Houlihan Lokey, Inc. Class A Stock

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Houlihan Lokey's Second Quarter Fiscal Year 2027 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today, October 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 second quarter fiscal year 2027 earnings release, which can be found on the Houlihan Lokey website at www.hl.com in the Investor Relations section. Please note that the discussion today will include forward-looking statements. These forward-looking statements, which are usually identified by use of words such as indicate, suggest, see, will, expect, believe or other words or phrases of similar meaning 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 you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. Except as required by applicable securities laws, Houlihan Lokey is under no obligation to update any forward-looking statements if circumstances or management's estimates or opinions should change.

We encourage investors to review our regulatory filings, including our Form 10-Q for the quarter ended September 30, 2026, when it is filed with the SEC. During today's call, we will discuss non-GAAP financial measures. These non-GAAP 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, which can be found 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, Sipi. Welcome, everyone, to our second quarter fiscal 2027 earnings call. We ended the quarter with revenues of $692 million and adjusted earnings per share of $1.85. Revenues were up 5% and adjusted earnings per share were flat compared to the same period last year. Our results for the quarter reflect a normalizing market environment, which continued into October. Key metrics indicate solid performance for the remainder of the year across all 3 of our businesses, and we have seen a return to growth in both Europe and the U.S. and across our industry groups, except technology and health care.

We do, however, remain cautious given the volatility of the macro environment. We continue to see headwinds from interest rates, ongoing geopolitical instability and dislocation in the software sector. Our Corporate Finance business produced $481 million in revenue for the quarter, driven by higher average transaction fees. Heading into the third quarter, our backlog and activity levels suggest growth for the balance of the year, even as we remain mindful of the macro volatility. Despite the higher interest rate environment of the last few months, transactions continue to move through the pipeline to closing, which tells us that the stronger economic fundamentals are outweighing macro uncertainty.

Financial Restructuring produced $118 million in revenues for the second quarter, performing in line with our expectations. Based on our current backlog and new deal activity levels over the last several months, we see a stronger second half of the year and elevated restructuring revenues through fiscal 2028. Our reputation and experience in the software space has led to significant wins in the sector, and we expect these engagements to begin contributing to revenues in calendar '27. Financial and Valuation Advisory produced $93 million of revenues for the second quarter. Growth was primarily driven by our portfolio valuation business.

We added 12 new managing directors in the second quarter, including 8 who joined us through our acquisition of Intrepid Financial Partners, which closed in September. We're excited to welcome our new partners to Houlihan Lokey. Also in the second quarter, we welcome our new Chief Legal Officer, Sipi Bhandari, who you heard from earlier on the call. We are all delighted to have Sipi on board. I would like to extend my sincere gratitude to Christopher Crain, who served as our General Counsel and a member of our executive team for 22 years and who fortunately will remain a senior adviser.

In terms of acquisitions, our pipeline remains strong, and we are confident that our combination of organic growth and strategic acquisitions will continue to deepen and expand and strengthen our talent base around the world. I want to thank our shareholders for their support, especially during a volatile first half of the fiscal year. We continue to execute our long-term business plan and believe that we are the best positioned investment banking advisory firm to capitalize on our industry trends over the next decade. With that, I'll turn it over to Lindsey.

Thank you, Scott. Revenues in Corporate Finance were $481 million for the quarter, up 10% compared to the same period last year. We closed 142 transactions this quarter, down from 171 for the same period last year. However, our average transaction fee on closed deals increased as there was a disproportionate number of higher fee transactions relative to lower-fee transactions for the quarter, the reverse of what we saw last quarter. Financial Restructuring revenues were $118 million for the quarter, down 12% compared to the same period last year.

We closed 27 transactions this quarter, down 27% from the same quarter last year, but our average transaction fee on closed deals increased. We expect to see higher revenues for the second half of the year, and we approach calendar 2027 with record backlog and strong activity levels. For Financial and Valuation Advisory, revenues were $93 million for the quarter, a 7% increase from the same period last year. The number of fee events remained relatively flat at 1,071 during the quarter compared to 1,075 in the same period last year.

And turning to expenses. Our adjusted compensation expense ratio for the second quarter in both fiscal 2027 and 2026 remained constant at 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 11% to $91 million for the quarter compared to $83 million for the same period last year. Our adjusted non-compensation expense ratio for the second quarter was 13.3% compared to 12.5% in the same period last year.

Our other income and expense produced income of approximately $5 million versus income of approximately $9 million in the same period last year. The decrease was primarily driven by lower cash balances for the quarter and lower return on our investment securities. Our adjusted effective tax rate for the quarter was 30%, remaining flat compared to the same quarter last year. We expect to see a fiscal 2027 full year adjusted effective tax rate of between 26% and 28%.

