Houlihan Lokey, Inc. Class A Aktie

Good day, and welcome to the Houlihan Lokey Fiscal Year and Fourth Quarter 2026 Earnings Conference Call. [Operator Instructions] Please this note event is being recorded.

I would now like to turn the conference over to the company. Please go ahead.

Thank you, operator, and hello, everyone. By now everyone should have access to our fourth quarter and fiscal year 2026 earnings release, which can be found on the Houlihan Lokey 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-K for the fiscal year ended March 31, 2026, 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 non-GAAP financial measures are not intended to be considered in isolation from, as a substitute for, or as more important than the financial information prepared and presented in accordance with GAAP.

In addition, these non-GAAP measures have limitations in that they do not reflect all the items associated with the company's results of operations as determined 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 Lokey's Chief Executive Officer; and Lindsey 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. We ended fiscal year 2026 with a record $2.6 billion in revenue, up 10% versus last year and adjusted EPS of $7.56, up 20% versus last year. Both Corporate Finance and Financial Valuation and Advisory produced record revenues for the year and our Financial Restructuring business had 1 of the strongest years on record. Delivering these results against the backdrop of significant geopolitical uncertainty and macroeconomic pressures underscores the strength and resilience of our business.

Since we went public 10 years ago, we have reported annual revenue growth in 9 of the 10 years. We ended the fourth quarter with revenues of $636 million, and adjusted earnings per share of $1.63. It is worth highlighting that our CF and FDA businesses each produce their highest fourth quarter revenues ever. Our quarterly results are typically more volatile than our annual results due to both external macro events and the timing of revenues.

In FR, our fourth quarter results were impacted as the closing of 2 larger transactions extended beyond the quarter end. While the growth in our fourth quarter results in CF and FDA were impacted by recent external market disruptions, including renewed geopolitical uncertainty from the conflict in the Middle East and market volatility affecting the software sector.

Notwithstanding the turbulence exhibited in the marketplace over the last few months, our business is in the best shape in its history. We have a record level of backlog and pipeline. We have a record number of managing directors and we have a record number of corporate acquisition opportunities in various stages of potential completion.

In the fourth quarter, CF continued to see solid backlog growth and improved transaction metrics across most of our industry groups, technology being an exception.

In addition, CF revenues outside the U.S. grew significantly faster than U.S. revenues in both the fourth quarter and fiscal year.

Capital Solutions performed well in fiscal year 2026 and we enter year fiscal 2027 with strong backlog and high expectations for those services.

Segments of our FDA business saw the same disruption from macro events in the fourth quarter, while others did not. But momentum for that business has returned to more normal levels, and we expect growth in fiscal year 2027.

In FR, our expectations for fiscal year 2027 have improved. We are seeing multiple tailwinds, widening credit spreads, dislocation in private credit and the software sector and energy volatility. These factors are driving increased activity levels, including several notable recent wins, leading to higher expectations for fiscal year 2027. Based on these dynamics, we expect this business to continue to perform at elevated levels in fiscal year 2027.

We successfully closed 2 previously announced transactions in the fourth quarter, welcoming new colleagues from Audere Partners and Mellum Capital.

Additionally, we hired 4 managing directors in the quarter, bringing our total hired and acquired for the fiscal year to 33. We are also pleased to announce that we promoted 25 colleagues to Managing Director in the first quarter of fiscal year 2027. I would like to congratulate our new partners and recent promotes and wish them great success in the years to come.

As we enter fiscal year 2027, our diversified business model positions us well to navigate whatever market conditions emerge. This diversification has consistently enabled us to perform through volatile periods, and we believe that advantage remains as strong as ever. And our global workforce continues to be the key differentiator. We recognize with gratitude the strength of our talented workforce now more geographically diverse and with a wider range of expertise and specialties than ever before. We continue to see a strong hiring market for senior talent. On the M&A front, our acquisition pipeline is as active as it has ever been with no shortage of compelling opportunities to further strengthen our platform.

I would like to thank our more than 2,700 employees for continuing to deliver excellence to our clients and to 1 another. I would also like to thank our clients and shareholders who continue to entrust us on our journey of building the best investment banking advisory business in the world.

And with that, I will turn it over to Lindsey.

Thank you, Scott. Revenues in Corporate Finance were $434 million for the quarter, up 5% compared to the same period last year. We closed 171 transactions this quarter, up from 147 in the same period last year and our average transaction fee on closed deals decreased.

M&A deal time lines have extended due to the geopolitical uncertainty created around the war in the Middle East and its ripple effects and we expect that dynamic to persist as long as there is uncertainty. These time line shifts may moderate our growth a bit in our first quarter for fiscal year 2027, similar to the impact on our growth in the fourth quarter.

While the near term may show variability due to closing timing, the fundamental trajectory of the Corporate Finance business for the full year remains encouraging.

Financial Restructuring revenues were $110 million for the quarter, ending the fiscal year with revenues of $529 million, down 3% from fiscal year 2025. We closed 30 transactions this quarter, down 21% from the same quarter last year and our average transaction fee on closed deals decreased.

For Financial and Valuation Advisory, revenues were $91 million for the quarter, a 3% increase from the same period last year. We had 1,248 fee events during the quarter compared to 1,224 in the same period last year, a 2% increase.

Turning to expenses. Our adjusted compensation expenses were $391 million for the quarter versus $410 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 fourth 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 fiscal 2027.

Our adjusted non-compensation expenses grew 10.5% to $94 million for the quarter compared to $85 million for the same period last year. For the quarter, we adjusted out of non-compensation expenses $5.8 million in acquisition-related costs and $1.7 million in noncash acquisition-related amortization. Our adjusted non-compensation expenses grew 10.7% for the year, and we ended fiscal 2026 with an adjusted non-compensation expense ratio of 13.9%. We expect to see similar growth in adjusted non-compensation expenses in fiscal 2027.

Our adjusted effective tax rate for fiscal year 2026 was 23.7% compared to 29.8% for fiscal year 2025. The decrease was primarily a result of the change in our policy where we are no longer adjusting out the impact of stock compensation deductions on our effective tax rate.

For fiscal 2027, similar to last year, we expect our first quarter adjusted effective tax rate to benefit from the vesting of shares in May at grab prices for which the majority were significantly below where our stock is currently trading.

Based on where our stock is trading today, we think that benefit may reduce our adjusted effective tax rate in our first quarter for fiscal 2027 to about half of our fourth quarter adjusted effective tax rate.

Turning to the balance sheet. We ended the quarter with approximately $1.4 billion in cash and investments. As a reminder, a significant portion of our cash is earmarked to cover accrued but unpaid bonuses for fiscal year 2026 that will be paid this month end in November.

Also in our fourth quarter, we repurchased approximately 300,000 shares as part of our share repurchase program. We will continue to evaluate balance sheet flexibility for acquisitions versus excess cash for share repurchases.

Finally, the Board approved an increase in our quarterly dividend to $0.70 per share, 17% higher than our quarterly dividend in fiscal year 2026. The first quarter dividend will be paid in June.

And with that, operator, we can open the line for questions.

[Operator Instructions] The first question is from Brennan Hawken with BMO.

So you flagged really some pretty constructive comments on the outlook, even though that was it was maybe couched by some uncertainty to start out the year in 1Q. But I'd love to drill down on Restructuring. So last quarter, you guys said you expect Restructuring to face some revenue pressures, but now you've got an improved outlook. So does that mean that you're no longer seeing the pressures and you think the stability or growth are possible? Is it possible to put a finer point on that?

Yes. Thanks, Brennan. I appreciate the question. I think that what you're seeing is kind of the flip side of the troubles that occurred on the Corporate Finance side during the quarter also created opportunity in -- on the Restructuring side. And I think that a number of people had the perspective even going in -- we were being a bit conservative last quarter when we talked about it because we did not actually see the new mandates coming in and the pace of that change, after the -- really the events in software and the war and energy all started to converge. We have seen that really change and the activity levels and Restructuring pick up materially. That gave us the -- as well as we said in our remarks, including some recent important wins to really give us confidence that we can continue to operate in Restructuring at elevated levels next year and probably beyond that as well.

Excellent. I appreciate that, Scott. And then you spoke to the backlog building in Corporate Finance. Maybe aside from tech. So we've been hearing about the need for sponsors to begin to transact. What are you seeing in regards to sponsors and the pressure for them to actually monetize? And how is the setback that maybe they're seeing in some of the tech-oriented investments playing through? And how do you expect that to impact as far as transaction volumes go when we move forward on Corp Fin?

Let's take that in 2 separate pieces. Let's park tech for a moment. And just overall, if you look at sponsor activity, before really the conflict started what we had said was we had really seen things picking up quite a bit. And then obviously, that started and it created much more of a -- stop, we got to figure out what's going on here for a moment. And then if you really look the activity levels from a pitch standpoint, even in February, before it started, were really quite strong, more important metric is really the go to market when deals actually kick off. And as we sit here today, even in the last few weeks have been the most active we have seen in years. And so that activity level is increasing again at a pace that we feel good about.

And software is -- I haven't talked really about software more than tech. Software is clearly a sector that is going to be impacted. And I don't think anybody really has an answer on how much yet. And I do think that there is a -- going to baby out with the bath water problem at the moment that everything that looks or smells like software is all of a sudden, not in favor. I think that will change as people dig in and there will be winners and losers like there are in every sector that you see a dislocation and it clearly will not be all software companies.

And to put a finer point on it, Brennan, we have assumed that software will be affected in fiscal year '27 in our comments.

The next question is from Devin Ryan with Citizens Bank.

I just want to ask another 1 on sponsor slightly different angle. If you're trying to think about like order of magnitude of pent-up activity. We've seen larger deals in the market. And I think the argument of sponsors are going to come to be more active, but just trying to think about like how much more active, we have record duration of portfolios. There's record dry powder in the market. So how do you guys think about that?

And the other part of the question is just, are buyers and sellers going to get aligned on price? The current vintage, some of those assets were bought at high valuation. So is that a risk or just not something that you guys see as an issue here as we get to maybe sponsors being able to exit some of these positions?

Clearly, it has -- we talked about this a lot. We talked about the velocity of transactions. At the velocity has -- again, it is picking up. The -- we need to have some level of certainty in geopolitical issues where it's not to hit these road bumps along the way. But everything we are seeing is that sponsors want to begin to transact. There has -- you are correct that there are certain companies that will be under the price differentials that will be too difficult for them to deal with. There's no doubt about that. But that is -- from every indication we have, that is not the preponderance of the deal flow that is out there or anywhere near it. It really is -- there's different qualities, if you will, of assets that come out and the outstanding assets throughout the cycles have traded at really healthy prices with really no price degradation at all. It is really the ones below that as the market heats up, there is a greater receptivity to those companies and believing that you can really improve them and make them better and add that those companies are the ones that we really start to see in a healthier market begin to transact on a more regular basis.

And Devin, we have a pretty compelling graph in our investor presentation, courtesy of Pitch Book that just shows the number of transactions within private equity, the growth over the last 10 years and the aging in this last year as of December 31, and over half of them are over 5 years old. And so -- I mean, there -- to answer your question with an exclamation point, there is a lot of pent-up demand. And we had started experiencing it well before the fourth quarter. I'd say it slowed down a bit in the fourth quarter, and we're seeing it tick right back up to where it was. So there's -- the market has gotten some comfort that there is at least containment in what's going on in the Middle East and software, I think, is a different story.

Got it. I appreciate that color. And then as a follow-up, in Financial and Valuation Advisory, is that benefiting or going to benefit from the, call it, group scrutiny on private credit valuation driven just private equity more broadly, thinking that maybe that could drive more demand for valuation work and you guys would get involved in more situations with your clients? Just curious if that maybe a second derivative of some of this focus on private credit.

Yes. We've talked about that a fair amount. That's really our portfolio valuation group, which has been growing quite nicely through all cycles and we feel very good about where that business is heading. And that is -- that TAM is continuing to grow and some of the things that you're talking about just -- are what grows it, is at the more -- getting marks more regularly is certainly 1 of those things and situations like we are seeing in private credit is a great example of why they need those marks on a more regular basis.

The next question is from Brendan O'Brien with Wolfe Research.

I guess to start, your comments on activity in Europe last year, certainly caught my attention. There's obviously a lot of interesting dynamics at play in the region at the moment. On the 1 hand, you have higher reliance on energy or an exporter of energy and so more sensitive to the price shock, but there's also clearly a push towards deregulation and more economically favorable simulative policies. Just want to get a sense as to what you're seeing or hearing from clients in the region at the moment and whether you expect that outperformance in terms of growth rate to persist?

