Houlihan Lokey(HLI) - 2026 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported revenues of $717 million for Q3 2026, representing a 13% increase compared to the same period last year [4] - Adjusted earnings per share were $1.94, up 18% year-over-year [4] - The adjusted effective tax rate for the quarter was 30.6%, down from 33.3% in the same quarter last year [13] Business Line Data and Key Metrics Changes - Corporate Finance generated $474 million in revenue, a 12% increase year-over-year, with 177 transactions closed, up from 170 in the same period last year [5][10] - Financial Restructuring produced $156 million in revenue, a 19% increase compared to the same period last year, with 41 transactions closed, consistent with the previous year [5][10] - Financial and Valuation Advisory revenues were $87 million, a 6% increase year-over-year, with 1,103 fee events, up 10% from 1,005 in the same period last year [11] Market Data and Key Metrics Changes - The company noted an acceleration in private equity activity, with more portfolio companies exploring liquidity options due to improving investor sentiment and expectations of declining interest rates [4] - The European business is experiencing significant growth, bolstered by recent acquisitions, which are expected to enhance the company's footprint in the region [8][30] Company Strategy and Development Direction - The company aims to expand its workforce and capabilities in key markets, particularly in Europe, where it sees potential for growth comparable to its U.S. corporate finance business [8] - Recent acquisitions, including a controlling interest in Audere Partners, are part of the strategy to strengthen the company's position in France and enhance its Capital Solutions capabilities [8][30] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, citing strong visibility into deal activity and backlog, particularly in Corporate Finance [5] - The restructuring business may face revenue pressures as the market improves, but geopolitical events could create new opportunities for restructuring activity [6][18] Other Important Information - The company ended the quarter with approximately $1.2 billion in cash and investments [13] - Share repurchases totaled approximately 418,000 shares during the quarter, with ongoing evaluations of balance sheet flexibility for future acquisitions [14] Q&A Session Summary Question: Outlook for restructuring activity - Management acknowledged that while the market is improving for M&A, there are still pockets of opportunities for restructuring, but visibility into consistent new opportunities is unclear [18][19] Question: Corporate finance revenue expectations - Management confirmed that Corporate Finance is seeing strong growth, with good visibility into continued activity levels, particularly in private equity [21][22] Question: U.S. vs. non-U.S. growth outlook - Management highlighted that while the U.S. remains the largest market, the European business is growing well, and recent acquisitions will enhance growth potential in that region [28][30] Question: Sponsor engagement and activity levels - Management noted a steady improvement in sponsor engagement, with activity levels increasing across various sectors, despite some external geopolitical factors [41][43] Question: Capital management and acquisition pipeline - Management indicated a strong acquisition pipeline and a preference for using excess cash for strategic acquisitions, while also considering share repurchases [56][59]