Houlihan Lokey, Inc. Q4 FY2026 earnings call

Ended fiscal year 2026 with record revenue and adjusted EPS. Both corporate finance and financial valuation and advisory had record revenues for the year, and financial restructuring had one of the strongest years on record. The company had a record level of backlog and pipeline, a record number of managing directors, and a record number of corporate acquisition opportunities. In CF, there was solid backlog growth except in technology, and non-US revenues grew faster. Capital Solutions performed well in fiscal year 2026. FBA had some disruption in the fourth quarter but momentum returning. FR's expectations for fiscal year 2027 improved. The company successfully closed two transactions in the fourth quarter, hired 33 managing directors in the fiscal year, and promoted 25 colleagues to managing director in the first quarter of fiscal year 2027.

Fiscal year 2026 ended with a record $2.6 billion in revenue, up 10% versus the previous year. Fourth quarter revenues were $636 million. Corporate finance (CF) had revenues of $434 million in the fourth quarter, a 5% increase compared to the same period last year. Financial restructuring (FR) had revenues of $110 million in the fourth quarter, and ended the fiscal year with $529 million, down 3% from fiscal year 2025. Financial and valuation advisory (FBA) had revenues of $91 million in the fourth quarter, a 3% increase from the same period last year. CF saw solid backlog growth across most industry groups except technology, and non-US revenues grew significantly faster than US revenues in both the fourth quarter and fiscal year. FR's fiscal year 2027 expectations improved due to various tailwinds, and FBA had some disruption in the fourth quarter but momentum returning to more normal levels with expectations of growth in fiscal year 2027.

Expect financial restructuring to continue performing at elevated levels in fiscal year 2027. The fundamental trajectory of the corporate finance business for the full year 2027 remains encouraging. FBA is expected to grow in fiscal year 2027. Similar to last year, the first quarter adjusted effective tax rate for fiscal year 2027 may benefit from the vesting of shares in May at grant prices significantly below current stock trading levels.

The discussion includes numerous risks and uncertainties such as geopolitical uncertainty, macroeconomic pressures, which could cause actual results to differ materially from expectations. Market volatility affecting sectors like technology, as well as the timing of revenues and external macro events, are among the factors that could impact operating results.

Q: Brennan Hawkin asked about the improved outlook for restructuring despite previous revenue pressure concerns.

A: Scott said the geopolitical and software events created opportunities, and activity levels in restructuring picked up materially with recent wins, leading to improved expectations for fiscal year 2027.

Q: Devin Ryan asked about sponsors and the impact of tech on corporate finance transaction volumes.

A: Scott said sponsor activity picked up before the conflict, then paused due to uncertainty, but activity levels are increasing again, and while some tech-oriented investments are affected, overall pent-up demand is significant.

Q: Brendan O'Brien asked about European business and AI implications for FBA.

A: Scott said European business is growing, and the company has been investing in technology for FBA, with the total addressable market (TAM) growing faster than pricing pressure, and AI investment providing a competitive advantage.

Q: Ryan Kenney asked about non-compensation expense outlook and capital allocation.

A: Lindsay said non-compensation expenses are expected to grow similarly to fiscal 2026, and capital allocation priority is on accretive acquisitions and share repurchases.

Q: James Jaro asked about the slowdown in corporate events and potential permanent impact on corporate finance.

A: Scott said uncertainty caused the slowdown, but activity is likely to ramp back up once uncertainty subsides.

Q: Nathan Stein asked about revenue split in corporate finance and AI implementation updates.

A: Lindsay said Capital Solutions is over 20% of corporate finance revenues, and the company is fully embracing AI with work streams in various areas.

Q: Alex Bond asked about pipeline composition shift.

A: Scott said activity is across the board with no dramatic shift in mix, but Europe and Asia are growing.

Q: Michael Brown asked about restructuring elevation and M&A criteria.

A: Scott said restructuring is at elevated levels, and M&A criteria focus on cultural fit above size or other attributes