I think some of this is -- we just have a differentiated business in Europe at this point, and that is continuing to grow and the market is continuing to understand that. And obviously, our recent acquisition in France only adds to that. And so some of that growth is just -- we are in earlier stages in our business there and the market is really recognizing our differentiated product. The activity levels in Europe, broadly defined, we continue to see as being strong. And there's no doubt that some of the headwinds that you're discussing exist whether or not those wind up having a material impact on the year, we will see. But we feel good about our European and Asian businesses. And I think as we've said, even our Asian business even grew faster.

Great. And I guess for my follow-up, I guess, on the FDA business, and specifically just AI implications for that business. On the 1 hand, I do see this as an area where you could see significant productivity gains given there are a lot of recurring cash. However, I've also been hearing some concerns on pricing pressures if this becomes more commoditized. Just wanted to get a sense as to how you're thinking about the implications of AI for this business longer term? How you're investing to kind of get ahead of the curve? And how you see that kind of impacting overall profitability of that business over time?

Great. Thanks. The -- couple of things. We have been investing ahead of that technological corp for a very long time, actually, and FDA and 1 of our acquisitions. In the U.K. 2 years ago was along those lines as well. We certainly understand those pressures. And those -- none of those are new to us. And yet, we think that, that TAM is going to -- and it has been growing, as you can tell by our performance faster than any decline in pricing.

And look, we have experienced pricing pressure on our FDA products for a decade, as Scott said, or more. And we have sort of reacted by growing our TAM at a rate significantly faster than the pricing pressure. And we expect that to continue. So we will continue to see pricing pressure. We also believe -- and you alluded to it at an earlier question -- it was alluded to in another question, that market for our TAM product, especially if private equity opens is going to double. And so we're, I think, pretty excited about all of that. And the other advantage is, very few firms have the wherewithal to invest in technology at the same pace that we are or that the big 4 accounting firms are. So this -- there is going to be a consolidation in this industry. A lot of the boutiques that are in and now just won't be able to keep up. And we think that for firms the size of Houlihan's, that is a huge competitive advantage for a business that requires a fairly significant spend in technology over the next 3 to 5 years.

And we've talked about it before, but the data that we have from being enormous amount of marks that we do, obviously just makes our models that much better.

The next question is from Ryan Kenny with Morgan Stanley.

Just a follow-up there on the need to spend on technology. Is there any update on non-comp outlook for this year or maybe longer term need to spend on non-comp?

No. I mean, I think the technology spend that you've seen us making over the last several years is not expected to change. So non-comp is, as I mentioned on the call, expected to look a lot like fiscal '26 non-comp increases. I think 1 thing important when we spend money on technology for our Portfolio Valuation business or FDA business, that technology spend is transferable to our Corporate Finance business. Both businesses are high-volume businesses. And so it is -- we're able to spread the investments we make, whether it's in AI or whatever across really those 2 businesses, in particular, also will benefit our Restructuring business as well. So it's incorporated in the numbers and the assumptions we've made.

I think you can think about it more -- I'm sorry about that. I think it's really more a matter of shifting priorities and to accomplish that.

Got it. And then separately on the capital side, you guys raised your dividend. Any update on how you're thinking about capital allocation to buybacks versus dividend versus potentially M&A?

Yes. It hasn't changed. I think the quarterly dividend is really -- were increases a measure of our continued growth and our outlook for the next year. And our priority continues to be making acquisitions that we think are incredibly accretive to our shareholders and share repurchases after that. Now having said that, our goal is to maintain our share count, which we've done a pretty good job over the last several years. But we have maintained that balance sheet flexibility to make the acquisitions similar to what we did in February. And as Scott mentioned, we're going into fiscal '27, I think quite optimistic about the outlook for M&A for us this year.

And next, we have James Yaro with Goldman Sachs.

Scott, Corporate Finance did slow quickly relative to your previous guidance for the quarter having better than normal seasonality. You did talk about things already beginning to improve. How quickly can these deals turn back on and close? And then stepping back, do you think that there have been any permanent impacts to the Corporate Finance client backdrop from any of the either geopolitical or software issues?

I don't think there's been -- the software, I don't know. Just flat out. We can't -- don't know. I don't think that it should have a permanent effect. I think it will have a permanent effect on some. And certainly, I don't think it should have on all, but I don't know. On the overall business, not at all, that we've talked about it throughout that we have been operating in a world where we have had just an elevated level of uncertainty, particularly geopolitical uncertainty. And when it rises above a level for whatever reason, in this case, it was conflict in the Middle East, people put their foot on the brakes, and they say, wait a minute, I need to understand what is going on, and that is what we saw. It clearly impacted our results. But as Lindsey pointed out, as it has subsided and people really just keep getting their head around higher levels of uncertainty and say, we have to get on with business and being an optimist, I do look at that and recognize there's a -- given the level of uncertainty, when it does subside to any reasonable level there is such a strong demand for activity to really ramp back up because we are seeing it in its early, early stages today, but again, there still is a reasonable amount of uncertainty. If that continues to subside, it will only get better and better.

Okay. Great. Just 1 more on Restructuring. You talked about in the press release, lower average transaction fees on closed transactions. I'd just love to get your perspective on what -- but you -- and then in addition, you know that that's not a trend. But maybe just comment on why this isn't a trend, what happened in the quarter? And then also, you talked about 2 -- I think you talked about 2 deals that stretched beyond the quarter. Does that mean that we should have a seasonally elevated fiscal first quarter?

So it's a good question. Look, I think that the transaction, the average transaction size for Restructuring, there are no trends. Some quarters, it's higher than others simply because of size of transaction. Corporate Finance does have an upward trend to it. And FDA in some cases, is flat given some of the comments we've made. Financial Restructuring is going to vary quarter by quarter, just depending on the size and makeup of the transaction that closed out quarters. So nothing to read into there.

I think with respect to the second part of your question on...

The 2 deals.

The 2 transactions. Look, we're very comfortable saying they're going to close in fiscal '27. When you start pinning us down for quarters, we get a little bit antsy, but we do think that 1 of the reasons why we're comfortable at elevated restructuring revenues for fiscal '27 is simply because those 2 transactions are included in it, along with all of the other things that Scott mentioned. So we do expect them to close and likely in the first half of the year, as I said, but I don't really want to pin it on a space quarter.

I think based upon what I know today, it's unlikely for them both to close in the same quarter as it sits today. If that were the case, I think we might say something different to you, but I think that because there's going to be spread out is something that I think just think about it as a normal elevated level.

The next question is from Nathan Stein with Deutsche Bank.

I wanted to ask a revenue split for the M&A and Capital Solutions businesses within Corporate Finance. What was this revenue split in the fourth quarter? And do you expect those levels to be sustained in fiscal '27?

So we don't -- we won't give splits by quarter, but our Capital Solutions business is above 20% of our Corporate Finance revenues. Think of it that way. And I'd say the last couple of years, that number has gotten higher as a percentage of the overall Corporate Finance business. What happens next year? I don't want to get into that level of detail. But we have said before that business, the outlook for that business and the momentum in that business is exceptional. And so we'd love to be able to comment looking backwards a year from now and give you a bit more color. But looking forward, I don't want to get into that level of detail for Capital Solutions. But over 20% is kind of how I would think about it.

And then I guess just on AI, do you have any updates for investors as to how you're looking at implementing AI across your business?

I can get in an awful lot of details, depends on the time you really want me to take. Yes, I mean, we are embracing it fully, and there's really want to think about it. There's multiple ways to think about it. There's a front-end component to it. There's a workflow component to it. There's a operational or back office component to it. There's a moonshot component to it. And we have basically work streams in all those areas occurring.

The next question would be from Alex Bond with KBW.

So I heard the commentary on the strengthening M&A backlog, which is obviously good to hear. But curious how you would describe maybe how, if at all, the preannounce pipeline has shifted in terms of composition recently, whether it be sponsors versus strategics or any geographical mix shift. Just trying to drill down on where you've seen activity be most prevalent at the moment given everything that's going on in the market?

Yes. Thanks, Alex. Good question. I mean it really has been across the board. I mean, our mix sponsored, non-sponsored doesn't change that dramatically. A lot of people talk about that a lot, but it is -- it's been -- it is fairly constant points different from period to period. So there are these dramatic swings that I think people may expect. Clearly, a number of the -- when we talk about pitch pipelines and things that have just kind of more visibility to it that tends to be more sponsor-driven simply because they just -- there's a cadence to that. And so that is clearly picking up as we were saying.

In terms of U.S. is clearly a part of that. Europe is part of that. We have said Europe is growing faster, but to be fair, it's from a smaller base. And Asia is growing faster than that, but that's from a smaller base. So we are seeing activity in all 3 regions. I would say, appropriate for where they are in their maturation.

And Alex, I mean, look, if there's some optimism in our voice, even given sort of the uncertainty of the last quarter, it's because it's firing on all cylinders across industry, across geography with the 1 exception of technology. And technology as pressure on it, and we've incorporated that into our thinking. And technology is a decent-sized business for our software is. But the other industries are -- and again, not hard to point to why, it goes right back to that there is a huge pent-up demand particularly from private equity to transact, and we're kind of right in the middle of that.

Next question is from Michael Brown with KBW.

I wanted to ask Restructuring, maybe just to kind of narrow in a little bit there. So the activity levels there seem like they can be certainly broadening out. And I think you talked about an element of that they can stay elevated. They've been running at a healthy pace here for a while. So maybe just help us kind of frame what elevated kind of means now? So when we look at fiscal '27 and obviously, it's early days here, but fiscal '27 versus fiscal '26, does that just kind of mean potential for growth here? Is it possible in your view that we see kind of a new record for the business as we get to fiscal '27? Any kind of view on that based on what you're seeing in the activity?

So I would answer it this way. We have been saying elevated levels for the last 3 years for Financial Restructuring, and we're using the same terminology. So I would just start there.

Right. Okay. Great. And maybe just switch gears to the follow-up on the capital allocation question earlier and the M&A question. So you talked about how the M&A pipeline is as active as ever. Maybe just talk a little bit about what's your top criteria there? You did some acquisitions in Europe, so maybe anything you kind of do geography-wise or industry vertical capability. And what deal size are you targeting now? Are you starting to think maybe about some larger-sized deals that could have more of a needle mover on the franchise? Or is that just kind of too hard to do just given the size and scale to platform that?

I think we've talked about it before. I mean, first of all, there are geographic ones, there are product ones, there are industry ones, there is a complete portfolio. But really what drives it is cultural fit. I mean that is the single most important thing to us. Much more so than size or any of the other attributes that I just articulated, it really is cultural fit. And when we find groups of people that really fit with our culture, and we believe we'll be successful in our organization. We work on getting those deals done. And that feels comfortable that you will see more of that in the years to come. It will vary in size, but what hopefully won't vary is the cultural fit.

And it's -- we have a lot of flexibility. I mean, remember, we keep saying the market is huge, and we are an incredibly small player in a huge market. And our last 3 transactions we've done are good examples of just the variability you're going to continue to see. The Waller Helms transaction was a transaction within the FIG space and a couple of niches within FIG where we were meaningfully underweighted, and it has been incredibly successful. The transactions that we did in February, one was on the product side in our Capital Solutions business, we were underweighted in real estate particularly in Europe, and we had a transaction that identified an opportunity to fill that in. And finally, we were significantly underweighted in the markets in France, and we found a geographic fit. And there are more of each of those. And so it's hard to answer the questions about what we're focused on. As Scott said, we have so many unfilled areas in product, geography and industry that it is much more about finding the right partners than it is about focusing on a particular niche because we're underweighted in it.

Well, with this question, this is our last question in the queue. If there are no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Scott Adelson for any closing remarks.

Thank you, Debbie. I want to thank you all for participating in our fourth quarter and fiscal 2026 earnings call. We look forward to updating everyone on our progress when we discuss our first quarter results for fiscal 2027 this summer.

This concludes our conference. Thank you for attending today's presentation. You may now disconnect.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Houlihan Lokey's Third Quarter Fiscal Year 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference call is being recorded today, January 28, 2026. I will now turn the call over to the company.

Thank you, operator, and hello, everyone. By now, everyone should have access to our third quarter fiscal year 2026 earnings release, which can be found on the Houlihan Lokey 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 December 31, 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 Lokey's Chief Executive Officer; and Lindsey 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 third quarter fiscal 2026 Earnings Call. We ended the quarter with revenues of $717 million and adjusted earnings per share of $1.94 in -- revenues were up 13%, and adjusted earnings per share were up 18% compared to the same period last year. We are pleased with our results for the quarter as well as our performance year-to-date.

We continue to benefit from improving investor sentiment, partially fueled by stronger company performance and expectations of declining interest rates. Both of which should continue to further the M&A recovery. As a result, private equity activity has accelerated with an increasing number of portfolio companies choosing to explore liquidity.

