Houlihan Lokey, Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Houlihan Loki's fiscal second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference call is being recorded today, October 30th, 2025. I would now like to turn the floor over to the company.

Thank you, operator, and hello, everyone. By now, everyone should have access to our second quarter fiscal year 2026 earnings release, which can be found on the Houlihan Loki website at www.hl.com in the investor relations section. Before we begin our formal remarks, we need to remind everyone that the discussion today will include forward-looking statements. These forward-looking statements which are usually identified by use of words such as will, expect, anticipate, should, or other similar phrases, are not guarantees of future performance. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect, and therefore, you should exercise caution when interpreting and relying on them. we refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. We encourage investors to review our regulatory filings, including the Form 10-Q for the quarter ended September 30, 2025, when it is filed with the SEC. During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our earnings release and our investor presentation on the HL.com website. Hosting the call today, we have Scott Adelson, Houlihan Loki's Chief Executive Officer, and Lindsay Alley, Chief Financial Officer. They will provide some opening remarks, and then we will open the call to questions. With that, I'll turn the call over to Scott.

Thank you, Christopher. Welcome, everyone, to our second quarter fiscal 2026 earnings call. We ended the quarter with revenues of $659 million and adjusted earnings per share of $1.84. Revenues were up 15% and adjusted earnings per share were up 26% compared to the same period last year. We are pleased with our results for the quarter which reflect our strong business model and improving market conditions. We have benefited from a steady macro environment. The volatility of tariff policies which marked the start of the fiscal year has quieted. The downward pressure on interest rates has also improved confidence. Capital markets are wide open and capital is plentiful. All this has increased overall confidence in the deal-making appetite. Should current conditions persist, we believe the second half of the year will show improvement versus the second half of last year. Our corporate finance business produced $439 million in revenues for the quarter, representing a 21% increase over last year's second quarter. CF continues to benefit from improving M&A markets with activity levels increasing as expected. In terms of volume, the number of completed corporate finance transactions in the quarter was the highest since the peak of M&A activity in late 2021. New business generation remains strong, providing visibility into continued growth in fiscal 2027. As we assess the remainder of the current fiscal year, our backlog suggests a shift in deal timing. Currently, we expect CF to deliver a strong fourth quarter relative to the third quarter, making a departure from our typical seasonal patterns and underscoring the momentum building across our platform. Additionally, we continue to see strong growth in our capital solutions business, which is helping to drive solid performance in corporate finance. Financial restructuring produced 134 million in revenues for the second quarter, a 2% increase versus the same period last year. FR continues to perform at elevated levels, even as we see improving market conditions for both M&A and capital markets. Easing interest rates and improving macro environment have tempered new business activity in restructuring somewhat, but persistent backlog supports expectations for continued strong performance for this group through the balance of the fiscal year. Financial and valuation advisory produced 87 million in revenues for the second quarter, a 10% increase versus the same period last year. FDA, like corporate finance, is benefiting from an improving M&A market with stronger performance in service lines typically affected by M&A and continuing growth in the group's non-cyclical services. Our non-U.S. business performed notably well in the second quarter, with performance in both EMEA and Asia Pacific regions showing solid growth and improving key indicators. underscoring the consistent brand growth and momentum we are achieving outside the U.S. In the second quarter, we hired five new managing directors, and we continue to attract senior talent drawn to our global platform. In addition, since our last earnings call, we have made significant progress on our acquisition pipeline. We are confident that our combination of individual hires and strategic acquisitions will continue to drive strong growth in senior bankers around the world. Our outlook for the second half of fiscal 2026 is positive. We performed well in the first half of the year despite market uncertainties. And we enter the second half of the year with a better macro environment than we had in the last six months. If conditions remain on the current trajectory, we are well positioned to continue to experience year-over-year growth. With that, I will turn the call over to Lindsey. Thank you, Scott. Revenues in corporate finance were $439 million for the quarter, up 21% compared to the same period last year. We closed 171 transactions this quarter, up from 131 in the same period last year, and our average transaction fee on closed deals decreased. Financial restructuring revenues were 134 million for the quarter, a 2% increase versus the same period last year. We closed 37 transactions this quarter compared to 33 in the same quarter last year, and our average transaction fee on closed deals decreased. For financial and valuation advisory, revenues were 87 million for the quarter, a 10% increase from the same period last year. We had 1,075 fee events during the quarter compared to 903 in the same period last year, a 19% increase. Turning to expenses, our adjusted compensation expenses were $406 million for the quarter versus $354 million for the same period last year. Our only adjustment was $18 million for deferred retention payments related to certain acquisitions. Our adjusted compensation expense ratio for the second quarter in both fiscal 2026 and 2025 was 61.5%. We expect to maintain our long-term target of 61.5% for our adjusted compensation expense ratio for the balance of the year. Our adjusted non-compensation expenses were relatively flat at 82 million for the quarter compared to 81 million for the same period last year. Our adjusted non-compensation expense ratio for the second quarter was 12.5% compared to 14.1% in the same period last year. On a per employee basis, our adjusted non-compensation expense for the quarter was 30,000 versus 31,000 for the same period last year. For the quarter, we adjusted out of non-compensation expenses 2.6 million in non-cash acquisition related amortization. Looking at year-to-date performance, our adjusted non-compensation expenses increased 9.7% versus the same year-to-date period last year, consistent with our expectations for the fiscal year. Our other income and expense produced income of approximately 9 million versus income of approximately 5 million in the same period last year. The improvement was primarily driven by higher interest income earned on cash balances and investment securities. Our adjusted effective tax rate for the quarter was 29.7% compared to 31.3% for the same quarter last year. The decrease was primarily a result of decreased state taxes and decreased taxes due to foreign operations. For the second quarter fiscal of 2026, we adjusted out of our effective tax rate the effects of non-deductible acquisition-related costs. Turning to the balance sheet, we ended the quarter with approximately 1.1 billion of unrestricted cash and investment securities. As a reminder, we will pay our deferred cash bonuses related to fiscal 2025 in November, which will reduce our balance sheet cash. Also, in our second quarter, we repurchased approximately 210,000 shares, and we will continue to evaluate balance sheet flexibility for acquisitions versus excess cash for share repurchases. And with that, operator, we can open the line for questions.