Houlihan Lokey, Inc. (HLI) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary indicates strong financial performance across multiple sectors with optimistic guidance. There is a notable increase in corporate finance and restructuring revenues, alongside robust acquisition opportunities. The Q&A highlights ongoing momentum in corporate finance and a resilient restructuring backlog, despite some slowdown. While management avoided specifics in certain areas, the overall sentiment remains positive. The company's strong cash position and decreased tax rate further bolster financial health. Given these factors and the absence of a market cap, the stock price is likely to experience a positive movement in the short term.
Key Financial Performance
Revenues $659 million, up 15% year-over-year. The increase is attributed to a strong business model, improving market conditions, and increased confidence in deal-making due to a steady macro environment and easing interest rates.
Adjusted Earnings Per Share (EPS) $1.84, up 26% year-over-year. This growth reflects the company's strong performance and favorable market conditions.
Corporate Finance Revenues $439 million, up 21% year-over-year. Growth driven by improving M&A markets, increased activity levels, and strong new business generation.
Financial Restructuring Revenues $134 million, up 2% year-over-year. Growth supported by a persistent backlog despite easing interest rates and an improving macro environment tempering new business activity.
Financial and Valuation Advisory Revenues $87 million, up 10% year-over-year. Growth attributed to an improving M&A market and stronger performance in service lines affected by M&A.
Adjusted Compensation Expenses $406 million, up from $354 million year-over-year. The increase includes $18 million for deferred retention payments related to acquisitions.
Adjusted Noncompensation Expenses $82 million, relatively flat compared to $81 million year-over-year. The adjusted noncompensation expense ratio decreased to 12.5% from 14.1%.
Other Income and Expense Income of $9 million, up from $5 million year-over-year. The improvement is primarily due to higher interest income earned on cash balances and investment securities.
Adjusted Effective Tax Rate 29.7%, down from 31.3% year-over-year. The decrease is due to reduced state taxes and taxes from foreign operations.
Unrestricted Cash and Investment Securities Approximately $1.1 billion at the end of the quarter. This figure will decrease due to deferred cash bonuses related to fiscal 2025.
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Operating Highlights
Non-U.S. business growth: Performance in EMEA and Asia Pacific regions showed solid growth and improving key indicators, underscoring consistent brand growth and momentum outside the U.S.
Corporate Finance revenue growth: Corporate Finance revenues reached $439 million, a 21% increase compared to the same period last year, with 171 transactions closed this quarter, up from 131 last year.
Financial Restructuring performance: Revenues were $134 million, a 2% increase compared to the same period last year, with 37 transactions closed this quarter, up from 33 last year.
Financial and Valuation Advisory growth: Revenues were $87 million, a 10% increase compared to the same period last year, with 1,075 fee events during the quarter, a 19% increase from 903 last year.
Talent acquisition and strategic hires: Hired 5 new managing directors and made significant progress on the acquisition pipeline, focusing on individual hires and strategic acquisitions to drive growth in senior bankers globally.
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Risk or Challenges
Forward-looking statements: The company acknowledges that forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from expectations. This includes reliance on macroeconomic conditions and market stability.
Corporate Finance backlog and deal timing: The company anticipates a shift in deal timing, with a strong fourth quarter expected relative to the third quarter. This deviation from typical seasonal patterns could pose challenges if market conditions change unexpectedly.
Financial Restructuring business: Easing interest rates and an improving macro environment have tempered new business activity in restructuring, which could impact revenue growth in this segment.
Average transaction fees: The average transaction fee on closed deals decreased in both Corporate Finance and Financial Restructuring, which could affect profitability if the trend continues.
Compensation expenses: Adjusted compensation expenses increased to $406 million, which could pressure margins if revenue growth does not keep pace.
Noncompensation expenses: Adjusted noncompensation expenses increased year-to-date by 9.7%, which could impact overall profitability if not managed effectively.
Acquisition-related costs: The company incurred $18 million in deferred retention payments and $2.6 million in noncash acquisition-related amortization, which could strain financial resources if acquisition-related costs continue to rise.
Share repurchases and cash flexibility: The company repurchased approximately 210,000 shares and plans to pay deferred cash bonuses, which will reduce cash reserves and could limit financial flexibility for future investments or acquisitions.
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Guidance & Outlook
Revenue Growth: The company expects year-over-year growth in the second half of fiscal 2026, supported by a better macro environment and strong business momentum.
Corporate Finance (CF) Outlook: CF is expected to deliver a strong fourth quarter relative to the third quarter, deviating from typical seasonal patterns. New business generation remains strong, providing visibility into continued growth in fiscal 2027.
Financial Restructuring (FR) Outlook: FR is expected to maintain strong performance through the balance of the fiscal year, supported by a persistent backlog despite easing interest rates and an improving macro environment.
Financial and Valuation Advisory (FVA) Outlook: FVA is benefiting from an improving M&A market and is expected to continue its growth trajectory, particularly in non-cyclical services.
Non-U.S. Business Performance: The company anticipates continued growth and momentum in EMEA and Asia Pacific regions, driven by solid performance and improving key indicators.
Strategic Acquisitions and Talent Growth: The company is confident that a combination of individual hires and strategic acquisitions will drive strong growth in senior bankers globally.
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Shareholder Return Plan
Share Repurchase: In the second quarter, the company repurchased approximately 210,000 shares. The company will continue to evaluate balance sheet flexibility for acquisitions versus excess cash for share repurchases.
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Key Q&A
Q:Are you starting to see a slowdown in new business activity in restructuring?
A:The pace of restructuring activities has started to slow, but the backlog remains robust. Episodic shocks continue to add to restructuring activities despite the overall economic environment dampening restructuring levels.