Turning to the balance sheet. We ended the quarter with approximately $888 million of unrestricted cash and investment securities. As a reminder, we will pay our deferred cash bonuses related to fiscal 2026 in November, which will reduce our balance sheet cash. Also in our second quarter, we repurchased approximately 397,000 shares as part of our share repurchase program for a total of approximately $50 million. 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]

And our first question here will come from Brennan Hawken with BMO Capital Markets.

So nice to see the recovery in Corporate Finance revenues this quarter. Scott, your comments sounded a little mixed, although maybe just recognizing some volatility in the marketplace. So should we expect to be able to build on that on the results that you put up here this quarter? And we've seen rates back up. Has there been any impact on the higher rates in the dialogue that you've seen?

As always, thanks. Good question. The rate question, really not. As we've talked about before, rates in the mid-cap space really, unless they are accelerating greatly, don't have a dramatic impact. Things aren't priced quite to the same perfection that they are in large-cap world. So that, as long as capital is available, which it is very plentiful today, that is really not an issue. I would say the geopolitical shocks have been more important from our perspective. And I think our hesitation is we just never know what's around the corner. But based upon everything we're seeing from our dialogues, from our metrics, we're feeling good about the back half of the year.

Excellent. And you had spoken previously about restructuring and that those pipelines rebuilding. Are you continuing to see that? And what additional color could you give us about how that outlook is shaping up?

Yes. And that is, as we've talked about, I think when we originally started the year, we were actually a little concerned about the growth in restructuring. That has really turned around, particularly with the fallout from software is a significant driver of that. It's certainly not the only one. Higher interest rates help as well. Some of the geopolitical dislocation helps. I mean all of that has helped restructuring, and we're at the margin as Corporate Finance, exactly the way the model is supposed to work. But at this point, we feel much better than we did at the beginning or the end of last year about restructuring this year, but even more importantly, probably next year.

Yes. Our confidence in restructuring is at or better than it was last quarter.

So it's continued to improve.

Yes, thanks, Brennan.

And our next question will come from Nathan Stein with Deutsche Bank.

Would you just unpack a little more what caused the drop in transactions versus a year ago in both the Corporate Finance and the Financial Restructuring business? I just feel like there's a big difference between the higher revenues and the lower number of deals.

There is, and we figured we would get this question. Restructuring, I think we've seen this before. It is a lumpy business, and you do see that those, that disconnect between transaction volume and revenues occur a lot more often than you do in Corporate Finance. So that is not an unusual set of circumstances for us. With respect to Corporate Finance, it is unusual. If you look at the year-to-date, it's a better indication of the reality. Year-to-date, the number of transactions, our revenue is down roughly 6% and our number of transactions closed is down roughly 9%. So they tend to follow each other on a year-to-date basis.

It was a very unique first quarter and a unique second quarter in this regard. If you remember, first quarter, I think we were down 25% in revenues, and we had a flat number of transactions. It really is just, I think, the timing and the unusual circumstances in Q1 that sort of drove the disconnect in Q2. I wouldn't read into it any further than that.

Having said that, and Scott has said this in the past, we are much more intentional in the types of transactions that we will take on, which has resulted in us, generally speaking, taking on larger transactions with generally speaking, higher fees. And so you may not, in the future, see quite as strong a correlation between transaction volume and revenues. Not saying that you won't see it for the foreseeable future, but that you might start to see that as we continue to.

To be clear, all still squarely in the, this is not by the companies that you guys are following. This is not, when we say larger, that kind of scale, it's still squarely in our marketplace.

Yes. I guess just following up on that, that is, it sounds like a total shift in how you guys have talked about deal size that you'd like to target in the past. What really drove, what drove the decision to start leaning more into bigger deals even within your...

No, no, no. That's what I wanted, I thought I was being clear. I was a little concerned you were going to take that away from Lindsey's statement. That is not at all what that means. This is all squarely within the middle market, all squarely sub couple of billion dollars, mostly in the kind of few hundred million dollar range, a few less deals that we think are more speculative in nature in that size range than those that we think have a higher probability of closing.

And so just as we've always talked about using our data to our advantage, we are able to analyze things better than we ever have. We have enormous amounts of information about really what closes and what doesn't close. And therefore, we're being smarter, if you will, about that. And that is a long-term trend that is not something that is just this quarter. But there's no decision to move away from our mid-market focus. There's no decision to do bigger deals, none of that. A little clearer than where Lindsey left you.

And our next question will come from Devin Ryan with Citizens Bank.

Good to see the Corporate Finance get back to kind of, as you said, more normal levels of activity and the outlook as well there. It still sounds like the tech space, maybe software specifically remains challenging. And so I'm just curious, is it just not as challenging as it was last quarter? Or are there other sectors that are just maybe picking up more and carrying more of the weight here for the overall business? Just trying to think about the mix, maybe some sector dynamics as well.

