Houlihan Lokey Inc.

07/31/2026 | Press release | Distributed by Public on 07/31/2026 14:41

Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
The following discussion should be read together with our consolidated financial statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q. We make statements in this discussion that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as "may," "might," "will," "should," "expects," "plans," "anticipates," "could," "targets," "projects," "contemplates," "believes," "estimates," "intends," "predicts," "potential" or "continue," the negative of these terms or other similar expressions. These forward-looking statements, which are subject to risks, uncertainties, and assumptions about us, may include projections of our future financial performance, based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including but not limited to, the factors listed under the heading "Cautionary Note Regarding Forward-Looking Statements" in our Annual Report on Form 10-K for the year ended March 31, 2026 (the "2026 Annual Report"). Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements speak only as of the date of this filing. You should not rely upon forward-looking statements as a prediction of future events. We are under no duty to, and we do not undertake any obligation to, update or review any of these forward-looking statements after the date of this filing to conform our prior statements to actual results or revised expectations whether as a result of new information, future developments or otherwise.
Key Financial Measures
Revenues
Revenues include fee revenues and reimbursements of expenses. Revenues are generated from our Corporate Finance ("CF"), Financial Restructuring ("FR"), and Financial and Valuation Advisory ("FVA") business segments and primarily consist of fees for advisory services.
Revenues for all three business segments are recognized upon satisfaction of the performance obligation and may be satisfied over time or at a point in time. The amount and timing of the fees paid vary by the type of engagement. In general, advisory fees are paid at the time an engagement letter is signed ("Retainer Fees"), during the course of the engagement ("Progress Fees"), or upon the successful completion of a transaction or engagement ("Completion Fees").
CF provides general financial advisory services and advice on mergers and acquisitions and capital markets offerings. We advise public and private institutions, including financial sponsors, on a wide variety of matters, including buy-side and sell-side M&A transactions, debt and equity financings in both the private and public markets, and other corporate finance transactions. The majority of our CF revenues consists of Completion Fees. A CF transaction can fail to be completed for many reasons that are outside of our control. In these instances, our fees are generally limited to Retainer Fees and in some cases Progress Fees that may have been received.
FR provides advice to debtors, creditors, and other parties-in-interest in connection with recapitalization/deleveraging transactions implemented through bankruptcy proceedings and out-of-court exchanges, consent solicitations or other mechanisms, as well as in distressed mergers and acquisitions and capital markets activities. As part of these engagements, our FR business segment offers a wide range of advisory services to our clients, including: the structuring, negotiation, and confirmation of plans of reorganization; structuring and analysis of exchange offers; liability management transactions; corporate viability assessment; dispute resolution and expert testimony; and procuring debtor-in-possession financing. The majority of our FR revenues consists of Completion Fees. A FR transaction can fail to be completed for many reasons that are outside of our control. In these instances, our fees are generally limited to the Retainer Fees and/or Progress Fees.
FVA primarily provides financial advisory and valuation services with respect to companies, debt and equity interests (including complex illiquid investments), and other types of assets and liabilities; fairness opinions in connection with mergers and acquisitions and other transactions, solvency opinions in connection with corporate spin-offs and dividend recapitalizations, and other types of financial opinions in connection with other transactions; as well as diligence, tax, transaction accounting, and other financial advisory services to companies, boards of directors, special committees, retained counsel, financial and strategic investors, trustees, and other parties. Also, our FVA business segment provides dispute resolution services to clients, for which fees are usually based on the hourly rates of our financial professionals. The majority of our FVA revenues consists of Retainer Fees, Progress Fees and/or Completion Fees.
Operating Expenses
Our operating expenses are classified as compensation expenses and non-compensation expenses; revenue and headcount are the primary drivers of our operating expenses. Reimbursements of certain out-of-pocket deal expenses are recorded on a gross basis and are therefore included in both Revenues and Operating expenses in the Consolidated Statements of Income.
Compensation Expenses. Our compensation expenses are comprised of employee compensation and benefits and acquisition related compensation and benefits expenses. Compensation expenses account for the majority of our operating expenses, and are determined by management based on revenues earned, headcount, the competitiveness of the prevailing labor market, and anticipated compensation expectations of our employees. These factors may fluctuate, and as a result, our compensation expenses may fluctuate materially in any particular period. Accordingly, the amount of compensation expenses recognized in any particular period may not be consistent with prior periods or indicative of future periods. In connection with certain acquisitions, certain employees may be entitled to deferred consideration, primarily in the form of retention payments, should certain service and/or performance conditions be met in the future. As a result of these conditions, such deferred consideration would be expensed as compensation in current and future periods and has been accrued as liabilities on the Consolidated Balance Sheets as of June 30, 2026 and March 31, 2026.
