HLI

Houlihan Lokey, Inc. (HLI) - 10-Q Summary

Business Context and Reporting Period

This filing covers the quarterly period ended December 31, 2025, and the nine months ended on that date. Houlihan Lokey, Inc. is a global financial advisory firm operating through three primary segments: Corporate Finance (CF), Financial Restructuring (FR), and Financial and Valuation Advisory (FVA). The company operates over 30 offices worldwide.

Key Financial Metrics

Margins & Ratios: The compensation ratio (compensation expenses to revenues) was 64.0% for Q3 2025 and 64.3% for the nine-month period. The effective tax rate for the nine months ended December 31, 2025, was 23.8%, down from 27.1% in the prior year.

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 13% in Q3 and 15% YTD compared to the prior year. Growth was driven by higher revenues in Corporate Finance (up 12% Q3, 18% YTD) and Financial Restructuring (up 19% Q3, 10% YTD).
• Profitability: Operating income rose 18% in Q3 and 11% YTD. Segment profit for Corporate Finance increased 24% YTD, while Financial Restructuring profit grew 5% YTD.
• Expense Trends: Total operating expenses increased 12% in Q3 and 16% YTD. Compensation expenses rose 14% in Q3 and 17% YTD, primarily due to higher revenues. Non-compensation expenses increased 3% in Q3 and 14% YTD, partly due to a $17.9 million revaluation of acquisition contingent consideration in the YTD period.
• Cash Flow: Net cash provided by operating activities decreased 16% YTD to $411.1 million, largely due to timing differences in cash bonus payments and changes in working capital (specifically an increase in unbilled work in progress).

Outlook, Commentary, and Risks

• Management Commentary: Management attributes revenue growth to favorable market conditions and an increase in the number of closed transactions and fee events. The increase in average transaction fees in CF and FR is noted as driven by transaction mix rather than a short-term trend.
• Subsequent Event: On February 2, 2026, the company closed a transaction to obtain a controlling interest in Audere Partners, a French corporate finance firm.
• Capital Allocation: The company repurchased 676,465 shares of Class A common stock for $125.4 million during the nine months ended December 31, 2025. As of December 31, 2025, $280.1 million remained available under the share repurchase program. A quarterly dividend of $0.60 per share was declared on January 22, 2026.
• Risks & Contingencies: The company faces standard risks related to the cyclical nature of M&A and restructuring markets. There are no material changes to legal proceedings or risk factors from the prior annual report. The company is evaluating the impact of the "One Big Beautiful Bill Act" (OBBBA) signed into law on July 4, 2025.

Key Facts for Investor Verification

• Revenue Quality: Verify the sustainability of the 18% YTD growth in Corporate Finance revenues, noting management's caution that higher average fees are due to transaction mix.
• Working Capital: Monitor the $74.9 million increase in "Unbilled work in progress" YTD, which contributed to a reduction in operating cash flow despite higher net income.
• Acquisition Integration: Assess the financial impact and integration progress of the Audere Partners acquisition closed in February 2026.
• Compensation Ratio: Track the compensation ratio, which has remained stable around 64%, to ensure cost discipline is maintained as revenues fluctuate.
• Contingent Consideration: Review the $17.9 million revaluation of acquisition contingent consideration included in operating expenses YTD and its potential volatility in future periods.