Yes. I think we called out both software or tech, but it's mostly software and health care in the written remarks. And I think that health care is realistically just a timing issue. Software is down. That is just a reality. It is not as bad as it was from a market standpoint, it has continued to improve. They're beginning to realize there are good software companies and bad software companies. I do believe it will come back. Having said that, there is no world where I envision us doing the same amount of software revenue this year than we did last year.

Yes. Of course, makes sense. And then as a follow-up on just the kind of the non-M&A advisory elements of Corporate Finance, like capital solutions or private capital. Can you just give a sense of like the baseline for those businesses? And are they flat? Are they accelerating? And just a little bit more flavor for what you're seeing there and the outlook as well?

I mean I think the expectations are that capital solutions and what I would call the non-M&A businesses will perform similarly by the end of the year. And so we don't, we're not necessarily differentiating between the 2 in terms of how those businesses look for the balance of the year. And similar to our comments last quarter about Europe, I think we had some concerns about growth in Europe. We started to see that come back and now expectations Europe and the U.S. by the end of the year will look about the same. So I'd say, yes, we don't see a divergence between M&A and non-M&A businesses through fiscal '27.

Our next question will come from Gabriel Angelini with Bank of America.

I think historically the second half tends to be stronger than the first half from a revenue perspective. And obviously, first half was a little bit weaker this year just because of the first quarter. With conditions improving, should we expect a little bit stronger than normal seasonality in the second half of this year? Or should we interpret the caution to suggest that it's something closer to a typical year in terms of seasonality?

I mean it's, the answer is based on all the metrics and all the things Scott suggested, yes, we should see an unseasonably higher seasonality in our second half. But again, that it's, we need cooperation in the market. But yes, we do expect a good solid second half that's better than normal for us, but we need that, we need the cooperation.

Got it. And maybe just given the disruption we're seeing across the industry right now, I imagine software is putting pressure on a lot of smaller boutiques. Is now the right time to lean in on acquisitions? And maybe are there any sectors that you're particularly focused on?

Yes. It's safe to say and we've talked about it before. We have a very robust process to go after acquisitions. And it isn't honestly time sensitive. We are in the market constantly. And I wish I could do a better job of predicting when things are going to close, but it is safe to say that we, as I said in my remarks, we are feeling good about what that pipeline looks like and more to come. But it's not just because software is difficult or anything like that. There are just, we constantly talk about it, it needs to be a good cultural fit for us.

And our next question will come from Ryan Kenny with Morgan Stanley.

So on the restructuring side, it sounds like you're a little bit more positive with higher interest rates. Any sectors in particular driving the bigger pipeline there? And is it more speculative where conversations are increasing or actual mandates increasing?

It is both. I will call it verbally mandated, actively mandated, both and software is clearly one of the driving sectors, not, by far not the only sector. But typically, when we have an increasing restructuring cycle, it is driven by an industry or another. And right now, it is software.

Got it. And then just to be very clear on the earlier discussion about transaction size. So you would still stay within below $2 billion in value. And is that right?

Yes. 100%.

And then does that number move up over time as the market inflates?

Yes. 100%, we have not moved our strategy one bit. This is not a strategic focus. This is about being better utilizing our information to make more calculated decisions within our market that we play in.

And does that number move up over time as the economy grows or no?

Yes. It's moved up over time historically. I mean just we, just on average, it's not about the economy. We went from average transaction sizes of $100 million many, many, many years ago, and now we're closer to $200 million to $300 million. And we expect that number over time to continue to go up, but in baby steps.

And I think the only other comment I want to make is on the restructuring question. I mean I think that we will, we're seeing some of that this year. We believe we will see more of that in fiscal '28 just because it takes time for those deals to work their way through the pipeline.

And so was the $481 million in revenues a good base to grow off of? Or was it positively impacted by that timing that you mentioned that resulted in higher fees per deal?

I would say it's a good solid base to grow off of.

And our next question will come from Alex Bond with KBW.

Maybe I just want to follow up on, again on the larger deals that did get across the line this quarter. Maybe if you could just comment if you're seeing more willingness from clients to push through some of the macro and geopolitical volatility that may have deterred some of the activity earlier in the year. I think you had mentioned some elongated deal timelines for those deals, again, in the earlier portion of the year. So are clients more willing to sort of look through that, what's going on, on the macro and geopolitical fronts there?

Yes. I think we've talked about it before. When these things happen, they have created speed bumps or traffic jams or whatever you want to call it, that have slowed things down. And then it has settled in and people go, okay, the sky is not going to fall. And then they keep to mix my metaphors, and then they keep on with the deals. And that is what we are seeing. And right now, we are seeing a willingness to do deals. And I just was in a meeting with somebody, they were commenting on, we're getting to a point where people are like, look, I just want to get this done. And that is a good sign when people start saying that for things just moving through the pipeline.