Looking at each of our businesses. Corporate Finance produced $474 million of revenue for the quarter, representing a 12% increase over last year's third quarter. Both average fee and new business activity continue to move upward. We enter our last fiscal quarter with positive inflection in the activity levels that increase our optimism for our fiscal year 2027. While we have anticipated and reported consistent progress in Corporate Finance throughout the year, our current visibility into both deal activity and backlog gives us more confidence in fiscal 2027 compared to our assessment a quarter ago.

Financial Restructuring produced $156 million of revenue for the third quarter, a 19% increase versus the same period last year. We performed better than anticipated during the quarter due to accelerated transaction time lines that move several of our deals forward into the third quarter. Accordingly, we expect our third quarter restructuring results to be stronger than our fourth quarter results, reversing our typical seasonal pattern.

Looking ahead to fiscal 2027, we expect restructuring to face some revenue pressures as it adjusts to an improving market environment. That said, recent geopolitical events introduced a new variable that could potentially drive restructuring activity levels higher. Financial and Valuation Advisory produced $87 million of revenue for the third quarter, a 6% increase versus the third quarter last year.

Like Corporate Finance, this business continues to benefit from an improving M&A climate and continued strong capital markets with solid new business generation heading into our fourth quarter. We hired 6 new managing directors in the third quarter. And in early January, we closed the acquisition of the real estate advisory business of Mellon Capital bolstering our capital solutions capabilities. We gained 11 new colleagues between Munich and London and our new partners are off to a great start.

In addition, last week, we announced an agreement for a controlling interest in Oder Partners, a prominent French corporate finance firm. The deal will significantly enhance our footprint in France to around 80 colleagues, making it 1 of our largest offices in Europe. This transaction is expected to close in our fourth quarter. We are thrilled with these transactions, which reflect our commitment to build our capabilities in the right places at the right time and most importantly, with the right partners our culture grows even stronger when we welcome new colleagues with the same vision and commitment to our clients' success.

These 2 deals continue to strengthen our business in Europe, which -- as we have said before, has the potential to be the size of our U.S. corporate finance business. Finally, as we look back at 2025, we are honored, once again, to be the #1 most active M&A investment bank in the world and also, once again, the #1 most active financial restructuring investment bank in the world. We congratulate our colleagues around the globe for the dedication that produced these distinctions.

As we look beyond our fiscal fourth quarter, our outlook for the future is positive. The expansion of our workforce across geography, industry and product will continue. Our relentless focus on independent high-quality advice to our clients will continue, and our drive to create value for our shareholders will continue. We thank our employees for their commitment and our shareholders for their support. And with that, I will turn it over to Lindsey.

Thank you, Scott. Revenues in Corporate Finance were $474 million for the quarter. up 12% compared to the same period last year. It closed 177 transactions this quarter, up from 170 in the same period last year, and our average transaction fee on closed deals increased.

Financial Restructuring revenues were $156 million for the quarter, a 19% increase versus the same period last year. We closed 41 transactions this quarter, consistent with the same quarter last year, and our average transaction fee on closed deals increased. We benefited from the closing of several transactions that were expected to close in our fiscal fourth quarter, resulting in our second strongest third quarter ever.

As a result, we expect that our fourth quarter will look more like the first 2 quarters of our fiscal year, but won't have the same typical seasonality associated with that quarter. For Financial and Valuation Advisory, revenues were $87 million for the quarter, a 6% increase from the same period last year. We had 1,103 fee events during the quarter compared to 1,005 in the same period last year, a 10% increase.

Turning to expenses. Our adjusted compensation expenses were $441 million for the quarter versus $390 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 third quarter in both fiscal 2026 and 2025 was 61.5%. We expect to maintain our long-term target of 61.5% for the adjusted compensation expense ratio for the balance of the year.

Our adjusted noncompensation expense ratio for the third quarter was 13.1% and consistent with the same period last year. For the quarter, we adjusted out of noncompensation expenses, $2.2 million in integration and acquisition-related costs, $1.3 million in noncash acquisition-related amortization and $600,000 pertaining to professional fees associated with streamlining our global organizational structure also referred to as Project Solo.

Looking at year-to-date performance, our adjusted noncompensation expenses increased to 11% versus the same year-to-date period last year. We expect the fiscal fourth quarter year-over-year growth in adjusted noncompensation expenses to be consistent with what we've experienced year-to-date. Our adjusted effective tax rate for the third quarter was 30.6% compared to 33.3% for the same quarter last year.

The decrease was primarily a result of decreased state taxes and decreased nondeductible expenses. For the quarter, we adjusted out of our effective tax rate, the effects of nondeductible acquisition-related costs. We expect the French transaction to close in the next couple of weeks. This transaction is structured as a combination between our French operations and ODM and will result in Houlihan Lokey owning 51% of the combined business and the previous shareholders of Ader owning 49%.

As with many business combinations, we have created mechanisms that allow us to increase our ownership over time and under certain circumstances. Turning to the balance sheet. We ended the quarter with approximately $1.2 billion of cash and investments. Also in our third quarter, we repurchased approximately 418,000 shares as part of our share repurchase program. 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.

We will now begin the question-and-answer session. [Operator Instructions] And the first question today will come from Brennan Hawken with BMO Capital Markets.

You guys are doing well. would love to drill down on the outlook for structure. So loud and clear on it not going to see the similar typical strength in the fiscal fourth quarter. But more importantly, the outlook you guys have been early on in saying the activity was slowing as the capital markets activity and Corp Penn has improved. It sounds like that remains the case.

Can you maybe help us bridge the gap in between increasing concerns around the private credit markets the press attention on some of those issues recently and then the outlook for the restructuring activity set.

Yes. Happy to do that, Brennan. If you -- look at structurally what we've been saying is that the market is getting better for M&A capital is very plentiful. Interest rates are likely declining -- and you put those all together, you're likely to see declining activity levels in restructuring, just structural.

Don't disagree with you that there are there are always all over the world, pockets of opportunities, whether that is in industries, whether that's in geo whether that is due to geopolitical events that creates opportunity for restructuring. The visibility of that and what we're talking about, it's not clear enough that it is showing up in consistent new opportunities.

I don't disagree with you at all that there is a very good chance that a number of those elements that we just discussed, some of them will occur, whether it would be a sector or a geography that will cause new opportunities to arise.

Okay. Got it. And then corporate finance. So the revenues picked up a bit quarter-over-quarter, but not as much as we typically see in the December quarter. So curious about the expectations for the end of the fiscal year on the corporate finance side.

I believe your commentary on the lack of seasonality was focused on restructuring. So I just want to make sure I heard that right. And then it also sounds like the outlook is improving for next fiscal year. Could you maybe help us understand what -- if there's like a comparable period that we should think about when we're considering magnitude of potential growth that seems to be shaping up here as we think about next fiscal year?

So yes, you heard that correctly. That was in relation to restructuring, not the Corporate Finance. Corporate Finance is continuing to get stronger and stronger as said in my prepared statements, the M&A activity is absolutely increasing and even more so on the private equity side than we have seen in the recent history and we expect that to continue and have good visibility that, that is going to continue for a while.

And yes, I mean, with respect to Q4 Corporate Finance has seen quite solid growth year-to-date, and that's probably not a bad proxy for Q4. And I'd say that as Scott said, the activity levels, which are revenues 6 months from now, 9 months from now, continue to give us comfort in our fiscal '27 estimates and how everyone is thinking about the business.

The next question will come from James Yaro with Goldman Sachs.

Just quickly -- just quickly on Corporate Finance. I just want to dig in a little bit on the U.S. versus non-U.S. outlook. And obviously, I understand that you have a little bit more idiosyncratic growth in Europe given for example, the 2 acquisitions you just announced and scaling from a lower base there.

But maybe you could just talk a little bit about compare and contrast the growth potential of those 2 regions?

Yes, happy to, right? Obviously, the U.S. continues to be both for us and for the market overall, the largest region. And that therefore, is still the most important market. Having said that, in our European business is growing incredibly well. We really believe we are offering a truly differentiated product in Europe, and the market is rewarding us for that. And we continue to feel very good about the traction that we're getting in Europe.

Great. And so maybe tying that in with the acquisitions, I'd just love to get your sense -- if you take a step back on just the overall strategy for Europe and how these 2 acquisitions fit into completing the Mosaic for your European business?

Yes. Happy to do that. I mean I think that obviously, we have had a presence in France for a period of time, but it was a very relatively small business relative to a number of other countries in Europe. And at the same time, it's 1 of the most important markets in Europe. It's not lost on us that it is the headquarters of a couple of our sizable competitors. And we had the [ WaitanHills ] we found the right partners to really aggressively grow that business, and we feel incredibly good with the decision we've made.

And I'd say that the acquisition of France obviously brings -- or the combination of France brings revenues along with it, but it also lifts kind of all the boats in Europe. I mean being underweighted in that country, had an impact across the U.K. and Europe for us. And I'd say that now that we have a solution, everyone is going to benefit from it in the HulanLoki umbrella and EMEA.

I agree with that completely. And then on -- the other side, the -- within Capital Solutions, as we have said before, we're probably underweighted on the real estate side, and this is an effort to really continue to grow that underweighting on the real estate side. Reduce the underweighting would be the better way to say that, no double negative.

The next question will come from Devin Ryan with Citizens.

I want to ask a question just on sponsor engagement. And nice to hear some of the improvement you're seeing. And just would be good to get a little bit of a better sense of kind of the rate of change that you're seeing with sponsors. And obviously, line of pressure, I think, on sponsors to return capital, obviously, still record dry powder to deploy.

So -- are you seeing kind of a steady build there? Or is it something maybe better than that, just given kind of those pressures? And is it broad-based across verticals? Or is it targeted to certain verticals? Just love a little more context on kind of the trajectory that you're seeing there?

Yes. Happy to do that. I mean what we've been saying for a while is it's been getting better quarter-by-quarter, and that has been very consistent with some bumps along the road usually due to external factors, geopolitical mostly that have caused that. And really, for the last couple of quarters, we've really been saying it's been picking up quite a bit. And it's really been after the beginning of the year continuing to pick up even more. And so it's at an accelerating rate is what it feels like for new opportunities.

And we've said this to individuals on either investor calls or analyst calls, but there's a couple of major inflection points during the calendar year in the middle market. One of them is after Labor Day, and one of them is after New Year's. And both of those periods of time were quite solid and strong for us and probably exceeded expectations. And I think that's a little bit why you're hearing the commentary that we're saying when we talk about activity levels increasing.

And in terms of your question of sectors, it is really broad and across sectors. And I would say that if anything, it's the sectors that under from an increase standpoint, the 1 it had underperformed have come back even stronger, but it is very much across sport.

Got it. Okay. I appreciate that. And then I just want to come back to kind of a follow-up on some of the discussion you were just having in those questions. As we kind of think about some of the investments the firm has made over the past 5, 6 years?

I mean, you've obviously -- you've built out quite a bit outside the U.S., a lot of kind of sector-specific M&A beefing up capital solutions. So kind of the capabilities are broader, they're deeper -- when you think about kind of the white space at the firm today, where do you still see the biggest opportunities?

Like if I look at a heat map from external data, which I know is not perfect, it looks like -- maybe there's a little bit of room in health care and energy, just for example. But I would love to just hear from you kind of where you feel like there's still nice white space and where you could just maybe add a little bit of resource and get some nice network effects on that.

Yes. I mean, I am a very strong believer that it is everywhere. We have so much opportunity. I know that you want me to be more specific than that. But it is in every sector, we have really, really meaningful room to grow. And we talk about it, we have around 200 subsectors today, and that is not built out all over the world, even remotely, and it is also not -- 200 is nowhere near saturation of subsectors -- so that's just on the industry side.

And then obviously, on the product side, you're seeing us continue to build out with the example of what we've done in Germany and the U.K. and the Capital Solutions will continue to have build out in capabilities well around the world. And then obviously, we have our other product lines as well, and we have geographies. I mean it is -- there's a tremendous amount of white space out there. Our map, our page is quite white.

The next question will come from Brendan O'Brien with Wolfe Research.

I just wanted to follow up on the restructuring outlook. I know there's some uncertainty still -- but just given the longer lead time for the business, you should have a pretty good baseline for how revenues will track at least early next year. And so I was just hoping you can put some guardrails around how we should be thinking about the magnitude of decline in this business potentially just given it does tend to see higher highs, higher floors as you continue to progress through time?

Yes. I mean, I'd say we do have decent visibility looking forward in restructuring. We don't generally share that information. But I think that it's kind of like -- it's kind of like anything else with respect to cyclicality. There are going to be ebbs and flows. We didn't know sitting here before the last peak, what it was going to look like, and we don't know what the next couple of years is going to look like, but we're in that period.

