Houlihan Lokey Q2 FY2027 Earnings: Corporate Finance Drives Revenue Growth

Houlihan Lokey (NYSE: HLI) reported fiscal Q2 2027 revenue of $692 million, up about 5% from $660 million a year earlier, while diluted EPS increased to $1.64 from $1.63. Corporate Finance growth and higher average deal fees drove the top line, but lower Financial Restructuring revenue and faster non-compensation expense growth limited profit conversion.

Core Earnings Data

Revenue increased by $32 million, with Corporate Finance and Financial and Valuation Advisory more than offsetting a decline in Financial Restructuring. Total operating expenses rose about 6% to $538 million, faster than revenue, leaving operating income only 2% higher and reducing operating margin by approximately 0.6 percentage points.

Net other income declined to $5 million from $9 million, causing pre-tax income to slip despite higher operating income. The provision for income taxes remained $49 million, while the effective tax rate increased to 30.6% from 30.2%.

Adjusted results exclude acquisition-related compensation, integration costs, acquisition amortization and associated tax effects, among other items identified by the company.

Business and Segment Performance

Corporate Finance accounted for most of the quarter’s growth even though it completed fewer transactions. Financial Restructuring moved in the opposite direction, while Financial and Valuation Advisory delivered more moderate growth.

Corporate Finance benefited from higher average fees on completed transactions, reflecting transaction mix and improved conditions for M&A and capital-markets activity. That outweighed an approximately 17% decline in closed transactions, which management said it did not believe represented a trend.

Financial Restructuring revenue declined because fewer transactions closed during the quarter, primarily due to timing. Higher average fees partly offset the lower volume, although the company said this transaction-mix effect should not be viewed as a trend. Financial and Valuation Advisory growth came from the firm’s non-cyclical businesses, while fee-event volume was nearly unchanged.

Profitability, Liquidity, and Capital Allocation

GAAP compensation expense rose to $441 million from $423 million, primarily alongside higher revenue. However, the compensation ratio improved to 63.7% from 64.2%. On an adjusted basis, compensation expense increased to $426 million, while the adjusted compensation ratio remained unchanged at 61.5%.

Non-compensation expense created more pressure. GAAP non-compensation costs increased to $97 million from $86 million, lifting the ratio to 14.0% of revenue from 12.9%. The company attributed the increase mainly to higher rent and other operating expenses. Adjusted operating income rose to $175 million from $171 million, but the adjusted operating margin fell to approximately 25.3% from 25.9%.

At September 30, 2026, Houlihan Lokey held $837 million of cash and cash equivalents and $51 million of investment securities, for a combined $888 million. That compared with $1.359 billion at March 31, 2026, a point-in-time balance-sheet comparison rather than a quarterly cash-flow measure.

The company repurchased 397,000 shares during the quarter. Its board also declared a regular quarterly dividend of $0.70 per share for fiscal Q3 2027, payable December 15, 2026, to shareholders of record on December 1.

A Lower Share Count Supported EPS Despite Lower Net Income

The quarter’s EPS increase did not reflect higher net income. GAAP net income attributable to Houlihan Lokey declined to $109 million, but diluted shares fell to 67.0 million from 68.6 million, allowing diluted EPS to edge up by one cent.

The same pattern appeared in the adjusted results: adjusted net income declined to $124 million from $127 million, while the adjusted diluted share count decreased to 67.0 million from 68.9 million. Consequently, adjusted diluted EPS rose to $1.85 from $1.84. The lower share count therefore offset the effect of modestly lower earnings on a per-share basis.

Management’s View

CEO Scott Adelson attributed the stronger second quarter to improving market conditions. Management nevertheless remained cautious because of volatility in external factors, while indicating that it expected solid performance across the company’s businesses for the remainder of the fiscal year. The company did not attach quantitative targets to that outlook.

Recent Insider Transactions

Separate insider transaction data shows 16,476 shares purchased through nine transactions and 7,265 shares sold through two transactions over the latest six-month period. That produced net purchases of 9,211 shares, equivalent to 6.9% of the reported 141,870 shares held by insiders.

Recent disclosed open-market transactions included one CFO purchase and two sales by the general counsel and board chairman. The reported records do not provide the insiders’ reasons for these transactions.

Six directors also reported stock awards at $0 per share on May 21, 2026. These grants were compensation-related awards rather than open-market purchases.

Risks Investors Need to Watch

• Lower transaction volumes: Corporate Finance closed approximately 17% fewer transactions, while Financial Restructuring closings declined about 27%. Revenue depended partly on higher average fees to offset lower activity, making transaction mix and closing schedules important variables.
• Market and external volatility: Improved M&A and capital-markets conditions helped Corporate Finance, but management remained cautious about volatile external factors. A reversal in those conditions could affect deal flow and fees.
• Non-compensation cost growth: Rent and other operating expenses pushed non-compensation costs up faster than revenue and reduced both GAAP and adjusted operating margins. Continued cost growth could further limit earnings conversion.

Summary

Houlihan Lokey’s fiscal Q2 2027 produced moderate revenue growth led by Corporate Finance, where higher average fees outweighed fewer completed transactions. Profit conversion was less favorable as non-compensation costs increased, net other income declined and attributable net income slipped, although a lower diluted share count supported EPS. Future results will depend on transaction closings, fee mix, restructuring activity and the company’s ability to contain operating-cost growth.