And our next question will come from James Yaro with Goldman Sachs.

I was hoping you might be... Just hoping you might expand a little bit on the FVA business outlook from here. Perhaps if you could just comment on the cyclical versus noncyclical parts of the business? And then also if you could just comment on some of the newer initiatives in that business that you've been working on the past few quarters and years.

Yes. Great. Thanks, James. The growth, as I mentioned in my comments, is really largely, not exclusively, but largely coming from our portfolio valuation business, and that is a noncyclical business and has been growing very strongly at this point for a very long time. And some of those new initiatives that we are pushing into are in that arena as well, and we feel very good about where that business is heading and like that a lot. Our other 2 businesses, our opinion business and our advisory business are more tied towards, are more cyclical and more tied to the M&A environment, not exclusively, but are more tied to that. And while they are up, they haven't been driving the growth quite as much.

Okay. Great. I was hoping perhaps you could just touch a little bit on the non-comp expense trajectory. Obviously, I thought very well managed non-comps this quarter. So I was hoping you might be able to just update us on how you're thinking about the trajectory for that going forward.

I think, James, for now, we're kind of at where we were at last quarter. I still think last year's annual growth is a decent proxy. We had a good first quarter relative to that. Second quarter is kind of right on track. Second half of the year may sort of make up for the better first quarter a little bit. But I think you can expect non-comp to grow similarly to last year by the time we reach the end of the fiscal year.

[Operator Instructions]

Our next question will come from Mike Brown with UBS.

I guess if I use your analogy from last quarter, I think you called it a bit of a rain delay. So the middle market activity has clearly rebounded. Maybe just narrow in on the sponsor space, specifically. Obviously, that's a big cohort in the middle market. We saw some life coming back kind of later in the summer. It sounds like things are continuing to progress for your business there. Maybe just talk a little bit about that cohort though specifically. Is the conviction levels that you kind of referenced previously, is that also apply here for this group? And are you starting to see, are LPs starting to kind of drive more of that urgency to act? Has that been a bit of a catalyst for activity recently?

So that's, given the importance of that cohort for us, it absolutely is part of it. I mean that is the largest part of our client base does tend to be sponsor driven. So it absolutely is driving that return. And yes, we are seeing a growing willingness to do transactions in the sponsor community, and that has been ramping. And again, whether you get another rain delay or we hopefully don't, we don't know, but it is all headed in that correct direction.

And the limited partner pressure has been in place for years. So it hasn't changed.

I don't think that all of a sudden, they're succumbing to that. That has been around for quite a while, and it is much more, they're just ready to get on.

Okay. Understood. Understood. Okay. And then maybe just to double-click on the financial restructuring side of the business. You talked about a lot of the strength you're seeing there and some growth potential that can come through. Can you maybe just talk a little bit about some of the opportunities outside of the U.S. and maybe specifically Europe? And then on the software restructuring opportunity, you talked about that's been driving activity. I guess when can that really move the needle? Is that going to be a 2027 story? Or is that going to be more like a '28 story? And then how would you maybe size the quantum of opportunity there in a base case maybe compared to prior restructuring cycles?

So I think, look, we think we are extraordinarily well positioned in restructuring in Europe. And so we, and we think there are it is a very attractive environment in Europe in restructuring today. And so we're, I think, quite bullish on both the U.S. and the European restructuring market really over the next couple of years as we see these debt maturity walls approach us. With respect to software, I don't want to size it, but it is going to be a huge opportunity for those who are in software restructuring. So it's not just going to be Houlihan Lokey.

Your best proxy is if you go back to the oil and gas dislocation that occurred in our fiscal 2017 and got a sense of how that impacted our restructuring business in a single year, software is much larger than that. And so that's not a bad way to think about it. We don't think that probably starts for us from a revenue standpoint until calendar '27, but we think that is calendar '27 and calendar '28 that you're going to see revenues from software activity that we're seeing today really start to translate into closed transactions.

And this concludes our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

I want to thank you all for participating in our second quarter fiscal 2027 earnings call. We look forward to updating everyone on our progress when we discuss our third quarter results for fiscal 2027 this winter. Thank you.

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

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Houlihan Lokey's First Quarter Fiscal Year 2027 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today, July 29, 2026. I would now like to turn the call over to the company.

Thank you, operator, and hello, everyone. By now, everyone should have access to our first quarter fiscal year 2027 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, 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. Welcome, everyone, to our first quarter fiscal 2027 Earnings Call. We ended the quarter with revenues of $511 million and adjusted earnings per share of $1.35. We are disappointed with these quarterly results. but believe the results are a temporary disruption and not a fundamental resetting of our outlook.

Overall, our Financial and Valuation Advisory business performed well. Our Financial Restructuring business generally performed as expected, but our Corporate Finance business results suffered. On our fourth quarter call, we identified several macro factors that were beginning to impact corporate finance, namely the knock-on effect of the war in the Middle East and the disruption in the software sector as companies and the markets consider the potential long-term effects of AI.

