Lincoln (LCLN) Q3 2026 Earnings Call Transcript

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DATE

Thursday, Nov. 5, 2026

CALL PARTICIPANTS

• Chief Executive Officer - Rob Brown
• Chief Financial Officer - Ted Heidloff
• President and Global Head of M&A - Eric Malchow
• Chief Marketing Officer and Head of Investor Relations - Alexandra Deignan

TAKEAWAYS

• Revenue -- $293.7 million, growing 57% year over year driven by increasing merger and acquisition activity, private market valuation demand, and the acquisition of MarshBerry.
• Investment Banking Advisory Revenue -- $239.9 million, a 70% increase year over year reflecting higher transaction volume and increased average fees.
• Valuations and Opinions Revenue -- $53.8 million, up 18% year over year due to demand for portfolio valuations and transaction opinions.
• Adjusted Diluted EPS -- $0.46, for the third quarter following the company's initial public offering in May 2026.
• Closed Transactions -- 93 deals in the third quarter and 237 deals year to date, reflecting a recovery in the transaction environment.
• Portfolio Valuations -- 7,600 companies valued on a quarterly basis, representing a 25% increase in volume versus last year.
• Adjusted Operating Margin -- 25%, with adjusted operating income reaching $71.9 million.
• Adjusted Compensation Ratio -- 61%, totaling $179 million in adjusted compensation expense for the quarter.
• Adjusted Noncompensation Ratio -- 15%, with expenses of $42.7 million reflecting a 360-basis-point improvement year over year in the ratio.
• Net Cash Position -- $261 million as of Sept. 30, 2026, comprised of $363 million in cash equivalents and $102 million in long-term debt.
• Managing Director Count -- 163 professionals firmwide, following 10 lateral hires and six internal promotions year to date.
• Fourth Quarter Revenue Guidance -- 30% to 40% of annual revenue, with management expecting the final result to fall at the lower end of that range.
• Adjusted Effective Tax Rate -- 31% for the third quarter and the first nine months of the year, in line with full year expectations.
• Quarterly Cash Dividend -- $0.07 per share, scheduled for payment on Dec. 15, 2026, to stockholders of record as of Dec. 1, 2026.
• High-Frequency Valuations -- 35% of valuations are now performed more frequently than quarterly, driven by redemption requirements for retail capital.
• Transaction Value Range -- $250 million to $2 billion, which management identifies as the firm's sweet spot despite increasingly executing larger mandates.
• Capital Advisory Performance -- Record third quarter and year-to-date revenues, supported by demand for refinancing and creative capital structures.
• European Expansion -- Three managing directors hired in Europe during the third quarter, covering financial services, consumer sectors, and the Italian market.
• Non-M&A Backlog -- Record high levels for MarshBerry one year after the acquisition, with performance expected to be more back-end loaded for the year.

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RISKS

• CFO Heidloff stated, "there will definitely be some upward pressure on the tax rate," starting in 2027 due to changes in tax code Section 162M.
• CEO Brown stated, "we are seeing foreclosure activity increasing as lenders tighten operating constraints," noting that some sponsors are unwilling to provide additional capital where equity returns are unclear.
• CEO Brown noted that lateral hiring has slowed because "it's more competitive to hire" and many qualified candidates have already moved to different platforms.

SUMMARY

Lincoln International, Inc. (NYSE:LCLN) reported record results for the third quarter, driven by a recovering transaction environment and the integration of the MarshBerry acquisition. Management stated that the company is benefiting from structural changes in the private markets, including the increasing participation of retail investors and the demand for more frequent independent valuations. The firm noted that its diversified platform, which includes capital advisory and valuation services alongside mergers and acquisitions, provides stability across different economic cycles. The company reported that its global footprint and sector expertise have led to increased market share among private equity sponsors, particularly for larger and more complex mandates.