Having said that, I'd say that we still believe that there are -- that is a true global business for us. It is highly diversified. And at any point, whether it's a geography and industry or a specific product could trigger restructuring growth. And so we're quite comfortable with our position in restructuring over the next 10 to 20 years. We're just in a net period right now and what the sort of ebb looks like, I think, is anyone's guess. But I don't -- we're certainly not sitting here concerned about the magnitude of the decline -- we don't think about it that way.

Helpful color. And I guess for my follow-up, just wanted to touch on capital return. I understand your preference for maintaining enough cash to do acquisitions as you executed this quarter. But just given revenue should only accelerate from here and you already have a fairly strong cash position, at least for paying out these deals. I just want to get an update as to how you're thinking about capital management at this juncture? And also, if we can get an update on what your acquisition pipeline looks like at the moment?

So I'll let Scott handle the acquisition pipeline. I think with respect to capital deployment, it really hasn't changed. We have -- as I think everyone knows, after the last couple of quarters, we have started to repurchase some shares. I think we will continue so long as the economy continues to perform well, we will continue to take a look at whether or not it makes sense to repurchase shares going forward in relatively smaller increments. And the reason we do it that way is because our pipeline, which Scott will talk about is quite strong, and we want to remain flexible in terms of being able to do acquisitions for cash.

And so -- we've said before, our strong preference is to put money to work, excess cash to work through strategic acquisitions that make sense for us, followed by dividends and share repurchases. And that really hasn't changed for us. And Scott will talk a little bit about the pipeline.

Happy to do that. As I said before, we've been very fortunate. Our pipeline is very strong. I think these 2 deals are an indication, but they're backed up by a number of other opportunities that are coming through the pipe, and I wish probably even more than all of you do, that I could time them all perfectly to roll quarter-by-quarter.

I don't get the right to do that, but they are lined up, and it's fair to say we have more that we have planned to do over time.

The next question will come from Ryan Kenny with Morgan Stanley.

Wondering if you could give some more color on the non-comp expenses. It looks like IT and communication spend and professional fees have been a bit elevated. So anything that we should think about in terms of puts and takes in non-comp in the quarter and as we look forward into fiscal '27?

I'd say no puts and takes specifically in the quarter to mention. It's just a little bit higher than certainly the first couple of quarters in terms of growth I'd say for Q4, the year-to-date growth for noncomp is probably a decent proxy to what the Q4 is going to look like. There's probably a little bit higher than expected in terms of rent, particularly in Europe and particularly around the acquisitions, you're seeing a little bit of that.

But other than that, not much to mention. And I'd say year-to-date, as a proxy for Q4 growth is probably how I think about it. And then fiscal '27 same as I mentioned before, kind of high single digits, which is kind of how we're thinking about non-comp.

All right. Great. And then you announced the Databank product in November. Can you give more color on what the strategy is with DataBank. And is it something that you're charging for? And how should we expect that, in general, your data strategy will evolve over time?

Yes. I mean I would love to spend the next hour talking about that. Lindsey would remind me that this is a small part of our business. But it is a -- it certainly is an important indicator of what's to come. And I think the fact that we have a tremendous amount of what we perceive to be very valuable data and the the marketplace seems to be indicating that as well.

It's super early days for us. Right now, some of that is available to some existing clients. Is there's a technological front end of making it available and things like that for other people that is in the works. But that -- as I have stated many times before, the ability to monetize some of our proprietary data is something that is certainly top of mind to us.

Next question will come from Alex Bond with KBW.

Just wanted to drill down on the Corporate Finance business a little bit more. So it sounds like the outlook for fiscal '27 remains upbeat, which is great. But just curious if you've seen activity levels impacted at all really by recent geopolitical happenings or, I guess, a heightened sense of geopolitical uncertainty over the last couple of weeks? Or have clients really been willing to look through these issues and are now maybe just more accustomed to higher uncertainty levels? So any color there would be great.

Yes. I'll be able to do that. And I think that is well to what Lindsey was talking about after the kind of the inflection points that most recently again at the beginning of the year. It really is -- we recognize there is noise, right, that around the world and the people's willingness and ability to just look through that noise and just get on with business is stronger than it has ever been.

Got it. That makes sense. And maybe just moving over to Capital Solutions. You've touched on continuing to build out a few of the teams within the group as an area of as an area of focus for you recently. It'd be great if you could just go into maybe a little bit more detail there and maybe comment on what inning you think you might be in terms of the build-out for the Capital Solutions group more broadly?

We are still in very early innings on Capital Solutions. I mean pick your innings, we're using a baseball analogy, but third inning, fourth inning, I mean, very early. And that business is growing, really nice I'll head it before this. And the demand is really significant.

In terms of where it's coming from, it is literally all over the map from the traditional business to the secondaries to direct and even primary. So it is on all fronts at this point.

The next question will come from Nathan Stein with Deutsche Bank.

Hi, everyone. Good evening. One of your larger peers suggested on their earnings call a couple of weeks ago or in the third inning of the broader capital market cycle. So this comment constitutes more than just advisory revenues. But I think that caught some folks by surprise just because that still seems rather early. I wanted to address -- I wanted to ask you guys your thoughts on that and what inning you see us being in for the broader, call it, advisory cycle?

Well, when you say advisory cycle means different things to different people, right? Because we are bull-bear business mix makes that when you just say advisory, I'm not talking about M&A...

M&A specifically within the corporate finance.

I do agree with that. I mean I agree, it's very early innings. I mean third inning is a good number. I mean, I don't think we're in the first, and we're definitely not in the fifth or sixth. So yes, third, fourth, something like that. Actually third feels even better as I think about it. It feels early. There is an enormous amount of pent-up demand. I mean all of that that everybody has talked about and read about and everybody's backlogs that have been on hold. That still exists. It has been ticking up, but here is still a tremendous amount of pent-up demand out there.

And following up on that, if -- when I was looking at 2025 calendar year industry M&A data, it shows, call it, the middle market and below size, feels stable, down up slightly versus the year before. So really just consistent with the broader messaging of almost everyone who's just very excited about the upper middle market space and below. I just wanted to, I guess, gauge how you guys are thinking about like anything you guys can do to kind of capitalize on what could be like a really strong next couple of years in terms of just being -- well, anyway, I think I'm just asking like do you guys agree with that statement? And how prepared do you feel for the cyclical rebound?

Yes, I do agree with this statement, and I do think that many of the things that we have done are positioning ourselves to be -- continue to be even better positioned to take advantage of it, and that is why we continue to take share in that marketplace and have for quite a while and intend to for quite a while to the best of our ability. And that is through this continuing subsectorization, just knowing more about sectors and doing more deals in sectors giving us more knowledge than other people, but the growth in our capital solutions group being able to provide a broader array of services and helping people evaluate how they want to seek liquidity.

I mean, the global reach continues to expand so that we are able to got much better be able to service our clients. I mean, the list goes on and on. But I'm trying to sound just like a pitch on it. But the reality of the matter is that those are all things we are constantly working on. So yes, we do -- we're well positioned for it.

And I would add that it's not lost on us that large cap M&A has come out faster and more aggressively than middle market M&A. And frankly, we don't for us, we don't think about it that way. We are going to grow with the markets, but the sizzle is market share. We believe -- we continue to take market share in the middle market every single year regardless of whether the market is up or the market is down.

We don't think -- we think it's increasingly harder to compete with our business model and the size of our platform and that's the story. It's not what the M&A markets are doing and whether they're up or whether they're down. And it doesn't matter what the large cap the space is doing and whether it's up or whether it's down. I mean I think we are quite focused on the area that we've been focused on for decades. -- and Rainer storm, we are going to continue to take market share, and that story is not going to end.

And just a reminder, that large cap is 1% of the volume. -- right? I mean it's 98% to 99% of all the M&A volume around the world is...

This will conclude our question-and-answer session. I would like to turn the conference back over to Scott Adelson for any closing remarks. .

I want to thank you all for participating in our third quarter fiscal 2026 earnings call. We look forward to updating everyone on our progress when we discuss our fourth quarter and full year results for the fiscal 2026 this spring. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Okay. Let's get started here. So up next, we are pleased to welcome Scott Adelson, who is Houlihan Lokey's CEO and a member of the firm's Board of Directors. Scott has been at Houlihan for over 35 years and previously served as the Co-President of Houlihan Lokey and Global Head of Corporate Finance, and he actually built Corporate Finance from basically ground up. Pretty good.

Joining him is Anthony Martino, Global Co-Head of Capital Solutions at Houlihan Lokey, where he's focused on raising debt and equity capital, Anthony has been at Houlihan since 2013, previous to which, he ran alternative capital markets, both at Sagent Advisors and UBS. Thank you both for joining us.

And also build them from scratch, so.

There you go. Okay, Scott. So maybe we'll just start with you. You've been in the role for about 1.5 years now as CEO, what are the key lessons thus far? And maybe you could just walk us through the key strategic priorities for you for the next, let's say, 3 to 5 years?

Yes, happy to do that. I mean it had not a lot different, as we've talked about before. We've had a group of us who have been running the firm for decades. And so we just kind of changed seats at the table. No different in terms of my roles and responsibilities to get to spend more time with you. That's probably the highlight.

And other than that, it's very much the same. We still spend time with clients around the world, with acquisition targets around the world, with talent that we're looking to hire around the world and obviously spend a little bit more time with our corporate departments than I did before, but overall, very similar.

In terms of really the main focus, continuing to grow the business. And we've always been focused on that. Again, nothing new. And so continuing to do that. I do think probably the biggest difference is we have entered during that time frame, also a technological change that we have embraced very greatly and are continuing to. And I think getting the next technology evolution correct to call it the AI phase of our evolution correct is something that's super important to us.

Okay. So let's talk about growth in terms of talent. So you've hired a wide range of senior bankers. And maybe this one is for both of you. Growth a little bit this year on a net basis at least. So maybe just help us think through the hiring backdrop and maybe in terms of trends across each of the businesses?

Yes. So I mean, I've been talking about that a fair amount today. We don't hire and not hire or constrain hiring. We really constantly are looking for talent. And some of that relative to a number of our other public peers the types of tickets that they have to write to make -- to hire that talent is very different than what we do being more mid-cap focused.

And so we are constantly looking for talent in virtually all of our businesses all the time and don't really ever expect that to change. And obviously, we augment that as well with inorganic growth through acquisitions. And again, that is a stable part of our business that we are doing kind of regardless of the environment or virtually regardless of the environment.

Anthony, anything you would add?

Yes. Look, I think it's a huge percentage of time for people sitting in senior roles. I mean as Scott said, finding talent is extraordinarily important in continuing to grow your business in different geographies, different product sets, different industry vertical expertise. And our view is if you can find that talent that fits culturally, they're going to thrive on the platform regardless of the environment that we're in.

And so there's not been a period over the last decade where we haven't been actively searching for senior level and mid-level and junior talent to continue to grow. And I think it's been a key reason why we've been able to grow at the rate we have.

Maybe one more on the talent, which is I've always found interesting you've had such growth in debt outstanding, but restructuring bankers don't grow as fast as the debt. And they don't grow as fast as the M&A MDs. Why is that? Is it specialization? And why couldn't you...

I think it's a couple of things. One is that we've grown in -- particularly in Corporate Finance, organically and inorganically, and that inorganic growth does obviously turbocharge it whereas restructuring has not done that.

The other thing in restructuring is just you have a different mindset of individuals. And so perhaps more downside oriented. And I think that, that impacts it as well. But it is -- the biggest reason for just not keeping pace with the other parts of the business, the other parts of the business grow organically and inorganically, at least historically, more to come perhaps the restructuring business hasn't grown organically.

Makes sense. Okay. So maybe on the acquisition point, as you said, long track record of successful acquisitions, although you haven't done one this year. Is that just a -- year's not over. Okay. That's interesting. But maybe just on the acquisition dynamics at this point and anything that we should be -- anything that's changed or whether it's more of the same?

No. I mean we really, if anything, just are getting more and more sophisticated about it and we believe it creates shareholder value and believe that it helps both the individuals that we are acquiring wind up doing better, our existing colleagues wind up doing better. Our shareholders wind up doing better from everything we can tell, it just is good all the way around for us. We feel comfortable that we're good at it. I mean it doesn't mean we're going to always do it well, but we are very comfortable, and we're going to continue to do it. And hopefully, we'll see more soon.

Okay. Scott, you've been very focused on embedding data into the business. I think you're the first person in the industry that I've talked to, who has been focused on that. Maybe just walk us through your views on the value of the data. Is there more that you can do? And maybe just which of the businesses do you think lend themselves to using data most?