Headwinds that started in February and March persisted into April and May, as deal momentum slowed, specifically in consumer-facing sectors that are particularly sensitive to inflation and consumer sentiment and software as reduced valuations at many technology deals were reassessed. As a result, a significant number of transactions were expected to close in the quarter are delayed into subsequent quarters.

These delays disproportionately affected larger fee transactions. So while our transaction volume was more or less the same year-over-year, our business mix was weighted more heavily towards lower fee advisory products. Notably, the vast majority of delayed transactions continue to move through the pipeline, but time lines remain extended. We have seen market disruptions like this in the past, and like others, we expect this one to be temporary.

We are encouraged by the fact that public market valuations remain strong in both new business activity and backlog in CF are at record levels, and we see no meaningful change in the typical rates of debt or on hold deals. It is these metrics and others that provide us with the confidence of our comments. It is not, however, a call on when the broader middle market M&A environment will normalize.

Macro uncertainties that persist, particularly around the situation in the Middle East create enough headwinds to make it difficult to predict when we will return to typical market conditions. Financial restructuring performed generally in line with our expectations and is expected to have a solid year, consistent with our views at the beginning of the year.

We continue to see strong activity levels in our restructuring business amid continued volatility in the energy market and dislocation in both private credit and the software sector. Financial and Valuation Advisory produced a strong quarter with growth across all 3 service lines, underscoring the general health of the economy and FDA's balanced business model across industry and transaction size.

We're optimistic this business will continue to grow as we invest in more sophisticated data tools and offerings for our clients. Further differentiating us from our smaller competitors. Our collaboration with Morningstar, which was announced last quarter to establish a jointly branded industry benchmark for the fast-growing CLO market is 1 example of this. In Q1, we announced the acquisition of Intent Financial Partners, a premier independent investment bank specializing in the energy sector. We're excited about the momentum this combination is already bringing to our energy business.

The acquisition, which we expect to close by end of the second fiscal quarter, we'll add 32 colleagues to the firm. As we've said over the last several quarters, our acquisition pipeline remains as busy as ever. In addition, we hired 3 new managing directors in the quarter, and we continue to see a robust market for senior talent which we will continue to capitalize on strategically as we diversify and expand into underweighted industry sectors, geographies and product lines.

Despite a challenging first quarter in Corporate Finance, we remain confident in the continued growth in our business over the coming years. we have built a diversified global business that has repeatedly shown a remarkable ability to adapt and to thrive a range of market conditions, and we remain committed to our goal of delivering consistent long-term growth for our shareholders, clients and employees. And with that, I will turn it over to Lindsey.

Thank you, Scott. Revenues in Corporate Finance were $303 million for the quarter, down 24% compared to the same period last year. We closed 127 transactions this quarter basically flat with the same period last year. However, our average transaction fee on closed deals decreased significantly. As Scott mentioned, yield timeline have extended and disproportionately affected our larger fee deals in the first quarter. Client mix between sponsor and nonsponsor work has been stable and we have seen relatively more softness in our European business than the U.S. since the fourth quarter of last year.

Deal closings may remain uneven in the near term as macro events could continue to affect the timing of transactions. What gives us confidence over the medium term is that our backlog, pipeline and new mandate activity have not deteriorated like what we have seen in recessionary markets.

Financial Restructuring revenues were $119 million for the quarter, generally in line with our expectations. We closed 23 transactions this quarter, down 34% from the same period last year, but our average transaction fee on closed deals increased. For Financial and Valuation Advisory, revenues were $89 million for the quarter, a 13% increase from the same period last year. We had 1,042 fee events during the quarter compared to 957 in the same period last year, a 9% increase. FDA is benefiting from strong deal momentum in the large-cap space while experiencing some of the same headwinds we are seeing in mid-cap M&A.

Turning to expenses. Our adjusted compensation expense ratio for the first quarter in both fiscal 2027 and 2026 remain constant at 61.5%. We expect to maintain our long-term target of 61.5% for our adjusted compensation expense ratio for fiscal 2027. Our adjusted noncompensation expenses grew 6% to $100 million for the quarter compared to $94 million for the same period last year. For the full fiscal year, we expect to see our noncompensation expense growth similar to last year's growth.

Our adjusted effective tax rate for the quarter was 13% compared to negative 1% for the same quarter last year. The increase was primarily a result of lower stock-based tax benefits from our annual May vesting of compensation-related stock. We expect to see a fiscal 2027 full year adjusted effective tax rate of between 26% and 28%. In our first quarter, we issued approximately 1.3 million shares to employees as part of our fiscal 2026 year-end compensation, and we repurchased approximately 1.1 million shares, about 800,000 shares through withhold to cover and 300,000 shares as part of our share repurchase program.

