Houlihan Lokey, Inc. (HLI) - 10-Q Summary
Business Context and Reporting Period
This summary covers the quarterly period ended September 30, 2025 (Q2 Fiscal 2026). Houlihan Lokey, Inc. is a global financial advisory firm operating through three segments: Corporate Finance (CF), Financial Restructuring (FR), and Financial and Valuation Advisory (FVA). The company provides M&A, capital markets, restructuring, and valuation services to public and private clients worldwide.
Key Financial Metrics
| Metric | Three Months Ended Sept 30, 2025 | Six Months Ended Sept 30, 2025 |
|---|---|---|
| Revenues | $659.5 million | $1,264.8 million |
| Operating Income | $151.3 million | $241.1 million |
| Net Income | $111.8 million | $209.3 million |
| Diluted EPS | $1.63 | $3.04 |
| Operating Margin | 23.0% | 19.1% |
| Compensation Ratio | 64.2% | 64.5% |
| Cash & Equivalents | $923.6 million | $923.6 million (Balance Sheet) |
| Total Debt | $0 (No principal outstanding) | $0 |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 15% year-over-year (YoY) for the quarter and 16% for the six-month period, driven primarily by the Corporate Finance and Financial and Valuation Advisory segments.
- Profitability: Net income rose 19% YoY for the quarter and 15% for the six-month period. Operating income increased 16% for the quarter.
- Segment Performance:
- Corporate Finance: Revenues up 21% and segment profit up 34% YoY, attributed to a higher volume of closed transactions in M&A and capital solutions.
- Financial Restructuring: Revenues up 2% YoY, but segment profit declined 18% due to higher compensation expenses relative to revenue.
- Financial and Valuation Advisory: Revenues up 10% and segment profit up 31% YoY, driven by increased fee events.
- Expense Trends: Total operating expenses increased 14% for the quarter. Compensation expenses rose 17%, while non-compensation expenses remained relatively flat (up 2%).
- Tax Rate: The effective tax rate for the six months ended September 30, 2025, was 18.9%, down from 22.7% in the prior year, primarily due to increased stock-based compensation deductions.
Outlook, Risks, and Unusual Items
- Capital Allocation: The company repurchased 195,566 shares of Class A common stock during the six-month period for approximately $37.5 million. As of September 30, 2025, $355.1 million remained available under the share repurchase program. A quarterly dividend of $0.60 per share was declared on October 23, 2025.
- Liquidity: The company maintains a $150 million revolving credit facility (expandable to $200 million) with no principal outstanding. Total unrestricted cash and investment securities totaled approximately $1.1 billion.
- Unusual Items: A revaluation of acquisition contingent consideration of $17.9 million was recorded in the six-month period, impacting non-compensation expenses. This relates to the acquisition of Waller Helms Advisors LLC.
- Risks: The company faces foreign currency exchange risk, with a hypothetical 10% depreciation of the USD potentially increasing other comprehensive income by $103 million. Legal proceedings are ongoing but are not expected to have a material adverse effect.
- Accounting Changes: The company early adopted ASU 2025-06 regarding internal-use software, which had no material impact on financial statements.
Investor Verification Checklist
- Verify the sustainability of the 21% revenue growth in the Corporate Finance segment given the cyclical nature of M&A markets.
- Monitor the Compensation Ratio, which increased to 64.5% for the six-month period, to assess margin compression risks.
- Review the impact of the $17.9 million revaluation of acquisition contingent consideration on future earnings volatility.
- Confirm the status of the $355 million remaining share repurchase authorization and future dividend policy.
- Assess the exposure to foreign currency fluctuations, particularly regarding the USD vs. Euro and Pound Sterling, given the significant international revenue base.