Yes. Great question. It is something I'm super passionate about. I mean we really recognize the volume of what we do is a differentiator, right? I mean we understand we have a number of public peers, but the volume that we do across all of our businesses is fundamentally different. And one of the big benefits of that volume, M&A deals, capital raising that we do, restructurings that we do, obviously, valuations creates an incredible data set and a lot of it in a particularly valuable area, which is all private company information. And that information, we believe, can enter to the benefit of our clients and ourselves and ultimately revenue as well.

Most recently, we announced our DataBank, which is something a product that we are in the process of rolling out. And right now, it is really for the benefit of some of our clients, the most technologically advanced part of our business is on the portfolio valuation side, and that's really the piece that is focused on that. But they are doing 60,000 private marks on a regular basis, and that data as you start being able to sift through it is incredibly compelling in terms of the insights it can provide. And honestly, it's the likes of you who we believe someday are going to want to have access to that and with any luck going to pay us for some of it.

Okay. Maybe just on the interplay of AI and data, do you think that, that changes the value of the data? Can you do more with it?

Yes, without a doubt. I mean, the AI does a number of things for our business. Again, you got to all get it right early days, but having statistically significant data sets really allows us to analyze things differently and on a basis really where we can have an information set that others don't, and that data moat, we believe, is really going to be valuable. Now the parts of that, that we're able to organize and parse off and either provide or sell. However, we configure it is a whole another area and just the insights that people are going to be able to derive out of that unique data set I think is very clear to us.

What about other impacts of AI on the business, head count and structure...

A lot of our colleagues are talking about headcount reduction. I mean, look, I wouldn't want to be in our AP department in a couple of years. I mean, I think things like that for sure go away. But in terms of junior bankers, we're very focused on the non-officer to officer ratio, that's something we focus on, and that's been coming in a little bit over time just with the use of technology. But at the end of the day, if you're going to have senior bankers, you need junior bankers. So junior bankers are not going away, at least, I don't see how that could possibly happen.

And we -- but I do think what AI is going to do is radically increase the velocity of transactions and therefore, the productivity of our underlying bankers. If you think about it, so we sit here today, we put in hundreds of hours into writing pitch materials, SIMs, all these documents that get drafted and redrafted and redrafted to anybody in here who has ever been a junior analyst and an organization knows that it's not the most fun thing to do in the world. I see some smiles out there.

And the idea is that we are very close to being able to get at least a first draft of that stuff with the push of a button. More importantly than us just being able to do it is the other side, right? So buy side being able to utilize technology as well to be a first screen on things and be just faster about everything just starts to move faster. No differently, honestly, than Excel or the Internet or any other tool that we have had in our past that makes us all just that much more efficient.

Maybe we can turn to the macro here. So I'd just love to get your perspective, mark-to-market on the macro backdrop and maybe how that affects the 3 business lines?

We've been saying for a long time now for quarters that the business is getting better on the M&A side quarter by quarter by quarter. I think some of our peers are focused on a J curve out of the M&A winter. I think we're very consistent that, that wasn't what we expected, and I think we've been fairly accurate on that. And I think that, that same backdrop is continuing. It's continuing to get better quarter-by-quarter. And we're -- it clearly took a jump up post Labor Day, and we see that continuing. And I think that, obviously, that doesn't result in revenues for you for 6 to 9 months to have visibility of.

But in terms of just activity levels, they're incredibly high at the moment, actually all-time highs. And so that is something that we feel very good about on the capital solutions side. I'll let Anthony talk about it, but that is the fastest-growing part of our business today. And we -- and I don't see that abating anytime soon. That is much more market neutral. It does well in all environments, different types of financing being made available, but he can talk about that more.

On the -- our FVA business and valuation that we're talking a little bit about technology. I mean I do think that our portfolio valuation business continues to grow the need for marks is very significant. I see that growing around the world. And as technology enables the prices of those marks to come down, the addressable market and the regularity with which those marks are going to be created, I think, is going to be much more regular.

On the restructuring side, I think we've been living in an elevated restructuring environment. There's no doubt about that. And I think that at least our thesis is that interest rates are coming down. We talked about the capital markets are extremely strong at the moment. M&A markets are getting busier literally quarter by quarter, day by day.

And as that -- when you put all those together structurally, that should result over time in a leveling off or declining of our restructuring market, and while our business is still extremely good in that arena, we would expect over time, not in our fiscal year this year in our out years that, that should, assuming that those markets -- those fact sets continue that we will see that the leveling off or declining on that.

Okay. And maybe just turning to you quickly on rates. So I guess, have the recent rate cuts had a constructive impulse on capital formation thus far? And I guess there's a little bit of spread widening for a few weeks there, and I guess, was there any impact there? But just generally, your view on capital formation and financing conditions?

Yes. Look, I mean, we're squarely focused on the private markets and for the middle market. And so little movement in rates doesn't really do anything. We don't -- I mean, it's not even a blip. And as Scott has been saying in a number of occasions today, you've got a really interesting geopolitical environment where dramatic things from a historical perspective are happening and the markets really don't move, like a 50 basis point change in rate isn't really doing anything.

I think -- if anything, it's just helpful to the M&A markets continuing to open. But in terms of the capital markets, it's much more driven by supply and how much capital is out there looking for a home. And whether that home is 50 basis points tighter, it doesn't matter. These people need to deploy.

Okay. And maybe for you, Scott, do you agree with Anthony, are lower rates having an impact on the restructuring -- on the M&A business?

Yes. I mean lower rates are good. I mean on the good bad scale, they definitely are good for the environment. Having said that, in our mid-cap world from an M&A perspective, things are not priced to perfection the same way they are in the large cap world. And so 0.25 point, 0.5 point, it just doesn't make a difference. It is much more about availability of capital. We've been really consistent in saying that, and I think that the facts proves that out.

Yes. What's the right -- this is for you, Scott. What's the right analogy to look at historically for what this cycle could resemble? If you look back to the '90s, you look back to the early 2000s, you had 200% trough to peak growth in M&A. The last 2 -- if you can consider the last 2 normal cycles, mid-20s, 10s and then 2020 and '21, it was more like 60-ish, if I average the 2. So very big gap there. How should we think about this cycle?

Again, to me, the biggest difference is we didn't go into the downward cycle in a steep drop off. It was much more of a gradual decline in, and we've seen it as a gradual climb out. And we think that, that is going to continue as opposed to kind of the, I'll call it, the '08 or COVID, where it's sharp decline in, sharp -- sharp ascendants out, it is different this time from our perspective. We much rather see, we think it will last longer. I mean, Lindsey is sitting back of the room, talks about it as a not popping the balloon, but kind of a pricking the balloon and letting the air out slowly. And so this is a I think the way that we think about it. And we feel very good about where the market is heading.

And if you take a look at the volume of transactions that have been pent up and the number that have to occur, I mean it's really quite significant. And whether it's the -- if you look at the Bain report or any other report that looks into that, I mean, the longevity that there is in the portfolios of private equity is really quite significant, and those will ultimately get sold.

Let's turn to exactly that, private equity. So they're kind of ground higher. You haven't seen any spike. And maybe it's just what you were just referring to, but is there something that is likely to catalyze an acceleration in private equity? Or is it more just what you said, these portfolios are getting more aged?

I think that it is getting -- I mean we clearly saw -- we have seen upticks which have been dampened by geopolitical events recently, but recently meaning quarters back. And that -- I expect that to continue, right? There will be some new shock that will cause it to take half a step back, 2 steps forward, half a step back, that feels like the environment we are in, but it is continually getting better.

Okay. So across the M&A franchise, what's the most attractive growth areas right now? Where do you see the most opportunity?

So well, a couple of answers there. From a sector standpoint, the sectors that have been beat up the most have come back to strongest. So tech for us. I would say, on the other hand, industrials has probably been most impacted by tariffs and so forth. I do think that Japan, for example, is just a fundamental shift, while it's relatively small business for us. It is growing really nicely. And the whole transition in -- from a focus on return on lack to shareholder value in Japan is having profound effects. And feel very good about our business there and in Europe for that matter.

Anthony, let's turn to you. As Scott said, the fastest-growing part of the business, maybe you could just walk us through the current scope of Houlihan's Capital Solutions business which I guess sits within Corporate Finance?

So roughly 175 professionals split out over a number of different product sets. The elephant in the space or the elephant in the group, if you will, is what all deemed to be our sponsor finance practice, which is really raising everything from first lien debt to passive equity primarily for sponsor-backed portfolio companies with the caveat that everything we do has some material amount of complexity. So we're not doing a whole lot of cookie-cutter LBO finance.

The goal here is to deliver an outlier outcome when sponsors don't have either the right relationships or the information to optimize whatever it is they're looking to do. So it could be a complicated underlying credit. It could be the market itself is overly volatile or it's in an out-of-favor sector. It could be that the sponsor wants to do something very opportunistic, like an acquisition, a very sizable acquisition, [ tack-on ] acquisition without writing an incremental equity check, getting credit for add-backs and adjustments and synergies could be doing a very large dividend and returning all their capital times, whatever within a very short period of time in their ownership and hold really wherever we can bring to bear our relationships and our knowledge base to drive an outlier outcome for them.

We're the biggest player in the world in that space, we do between 125 and 150 deals globally, but the business is largely split between the U.S. and Europe. That's about 100 of the 175. We also oversee our primary fundraising business, our secondary and CV business, our GP stakes business, and then we have a business called Durex, which is really raising passive equity -- LP style equity capital that will pay fee and carry primarily for funded sponsors, but also for independent sponsors to help them consummate acquisitions.

So in terms of the size of the business, the scale of the business, the biggest part and the growth driver historically has been, what, again, I'll call the sponsor finance business. But at this stage, we expect the secondary and CV business along with the Durex business to be the fastest-growing part of capital solutions, albeit off a much smaller base.

So the -- I think what you're sort of describing there is complexity, at least for the first part of that, which is actually the term that co-head referred to your business as being driven by 2 years ago. Is this the sort of backdrop that's conducive to that first part of the business?

Look, there's complexity in every market. The complexity changes. The fact is though there's always complexity. The bottom line is that I have been doing private capital raises for 25 years. The market has evolved more quickly over the last 5 years than probably over the previous 15. There's just so much capital that's been infused into the system, both, one from the financial crisis and then from COVID, you've seen a lot of that capital just reformulate into the private markets.

And so the shift away from the bond market and the syndicated loan market being the primary large cap market, the direct market has become -- the direct lending market has become extraordinarily large and capable of financing almost anything at this stage. But then you've also seen over the last 5 years, the advent of family offices have grown exponentially that are deemed institutional. They can write checks between $10 million and several hundred million dollars per transaction. They're looking to go direct, not just invest into blind pools.

And then you've seen the advent of the more traditional LPs that are also looking to go direct, whether that be in the secondary market or in the direct market. But you've just seen all of these things are happening all at the same time, and it's just added a lot of complexity to the market. So where financial sponsors used to buy a business, maybe they recap it, and do an add-on acquisition or several add-on acquisitions and then they sell it. Now they have to look at it and look across their entire portfolio, how do they maximize the value of each individual assets? How do they maximize the value of the portfolio, how do they maximize the value of the GP.

And the ability to talk across all those product sets is extremely important, not only to talk across them, but not to have biases. So we have everything under one umbrella so that we can go in and pitch the array of alternatives without saying, but I do X. It's -- we do all of them. We will put the positives and negatives out there and explain what we believe to be what is executable and understanding their priorities, and then it's the sponsor's decision as to what to do. We're not just pitching one product over another.

The previous CEO, who's also named Scott said -- we try to keep it simple. Yes, exactly. Said many years ago that he believes the capital markets advisory business, which I think is the term he used then, could be larger than your M&A advisory business at some point down -- many years down the road, is that still the case over what time period and why?

100% agree with that. I've said that to Anthony many times...

Over many years.

Over many years, as Anthony reminds me, however, it's much smaller from a headcount standpoint. So it needs to continue to grow. And yes, it will take time to get there. But I have every confidence it will be as big or bigger than our M&A business.

I mean it's an AUM game. I mean, you just -- you follow the money and the fee pools around those product sets. And we have -- the challenging part is we have an M&A business that continues to grow at a pretty significant rate. And so we've got to grow at a higher rate and eventually overtake that. But we've always had the mantra follow the money and the changes in the overall market environment, be there to mediate without bias, and you will see growth. And that growth has occurred very significantly over the last decade.

Absolutely.

We just look at private credit. It's obviously become, as you said, a much bigger component of financing markets versus a few years ago. What does that done to cost of credit, covenant structures or otherwise?

Yes. Look, I mean, like you would imagine, the supply or oversupply potentially of credit dollars has just caused increasingly for the documents to be looser to the benefit of the sponsor. Rates have continued to tighten. People just continue to compete to put money to work. And that's certainly to the benefit of the issuers. And I don't expect that to change.