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

[Operator Instructions]

And our first question today comes from Brennan Hawken from BMO Capital Markets.

Scott, you spoke to the adaptability in the business. And totally appreciate that you don't want to do anything rash here just because current environments aren't great. But do you think that there's some ability you have to make an adjustment to do something about the challenging environment and these extended time lines? Or is this just something you have to wait out?

It's a great question. Thanks, Brennan. The answer is we are constantly doing things to attempt to improve the business. I mean that kind of process improvement, if you will, is something that has always been part of our culture. Much of this is things that are driven by our clients, not by us and their willingness to move things forward. Some of it is where you have deals not moving through in a process fashion and more of a one-off fashion and the timing of some of that can be less predictable, I would say, and as well as the fact that you have a new set of broader alternatives that people have today that have really -- the market has adapted to -- and some of that has elongated that time frame. And we do think that most of it, though, is driven by what we have talked about. .

Got it. Okay. And if these sort of challenging market conditions extend. At some point, does it begin to threaten your ability to hold the 61.5% comp ratio? Or do you feel as though that's still secure and something that you're able to sustain?

You've heard us joke about it that it's in great in our floor side. It existed long before we were public. We had a very constant comp ratio see no reason that, that would change. And I mean, we -- as we said in our comments, we do believe that this is something that is an anomaly that does initially mean it completely reverts next quarter or whatever the case may be, but we feel very good about the year overall and just looking forward. .

Our next question comes from Devin Ryan from Citizens Bank. .

This is Noah Katz on for Devin. So to start, I think we should be a bit deeper on the middle market M&A environment broadly. Over the past several quarters, activity has generally improved from the lows, although the pace of recovery has remained uneven. As you guys look at client engagement and transaction discussions today relative to a few months ago, do you feel conditions are continuing to improve? And are there particular areas where you see more encouraging signs of activity?

Yes. I think that we have talked about that in the past. We do see things continuing to improve from a new mandate perspective, from the types of things that we are signing up, even more importantly for the percentage of deals that are going into market. All of those trends are in the right direction and positive, so we would agree, when you look at the closed deals in the middle market, obviously, those numbers have been -- not been great recently when talking about broader market as well as obvious in this quarter.

Got it. And then as a quick follow-up on the international business. You've continued to invest in the platform globally and international markets has become an increasingly important component of the business. As you look cross Europe, Asia and other regions today, where are you seeing the strongest transaction activity? And where does the environment remain a bit more mixed?

Yes. So if you look just at this -- it depends what time frame you're asking about. If you're talking about this quarter that we're reporting on, it was stronger in the U.S. than it was in Europe or Asia. If you go back to last year, we had stronger growth in Europe and in Asia than we did in the U.S. So it varies from quarter-to-quarter.

Our next question comes from James Yaro from Goldman Sachs.

This is Matthew in for James. So I just want to really dive deeper into the broader M&A cycle. You guys mentioned you guys are seeing activities starting to come back in the mid-market space. But overall, where do you guys think that we are in the M&A cycle today? And how long can they continue to grow from here?

Yes. Clearly, it has been described and I wouldn't disagree as -- and this is the M&A market overall is K-shaped right? The large cap deals have been happening at, obviously, a very strong rate and a number of our public peers have done quite well. the mid-cap market has really not returned yet to normal. I would say the party has been going on for a while. And the large cap in the party is -- either hasn't started or is just about to start on the mid-cap side.

Yes. I mean I'd say over the last few quarters, we have said pretty clearly, we're in the early innings in the mid-cap cycle. I think last quarter, I think of it as a rain delay. And we're still in those early innings. I mean as Scott said it best, the large-cap space has done extremely well. We're seeing it a little bit in our FDA business. and the macro events of really the last few months have had a small impact on our Q4 and a bigger impact on our Q1. But we -- for all the reasons Scott suggested, I look at that as a delay as opposed to anything structural at all. .

That makes a lot of sense. Rain delay is a great analogy. And just a follow-up, on the restructuring outlook. So you guys mentioned restructuring activities has continued to be strong in the quarter, as you guys expect. How much further in your view, can restructuring improve? And could the software and private credit issues catalyze this and over what time frame?

Yes. So the answer is yes. We are continuing to see opportunities increase in restructuring obviously, there's delays. It takes time for those deals to work their way through the pipeline, but continues to increase. software has certainly been one of the drivers of that, not -- certainly not the only driver. There have been knock-on effects as we've talked about from more in other areas that have benefited restructuring and we do -- as we've said and really, the only way we talked about restructuring is that we expect this year to continue to be at elevated levels.

And obviously, if there continues to be trouble in those various sectors or other ones, it can rise above those, I will call it, elevated levels. But at this point, we feel good about the outlook for restructuring this year.