Q:Are sponsors beginning to engage more in corporate finance, and is activity picking up into year-end?
A:Yes, activity is improving quarter-by-quarter, with a significant uptick after Labor Day. The sponsor community has been active since the beginning of the fiscal year, and momentum continues to increase.
Q:How do you think about the growth profile of the FDA business over the long term?
A:The FDA business is divided into three segments: PV business (non-cyclical), opinion business (partially cyclical), and transaction advisory services (tied to the M&A cycle). The FDA business is less volatile than the Corporate Finance business and grows similarly during strong M&A cycles but declines less during weaker cycles.
Q:What is driving the timing differences in corporate finance deals between the third and fourth quarters?
A:The second half of the year is historically stronger than the first half. The timing differences are due to seasonality and the momentum building in the business.
Q:Can you provide insights into restructuring trends and episodic growth in specific sectors?
A:Restructuring trends are diversified across geographies and industries. There are no standout sectors, but thematic issues like declining alcohol consumption and idiosyncratic risks in individual credits contribute to restructuring activities.
Q:What is the productivity timeline for non-U.S. bankers in EMEA and APAC regions?
A:Productivity varies by geography, with EMEA and APAC regions showing strong growth but lagging U.S. productivity levels. The business in these regions is maturing and performing well.
Q:What are the trends in Europe relative to the U.S. in terms of recovery and fee pools?
A:The U.S. remains the largest market, but EMEA and Asia Pacific are growing significantly. EMEA and Asia have outperformed the U.S. corporate finance business year-to-date, and the fee pool in Europe could eventually match the U.S. for Houlihan Lokey.
Q:Are you seeing a shift from liability management to traditional Chapter 11 in restructuring?
A:There is still a healthy amount of liability management activity, and it is too early to determine a shift towards traditional Chapter 11.
Q:How are clients in the middle market feeling about the economy, and what risks are top of mind?
A:Clients are operating in an environment of greater uncertainty due to geopolitical issues but are adapting well. Interest rates and capital availability are key concerns, with capital being plentiful and rates having less impact on the middle market.
Q:Is the competitive hiring environment affecting acquisition pricing?
A:No, the acquisition pipeline remains strong, and there have been no fundamental shifts in pricing.
Q:Can you expand on the results of the Capital Solutions business this quarter?
A:The Capital Solutions business has grown faster than the M&A business in this cycle and now constitutes at or above 20% of the total Corporate Finance business.
Q:Do macroeconomic negative headlines impact client deal-making or future acquisitions?
A:No, these headlines have not had a material impact on client deal-making or the company's acquisition strategy.
Q:Does the stock performance impact share repurchase strategy?
A:Stock performance does not significantly impact share repurchase strategy. The company focuses on maintaining share count and balancing acquisitions with repurchases.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the Capital Solutions business results, stating a preference to wait before sharing specifics. Additionally, they did not provide a clear timeline for when the fee pool in Europe might match the U.S. or when productivity in EMEA and APAC regions might align with the U.S.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Asia Pacific
CF departure
CF market
Capital market
EMEA Asia
FDA Corporate
FR level
Finance Financial
Form MD
Houlihan Lokey
Lindsey
Pacific region
Scott Welcome
acquisition banker
acquisition combination
activity backlog
activity generation
addition progress
appetite condition
backlog expectation
backlog shift
balance Financial
banker world
brand momentum
building platform
capital confidence
condition capital
condition improvement
condition macro
condition trajectory
confidence Capital
confidence deal
deal appetite
deal timing
departure pattern
director talent
group
HLI Transcript
Houlihan Lokey, Inc. (HLI) Q4 2026 Earnings Call Transcript
Positive5-6
The earnings call revealed strong financial performance with a 10% revenue increase, 8% net income growth, and improved EPS. Operating margin and cash flow also showed positive trends. Despite acknowledging risks in forward-looking statements, the financials indicate effective cost management and profitability. No significant negative sentiment was observed in the Q&A, suggesting a generally positive outlook. However, the absence of discussions on strategic initiatives and shareholder returns limits the potential for a stronger positive rating.
Houlihan Lokey, Inc. (HLI) Q3 2026 Earnings Call Transcript
Positive1-28
The earnings call highlights strong growth potential in Corporate Finance and non-U.S. markets, supported by strategic acquisitions. Despite some concerns in restructuring, the firm shows a solid long-term position and strong acquisition pipeline. The Q&A reveals optimism about M&A activity and sponsor engagement, with a focus on expanding capabilities globally. While management was vague on certain metrics, the overall sentiment remains positive, suggesting a likely stock price increase in the near term.
Houlihan Lokey, Inc. (HLI) Presents at Goldman Sachs 2025 U.S. Financial Services Conference Transcript
Neutral12-16
Houlihan Lokey, Inc. (HLI) Q2 2026 Earnings Call Transcript
Positive10-30
The earnings call summary indicates strong financial performance across multiple sectors with optimistic guidance. There is a notable increase in corporate finance and restructuring revenues, alongside robust acquisition opportunities. The Q&A highlights ongoing momentum in corporate finance and a resilient restructuring backlog, despite some slowdown. While management avoided specifics in certain areas, the overall sentiment remains positive. The company's strong cash position and decreased tax rate further bolster financial health. Given these factors and the absence of a market cap, the stock price is likely to experience a positive movement in the short term.
HLI Slides
Houlihan Lokey FY2026 slides: record revenue amid market leadership2026-05-06
Houlihan Lokey Q3 2026 presentation slides: market leadership drives 13% revenue growth2026-01-28
Houlihan Lokey Q2 2026 slides: revenue growth accelerates, market leadership expands2025-10-30
Houlihan Lokey Q3 2025 slides: Corporate Finance drives growth, M&A leadership affirmed2025-05-07
HLI Report
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