A lot of these asset aggregators have gotten -- an asset manager have gotten so big and they're raising so much capital across all asset classes, but really on the private debt side, it's no longer first lien debt versus a bond or first lien debt versus second lien. I mean it's gotten so stratified in each one of these asset classes has raised so much capital that competitive tension just continues to tighten in the favor of the issuer.

What about more near term around private credit? Are there any signs of stress that you're seeing? Are you seeing anyone pull back at all?

No, it's the opposite. I mean I've been doing this for 25 years. I don't know that I've seen people stretching as much as they're stretching right now. Again, people they -- you constantly hear of funds that go out to raise $2 billion and end up raising $5 billion. And that money needs to be put to work. And so people do not want to lose deals over what they view as small marginal movements either in rate or terms. And that just keeps incrementalizing and making the documents more favorable and the cost of capital more favorable.

Turning to the other side of the business. Secondary has really been, I would say, the biggest structural growth driver, I think, of advisory revenue over the past few years. Maybe you could just comment a little bit on the scope and strength of your primary and, I guess, secondary fundraising businesses?

So on the primary side first, we've done some acquisitions. We brought over full teams, and we've really bolstered the effort on the primary fundraising side. But look, again, we're not trying to be all things to all people. We're largely sticking to our knitting and focusing on our core client base, which is middle market private equity. And so that's really where the growth has come on the primary fundraising side.

On the secondary and CV side, look, we were a little late to the game. We probably underinvested relative to some of our peers. But the market if you had to find a perfect home for secondaries and CVs, I would argue Houlihan is it. I mean we sell more companies for private equity sponsors. We sell more company to private equity sponsors. And so the relationship is incredibly tight between ourselves in the middle market.

And so we will have a requisite shot on that for all of the CVs that are coming. But we -- what we don't want to do is we don't want to overpromise and underdeliver. We need more people. We need to continue to focus on hiring talent, and we're spending an inordinate amount of time doing that. That being said, we're getting secondaries and CVs done and done well. There's a big one that's going to be announced within the next 2 weeks coming out of Europe, we did a lot of impressive things.

But we're certainly not taking the 20% of the M&A market in the way that it stacked up this year. So we view it as a tremendous growth engine going forward. We're going to double and triple down on bringing in the right talent, and that's -- we're spending a lot of time doing that.

Great. This one is for both of you on restructuring. How do you differentiate between the transaction being in capital solutions versus in restructuring? Maybe the answer is both -- but it's kind of a spectrum, right, where you said.

No doubt, it's a spectrum. I mean very few situations, somebody calls up and says, "Hey, we're in a pre-fall and we need a restructuring adviser today". It is -- typically starts as a dialogue, hey, our covenants are getting a little tight. We need some new capital. Let's talk about that. That is usually a capital solutions dialogue that begins. You start to look at the situation. In some cases, it looks like, well, we may be able to get that capital we may not. It may be too far gone, we may need to do restructuring. We have that full spectrum of alternatives to somebody.

There certainly are situations where it is just clear something, there has been some shock to the system and it needs to be restructured and capital -- there is no capital solution available and everybody understands that. So it is a spectrum, but they were very much hand in hand, and I think that is one of the beauties of our organization culturally is that collaborative nature and that lack of friction that exists between the various parts of the business, I mean.

Yes. Look, I mean, you said it, it is a continuum of a spectrum. And I think the easiest way to delineate is if new capital is being raised from nonconstituents then that is a capital solutions transaction. If it's a restructuring of the chairs and amongst the existing constituents of the business, that's either liability management or restructuring.

Oftentimes, it's both. Oftentimes, we will have some restructuring component of a junior capital tranche, but we'll bring in new first lien capital to pay them down. And so we do work hand in hand, and we have the luxury of a fantastic restructuring platform that we know can get these deals done side-by-side with us. So we're working with them all the time.

Scott, maybe just on the cyclical versus structural dynamics in restructuring, right? Quantum that's growing, you talked about rates coming down. How do you weigh those 2 things up? And how do we balance -- or maybe you can just comment on the near term versus long term?

Yes. I mean long term, I've said this many times, but one of the great exports to the United States that nobody talks about is complicated balance sheets. They are growing around the world and literally on the tail end of a trip around the world, visiting our various clients and offices, and it is very clear that complicated balance sheets are growing around the world.

When you have complicated balance sheets, you are going to have some level of normal distress, whatever that is, and it is highly unlikely that those people are all going to agree who gets what. So there will be a need for restructuring long term. Then you have the growth of private credit and just the increase which has a positive impact because you don't have the regulatory overlay that you have in depository institutions that have a funny way of messing up what becomes economically rational in restructurings.

Then you also have the fact that increasingly, we have private equity ownership around the world. And while it's something that we take for granted in the United States, it is still in relatively early stages in Europe and very early stages in Asia, and that ownership change changes the way people think about sick balance sheet.

And so when you are a professional owner of things and you recognize you have a balance sheet that's not allowing you to optimize the business, you act to fix that. If you're a family that's owned something for 300 years, you don't really want something bad happening on your watch. You do noneconomic things to make sure that it's not on your watch. And so those long-term changes as well as just the depth and breadth of the debt capital markets around the world continues to grow.

The specialization of that capital, all of that for balance sheet optimization increases the opportunity for restructuring. I do think that we will probably see over time more LMEs, less full-blown restructurings. We really consider that just in quarters or out of quarters how we think about it. And I think that the TAM will continue to grow and feel very comfortable, and I know I think it was last year, Eric Siegert, who runs our restructuring business sat here with us and talked about it doubling over the next -- from our perspective, our revenue doubling over the next 7 to 10 years. And I agree with that completely.

So last, but certainly not least, in terms of businesses, FVA, we have a little visibility into that, I would say, than some of the others. But what are the best growth areas in this business looking ahead? And maybe you could also talk specifically about the portfolio valuation business.

Yes. Happy to do that. So really, there's 3 businesses inside of our FVA business. There is the transaction advisory business, which is think about it as due diligence largely tied to M&A transactions, very cyclical business, and obviously benefiting from the uptick in M&A activity. There's the opinion business, of which it's a mix between transaction opinions, fairness opinions, solvency opinions, things like that, that are also tied to the M&A environment, but there's also fund transfer opinions and other opinions that are not cyclical at all.

And then our portfolio valuation business, which is the fastest-growing part of our FVA business, and that is doing marks for all types of illiquid assets all over the world and we are doing that. That is, I think, an incredibly compelling business. It's very technologically driven. As you know, something that I'm super focused on and we tie into the systems of some very large organizations, the BlackRocks of the world and I'd say, BlackRock doesn't just let everybody plug into Aladdin.

So there's a very nice barrier to entry there, and we really appreciate that opportunity to partner with some of the largest institutions in the world, helping them get those marks. And so we -- that's something that we think is a business that we really like. We do think that there will continue to be fee pressure in that business over time, but technology is enabling us to stay ahead of that. And at the same time, the TAM is growing much more rapidly.

Okay. With that, we're out of time. So thank you so much both of you.

Always a pleasure. Thanks for having us.

Thank you.

Thank you all.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Houlihan Lokey's Fiscal Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this conference call is being recorded today, October 30, 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 Lokey 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 Lokey's Chief Executive Officer; and Lindsey 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. And 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 5 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 6 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 noncompensation expenses were relatively flat at $82 million for the quarter, compared to $81 million for the same period last year. Our adjusted noncompensation 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 noncompensation expense for the quarter was $30,000 versus $31,000 for the same period last year.

For the quarter, we adjusted out of noncompensation expenses, $2.6 million in noncash acquisition-related amortization. Looking at year-to-date performance, our adjusted noncompensation 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 of fiscal 2026, we adjusted out of our effective tax rate, the effects of nondeductible 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.

[Operator Instructions] Our first question today comes from Brennan Hawken from BMO.

So thanks for the outlook commentary in your prepared remarks. I appreciate that. You made a reference to the restructuring business and the fact that backlog supports continued strength. We heard from another firm that they were starting to see the new business formation begin to slow in restructuring. You did speak that the outlook in the environment looks a little more constructive. So are you also beginning to see some slowdown in new business activity? Or has that been more consistent for you?

I mean I think that what we're saying is that we have started to see the pace of things slowing, but that our backlog is still quite robust. And we're also recognized as we've seen actually during this quarter, the things could spike in restructuring. And so we -- from a flow basis, I would say, the lowering of interest rates and the increasing M&A environment, just the economy overall does tend to put a damper on the level of restructuring activity. But at the same time, as we've seen, there are episodic shocks that continue to add to it.

Got it. Makes a lot of sense. And then on the other side of that coin, as far as corporate finance, we've heard indications that sponsors are beginning to engage. It certainly seems like your outlook seems to be improving on the corporate finance side, but maybe a little bit more explicitly, are you starting to see the sponsors come back to market? Would you agree with the assessment that, that activity level is picking up into year-end and looks good into calendar 2026? Can you add any color to what you're seeing with the sponsor cohorts, please?

Yes. I mean, I think we've been really consistent. It is getting better quarter-by-quarter. And clearly, after Labor Day, a significant uptick in activity, and we think that we just see that continuing.

And Brennan, I would add, look, I have heard the same commentary from some of our peers. I mean, the sponsor community has been back since the beginning of the year for us. Our mix of sponsor versus strategic is similar this year than it has historically been. So I would say it's business as usual for us with the sponsor community, although I do think that the -- some of the larger cap peers that dynamic is a little bit different. But I do agree momentum continues to increase, but they have been a force of our growth since the beginning of the fiscal year.

Our next question comes from James Yaro from Goldman Sachs.

Could we just start with the FDA and how to think about the growth algorithm there? Obviously, the business has evolved substantially in recent years, and the M&A cycle continues to evolve. So how do you think about the growth profile there over the long-term?

Yes. I mean I think the way that we like to think about it is it really breaks down into 3 segments. I mean one of them is really not cyclical, which is our PV business, our portfolio valuation business, which continues to grow very consistently, very nicely regardless of cycle. We have an opinion business that a portion of it is tied to the business cycle and a portion of it that is not, quite honestly. And so that is more of a hybrid, if you will. And then our transaction advisory services, which are, we call it, advisory is much more tied to the M&A cycle. And so that -- and we don't break out, as you know, the revenues within those segments, but it is a makeup of those 3 with, I will call it a meaningful portion of it not being overly cyclical.

And over the -- James, over the kind of longer run, look, our FDA business in strong M&A cycles, our FDA business is going to grow, likely to grow similar to our Corporate Finance business, but not quite as strong, just given the difference of businesses. And in a weaker M&A cycle, it will likely not go down. as much as our Corporate Finance business. So I think that it's going to follow in general, the same direction as our Corporate Finance business. But just less volatile. And whether that's half or 70% or 30%, it just depends on too many factors. But this -- what you're seeing now is pretty typical of what you might see as you're coming into a stronger M&A cycle.

Awesome. So just one other one here. Scott, you talked a little bit about the corporate finance timing across fiscal third quarter and fourth quarter. I think you talked about just timing of deals. Is there anything specific that is driving that? Is it just when the deals have arrived on your doorstep or something else as to why as the third is weaker and the fourth is stronger?

I think -- I mean, I think the way that we think about it is second half of the year historically is stronger than the first half of the year, that's been pretty consistent over time. And I think if you look at it this is consistent with the ramping of the business that we've been talking about. So I think that it is as much the momentum we're seeing building in the businesses than anything else. I don't know, Lindsey, do you want to add something on that.

Yes. There is a little bit of mix in there. There is a little bit of timing. It is unusual for us to see this dynamic from a seasonality standpoint. Our kind of general views of the year haven't changed. It's just you're just going to see kind of that difference in seasonality in Q3 versus Q4.

Our next question comes from Devin Ryan from Citizens Bank.

You have Brian I wanted to add a quick follow-up to Brennan's question on the restructuring. You guys had a press release earlier this week about some health care hires. I know there's been some headlines about stress in the health care and the commercial real estate sector. I was wondering if you could just double-click into restructuring trends and some of that episodic growth, just pockets where you're seeing that?

Yes. I mean from our standpoint, there are always sectors that we see restructuring kind of in, and I think some of them are thematic and some are not, I mean, obviously, something -- I'll give you an example like the decline in alcohol consumption, something like that, which tends to persist for a prolonged period of time has effects on those businesses to the extent they have leverage. So that would be an example. But there are others, obviously as well, and there's been a tremendous amount of news lately, obviously, related to more, call it, idiosyncratic risks associated with individual credits, but there is no massive standout sectors at this point. I would say it's very much across-the-board. And at this point, our business is very diversified across geographies as well as industries.

