Houlihan Lokey(HLI) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported revenues of $659 million for the quarter, a 15% increase year-over-year, and adjusted earnings per share of $1.84, up 26% compared to the same period last year [4][10] - Adjusted compensation expenses were $406 million, compared to $354 million in the same period last year, maintaining an adjusted compensation expense ratio of 61.5% [11][12] - The adjusted effective tax rate for the quarter was 29.7%, down from 31.3% in the same quarter last year, primarily due to decreased state taxes and taxes from foreign operations [12] Business Line Data and Key Metrics Changes - Corporate finance generated $439 million in revenues, a 21% increase year-over-year, with 171 transactions closed, up from 131 in the same period last year [5][10] - Financial restructuring revenues were $134 million, a 2% increase year-over-year, with 37 transactions closed, compared to 33 in the same quarter last year [6][10] - Financial and valuation advisory produced $87 million in revenues, a 10% increase year-over-year, with 1,075 fee events, up from 903 in the same period last year [10] Market Data and Key Metrics Changes - The non-U.S. business performed well, with solid growth in both EMEA and Asia-Pacific regions, indicating consistent brand growth and momentum outside the U.S. [8] - The company noted that EMEA and Asia have outperformed the U.S. corporate finance business year-to-date, reflecting strong activity levels in those regions [39] Company Strategy and Development Direction - The company is optimistic about the second half of fiscal 2026, expecting continued year-over-year growth if current conditions persist [4][9] - The company is focused on strategic acquisitions and hiring senior talent to drive growth, with a strong acquisition pipeline and recent hires in key regions [8][50] Management's Comments on Operating Environment and Future Outlook - Management highlighted that the macro environment has improved, with easing interest rates and a more stable deal-making environment, which is expected to enhance performance in the second half of the fiscal year [4][8] - There is recognition of episodic shocks in restructuring, but the backlog remains robust, supporting expectations for continued strong performance [18][33] Other Important Information - The company ended the quarter with approximately $1.1 billion in unrestricted cash and investment securities, with plans to evaluate balance sheet flexibility for acquisitions versus share repurchases [13] - The company repurchased approximately 210,000 shares during the quarter [13] Q&A Session Summary Question: Is there a slowdown in new business activity in restructuring? - Management acknowledged a slight slowdown in the pace of new business activity but emphasized that the backlog remains robust [18] Question: Are sponsors returning to the market? - Management confirmed that sponsor activity has been increasing since the beginning of the fiscal year, with a significant uptick noted after Labor Day [20][21] Question: What is the growth outlook for financial and valuation advisory? - Management indicated that the growth profile is influenced by cyclical and non-cyclical segments, with expectations for growth in strong M&A cycles [24][26] Question: How does the company view the impact of macro-negative headlines? - Management stated that recent macro-negative headlines have not materially impacted client sentiment or acquisition strategies [58] Question: How does the company approach share repurchases? - Management clarified that share repurchases are primarily driven by employee compensation needs and the availability of excess cash for acquisitions [59]