Employee compensation and benefits consist of base salary, payroll taxes, benefits, annual incentive compensation payable as cash bonus awards, deferred cash bonus awards, and the amortization of equity-based bonus awards. Base salary and benefits are paid ratably throughout the year. Equity awards are generally subject to annual vesting requirements over a four-year period beginning at the date of grant, which typically occurs in the first quarter of each fiscal year; accordingly, expenses are amortized over the stated vesting period. In most circumstances, the unvested portion of these awards is subject to forfeiture should the employee depart from the Company, and in certain cases if certain financial metrics are not met. Cash bonuses, which are accrued monthly, are discretionary and dependent upon a number of factors including the Company's performance, and are generally paid in the first quarter of each fiscal year with respect to prior year performance. Generally, a portion of the cash bonus is deferred and paid in the third quarter of the fiscal year in which the bonus is awarded.
We refer to the ratio of our compensation expenses to our revenues as our "Compensation Ratio."
Non-Compensation Expenses. The balance of our operating expenses includes costs for travel, meals and entertainment, rent, depreciation and amortization, information technology and communications, professional fees, other operating expenses, and gains and/or losses associated with changes in the fair value of earnout liabilities. We refer to all of these expenses as non-compensation expenses. A portion of our non-compensation expenses fluctuates in response to changes in headcount.
Other (Income) Expense, Net
Other (income) expense, net primarily includes interest income and gains earned on investment securities, cash and cash equivalents, employee loans, and commercial paper.
Results of Consolidated Operations
The following is a discussion of our results of operations for the three months ended June 30, 2026 and 2025.
Three Months Ended June 30,
($ in millions)
2026 2025
Change
Revenues $ 511 $ 605 (16) %
Operating expenses:
Compensation 328 393 (16) %
Non-compensation 105 122 (15) %
Total operating expenses 433 515 (16) %
Operating income 78 90 (13) %
Other (income) expense, net (8) (8) - %
Income before provision for income taxes 86 98 (12) %
Provision for income taxes 8 - NM
Net income 78 98 (20) %
Net income attributable to noncontrolling interest - - - %
Net income attributable to Houlihan Lokey, Inc. $ 78 $ 98 (20) %
Three Months Ended June 30, 2026 versus June 30, 2025
Revenues were $511 million for the three months ended June 30, 2026, compared with $605 million for the three months ended June 30, 2025, representing a decrease of (16)%. The decrease in revenues was primarily driven by lower revenues from our CF segment, as described in further detail below.
Compensation expenses were $328 million for the three months ended June 30, 2026, compared with $393 million for the three months ended June 30, 2025, representing a decrease of (16)%. The decrease was primarily a result of a decrease in revenues for the quarter when compared with the same quarter last year. The Compensation Ratio was 64.3% for the three months ended June 30, 2026, compared with 64.9% for the three months ended June 30, 2025.
Non-compensation expenses were $105 million for the three months ended June 30, 2026, compared with $122 million for the three months ended June 30, 2025, representing a decrease of (15)%. The decrease in non-compensation expenses was primarily a result of decreases in the revaluation of acquisition contingent consideration and in depreciation and amortization, partially offset by an increase in professional fees compared with the same quarter last year.
Other (income) expense, net was flat at $(8) million for the three months ended June 30, 2026, compared with $(8) million for the three months ended June 30, 2025.
The provision for income taxes for the three months ended June 30, 2026 was $8 million, which reflected an effective tax rate of 10%. The provision for income taxes for the three months ended June 30, 2025 was $0 million, which reflected an effective tax rate of 1%. The increase in the Company's effective tax rate was primarily a result of decreased stock-based compensation deductions.
Business Segments
The following table presents revenues, expenses and profit from our business segments. The revenues by segment represent each segment's revenues, and the profit by segment represents profit for each segment before corporate expenses, other (income) expense, net, and income taxes.
