HLI Q3 deep dive: larger deal sizes and restructuring pipeline shape outlook amid mixed sector trends

Investment banking firm Houlihan Lokey (NYSE:HLI) surpassed Wall Street's revenue predictions in the third quarter of calendar year 2026 (fiscal second quarter of 2027), reporting a 4.9% increase in sales compared to the previous year, totaling $692 million. The company's adjusted earnings per share (EPS) of $1.85 exceeded analysts' expectations by 12.1%.

The highlights of Houlihan Lokey's Q3 CY2026 include:

Revenue reached $692 million, compared to S&P analysts' estimates of $635.4 million, reflecting a year-on-year growth of 4.9% and an 8.9% beat.
Adjusted EPS stood at $1.85, surpassing analysts' expectations of $1.65 by 12.1%.
The operating margin was reported at 22.3%, consistent with the same quarter from the previous year.
The company's market capitalization is currently $9.60 billion.

According to StockStory’s analysis, Houlihan Lokey's results for the third quarter were bolstered by a return to more typical market activity and notable performance in its Corporate Finance division. CEO Scott Adelson attributed the revenue growth to higher average fees on mid-market transactions, despite a drop in the overall number of deals closed. He remarked, "Our results for the quarter reflect a normalizing market environment," while also indicating that growth was observed across most sectors, barring technology and healthcare, which remained less robust. Meanwhile, the restructuring segment has encountered challenges but is beginning to see improvements as its pipeline starts to rebuild.

Looking forward, management is optimistic about growth prospects in both the U.S. and Europe, underpinned by a strong backlog in Corporate Finance and Financial Restructuring. Adelson pointed out that revenues from restructuring activities are expected to rise in the upcoming year, particularly with increasing activity in the software sector. CFO Lindsey Alley mentioned the anticipated seasonality of their business, stating, "We should see an unseasonably higher seasonality in our second half." While the management remains vigilant regarding macroeconomic fluctuations and ongoing geopolitical tensions, they believe that heightened deal activity and a more selective transaction strategy will support performance through the end of this year and into 2027.

Key insights from management's comments reveal that the quarterly success can be attributed to higher average fees in Corporate Finance and the resilience of its portfolio valuation segment. The firm is also beginning to see positive momentum from recent acquisitions and significant leadership changes.

In terms of Corporate Finance, the segment experienced revenue growth due to increased average transaction fees, even as the total number of completed deals declined. This trend is linked to a more selective strategy that focuses on higher-probability transactions within the mid-market.
The Financial Restructuring segment reported lower deal volumes, yet it is witnessing an improving backlog, particularly with a rise in mandates from the software industry. Management expects this backlog to lead to higher revenues in the forthcoming quarters and into the next fiscal year.
Growth in the Financial and Valuation Advisory segment was primarily driven by its non-cyclical portfolio valuation business, which continues to expand as clients seek more frequent and accurate asset valuations.
The recent acquisition of Intrepid Financial Partners added eight new managing directors, enhancing Houlihan Lokey's capabilities and talent pool, particularly in the energy and infrastructure sectors.
A significant leadership transition was marked by the appointment of Sipi Bhandari as Chief Legal Officer, while former General Counsel Christopher Crain moves into a senior advisory role to ensure continuity during this growth and integration phase.