• Management described the sponsor market as an improving environment, with CEO Brown stating it is an "ice dam that's melted and we continue to see it melt."
• The company achieved the largest transaction fee in its history during the third quarter, which management noted reflects an ability to compete successfully for larger mandates beyond its traditional transaction range.
• President Eric Malchow noted that the firm is taking market share from competitors by using a differentiated coverage model where relationship managers track assets for three to five years before they come to market.
• Management stated that private equity sponsors are under increasing pressure to generate liquidity due to extended holding periods and demand for distributions from limited partners.
• CEO Brown reported that artificial intelligence is making firm personnel more effective and efficient as the company continues to invest in data infrastructure and core systems.
• The company launched monthly and sub-industry senior debt indices in the third quarter, which management expects will eventually serve as a benchmark of choice for the industry.
• Management stated that the current political environment, characterized by a divided government, generally provides the market stability required to drive private capital market activity.

INDUSTRY GLOSSARY

• GP-led Advisory: A process where a fund manager (General Partner) initiates a transaction to provide liquidity options to investors or to move assets into a new investment vehicle.
• Secondary Transactions: The buying or selling of existing investor interests in private equity or other alternative investment funds.
• Direct Lending: Corporate loans made by non-bank financial institutions directly to companies, bypassing traditional bank intermediaries.
• Asset-backed Finance: A lending method where the loan is supported by a specific pool of underlying assets such as receivables or equipment.

Full Conference Call Transcript

Operator: Good morning, and welcome to Lincoln's International Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. At this time, I would now like to turn the call over to Alexandra Deignan, Chief Marketing Officer and Head of Investor Relations. Please go ahead.

Alexandra Deignan: Thank you, Christa, and good morning, everyone. Welcome to Lincoln International's Earnings Call for the Third Quarter of 2026. Earlier today, we posted our earnings release and an investor presentation on the Investor Relations section of our website at www.lcln.com. A replay of today's call will also be available on our website following the conclusion of the call. Before we begin, I'd like to remind everyone that today's discussion may contain forward-looking statements. These statements are based on management's current expectations and are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied.

For a discussion of these risks and uncertainties, please refer to our earnings release and our filings with the SEC. Except as required by applicable law, Lincoln International assumes no duty to update or revise these forward-looking statements. In addition, during today's call, we will discuss certain non-GAAP financial measures. We believe these measures provide useful supplemental information to investors regarding the performance of our business. Reconciliations of non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release and our investor presentation, which is available on our website. Joining me on today's call are Rob Brown, Chief Executive Officer; Ted Heidloff, Chief Financial Officer; and Eric Malchow, President and Global Head of M&A.

Rob and Ted will provide opening remarks, then we'll open the call to questions. With that, I'll turn the call over to Rob.

Robert Brown: Thank you, Ali, and thank you to everyone for joining us this morning. We are pleased to report another strong quarter with record revenues and adjusted earnings for the third quarter. Our results reflect sustained momentum across our business and improving transaction environment and the benefits of the strategic investments we've made to fortify and diversify our platform. Both investment banking and valuations and opinions delivered robust year-over-year revenue growth, demonstrating the breadth of our capabilities and our ability to capitalize on opportunities cost across the private capital markets. Our M&A business continued to show strength, particularly across industrials and business services. For the second consecutive quarter, we generated the largest transaction fee in our firm's history.

This underscores the continued evolution of our franchise and our ability to compete successfully for larger, more complex mandates. Beyond M&A, our capital advisory practice achieved record third quarter and year-to-date revenues. This performance was supported by increased demand for financing solutions, particularly refinancing activity. Our private funds advisory practice continues to see strong demand for general partner-led advisory and fundraising. The growth in these businesses reflects the investments we made in senior talent to enhance financing solutions for our clients, broaden our addressable market and increase productivity. Our valuations and opinion segment generated record quarterly revenues. Within our portfolio valuations business.

This was driven by continued execution of the strategy to deepen existing client relationships, expand the breadth of asset classes valued and increase the frequency of valuation services delivered. In addition, our transaction opinions business delivered solid growth in the quarter we saw particular strength in secondary transactions. With these results into context, I want to spend a few moments discussing the broader market dynamics and some of the trends we're seeing. The improving M&A environment we discussed in the second quarter continued into the third quarter, while buyers clearly remain selective and the pace of recovery varies across the sectors. We remain encouraged by the momentum in transaction activity, including increasing engagement from private equity sponsors.