Got it. That's a good segue into my second question. I was going to ask just about the recent hires in EMEA and APAC. I guess when you think about productivity of the non-U.S. bankers, is there anything like commentary on the time line for ramping the full productivity between U.S. or U.S. or just any MD-specific trends there?

Yes. I mean I think that the productivity does vary by geography. There's no doubt about that, and some of that is just maturation of business that the industry. We are -- as we noted, seeing really strong growth in both EMEA and Asia Pacific and are very happy with how things are coming along in those regions. Having said that, the productivity per banker in those regions does tend to lag the U.S.

Our next question comes from Brendan O'Brien from Wolfe Research.

To start, I want to touch on the last question a bit more. And specifically, there's been a lot of -- the general expectation has been like the recovery will be driven largely by a pickup in U.S. activity, but the data looks like trends in Europe have been quite strong as well. So I just wanted to get a sense as to what the trends are that you're seeing in Europe today relative to the U.S.? And how you think those 2 fee pools will track over the near to intermediate term?

Yes. I mean, clearly, the U.S. is still obviously the largest part of our market. Having said that, we continue to gain importance in both Asia Pacific and in EMEA. And we are seeing just that continue to grow with time. And if you look at the levels of activity that we are seeing year-over-year in those regions, it is up quite significantly and we feel very good about that. Obviously, the U.S. business, though, is the major driver of our business.

And just given the size differences, I mean, for us, in the kind of year-to-date period, EMEA and Asia have outperformed the U.S. corporate finance business. Having said that, we don't know if that's because there's more momentum on the continent or because we're just a much smaller business in those 2 regions than we are in the U.S. And so -- but those 2 regions have performed well. We're super excited about our investments there. To answer your medium-term question, and we've said this to investors before. We think that fee pool in Europe for Houlihan Lokey could be as big as the people for us in the U.S. Whether it takes us 4 years to get there or 10 years to get there, we're less focused on the amount of time we're going to do it deliberately. But it's a very exciting market for us. We like the competitive dynamic, and it's a step-by-step path to get us to where we want to get in Europe or in EMEA.

That's helpful color. And then just a follow-up to the discussion on restructuring. Another one of your peers indicated that more of the near-term deal flow that they've been seeing in restructuring has been driven more by traditional Chapter 11 more so than liability management activity. So I just want to get a sense as to whether that is something you're seeing in your own business? And if so, what is driving that shift?

Yes. I mean we still -- we still see quite a bit of liability management to say that there is a trend away from that towards more traditional Chapter 11. It's probably a little early. But we continue to see a pretty healthy amount of liability management business and still some traditional in-court restructuring. And so I think too early. I think maybe we could better address that 3 to 6 months from now when we've just got a little bit more time behind us.

And our next question comes from Ryan Kenny from Morgan Stanley.

I want to start off with how -- can you take us inside the mind of your clients? I mean, you have a unique view into the middle market in the U.S. and Europe? And how are your clients feeling about the economy, are animal spirits as high as they are for the large corporate deals? And what are some of the risks that are top of mind? Is it interest rates? Is it something else?

Yes. I mean I think that, again, it's hard to paint. We're so global in so many industries, and it's very hard to paint everything with one brush like that. I think that in general, we are living in an environment due to geopolitical issues and everything else that just has a greater degree of uncertainty maybe than at other times in the past and that uncertainty is something that does weigh on people. Having said that, the level of noise that people are willing to accept and just get on with business has been quite impressive.

And when you think about, go ahead.

Yes. With the larger cap peers, not only did they have kind of the same M&A winter that we went through for a couple of years. They had an administration that was opposed to bigger is better. And so they had a regulatory overhang as well. So there is probably a bit more pent-up demand for the larger cap, I mean very large cap transactions where the middle market has been during these last, call it, 5 years, a bit less volatile. And so we're seeing increasing animal spirits, but there's been a lot of activity in the large-cap space in the last 6 months and maybe a step ahead of what we're seeing in the mid-cap space.

And on the sponsor side, how sensitive are clients to doing transactions to interest rates. So if Fed pauses, is that going to have any material impact on the pipeline?

Obviously, lower rates are better, but it's really not a material factor. Really the biggest driver is whether or not capital is available. And right now, capital is extremely plentiful. People can adjust to rates within reason that really from -- that affects large cap much more than it affects the middle market.

Our next question comes from Alex Bond from KBW.

You've noted that your acquisition pipeline remains pretty strong, and it certainly seems like a competitive hiring environment for senior talent at the moment. So curious to what extent this is maybe having an impact on the acquisition front. Have you seen ask prices step up here recently with the hiring environment still very competitive? And is pricing maybe somewhat of an obstacle on the acquisition side at the moment?

It is very much unchanged from our perspective and continuing along, right? We feel really good about the pipeline in both near-term and long-term on it and really have not seen any fundamental shifts at all.

Got it. Okay. And then just maybe on the Capital Solutions business. Wondering if you could expand upon the results for that area of the business this quarter. You noted it was pretty strong. Was the contribution maybe to the overall corporate finance revenues higher than typical this quarter? And maybe also how this compared to last quarter's levels.

Yes. I think we're going to keep away from specifics to the capital markets business. I will tell you that it has continued to grow very well. We can safely say that, that business has grown in this cycle faster than our M&A business. That may not always be the case. M&A is starting to come back, but it continues to perform well and as a percentage of our Corporate Finance business. And we've said this before, it's now at or above 20% of the total Corporate Finance business. But getting into the specifics, I think we prefer to wait.

[Operator Instructions] Our next question comes from Nathan Stein from Deutsche Bank.

I wanted to ask about, I guess, an increase in call it, macro negative headlines recently associated with some outsized or at least unexpected losses at traditional banks and private credit funds not to mention an ongoing government shutdown. I mean how do -- does any of this impact how either your clients are thinking about doing deals or how you guys are thinking about potential future acquisitions?

Yes. I mean we really have not seen any of that having any material impact. I think that all falls under what I was saying, call it, there is just more noise in this environment than in other really improving environments and people seem to be comfortable with a reasonable level of noise. And it's that from our perspective and our acquisitions that's not affecting it at all.

That's helpful. And then if I could also ask -- yes, if I could also ask, the business is performing very well broadly. And the stock has performed well this year. Does any of this impact how you guys think about open market share repurchases?

It's interesting, the stock performance on the margin does not affect our share repurchases. I think we repurchase shares to the extent that we issue shares as part of the compensation to our employees. And so we do our best to maintain our share count and minimize dilution. We also repurchased shares to the extent we think we have enough excess cash capital to both support our acquisition strategy and have enough to do some share repurchases. Unless there is a significant change in stock price on the downward side. I think our strategy around share repurchases is more taking a look at opportunities that are out there on the acquisition side, making sure we have enough capital to support them and then to the extent we have excess repurchasing shares.

And you can see that we did start a little bit last quarter. And I can't comment on what we will do this quarter or next quarter because it depends. But we will -- you will see us kind of drill back into the market on occasion to the step we feel comfortable with that balance.

And ladies and gentlemen, at this time, I'm showing no additional questions, I'd like to turn the floor back over to Scott Adelson for closing comments.

I want to thank you all for participating in our second quarter fiscal 2026 earnings call. We look forward to updating everyone on our progress when we discuss our third quarter results for fiscal 2026 this winter. Thank you, everybody.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Houlihan Lokey Fiscal First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today, 29th of July 2025.

I'll now turn the call over to the company. Please go ahead.

Thank you, operator, and hello, everyone. By now, everyone should have access to our first quarter fiscal year 2026 earnings release, which can be found on the Houlihan Lokey 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 June 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 Lokey's Chief Executive Officer; and Lindsey Alley, Chief Financial Officer. They will provide some opening remarks, and then we will open the line to questions.

With that, I'll turn the call over to Scott.

Thank you, Christopher. Welcome, everyone, to our first quarter fiscal year 2026 earnings call. We ended the quarter with revenues of $605 million and adjusted earnings per share of $2.14. Revenues were up 18% and adjusted earnings per share were up 75% compared to the same quarter last year.

We began fiscal 2026 with momentum and concluded the quarter with solid performance by all 3 of our business lines. Our views of current market conditions and our business are broadly consistent with what we shared last quarter. While market forecasts remain difficult given a dynamic and volatile macro environment, we continue to see the benefits of our diversified business model, particularly across industry and geography. The markets in which we operate are showing resilience, adapting to the complexities and uncertainties of the current environment.

Turning to our results. Corporate Finance produced $399 million of revenue in the first quarter, a 21% increase over last year's first quarter. Key metrics for our Corporate Finance business, including transaction size and average fee per transaction, continue to see steady improvement. This was achieved despite muted activity from the financial sponsor community, underscoring the strength of our business, which we believe should pick up as sponsor activity eventually returns to more historic levels. We are cautiously optimistic that this momentum will continue through fiscal 2026, while we remain mindful of the potential headwinds, including tariffs and inflation.

Our Financial Restructuring business produced $128 million in revenues for the first quarter, a 9% increase over last year's first quarter. Financial Restructuring activity remains elevated, supported by persistently higher interest rates, macro uncertainty and overleveraged companies. Revenues in Financial Restructuring are diversified across industry and geography, and we are experiencing a balanced mix of debtor and creditor work. We expect to continue to see elevated restructuring revenues throughout fiscal 2026.

Financial and Valuation Advisory produced $79 million in revenues for the first quarter, a 16% increase versus the first quarter last year. FVA had a very strong first quarter with continued growth in its noncyclical service lines, while its pro-cyclical businesses benefited from improving M&A market conditions, particularly in the U.S. Our outlook for FVA is similar to our outlook for CF as we expect to see continued year-over-year growth throughout the remainder of the fiscal year. In the first quarter, we hired 3 new managing directors, and we continue to see a strong hiring market for senior talent, drawn to our global platform and track record of growth.

Our pipeline of acquisition opportunities remains robust, and we are confident that the combination of our organic hires and strategic acquisitions will continue to help us expand our workforce across industry, service line and geography. On the marketing front, I'm very proud to announce that we hosted the inaugural Houlihan Lokey ONE Conference in New York, dubbed the woodstock of dealmaking by Bloomberg. This major event showcased our one firm approach and global scope with more than 4,000 people in attendance and approximately 400 companies participating. We are thrilled with the feedback we received from clients who attended, and we're proud of the experience that we are curating for our clients and prospects around the world.

We remain confident in our outlook for our fiscal year 2026. Despite volatility in global markets, companies appear to be adapting to the realities of decision-making in this environment. With our global reach, sector depth and balanced business model, we continue to be well positioned to help our clients navigate the environment and capitalize on new opportunities.

Lindsey, over to you.

Thank you, Scott. Revenues in Corporate Finance were $399 million for the quarter, up 21% compared to the same quarter last year. We closed 125 transactions this quarter, up from 116 in the same period last year, and our average transaction fee was higher for the quarter versus the same quarter last year. Revenues and activity levels in the U.S. continue to outpace those in EMEA, and we expect this regional dynamic to persist through the summer.

Financial Restructuring revenues were $128 million for the quarter, a 9% increase versus the same period last year. We closed 35 transactions this quarter compared to 33 in the same quarter last year, and our average transaction fee on closed deals increased. For Financial and Valuation Advisory, revenues were $79 million for the quarter, a 16% increase from the same period last year. We had 957 fee events during the quarter compared to 847 in the same period last year, a 13% increase.

Turning to expenses. Our adjusted compensation expenses were $372 million for the quarter versus $316 million for the same period last year. Our only adjustment was $21 million for deferred retention payments related to certain acquisitions. Our adjusted compensation expense ratio for the first 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 increased to $94 million for the quarter compared to $80 million for the same period last year. Our adjusted noncompensation expense ratio for the first quarter in both fiscal 2026 and 2025 was 15.6%.

On a per employee basis, our adjusted noncompensation expense for the quarter increased to $35,000 versus $31,000 for the same quarter last year. The increase was primarily driven by our Houlihan Lokey ONE Conference, which combined 6 legacy conferences spread throughout the year in the U.S. into a single flagship conference. Excluding the cost of this event, noncompensation expense growth would generally have been in line with historical trends. For the quarter, we adjusted out of our non-compensation expenses $9.5 million in noncash acquisition-related amortization, approximately $900,000 pertaining to professional fees associated with streamlining our global organizational structure referred to as Project Solo, and approximately $18 million related to the increase in value of acquisition contingent consideration.

We have always treated all acquisition contingent consideration as purchase price and adjust any significant changes to the value of such contingent consideration out of our P&L. Historically, the effects of the revaluation of acquisition contingent consideration occurred in other income and expense. Starting in fiscal 2026, we are including the effects of the revaluation of acquisition contingent consideration and non-compensation expense as a separate line item. As a result, any adjustments to this line item will occur in noncompensation expense going forward. Our other income and expense produced income of approximately $8 million versus income of approximately $5 million in the same period last year. The improvement was primarily due to an increase in interest and other income generated by our investment securities.