Our next question comes from Gabriel Angelini from Bank of America.

Your point in terms of the impact of the geopolitical events in the Middle East and sort of software and impact on first quarter revenues. I think it was one of the weaker first quarters maybe going back to 2025 in terms of revenue. But just want to get a sense for once we have a clearing event, how quickly can this sort of turn back on sticking with the rain delay analogy, how quickly can the TARP come off the field here if we see a clearing event?

I like the analogy and let's stick with that for a while. So I think that the TARP does come up, but it doesn't come up instantaneously. And I think that's the way to think about it, that it does take a little bit and that can be -- you can think about that usually as months or quarters, not years. And I think that one of the challenges is every time we hit normal again in the geopolitical environment. We have things like we've heard over the last couple of days where the war popped up again. And so do they start to take it off and then it rains again, and they bring it back on, and that's, I think, the question mark.

That was very helpful. And maybe 1 more strategic question. You previously talked about a big market share opportunity being that sort of 98% of the middle market volume that you don't participate in right now, but then I think some of the larger firms are also focused on expanding, particularly in the market space, there was an announcement from a bulgeback that they're going to be hiring in that space. as you think about gaining share, who are the share donors? And is it becoming more competitive in the middle market environment?

I've been doing this a very long time, and I can tell you that there have been a number of entrants in and out over time in the mid-cap space. very few are enduring in it and the ones that are enduring and it, obviously, have seen the growth in the business overall. We have continued to, we believe, take share in that market over time, and we see no reason that, that will not continue. And that's really the new entrants are historically at least been visitors to the space.

And the other I think important way we think about it is the vast majority of our competition in the mid-cap space are smaller boutique firms. And given sort of the success of both the Houlihan and some of our larger middle market peers, it is becoming structurally more difficult for boutiques to compete with us. We just have broader geographic reach, we have more depth in terms of private equity coverage. We're able to invest in technology that the smaller boutiques can -- and so a lot of those market share gains are just the larger mid-cap firms like a Houlihan Lokey, taking market share away from smaller boutiques or bringing those smaller boutiques underneath the Houlihan Lokey umbrella and having them thrive. And so that, I think, more likely where we're going to take market share versus from a bulge bracket firm that moves into the middle market for 15 minutes and then moves back out when the market's changed. .

Our next question comes from Alex Bann from KBW.

Wondering if you could drill down on the impact of the slowdown in software-related transactions this quarter and maybe what extent that impacted the corporate finance results both on the M&A side and in Capital Solutions. And maybe if you could just compare activity levels there relative to the year ago period. And then also curious to the extent you are seeing green shoots within software? And any color you can provide on expectations there, specifically through the rest of this fiscal year?

I'll start and let Scott finish the green shoots comment. So our technology business, and it is technology in total, which we think the bulk of which is software. And I'll give it to you across the firm as opposed to just in Corporate Finance was down about 54% for the quarter or $53 million in 1 quarter.

Just to give you a sense of how that affected our business in Q1, and then with respect to green shoots, I think, Scott.

Yes, I have an awful lot of client meetings, and it went from everybody believed completely a few quarters ago, SaaS poclyps. Real. Nobody was ever going to touch another software company again. Clearly, today, just we're doing financings, we do -- we are closing deals in the space, I would say, a number of very smart investors have started to understand there is a difference between a good software company and a bad software company and just kind of throwing it all out does make complete sense.

So we are starting to see a bifurcation, if you will, in the software space.

Got it. Okay. Great. That's helpful color. And then maybe as a follow-up, just anything to read into the fact that the larger size deals or I guess, larger fee deals have been more susceptible to closing delays more recently? Is this just simply a result of there being more variables in the equation for these deals, so maybe they're more impacted by volatility or geopolitical uncertainty? Or just any sort of other additional color in terms of how we should be thinking about that?

I think you're really covering it. I mean, to a large extent, it is people saying, let me just get that 1 more piece of information. Hey, by the way, what about this and the larger deals, the more they have to ask questions around, right? There's just more complexity of the businesses. And so it is just dragging out that -- and it is -- I would say something that we have seen before, but that the larger deals, the smaller deals also people are just more willing to just close and move on because they're going to make so many operational improvements and things like that.

And our next question comes from Steven Chubak from Wolfe Research.

This is Stany on for Stephen. I was wondering if you could just speak to your appetite to do deals a bit a more challenging revenue backdrop, our target valuations looking more attractive in the current environment? And what are some of the areas where it might make more sense to buy versus build?

I missed the very beginning of what you said that I couldn't quite hear. Can you say the very beginning of that 1 more time? .

Yes. I was wondering if you could just speak to your appetite to do deals amid a more challenging revenue backdrop and whether....

Got it. Yes, from our own M&A perspective, we obviously disclosed the INTREPID deal. We -- as we also stated, we have as strong a pipeline as we ever have, and we are continuing to be as aggressive, if not more so than we have been. We continue to believe in our business exactly the way it is.