The high-quality businesses with compelling growth opportunities continue to attract significant interest and drive competitive processes. At the same time, we continue to see greater transaction activity among companies that previously faced more challenging market conditions, which we believe suggests a broadening recovery. It is not new news that private equity sponsors remain under pressure to generate liquidity, driven by extended hold periods, selective fund rating environment and increasing demand for distributions from limited partners. Combined with substantial capital available for deployment and largely good company performance, which we can see in our valuation data, we believe these dynamics provide instructive foundation for a continued improvement in M&A activity.

From a financing perspective, our capital advisory practice is benefiting from several durable demand drivers, including elevated borrowing costs, growing demand for liquidity and the debt maturity of portfolio companies acquired in 2021 and 2022. Capital clearly remains available for high-quality transactions. At the same time, we are seeing foreclosure activity increasing as lenders tighten operating constraints and financial sponsors are increasingly unwilling to provide additional capital where there is no path to equity returns. With this backdrop, private equity sponsors are actively seeking creative capital structures to preserve liquidity or generate distributions. Beyond the recovery in transaction activity, we continue to see important structural changes reshaping the private markets.

First, the growing participation of private wealth and individual investors is expanding the investor base. This trend is increasing demand for transparency and frequency of independent valuations. Second, the continued expansion of alternative investments into a broader range of products and investment structures is also driving higher demand for increasingly complex valuations. These trends are particularly pronounced in private credit including both direct lending and asset-backed finance and are increasingly evident across private equity and secondary funds. We believe these developments create meaningful long-term growth opportunities for our valuations and opinions business. Our ability to capture these opportunities reflect years of deliberate investment in our platform to broaden our capabilities, sharpen our sector expertise and strengthen our competitive position.

Importantly, we're beginning to see the benefits of these investments and the productivity of our people supported by larger fee sizes and stronger backlog conversion. We remain focused on capitalizing on this momentum through a balanced approach to developing our next generation of leaders while selectively recruiting experienced talent in strategic growth areas. In Europe, we continue to see attractive opportunities as we strengthen our sector and product expertise across the region. During the third quarter, we welcomed 3 new managing directors, including new leadership for our European financial services practice, expansion of our consumer sector in Germany and expanded coverage in Italy.

Year-to-date, we have hired 10 managing directors, complementing the 6 managing directors promoted internally at the beginning of the year. It should also be noted that we have the largest cohort of directors in our history currently going through the Managing Director promotion process for this year-end. We believe balanced investment in both internal development of our people and selected lateral hiring preserves our culture and accelerates our long-term growth. Technology is another important area of strategic investment as we advance our core systems, strengthen our data infrastructure, enhance the capabilities available to our people. Artificial intelligence is increasingly making our people more effective and efficient.

As we look ahead, we are operating from a position of strength, supported by healthy pipeline activity, continued client engagement and a constructive transaction environment. While macroeconomic and geopolitical uncertainty remains, we view economic resilience and market stability as the most important drivers of private capital markets activity. We are focused on continued investment in our people, technology and global platform, further strengthen our culture and our competitive position, all to better serve the evolving needs of our clients. With that, I would like to turn the call over to Ted to review our financial results in more detail.

Theodore Heidloff: Thank you, Rob. Our record third quarter results demonstrate the strength of our diversified business model with robust revenue growth across both segments and disciplined expense management. Furthermore, our balance sheet flexibility and strong cash flow generation provides a solid foundation for continued investment in long-term growth. Before reviewing our financial results, I'd like to note that my comments today will focus primarily on adjusted financial metrics. In addition, our acquisition of MarshBerry in October of 2025 continues to affect the year-over-year comparability. In the third quarter, we generated revenues of $293.7 million, an increase of 57% from the third quarter 2025 and 30% from the second quarter of 2026. Adjusted diluted earnings per share were $0.46.