Our adjusted effective tax rate for the quarter was negative 0.8% compared to 31.2% for the same quarter last year. The decrease is due to a policy change, which we discussed in last quarter's remarks. We are no longer including the impact of stock-based compensation vesting on our adjusted effective tax rate. This year and for the last several years, stock vesting has had a positive impact on our GAAP effective tax rate for both the quarter and the year, and we have adjusted out that benefit. Without the adjustment in Q1 of fiscal 2025, our adjusted effective tax rate would have been 9.3% for the first quarter.

Given the significant impact from stock vesting, we expect to see our fiscal 2026 full year adjusted effective tax rate between 25% and 26%. Without the adjustment for stock vesting in fiscal year 2025, our adjusted effective tax rate for last year would have been 26%. For the first quarter fiscal 2026, we adjusted out of our effective tax rate, the effects of acquisition-related nondeductible expenses. Turning to the balance sheet. We ended the quarter with approximately $867 million of unrestricted cash and investment securities. Our cash position declined this quarter as we paid a significant portion of our fiscal 2025 bonuses to employees in May. Also in our first quarter, we issued approximately 1.1 million shares to employees as part of our fiscal 2025 year-end compensation, and we repurchased through withhold to cover approximately 800,000 shares during the month of May.

With that, operator, we can open the line for questions.

[Operator Instructions]

Your first question comes from Devin Ryan from Citizens.

So I heard the comment in the prepared remarks that your views of the business are broadly consistent with last quarter. And so I'm just curious as it relates to Corporate Finance, I would assume that there's been some market improvement just with sentiment improving and more optimism in the market more broadly. So I'm just curious if you're seeing that with clients from where you were 3 months ago, maybe 3 months ago, you're already starting to see that reacceleration and momentum. But just love to dig in there a bit more. And then just if you can just hit on kind of how backlogs have trended kind of sponsors willing to move forward on auctions and transactions and then from a [ sector ] perspective as well, if you can touch on that.

Really bad connection. So I will try and do my best with that. But I think that what we've been saying for a long time is that it keeps getting better quarter-by-quarter, but not necessarily month by month. So even within this quarter, you saw the momentum shift, if you will, a bit back and forth, and that's some of the uncertainty we see in the marketplace. Having said that, as I said in my remarks, I mean, the resiliency of our clients to really adjust to the market we are in continues to get better and better. And I think that is what we're feeling. It is getting better and better quarter-by-quarter, but not necessarily month by month.

The second part of your question, quite honestly, was backlog, I think, but you were breaking up so bad, I wasn't really sure. If you want to try and repeat it, I'll give it a shot.

Yes. If I'm not through, I'll hop back in the queue. But [ sensibly ] I just wanted to give a little bit of a sense of how the backlog is refilling and then if there's sectors that are snapping back faster and then if there's any areas that aren't because they're still impacted by tariffs or otherwise?

Yes. I'd say, Devin, on the backlog side, we don't -- we try to stay away from backlog commentary. Having said that, we continue to see good solid performance across all the sectors. I made a comment regarding geography. We do think Europe, EMEA has been a bit slower than the U.S. over the last 3 to 6 months, and we don't expect that to change this summer. But in terms of backlog, look, some of our peers have made commentary around backlog. It's quite strong. We want to get away from comparing backlog this quarter versus last quarter versus the same time last year in terms of backlog.

Your next question comes from Brendan O'Brien from Wolfe Research.

To start, I just want to touch or follow up on Devin's question a bit. Within Corporate Finance, the top line trends continue to look very strong, but the year-on-year growth in the number of deals completed has seemed to decelerate a bit. So just want to get a sense as to the breadth of activity that you're seeing in the market today and specifically around the quality of assets that you're seeing move and when we can start to see that aperture widen.

Yes. I mean, again, same commentary about getting better kind of quarter-by-quarter, right? It's back to what we've talked about before, what's the slope of that improvement. But we clearly are in a good environment at this point, but again, at kind of the bottom end of it is what I would say. The -- in terms of volume of deals, I do think after Labor Day, we're going to see that even pick up more. That certainly is the indication from everything we're seeing.

And look, I'd say from a deceleration standpoint, we had an extraordinary quarter 1 last year. I think our Corporate Finance revenues grew 44% or so. I mean 21% growth is decelerating versus the same time last year, but it's still pretty strong, and it's over a much larger base. And so I mean, we don't see a decelerating trend at all. We're just operating off of a higher base this year versus the same time last year.

I totally appreciate that. And I guess for my follow-up, I just wanted to clarify some of your comments around the non-comp side. Specifically, I know you guided to the high single-digit non-comp growth rate last quarter. Is that still your expectation for the full year this year? Or has something changed, whether it's travel or inflation or anything like that?

No, we're still at that high single digits. Unfortunately, we just had our entire noncomp expense in our first quarter. I'm joking about that. But we did -- we had a higher first quarter. I think there was a specific reason why, but we do expect to see kind of that still that high single digits for the balance of the year. Now part of that is driven by headcount growth, as you know. So the faster our headcount grows this year, the higher our non-comp expense and so some of it is beyond our control and some of it is a good problem to have. But as we sit here today, no change from last quarter in terms of what the end of the year looks like.

Your next question comes from James Yaro from Goldman Sachs.

Restructuring remained elevated this quarter. I know you gave the outlook for the business as being elevated. But maybe you could just dig down a little bit into anything that you are seeing around liability management versus Chapter 11 traditional restructuring and then expectations for the forward for each of those?

Yes. I mean I think it's consistent. Again, we kind of think about it as in court and out-of-court, if you will. But the -- it continues to be active on both sides with obviously some of the not as large transactions leaning more towards the out-of-court. And -- but there does seem to be a good pipeline kind of across the board, and we're seeing it just continue to be a strong restructuring environment are certainly elevated.

And James, our commentary for restructuring hasn't really changed much. I mean we don't -- we consider liability management traditional restructuring. So we don't really differentiate it. And look, the market has been and think we will continue -- will continue to be reasonably strong for liability management transactions given that we've just had a really long runway. And we don't see that changing certainly through fiscal '26, which is why we -- you see -- you hear a little bit of confidence in terms of elevated restructuring for the balance of the year.

That's great. Scott or Lindsey, maybe just any thoughts around or any color around the growth of your secondaries business since you did the deal? And then I guess, any thoughts around the cyclical versus structural drivers and perhaps your expectations for how much growth that business can have over time?

Yes. I think that we're very happy with that. That is now all involved within our Capital Solutions group, which, as you know, is part of Corporate Finance. And that integrated approach seems to be serving us very well, and we're extremely happy with many parts of that. Even on the primary side, we see that picking up. But certainly on the secondary side, the GP stakes healthy stakes. That whole piece and directs is something that we're really seeing the benefit of them coming on to our platform and not just in terms of results, but also in terms of thinking about the business differently and how it can even scale much larger than I think maybe people thought it could have. I mean, feeling really good about it. A lot more to come.

Perfect. And then one quick ticky-tacky one for you, Lindsey. I just want to clarify a previous point. So your commentary is that the growth of non-comp dollars for the fiscal year is still expected to be in the high single digits range year-on-year. Is that correct?

Yes, that's correct.

Your next question comes from Alex Bond from KBW.

Just wanted to maybe drill down on the sponsor side of the market currently. And I know you referenced earlier that the post Labor Day market is shaping up, expecting to see an increase there, but kind of across the market more broadly. But I'm wondering if that is consistent with what you're seeing in terms of -- in the sponsor market as well. And then especially just given some of the recent market tailwinds that we've had. So yes, I guess, just summarizing, would you expect to see an increase in sponsor activity kind of after that Labor Day period? Or could a more broader resumption in sponsor activity maybe take a little bit longer than that? Any color there would be great.

Yes. I think it's consistent. But the sponsor activity has been muted. No doubt about that. And I think that's one of the reasons we're pretty happy with where things are given the muted level of activity sponsors at the moment. But we certainly have seen it continue to pick up. Again, it is continuing to pick up, and we do expect it to pick up even more based upon dialogues that we're having right now.

And Labor Day for sponsors happens to be a nice inflection point to go to market. And so yes, different than strategics, they tend to operate a bit more with the seasons, just given summer and vacation.

Got it. Okay. That's helpful. And then maybe just as a quick follow-up, I know you mentioned that you continue to expect the U.S. market to kind of outpace the EMEA region just from an M&A perspective. But curious if you could maybe just drill down a little bit more there and maybe any trends that you're seeing that are differing there? Or is -- are you expecting to see a broader recovery in volumes in Europe as well, but maybe just stronger in the U.S.? Just any color there would be great as well.

Yes. I think that our history is that they don't move -- tend to move in exact unison. And I can tell you that when things started to turn down a number of quarters ago, the EMEA was slower to turn down than the U.S. And I think that this is just a cycle time. It's just coming out slightly slower. It's not -- there's not dramatic differences.

Your next question comes from Ryan Kenny from Morgan Stanley.

So you mentioned that you're cautiously optimistic on the environment. And my question is, with markets at all-time highs and deal announcements picking up and tariff headlines coming through, why not just optimistic? And what are you hearing from clients that maybe would make them slow down a bit in getting more deals moving through the pipeline?

Yes. I think just by our nature, we're measured, number one. Number two is really that we are living in an environment that has demonstrated a degree of uncertainty and volatility. And so that causes us to be measured in those statements. Having said that, if things continue on the way they are at the moment, feel very good about it. But it's just a recognition that we are living in more volatile times at the moment.

Your next question comes from Jim Mitchell from Seaport Global Securities.

Scott, you talked about the acquisition environment still being robust and the pipeline being good. But as the environment picks up, does it get a little tougher to close the deals? Or do you still think regardless of the environment, there's still a lot of opportunity to consolidate?

That, at least based upon our history, that has not been a particularly strong indicator. And actually, if anything, it tends to work the other way when things get really tough, people don't want to do deals. And so it doesn't change my view at all.

Okay. And then just a follow-up on restructuring. I hear you right now, the environment is still pretty good. But I guess based on your history and cyclicality, do you see if the Fed is cutting rates, we get through these tariffs, the economic environment does better. Does that business slow? Or is it just different because of the liability management environment and there's still plenty of room to kind of grow that piece of the puzzle?

I think 3 years ago, we would have told you, yes, we would expect to see restructuring decline as M&A started to pick up, and that had happened many times in the past for us. Look, in this environment, restructuring has shown real resilience. And I think there are a whole bunch of factors for that lead to that resilience. And so yes, I don't want to sound too optimistic. But look, this may be the new trough for restructuring. And when we see interest rates come down a little bit, which I think most people expect over time, if we see an improving economy with less volatility in the macro environment, I mean, shoot, we may see restructuring revenues kind of where they are today and waiting for the next cycle. So we've stopped kind of guessing what the trough might look like for restructuring based on just how well it's performed over the last couple of years.

Right. So peak is the new trough?

Yes, peak is the...

If interest rates go back to 0, then. Yes. I mean normal cuts.

Your next question comes from Ken Worthington from JPMorgan.

This is Madeline Daleiden on for Ken. You mentioned a strong MD hiring environment in your prepared remarks, and I think you've mentioned it in previous quarters as well. But we've been noticing your MD headcount growth has been significantly outpacing overall headcount growth for about the last 12 months. Is this a cognizant choice on your end to concentrate talent at more senior levels or maybe even consolidating junior talent or administrative roles? Or is this more so just reflecting the opportunistic hiring that you're pursuing?

I think that we are always looking for talent. That is part of our business model. And we are very fortunate that given the success in our growth and the resilience of our business model, we've been able to continue to attract really fantastic talent. And so -- and that's really all over the world and across our product lines, and we're going to stay committed to that.

But I don't think that there is no structural design that says we're growing senior talent and slowing down junior talent growth. It just probably happens, [ dance ], in the numbers. My guess is we will revert back to kind of the structure that we've historically had. It just may be that the numbers aren't suggesting that right now.

Okay. Great. And are there any particular businesses or sectors you're focusing on for future hiring?

No. I mean we really feel that in every one of our sectors and our products, there is opportunity for growth, and we are always looking for great people that we think are a strong cultural fit.

There are no further questions at this time. I'll now hand the call back over to the company for closing remarks.

I want to thank you all for participating in our first quarter fiscal year 2026 earnings call. We look forward to updating everyone on our progress when we discuss our second quarter results for fiscal year 2026 this fall.

And that does conclude our conference for today. Thank you for participating. You may now disconnect.