Houlihan Lokey, Inc.: Form 10-Q for the period ended Dec 31, 2025

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, 2025 (the “2025 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. Although atypical, FR transactions 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, which are recognized on the achievement of our performance obligations.

Operating Expenses

Our operating expenses are classified as compensation expense 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 on the Consolidated Statements of Comprehensive 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 December 31, 2025 and March 31, 2025.

Compensation expenses 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. Certain annual equity-based bonus awards granted prior to December 31, 2024 include fixed share compensation awards and liability classified fixed dollar awards as a component of the annual bonus awards for certain employees. 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 Expense. 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 non-marketable and investment securities, cash and cash equivalents, loans receivable from affiliates, employee loans, and commercial paper.

Results of Consolidated Operations

The following is a discussion of our results of operations for the three and nine months ended December 31, 2025 and 2024.

($ in thousands)

20

Three Months Ended December 31, 2025 versus December 31, 2024

Revenues were $717.1 million for the three months ended December 31, 2025, compared with $634.4 million for the three months ended December 31, 2024, representing an increase of 13%. The increase in revenues was primarily driven by higher revenues from our CF and FR business segments, as described in further detail below.

Operating expenses were $556.3 million for the three months ended December 31, 2025, compared with $498.3 million for the three months ended December 31, 2024, representing an increase of 12%. Compensation expenses, as a component of operating expenses, were $458.6 million for the three months ended December 31, 2025, compared with $403.0 million for the three months ended December 31, 2024, representing an increase of 14%. The increase was primarily a result of an increase in revenues for the quarter when compared with the same quarter last year. The Compensation Ratio was 64.0% for the three months ended December 31, 2025, compared with 63.5% for the three months ended December 31, 2024. Non-compensation expense, as a component of operating expenses, was $97.8 million for the three months ended December 31, 2025, compared with $95.4 million for the three months ended December 31, 2024, representing an increase of 3%.

Other (income) expense, net was relatively flat at $(8.9) million for the three months ended December 31, 2025, compared with $(9.0) million for the three months ended December 31, 2024.

The provision for income taxes for the three months ended December 31, 2025 was $53.1 million, which reflected an effective tax rate of 31.3%. The provision for income taxes for the three months ended December 31, 2024 was $49.8 million, which reflected an effective tax rate of 34.3%. The decrease in the Company’s effective tax rate was primarily a result of decreased state taxes and decreased non-deductible expenses.

Nine Months Ended December 31, 2025 versus December 31, 2024

Revenues were $1.98 billion for the nine months ended December 31, 2025, compared with $1.72 billion for the nine months ended December 31, 2024, representing an increase of 15%.

Operating expenses were $1.58 billion for the nine months ended December 31, 2025, compared with $1.36 billion for the nine months ended December 31, 2024, an increase of 16%. Compensation expenses, as a component of operating expenses, were $1.27 billion for the nine months ended December 31, 2025, compared with $1.09 billion for the nine months ended December 31, 2024, an increase of 17%. The increase in compensation expenses was primarily a result of higher revenues when compared with the same period last year. The Compensation Ratio was 64.3% for the nine months ended December 31, 2025, compared with 63.5% for the nine months ended December 31, 2024. Non-compensation expense, as a component of operating expenses, was $305.4 million for the nine months ended December 31, 2025, compared with $267.8 million for the nine months ended December 31, 2024, representing an increase of 14%. The increase in non-compensation expense was primarily a result of an increase in revaluation of acquisition contingent consideration and increased depreciation and amortization when compared with the same period last year.

Other (income) expense, net was $(25.9) million for the nine months ended December 31, 2025, compared with $(19.6) million for the nine months ended December 31, 2024. Other (income) expense, net increased primarily due to higher interest income.

The provision for income taxes for the nine months ended December 31, 2025 was $101.9 million, which reflected an effective tax rate of 23.8%. The provision for income taxes for the nine months ended December 31, 2024 was $103.3 million, which reflected an effective tax rate of 27.1%. The decrease in the Company’s effective tax rate was primarily a result of increased stock-based compensation deductions and decreased state taxes.

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.

($ in thousands)

(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 period.

(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 $1,000. References to closed transactions should be understood to be the same as transactions that are “effectively closed” as described in our annual report on Form 10-K.

