Houlihan Lokey: The Rain Delay Ends, and the Software Storm Rolls In

Corporate Finance returns to growth while restructuring gets a multi-year software tailwind — yet the stock sits 34% below its peak and one of the firm's favorite talking points has gone quiet.

HLI · Earnings Call · 2026-10-28

The rain delay finally breaks

For three straight quarters Houlihan Lokey's management had been selling patience. In July, Lindsey Alley described the mid-market M&A cycle as “think of it as a rain delay, and we're still in those early innings” — J. Alley, Chief Financial Officer · 2026-07-29, and Scott Adelson likened the large-cap party to one the mid-market had not yet been invited to. On this call, the tarp came off. Revenues of $692 million rose 5%, Corporate Finance produced $481 million, up 10%, and Adelson reported “a good solid base to grow off of” — J. Lindsey Alley, Chief Financial Officer · 2026-10-28 going forward. The higher fee line item — the top-ranked theme of the quarter — is doing the heavy lifting. What makes the quarter interesting is not the recovery. It is the second derivative. The same call that celebrated a return to higher revenues in advisory also raised the restructuring outlook to elevated levels *through fiscal 2028* — a business that management had spent a year telling investors was structurally fading.

January's call, reversed

The contrast with the company's own record is stark. On the January 2026 call, Adelson framed restructuring as a melting ice cube: “the market is getting better for M&A... and you put those all together, you're likely to see declining activity levels in restructuring. Just structural.” — Scott Adelson, Chief Executive Officer · 2026-01-28 By October, the language is “we see a stronger 2nd half of the year and elevated restructuring revenues through fiscal 2028” — Scott J. Adelson, Chief Executive Officer · 2026-10-28, with Alley adding that confidence in restructuring is "at or better than it was last quarter." Note also that higher interest rate now sits high in the firm's keyword set not as the villain of the M&A tape but as a restructuring accelerant: “Higher interest rates help as well.” — Scott J. Adelson, Chief Executive Officer · 2026-10-28 Within the same transcript, rates are simultaneously the headwind on deals ("headwinds from interest rates" in the prepared remarks) and the tailwind for the counter-cyclical book. That is the model working as designed — the model — but it is also a subtle admission that the firm's growth now leans on conditions that hurt its largest segment. The engine of that flip is Software, the firm's single biggest keyword gainer over the past year. Adelson was blunt: “there is no world where I envision us doing the same amount of software revenue this year that we did last year.” — Scott J. Adelson, Chief Executive Officer · 2026-10-28 In July, Alley had quantified the damage — technology down roughly 54%, or $53 million, in a single quarter.

Your best proxy is if you go back to the oil and gas dislocation that occurred in our fiscal 2017 and got a sense of how that impacted our restructuring business in a single year. Software's much larger than that.
J. Lindsey Alley, Chief Financial Officer · 2026-10-28

That fiscal-2017 analogy, captured in the keywords gas dislocation and best proxy, is the most consequential thing said on the call. It converts a vague "elevated" into a template. And it lines up perfectly with the market's own scoreboard: the global tape's worst 90-day cluster is the software-and-compute complex — AI data center names are down with 6 advancers against 50 decliners, while net new ARR and system of record baskets have de-rated sharply. Houlihan does not need to own the pain; it invoices it. The firms losing the ARR argument are the ones who will be hiring restructuring bankers in calendar 2027 and 2028.

Fewer deals, bigger fees — and a keyword that vanished

The mechanical oddity of the quarter: closed transactions fell to 142 from 171 in Corporate Finance and to 27 from 37 in restructuring, while revenue rose. Alley attributed it to number of transactions mixing toward a "disproportionate number of higher fee transactions," and Adelson pushed back hard on any suggestion of a strategy shift — “no decision to move away from our mid-market focus. There's no decision to do bigger deals. None of that.” — Scott J. Adelson, Chief Executive Officer · 2026-10-28 The real driver is the firm's proprietary deal data, flagged in the keyword enormous amounts of information: they are declining to work on speculative mandates. That is a quality-of-earnings argument, and it is why the correlation between transaction volume and revenue should stay loose. What's missing matters too. Capital Solutions has been a fixture of the firm's keyword set — top-ranked in early 2026, repeatedly described as "early innings" with a fee pool that could double — yet it barely surfaces this quarter, reduced to a single Q&A aside that non-M&A businesses will "perform similarly" to M&A. The growth narrative has quietly rotated from product build-out back to plain-vanilla cyclical recovery plus restructuring. Portfolio Valuation business is now the named non-cyclical hero inside FVA, and that business is genuinely the quiet compounder: $93 million of FVA revenue, up 7%, on flat fee events of 1,071.

The stock is not buying the story yet

Here is the tension worth owning. HLI has compounded +513% since 2015, peaked at $209.19 in September 2025, and has since shed 34%. Over the last 90 days it is essentially flat, down 2.3%, with a shallow 5.6% drawdown from its July high. The multiple has done the work of de-rating: price-to-earnings has compressed to 17.9x, down 25% year over year, against a business that still prints a 16.8% operating margin versus a 28.9% peak in 2021. The balance sheet is not the issue: $961 million of effective net cash funds both the buyback ($50 million repurchased in the quarter) and the balance sheet flexibility for acquisitions that Adelson keeps promising without ever dating. So the setup is a company whose cyclical book is inflecting up, whose counter-cyclical book is inflecting up on a multi-year software thesis, and whose shares are priced as if neither will happen. The bear case writes itself: restructuring is lumpy, the software revenue recognition is a calendar-2027 story, and guidance has slipped before. But the January proclamation of structural decline has been publicly retired, and the firm's own preferred analogy implies the replacement cycle is larger than the last one. That is a change worth tracking into the winter call — and the keyword to watch is whether current backlog keeps climbing while management's caution about headwinds from interest rates quietly disappears.