Investment banking firm Houlihan Lokey (NYSE: HLI) beat Wall Street’s revenue expectations in calendar Q3 2026 (fiscal Q2 2027), with sales up 4.9% year on year to $692 million. Its non-GAAP profit of $1.85 per share was 12.1% above analysts’ consensus estimates.

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StockStory’s take

Houlihan Lokey’s third quarter results outperformed Wall Street’s expectations, driven by a normalization of market activity and strength in its Corporate Finance segment. Management credited higher average transaction fees within mid-market deals for boosting revenues despite a decline in total transaction count. CEO Scott Adelson noted, “Our results for the quarter reflect a normalizing market environment,” while also highlighting growth across most industry groups except technology and health care, where performance remained subdued. The company’s restructuring business continued to face headwinds but showed signs of improvement as the pipeline began to rebuild.

Looking ahead, management expects further growth in both the U.S. and Europe, supported by a strong backlog in Corporate Finance and Financial Restructuring. Adelson emphasized that restructuring revenues are set to increase into next year, especially as activity in the software sector expands. CFO Lindsey Alley pointed to anticipated seasonality, stating, “We should see an unseasonably higher seasonality in our second half.” Management remains cautious about macroeconomic volatility and ongoing geopolitical risks but believes elevated deal activity and a more selective approach to transactions will support performance through the end of the year and into 2027.

Key insights from management’s remarks

Management attributed quarterly outperformance to higher average fee transactions in Corporate Finance and the resilience of its portfolio valuation business. The firm is also seeing early momentum from recent acquisitions and key leadership changes.

• Corporate Finance fee mix: The Corporate Finance segment generated higher revenues due to an uptick in average transaction fees, even as the total number of deals closed declined; management attributed this to a more selective approach targeting higher-probability transactions within the mid-market.
• Restructuring pipeline building: Financial Restructuring faced lower deal volumes but reported an improving backlog, particularly with increased mandates in the software industry. Management expects this backlog to contribute to higher revenues in the coming quarters and into next year.
• Portfolio valuation growth: The Financial and Valuation Advisory segment saw growth largely from its non-cyclical portfolio valuation business, which continues to expand as clients demand more frequent and precise asset valuations.
• Acquisition integration: The recent acquisition of Intrepid Financial Partners added 8 new managing directors, bolstering Houlihan Lokey’s capabilities and talent pool, especially in energy and infrastructure.
• Leadership transition: The appointment of Sipi Bhandari as Chief Legal Officer marks a key executive change, while long-standing General Counsel Christopher Crain transitions to a senior advisory role, supporting continuity during a period of growth and integration.

Drivers of future performance

Management’s outlook is shaped by a strong deal pipeline, expected restructuring opportunities—especially in software—and ongoing caution around macroeconomic and geopolitical risks.

• Elevated restructuring demand: Management expects restructuring revenues to rise through 2027 and 2028, citing a growing backlog driven by distress in the software sector and anticipated increases in both U.S. and European restructuring activity as debt maturities loom.
• Selective deal execution: Houlihan Lokey is focusing on larger, higher-probability mid-market deals, leveraging proprietary data to enhance transaction success rates. Management believes this approach will sustain revenue and margin performance even if total deal volume remains volatile.
• Macro and sector headwinds: While management is optimistic about the back half of the year, they remain cautious due to persistent macroeconomic volatility, geopolitical risks, and ongoing softness in technology and healthcare M&A, which could temper growth if conditions worsen.

Catalysts in upcoming quarters

In future quarters, the StockStory team will be monitoring (1) growth in restructuring mandates, particularly in software and European markets; (2) the effectiveness of Houlihan Lokey’s strategy to target higher-fee, high-probability deals; and (3) integration progress following the Intrepid Financial Partners acquisition. Additional attention will be paid to the resilience of the portfolio valuation business as market conditions evolve.

Houlihan Lokey currently trades at $136, down from $137.38 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).

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