Corporate Finance

Three Months Ended December 31, 2025 versus December 31, 2024

Revenues for CF were $473.7 million for the three months ended December 31, 2025, compared with $421.6 million for the three months ended December 31, 2024, representing an increase of 12%. Revenues increased due to an increase in the average transaction fee on closed transactions, which was driven by transaction mix and does not represent a short-term trend in the average fee on closed transactions. Revenues also increased due to an increase in the number of closed transactions during the quarter, which was driven by favorable market conditions.

Segment profit for CF was $150.7 million for the three months ended December 31, 2025, compared with $131.6 million for the three months ended December 31, 2024, an increase of 15%. Profitability increased primarily as a result of an increase in revenues when compared to the same quarter last year.

Nine Months Ended December 31, 2025 versus December 31, 2024

Revenues for CF were $1.31 billion for the nine months ended December 31, 2025, compared with $1.11 billion for the nine months ended December 31, 2024, representing an increase of 18%. Revenues increased primarily due to an increase in the number of closed transactions during the period, driven by favorable market conditions.

Segment profit for CF was $424.8 million for the nine months ended December 31, 2025, compared with $341.6 million for the nine months ended December 31, 2024, an increase of 24%. Profitability increased primarily as a result of an increase in revenues and lower non-compensation expenses as a percentage of revenues when compared to the same period last year.

Financial Restructuring

Three Months Ended December 31, 2025 versus December 31, 2024

Revenues for FR were $156.3 million for the three months ended December 31, 2025, compared with $130.9 million for the three months ended December 31, 2024, representing an increase of 19%. Revenues increased due to an increase in the average transaction fee on closed transactions, which was driven by transaction mix and does not represent a trend in the average fee on closed transactions.

Segment profit for FR was $57.6 million for the three months ended December 31, 2025, compared with $44.2 million for the three months ended December 31, 2024, an increase of 30%. Profitability increased primarily as a result of an increase in revenues and lower compensation expenses as a percentage of revenues when compared to the same quarter last year.

Nine Months Ended December 31, 2025 versus December 31, 2024

Revenues for FR were $418.3 million for the nine months ended December 31, 2025, compared with $379.9 million for the nine months ended December 31, 2024, representing an increase of 10%. Revenues increased primarily due to an increase in the average transaction fee on closed transactions, which was driven by transaction mix and does not represent a trend in the average fee on closed transactions.

Segment profit for FR was $151.3 million for the nine months ended December 31, 2025, compared with $144.3 million for the nine months ended December 31, 2024, an increase of 5%. Profitability increased primarily as a result of an increase in revenues, partially offset by higher compensation expenses as a percentage of revenues when compared to the same period last year.

Financial and Valuation Advisory

Three Months Ended December 31, 2025 versus December 31, 2024

Revenues for FVA were $87.1 million for the three months ended December 31, 2025, compared with $81.9 million for the three months ended December 31, 2024, representing an increase of 6%. Revenues increased due to an increase in the number of Fee Events, driven by improvements in the M&A markets.

Segment profit for FVA was $22.4 million for the three months ended December 31, 2025, compared with $23.3 million for the three months ended December 31, 2024, a decrease of (4)%. Profitability decreased primarily as a result of higher compensation expenses as a percentage of revenues, partially offset by an increase in revenues when compared to the same quarter last year.

Nine Months Ended December 31, 2025 versus December 31, 2024

Revenues for FVA were $252.7 million for the nine months ended December 31, 2025, compared with $229.0 million for the nine months ended December 31, 2024, representing an increase of 10%. The increase in revenues was primarily due to an increase in the number of Fee Events, driven by improvements in the M&A markets.

Segment profit for FVA was $65.2 million for the nine months ended December 31, 2025, compared with $60.4 million for the nine months ended December 31, 2024, an increase of 8%. Profitability increased primarily as a result of increased revenues, partially offset by an increase in non-compensation expenses as a percentage of revenues when compared to the same period last year.

Corporate Expenses

Three Months Ended December 31, 2025 versus December 31, 2024

Corporate expenses were $70.0 million for the three months ended December 31, 2025, compared with $63.0 million for the three months ended December 31, 2024. This 11% increase was driven primarily by increased compensation expense when compared to the same quarter last year.

