of its non-cyclical services.

Strategically, HLI remains committed to expanding its global platform through both organic hires and strategic acquisitions. The firm continues to attract senior talent globally, and its acquisition pipeline remains robust, with management confident in driving growth in senior bankers worldwide. The long-term vision for the European fee pool to potentially rival that of the U.S. underscores the significant international growth opportunity.

Risks and Considerations

Despite the positive outlook, investors should consider several key risks. The inherent volatility and uncertainty in the global macro environment, including geopolitical issues, can impact deal flow and transaction completion rates, potentially limiting fee generation. While tariff policy volatility has quieted, future shifts could affect specific sectors and geographies. The firm's dependence on transaction-based revenues means that prolonged market slowdowns or a decrease in transaction velocity, which is still not at pre-pandemic levels, could impact financial performance. Furthermore, while HLI's diversified model offers resilience, competitive pressures from both larger banks and specialized boutiques remain a constant factor, requiring continuous investment in talent and strategic positioning. The potential impact of new legislative acts like the One Big Beautiful Bill Act (OBBBA) and accounting pronouncements like ASU No. 2023-9 are currently being evaluated and could introduce future financial implications.

Conclusion

Houlihan Lokey stands as a testament to the power of a diversified and strategically executed investment banking model. Its journey from a 1972 inception to achieving record revenues in fiscal year 2025 highlights a consistent ability to adapt and thrive amidst evolving market dynamics. The firm's core investment thesis is firmly rooted in its balanced segment approach, with Corporate Finance benefiting from improving M&A and capital solutions, Financial Restructuring demonstrating remarkable resilience at elevated levels, and Financial and Valuation Advisory providing a stable, growing foundation.

Looking ahead, HLI is well-positioned for continued year-over-year growth in fiscal year 2026, driven by a positive macro environment and strategic initiatives like global expansion and a robust acquisition pipeline. While market volatility and competitive pressures are inherent risks, the firm's focus on the resilient mid-cap market, its disciplined financial management, and its ongoing commitment to talent acquisition and technological enablement provide a strong competitive moat. For discerning investors, Houlihan Lokey offers a compelling narrative of sustained growth, operational excellence, and strategic foresight in the dynamic world of financial advisory.