Houlihan Lokey's Q2 2026: Contradictions Emerge on Restructuring, Corporate Finance, M&A, and Productivity

Date of Call: October 30, 2025

Financials Results

• Revenue: $659 million, up 15% YOY
• EPS: $1.84 adjusted EPS, up 26% YOY

Guidance:

• Second half of fiscal 2026 outlook is positive; expect continued year-over-year growth if current conditions persist.
• Corporate Finance expected to deliver a strong Q4 relative to Q3 (shift in seasonal timing and momentum buildup).
• Maintain adjusted compensation expense ratio target of 61.5% for the balance of the year.
• Backlog supports continued strength in Financial Restructuring.
• Will pay deferred cash bonuses in November (reducing unrestricted cash) and will evaluate acquisitions versus share repurchases.

Business Commentary:

* Revenue and Earnings Growth: - Houlihan Lokey generated $659 million in revenues for Q2 fiscal 2026, with an increase of 15% year-over-year, and adjusted earnings per share rose by 26% to $1.84. - This growth was attributed to improving macroeconomic conditions, reduced volatility in tariff policies, and a strong business model.

• Corporate Finance Performance:
• The Corporate Finance business produced $439 million in revenues for the quarter, marking a 21% increase over the same period last year.

• The growth was driven by increased M&A activity levels and strong new business generation, with a notable spike in the number of completed transactions.

• Restructuring and Valuation Advisory Growth:

• Financial and Valuation Advisory revenues reached $87 million, a 10% increase from the same period last year.

• This growth was supported by an improving M&A market and increased demand for services typically affected by M&A, along with continued growth in non-cyclical services.

• International Expansion and Talent Acquisition:

• Houlihan Lokey's non-U.S. business, particularly in EMEA and Asia Pacific, showed notable growth and improvements in key indicators.
• The company hired 5 new managing directors and continues to attract senior talent globally, which is expected to drive future growth in senior bankers worldwide.

Sentiment Analysis:

Overall Tone: Positive

• "We are pleased with our results"; revenues of $659 million (up 15%) and adjusted EPS $1.84 (up 26%). Management: "If conditions remain on the current trajectory, we believe the second half of the year will show improvement." Commentary cites improving macro, capital plentiful, widening capital markets and building momentum across the platform.

Q&A:

• Question from Brennan Hawken (BMO Capital Markets Equity Research): Are you beginning to see a slowdown in new restructuring business, or has activity been more consistent for you?
  Response: Pace has started to slow with easing rates and stronger M&A, but backlog remains robust and episodic restructuring spikes continue to add work.

• Question from Brennan Hawken (BMO Capital Markets Equity Research): Are sponsors coming back to market and is activity picking up into year-end and calendar 2026?
  Response: Sponsor activity has increased quarter-by-quarter, with a significant post‑Labor Day uptick; sponsors have been active since early in the fiscal year and are a growth driver.

• Question from James Yaro (Goldman Sachs Group, Inc., Research Division): How should we think about the long-term growth algorithm for Financial & Valuation Advisory (FDA)?
  Response: FDA breaks into three parts—portfolio valuation (non‑cyclical), opinion (hybrid), and transaction advisory (cyclical)—so it will grow with M&A but be less volatile than Corporate Finance.

• Question from James Yaro (Goldman Sachs Group, Inc., Research Division): What is driving the timing that makes Q3 weaker and Q4 stronger in Corporate Finance?
  Response: It's primarily seasonal timing and momentum buildup across the business rather than a single specific factor; deal timing/mix explains stronger Q4.

• Question from Devin Ryan (Citizens JMP Securities, LLC, Research Division): Can you double-click on restructuring trends and pockets of episodic growth (e.g., health care, CRE)?
  Response: No single standout sector—restructuring is across the board with thematic pockets (example: consumer/alcohol) and idiosyncratic credit events; business is diversified.

• Question from Devin Ryan (Citizens JMP Securities, LLC, Research Division): How should we think about productivity and ramp timing for new MD hires in EMEA and APAC versus the U.S.?
  Response: Productivity varies by geography; EMEA/APAC productivity per banker tends to lag the U.S., though both regions are growing strongly and ramp over time.

• Question from Brendan O'Brien (Wolfe Research, LLC): What trends are you seeing in Europe relative to the U.S., and how will the two fee pools track near‑to‑intermediate term?
  Response: U.S. remains the largest market but EMEA and APAC are growing significantly YTD—EMEA/APAC have outperformed year‑to‑date and could materially grow toward U.S. fee pool over time.

• Question from Brendan O'Brien (Wolfe Research, LLC): Are you seeing a shift toward traditional Chapter 11 versus liability management in restructuring deal flow?
  Response: No clear shift yet—liability management remains healthy alongside traditional in‑court restructurings; too early to declare a trend.

• Question from Ryan Kenny (Morgan Stanley, Research Division): How are your clients feeling about the economy and what risks are top of mind (rates, geopolitics, etc.)?
  Response: Clients face elevated uncertainty from geopolitical noise, which weighs on sentiment, but many remain comfortable transacting and activity continues.

• Question from Ryan Kenny (Morgan Stanley, Research Division): How sensitive is sponsor-driven deal activity to interest rates—would a Fed pause materially affect the pipeline?
  Response: Lower rates help but are not the primary driver; availability of capital is the key factor, and the middle market is less rate‑sensitive than large cap.