Nine Months Ended December 31, 2025 versus December 31, 2024

Corporate expenses were $239.4 million for the nine months ended December 31, 2025, compared with $184.8 million for the nine months ended December 31, 2024. This 30% increase was driven primarily by increased compensation expense and increased revaluation of acquisition contingent consideration when compared to the same period 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 December 31, 2025 and March 31, 2025, we had $825.7 million and $686.2 million of cash in foreign subsidiaries, respectively. Our excess cash may be invested from time to time in short-term investments, including treasury securities, commercial paper, certificates of deposit, and investment grade corporate and government debt securities. Please refer to Note 6 for further detail.

As of December 31, 2025 and March 31, 2025, our unrestricted cash and cash equivalents and investment securities were as follows:

(In thousands)

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 December 31, 2025, accounts receivable, net of allowance for credit losses was $210.9 million. As of December 31, 2025, unbilled work in progress, net of allowance for credit losses was $232.7 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 on 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 December 31, 2025, we were, and expect to continue to be, in compliance with the financial covenants. As of December 31, 2025 and March 31, 2025, 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 relating to notes payable and contingent consideration issued in connection with businesses previously acquired (see Note 10 included in Part I, Item 1 of this Form 10-Q).

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:

(In thousands)

Nine Months Ended December 31, 2025

Operating activities resulted in a net inflow of $411.1 million, primarily attributable to net income, partially offset by changes in our operating assets and liabilities, which includes the cash bonus payments in May 2025. Investing activities resulted in a net inflow of $51.8 million, primarily attributable to sales or maturities of investment securities, partially offset by purchases of investment securities and purchases of property and equipment. Financing activities resulted in a net outflow of $400.2 million, primarily attributable to payments made to settle employee tax obligations on share-based awards, dividends paid, and share repurchases.

Nine Months Ended December 31, 2024

Operating activities resulted in a net inflow of $490.2 million, primarily attributable to net income, partially offset by cash bonus payments paid in May 2024. Investing activities resulted in a net outflow of $158.7 million, primarily attributable to the purchase of investment securities and several acquisitions closing during the nine months ended December 31, 2024. Financing activities resulted in a net outflow of $238.0 million, primarily attributable to dividends paid and payments made to settle employee tax obligations on share-based awards.

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 2025 Annual Report. We entered into a new routine lease commitment during the quarter to support ongoing operations (see Note 16 included in Part I, Item 1 of this Form 10-Q).

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 nine months ended December 31, 2025, 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 Annual Report on Form 10-K for the year ended March 31, 2025, 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.

Market Risk and Credit Risk

There has been no material change in our exposure to market risk from that described in Part II, Item 7A of our Annual Report on Form 10‑K for the year ended March 31, 2025.

Risks Related to Cash and Short-Term Investments

There has been no material change in our exposure to market risk from that described in Part II, Item 7A of our Annual Report on Form 10‑K for the year ended March 31, 2025.

Exchange Rate Risk

The exchange rate of the U.S. Dollar relative to the currencies in the non-U.S. countries in which we operate may have an effect on the reported value of our non-U.S. Dollar denominated or based assets and liabilities and, therefore, may be reflected as a change in other comprehensive income, net of tax. Our non-U.S. assets and liabilities that are sensitive to exchange rates consist primarily of trade payables and receivables, work in progress, and cash. For the three months ended December 31, 2025 and 2024, the net impact of the fluctuation of foreign currencies in other comprehensive income within the Consolidated Statements of Comprehensive Income was $(0.4) million and $(48.1) million, respectively. For the nine months ended December 31, 2025 and 2024, the net impact of the fluctuation of foreign currencies in other comprehensive income within the Consolidated Statements of Comprehensive Income was $33.8 million and $(19.7) million, respectively. A hypothetical 10% depreciation in the U.S. Dollar relative to the functional currencies of our foreign subsidiaries as of December 31, 2025, would have resulted in an increase in our other comprehensive income, net of tax, of approximately $106 million for the nine months ended December 31, 2025.

For additional discussion on our exchange rate risk, refer to Part II, Item 7A of our Annual Report on Form 10‑K for the year ended March 31, 2025. Additionally, refer to Note 2 for disclosures regarding foreign currency forward contracts which we may use from time to time to hedge our foreign currency exposures.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management, including the chief executive officer and chief financial officer, recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2025.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal control over financial reporting performed during the fiscal quarter ended December 31, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.