Three Months Ended June 30,
($ in millions)
2026 2025
Change
Revenues by segment
Corporate Finance $ 303 $ 398 (24) %
Financial Restructuring 119 128 (8) %
Financial and Valuation Advisory 89 79 13 %
Revenues $ 511 $ 605 (16) %
Segment profit (1)
Corporate Finance $ 89 $ 127 (30) %
Financial Restructuring 42 43 (4) %
Financial and Valuation Advisory 23 18 34 %
Total segment profit 154 188 (18) %
Corporate expenses (2)
76 98 (22) %
Other (income) expense, net (8) (8) - %
Income before provision for income taxes $ 86 $ 98 (12) %
Segment metrics
Number of Managing Directors (3)
Corporate Finance 260 244 7 %
Financial Restructuring 58 58 - %
Financial and Valuation Advisory 47 45 4 %
Number of closed transactions/Fee Events (4)
Corporate Finance 127 125 2 %
Financial Restructuring 23 35 (34) %
Financial and Valuation Advisory 1,042 957 9 %
(1)We adjust the compensation expense for a business segment in situations where an employee residing in one business segment is performing work in another business segment where the revenues are accrued. Segment profit may vary significantly between periods depending on the levels of collaboration among the different segments.
(2)Corporate expenses include costs not allocated to individual segments, including certain acquisition related charges and share-based payments to corporate employees, as well as expenses of senior management and corporate departmental functions managed on a worldwide basis, including office of the executives, accounting, human capital, marketing, information technology, and legal and compliance.
(3)As of the end of the respective reporting periods.
(4)Fee Events applicable to FVA only; a Fee Event includes any engagement that involves revenue activity during the measurement period with a revenue minimum of one thousand dollars. References to closed transactions should be understood to be the same as transactions that are "effectively closed" as described in our 2026 Annual Report.
Corporate Finance
Three Months Ended June 30, 2026 versus June 30, 2025
Revenues for CF were $303 million for the three months ended June 30, 2026, compared with $398 million for the three months ended June 30, 2025, representing a decrease of (24)%. Revenues decreased due to a decrease in the average transaction fee on closed transactions, which was driven by transaction mix and we believe does not represent a short-term trend in the average fee on closed transactions.
Segment profit for CF was $89 million for the three months ended June 30, 2026, compared with $127 million for the three months ended June 30, 2025, a decrease of (30)%. Profitability decreased primarily as a result of a decrease in revenues when compared to the same quarter last year.
Financial Restructuring
Three Months Ended June 30, 2026 versus June 30, 2025
Revenues for FR were $119 million for the three months ended June 30, 2026, compared with $128 million for the three months ended June 30, 2025, representing a decrease of (8)%. Revenues decreased primarily due to a decrease in the number of closed transactions. This was partially offset by an increase in the average transaction fee on closed transactions. The reduction in transaction volume was driven by timing of transaction closings, while the higher average transaction fee on closed transactions resulted from transaction mix and we believe does not represent a trend.
Segment profit for FR was $42 million for the three months ended June 30, 2026, compared with $43 million for the three months ended June 30, 2025, a decrease of (4)%. Profitability decreased primarily as a result of a decrease in revenues when compared to the same quarter last year.
Financial and Valuation Advisory
Three Months Ended June 30, 2026 versus June 30, 2025
Revenues for FVA were $89 million for the three months ended June 30, 2026, compared with $79 million for the three months ended June 30, 2025, representing an increase of 13%. Revenues increased due to an increase in the number of Fee Events, driven by strong market demand across our service lines.
Segment profit for FVA was $23 million for the three months ended June 30, 2026, compared with $18 million for the three months ended June 30, 2025, an increase of 34%. Profitability increased primarily as a result of an increase in revenues when compared to the same quarter last year.
Corporate Expenses
Three Months Ended June 30, 2026 versus June 30, 2025
Corporate expenses were $76 million for the three months ended June 30, 2026, compared with $98 million for the three months ended June 30, 2025, a decrease of (22)%. Corporate expenses decreased primarily as a result of a decrease in revaluation of acquisition contingent consideration and a decrease in depreciation and amortization when compared with the same quarter last year.
Liquidity and Capital Resources
Our current assets are primarily comprised of cash and cash equivalents, investment securities, accounts receivable, and unbilled work in progress related to fees earned from providing advisory services. Our current liabilities are primarily comprised of accrued salaries and bonuses and accounts payable and accrued expenses.
Our cash and cash equivalents include cash held at banks. We maintain moderate levels of cash on hand in support of regulatory requirements for our registered broker-dealer. As of June 30, 2026 and March 31, 2026, we had $546 million and $860 million of cash and cash equivalents in foreign subsidiaries, respectively. Our excess cash may be invested in short-term investments, including treasury securities, commercial paper, certificates of deposit, and investment grade corporate debt securities. Please refer to Note 6 for further detail.