• Question from Alexander Bond (Keefe, Bruyette, & Woods, Inc., Research Division): Has the competitive hiring environment pushed acquisition ask prices up and become an obstacle to deals?
  Response: No meaningful change observed—acquisition pipeline remains strong and we haven't seen fundamental shifts in pricing.

• Question from Alexander Bond (Keefe, Bruyette, & Woods, Inc., Research Division): Can you expand on Capital Solutions results—was its contribution to Corporate Finance higher than typical and how did it compare to last quarter?
  Response: Capital Solutions has grown faster than M&A this cycle and is now at or above ~20% of Corporate Finance, but management declined to provide further specifics.

• Question from Nathan Stein (Deutsche Bank AG, Research Division): Do recent macro negative headlines (bank losses, government shutdown) impact client deal behavior or your acquisition strategy?
  Response: No material impact observed—these items are considered part of the noise and have not affected client behavior or acquisition plans.

• Question from Nathan Stein (Deutsche Bank AG, Research Division): Does strong stock performance change your approach to open‑market share repurchases?
  Response: Share repurchases are driven by issuance and excess cash versus acquisition opportunities; stock performance on the margin doesn't materially change repurchase strategy—repurchases will be opportunistic.

Contradiction Point 1

Restructuring Activity and Market Conditions

It reflects differing perspectives on the pace and drivers of restructuring activity, which are crucial for understanding the firm's performance and future outlook.

Are you noticing a slowdown in new restructuring business activity as the environment becomes more constructive? - Brennan Hawken(BMO Capital Markets Equity Research)

2026Q2: We've seen the pace of restructuring activities slow down a bit, but our backlog is still robust. - Scott Joseph Adelson(CEO)

Can you break down the components of restructuring in terms of liability management versus Chapter 11? - James Yaro(Goldman Sachs)

2025Q4: The firm sees a multiyear restructuring cycle as strong due to recent events. - Scott Adelson(CEO)

Contradiction Point 2

Corporate Finance Activity and Widening Aperture

It involves differing expectations on the timing and breadth of corporate finance activity, which impacts revenue projections and growth strategies.

Are sponsors increasing corporate finance activity ahead of year-end? - Brennan Hawken(BMO Capital Markets Equity Research)

2026Q2: We've seen a consistent improvement in corporate finance activity, especially post-Labor Day. - Scott Joseph Adelson(CEO)

What are current activity levels in Corporate Finance and when might the business expand? Have there been changes to the guidance for non-comps? - Brendan O'Brien(Wolfe Research, LLC)

2026Q1: The Corporate Finance environment is improving, but at a measured pace. A widening aperture in deal volume is expected post-Labor Day. - Scott Adelson(CEO)

Contradiction Point 3

M&A Activity and Deal Momentum

It highlights varying perceptions of M&A activity and deal momentum, which are critical for assessing the firm's growth prospects.

What factors caused the improvement in financial performance in Q4 versus Q3? - James Yaro(Goldman Sachs Group, Inc., Research Division)

2026Q2: The stronger fourth quarter is due to improved deal momentum and is consistent with historical trends. - Scott Joseph Adelson(CEO)

Can you explain the current state of capital markets, particularly the differences between middle-market and large-scale transactions? - Benjamin Rubin(UBS)

2025Q4: P&M's quarter-to-date billable days are up 11% year-over-year, reflecting material improvement across both the M&A and restructuring sectors. - Lindsey Alley(CFO)

Contradiction Point 4

Restructuring Activity and Client Engagement

It involves differing perspectives on the pace and drivers of restructuring activity and client engagement in the corporate finance sector, which are crucial for understanding the company's growth trajectory and market positioning.

Are you seeing a slowdown in new restructuring business activity due to the more constructive environment? - Brennan Hawken (BMO Capital Markets Equity Research)

2026Q2: We've seen the pace of restructuring activities slow down a bit, but our backlog is still robust. Lower interest rates and strong M&A activity, despite episodic shocks, tend to reduce restructuring activity. - Scott Joseph Adelson(CEO)

Will restructuring grow in calendar 2025 under elevated interest rates and a steepening yield curve? - James Yaro (Goldman Sachs Group, Inc., Research Division)

2025Q3: Restructuring continues to perform better than anticipated a year ago. Elevated interest rates are contributing to this, but exact revenue projections are difficult due to numerous factors. - Scott Joseph Adelson(CEO)

Contradiction Point 5

Productivity of Non-U.S. Bankers

It reflects differing perspectives on the productivity of non-U.S. bankers and the timeline for achieving full productivity, which affects the company's growth strategy and resource allocation.

How does the productivity of non-U.S. bankers compare to U.S. peers, and what are the hiring trends in EMEA and APAC? - Devin Ryan (Citizens JMP Securities, LLC, Research Division)

2026Q2: Productivity varies by geography, with EMEA and Asia Pacific lagging the U.S. We are seeing strong growth in these regions, but the timeline for full productivity ramp-up may vary. - Scott Joseph Adelson(CEO)

How is the administration change affecting small and mid-market M&A activity? - Michael Brown (Wells Fargo)

2025Q3: We believe in the longer term, all of our businesses are actually quite resilient to changes in how they're taxed. - Scott Joseph Adelson(CEO)