Great. And then just for one follow-up. Thinking through the long-term impacts from AI on your business. Can you speak to how you're thinking through opportunities and threats your 3 core businesses and specific to the valuations business, how you're handicapping the risk of greater pricing pressure in an AI world?

Yes. That's a -- I could go on for a very long time. That's a very fulsome question. So thank you for that. We are very much a believer in AI being a meaningful component of our business. And we have opted, I would say, for I believe that a 10% improvement is the enemy of a 10x improvement and we are focused on the 10x improvement that we think we can drive by AI, and we are have -- it's a very long conversation, probably not appropriate completely for today, but we are big believers in it. And the improvements it can have on our business. When you talk about valuation, we have said that there are components of our valuation business that we think our -- all of our valuation business for that matter, is already a large user of technology and will continue to be.

We do think it creates a differentiator between the smaller players and the larger players that are able to be more technology forward. We certainly have seen in parts of our business where that technology has driven average pricing down and increased the total addressable market, TAM considerably, and those businesses continue to grow. -- even at, for example, in portfolio where an average cost of a mark may decline, the number of marks in the frequency of those marks is expanding at a faster velocity.

Our next question comes from Nathan Stein from Deutsche Bank.

Hey, good afternoon, everyone. So we've talked about the impact from the geopolitical conflicts in the first quarter, particularly in the Corporate Finance business. But it seems like an outsized impact to you relative to your peers. Can you just remind us why that is? And separately, how much is this dynamic continued so far in the early weeks of the second quarter relative to last quarter?

Yes. I think that this has been something that really was March, April, May -- we've seen the impact begin to decline in June and July. Now again, war picks up, don't know what happens, right? So to be clear about that. But from a month-by-month basis, that's what I would say. I'd say why we are impacted more. I think there's a couple of things. One is we do have a disproportion amount of sponsor based business. And I do think sponsors have -- are putting their toes back in the water 1 at a time, very, very slowly. And so every time something happens, they bullet to out of the water. And that's -- that's one of the reasons the other. I think we talked about we have a more global business. And as we talked about, Europe has -- was not performing at least this quarter at the same level as the U.S.

And I'd say the third piece is we have a decent size technology software business. It's hard to tell what our peers do in that space. But we are quite strong in software. And look, I think it has benefited our comments and our activity levels vis-a-vis restructuring, I'd say that we are as well positioned to do software restructurings over the next 2 to 3 years, as we all know, that unfolds, and there's a lot of highly levered software businesses, what's affecting us today in M&A is going to have a positive impact on our restructuring business over the next 2 to 3 years because of the investments we've made in technology and specifically in software.

Okay. Sounds good. And then as a follow-up on the non-comp expense, it came in strong despite the lower revenue base. I just want to ask what the main driver of that was? Was it all tech or AI spend, investments for the future? Or was there some seasonality that we should be mindful of in the quarter?

It was pretty close to what we expected, maybe a little lower than expectations. I think it's just timing. There wasn't anything that I'd point out in non-comp I think any positive benefits on timing that we had in Q1 will be made up for in the subsequent quarters, but not dissimilar to what we expected for the quarter, and I'd say mostly just around timing. .

[Operator Instructions]

Our next question comes from Kane Schmitz from Morgan Stanley.

Following up on restructuring, last quarter, you called out 2 large restructuring mandates that were pushed out fiscal '26 to the first half of fiscal '27. Can you clarify if 1 both or none of those mandates have been reflected in the 119 that you printed this quarter?

Not going to be specific on the 2 transactions, but I will tell you that those 2 transactions were 1 of the many reasons why we had expected decent results and elevated results in fiscal '27 and that hasn't changed. .

Got it. Okay. I guess switching to FCA. Can you quantify any future revenue opportunities from the Morningstar partnership and then the data bank initiative more broadly that we've not heard about in a couple of quarters now. both from a potential hard dollar payment perspective and any cross-segment synergies? And any early signs of success to call out?

Yes. So I'd say think of the Morningstar partnership as 1 baby step in sort of the more medium, longer-term objective of utilizing the -- what we think is quite unique data set that we have to drive client success and ultimately, revenues. Any revenues from Morningstar would be de minimis. It's not -- it's not about the revenues, it's about that first step. It's about the branding of combining with Morningstar. And I think look at it as a series of steps over the coming years to get to ultimately where we want to go. But nothing. No modeling. -- no modeling changes.

No reason to change your modeling, it is. There will be more things like this over time.

And with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Scott for any closing remarks.

I want to thank you all for participating in our first quarter fiscal 2027 earnings call. We look forward to updating everyone on our progress when we discuss our second quarter results for fiscal 2027 this fall. Thank you all.

The conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines.

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.