Houlihan Lokey, Inc. Q1 FY2026 earnings call

• Corporate Finance saw a 21% revenue increase, with steady improvement in metrics like transaction size and average fee per transaction despite muted financial sponsor activity.
• Financial Restructuring revenues were up 9%, driven by elevated activity due to high interest rates, macro uncertainty, and overleveraged companies, with diversified industry and geography.
• Financial and Valuation Advisory had a 16% revenue increase, with growth in noncyclical service lines and pro-cyclical businesses benefiting from improving M&A conditions in the US.
• Hired 3 new managing directors, with a strong hiring market for senior talent attracted to the global platform.
• Hosted the inaugural Houlihan Lokey ONE Conference in NY with over 4,000 attendees and 400 companies participating.

Corporate Finance produced $399 million in revenue in the first quarter, a 21% increase over the prior year. It contributes approximately 65.95% to total revenues. Financial Restructuring generated $128 million in revenues, a 9% increase year-over-year, accounting for about 21.16% of total revenues. Financial and Valuation Advisory had $79 million in revenues, a 16% increase versus the prior year, making up approximately 13.06% of total revenues.

• Cautiously optimistic about fiscal 2026, expecting continued momentum in Corporate Finance and Financial and Valuation Advisory, with elevated restructuring revenues throughout the year.
• Adjusted compensation expense ratio target of 61.5% to be maintained for the balance of the year.
• Non-compensation expense expected to be in the high single digits for the full year.
• Adjusted effective tax rate for fiscal 2026 expected to be between 25% and 26%.

• Volatile macro environment, tariffs, and inflation as potential headwinds.
• Uncertainty in market conditions impacting sponsor activity and deal volumes.

Q: Your views of the business are broadly consistent with last quarter. Curious about Corporate Finance market improvement and backlog/trends.

A: Keeps getting better quarter-by-quarter, not month-by-month; refilling backlog, sectors showing strength but Europe slower than US.

Q: Within Corporate Finance, top line trends strong but deal count growth decelerated. Sense of market activity breadth and asset quality.

A: Getting better quarter-by-quarter, volume of deals expected to pick up after Labor Day, operating off a higher base this year.

Q: Clarification on non-comp growth guidance. Still high single digits expectation?

A: Still at high single digits, first quarter had higher non-comp due to specific events but expects high single digits for rest of year.

Q: Restructuring elevated, breakdown of liability management vs Chapter 11. Expectations forward.

A: Active on both in-court and out-of-court, strong pipeline, expect restructuring to remain elevated through fiscal 2026.

Q: Thoughts on sponsor market, post Labor Day increase. Expectation of sponsor activity pickup.

A: Sponsor activity muted but picking up, expects more pickup post Labor Day, with Labor Day a nice inflection point for sponsors.

Q: US market outpacing EMEA in M&A. Trends differing there.

A: EMEA has been slower to turn down and come out of cycle, but not dramatic differences, just cycle time.

Q: Cautiously optimistic despite markets at highs. Reasons for not being fully optimistic.

A: Measured due to uncertainty and volatility in current environment.

Q: Acquisition environment robust, concern about closing deals as environment picks up. Impact on deals.

A: History shows not a strong indicator, doesn't change view on opportunity.

Q: Restructuring cyclicality, impact of Fed rate cuts and economic improvement. Outlook for restructuring.

A: Restructuring has shown resilience, may be new trough, hard to predict trough with current performance.

Q: MD hiring environment, MD headcount growth outpacing overall. Cognizant choice or opportunistic hiring.

A: Always looking for talent, attracted to global platform and growth, will stay committed to hiring great talent across sectors.