As of June 30, 2026 and March 31, 2026, our cash and cash equivalents and investment securities were as follows:
($ in millions)
June 30, 2026 March 31, 2026
Cash and cash equivalents $ 745 $ 1,189
Investment securities 52 170
Total Cash and cash equivalents and Investment securities 797 1,359
Our liquidity is highly dependent upon cash receipts from clients that are generally dependent upon the successful completion of transactions as well as the timing of receivables collections, which typically occur within 60 days of billing. As of June 30, 2026, Accounts receivable, net of allowance for credit losses was $224 million. As of June 30, 2026, Unbilled work in progress, net of allowance for credit losses was $255 million.
On August 23, 2019, the Company entered into a syndicated revolving line of credit with Bank of America, N.A. and certain other financial institutions party thereto, which was amended by the First Amendment to Credit Agreement dated as of August 2, 2022, and further amended by the Second Amendment to Credit Agreement dated as of August 19, 2025 (as amended, the "HLI Line of Credit"). The HLI Line of Credit allows for borrowings of up to $150 million (and, subject to certain conditions, provides the Company with an uncommitted expansion option, which, if exercised in full, would provide for a total credit facility of $200 million), and matures on August 19, 2030 (or if such date is not a business day, the immediately preceding business day). Borrowings under the HLI Line of Credit bear interest at a floating rate, which can be either, at the Company's option, (i) a term Secured Overnight Financing Rate ("SOFR") plus a 0.95% margin per annum or (ii) a base rate, which is the highest of (a) the Federal Funds Rate plus one-half of one percent (0.50%), (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its "prime rate," and (c) a term SOFR rate plus a 1.00% margin. Commitment fees apply to unused amounts. The HLI Line of Credit contains certain financial covenants and other restrictions, including a financial loan covenant to maintain a consolidated leverage ratio of less than 2.00 to 1.00. As of June 30, 2026, we were, and expect to continue to be, in compliance with such covenants. As of June 30, 2026 and March 31, 2026, no principal was outstanding under the HLI Line of Credit.
The majority of the Company's payment obligations and commitments pertain to routine operating leases. The Company also has various obligations, including notes payable and contingent consideration issued in connection with businesses previously acquired.
Cash Flows
Our operating cash flows are primarily influenced by the amount and timing of receipt of advisory fees and the payment of operating expenses, including payments of incentive compensation to our employees. We pay a significant portion of our incentive compensation during the first and third quarters of each fiscal year. A summary of our operating, investing, and financing cash flows is as follows:
Three Months Ended June 30,
($ in millions)
2026 2025
Change
Operating activities:
Net income $ 78 $ 98 (20) %
Non-cash charges 63 83 (25) %
Other operating activities (477) (313) 52 %
Net cash used in operating activities (336) (132) 155 %
Net cash provided by investing activities 112 110 2 %
Net cash used in financing activities (217) (197) 10 %
Effects of exchange rate changes on cash, cash equivalents, and restricted cash (3) 41 (108) %
Net decrease in cash, cash equivalents, and restricted cash (444) (178) 151 %
Cash, cash equivalents, and restricted cash - beginning of period 1,193 976 22 %
Cash, cash equivalents, and restricted cash - end of period $ 749 $ 798 (6) %
Three Months Ended June 30, 2026
Operating activities resulted in a net outflow of $(336) million, primarily attributable to cash bonus payments in May 2026. Investing activities resulted in a net inflow of $112 million, primarily attributable to sales or maturities of investment securities. Financing activities resulted in a net outflow of $(217) million, primarily attributable to payments made to settle employee tax obligations on share-based awards, dividends paid, and share repurchases.
Three Months Ended June 30, 2025
Operating activities resulted in a net outflow of $(132) million, primarily attributable to cash bonus payments in May 2025. Investing activities resulted in a net inflow of $110 million, primarily attributable to sales or maturities of investment securities. Financing activities resulted in a net outflow of $(197) million, primarily attributable to payments made to settle employee tax obligations on share-based awards and dividends paid.
Contractual Obligations
There have been no material changes outside of the ordinary course of business to our known contractual obligations, which are included in Item 7 of our 2026 Annual Report.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period for which they are determined to be necessary.
During the three months ended June 30, 2026, there were no significant changes to our critical accounting policies and estimates. Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Part II, Item 7 of our 2026 Annual Report, for a more complete discussion of our critical accounting policies and estimates.
Recent Accounting Developments
For information on recently issued accounting developments and their impact or potential impact on our consolidated financial statements, see Note 2 to our unaudited consolidated financial statements in this Form 10-Q.
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