As we completed our IPO in May of 2026, there was not a comparable earnings per share figure for the prior year period. For the first 9 months of 2026, revenues were $677.1 million, representing an increase of 45% from the prior period, and adjusted diluted earnings per share were $0.87. We're pleased with the revenue growth we've generated year-to-date, which reflects improving transaction activity, the impact of our acquisition of MarshBerry and the return on investments we've made across the platform. For the third quarter, Investment Banking Advisory revenues were $239.9 million, up 70% year-over-year. We closed 93 transactions during the quarter and 237 transactions year-to-date.

Average fees increased this quarter, driven in part by the largest transaction fee in Lincoln's history. Notably, average fees also increased, excluding that transaction. As Rob noted, this milestone reflects our ability to compete for and execute larger, more complex mandates, while transaction volume remains an important driver of growth. For the first 9 months of the year, investment banking advisory revenues were $527.5 million, representing growth of 51% compared with the prior year period. For the quarter, valuations and opinions revenues were $53.8 million, an increase of 18% year-over-year. During the quarter, we completed 25% more portfolio valuations compared to the prior year period, bringing the number of portfolio companies we value on a quarterly basis to approximately 7,600.

Transaction opinions activity also remained strong. with an increase in the number of opinions completed during the quarter. For the first 9 months of 2026, valuations and opinions revenues were $149.7 million, an increase of 25%. We continue to benefit from the growth of the private capital markets and the increasing need for independent valuation and transaction-related advice. Turning to expenses. Adjusted compensation expense was $179 million during the third quarter, resulting in an adjusted compensation ratio of 61%. For the first 9 months of 2026, the adjusted compensation ratio was 61%, which is consistent with our expectations for the full year.

Our compensation philosophy remains focused on attracting and retaining exceptional people, rewarding performance and aligning employees with long-term shareholder value creation. We believe this approach provides flexibility to continue investing in talent while maintaining appropriate discipline around compensation expense. Adjusted non-compensation expense was $42.7 million during the third quarter of 2026 compared with $33.6 million in the prior year period resulting in an adjusted non-compensation ratio of 15%. For the first 9 months of the year, adjusted noncompensation expense increased 20% compared to the prior year period resulting in an adjusted non-compensation ratio of 18%, which is an improvement of 360 basis points year-over-year.

We remain focused on managing expenses while investing selectively in areas that we believe will generate attractive long-term returns. Technology remains one of those areas, including our broader enterprise technology infrastructure and AI capabilities. We believe these investments can enhance the effectiveness and productivity of our people while supporting more efficient growth over time. For the third quarter of 2026, adjusted operating income was $71.9 million, representing an adjusted operating margin of 25%. For the first 9 months of 2026, adjusted operating margin was 21%. Shifting to taxes. Our adjusted effective tax rate was 31% for the third quarter and the first 9 months of the year, which is in line with our full year expectations.

Turning to the balance sheet. We ended the 9-month period ended September 30, 2026, with approximately $363 million of cash equivalents and $102 million of long-term debt resulting in a net cash position of $261 million. Our balance sheet continues to provide meaningful financial flexibility to support our growth strategy, including organic investment in our people and technology selective acquisitions and returning capital to shareholders. Finally, our Board of Directors declared a quarterly cash dividend of $0.07 per share, which will be paid in December of this year. We remain focused on maintaining a disciplined and balanced approach to capital allocation on the objective of supporting long-term growth and creating value for shareholders.

With that, I will turn it back over to Rob.

Robert Brown: Thanks, Ted. Listen, we're encouraged by the momentum across our business right now, and we remain confident in our ability to build on our success. The intentionality and institutionalization of our culture has resulted in the ability to attract, retain and engage talent over the long term, which we believe continues to be our most sustainable competitive advantage. And I want to thank all of our employees for their continued contributions and commitment to our firm as well as our clients and shareholders for the ongoing trust and support. With that, let's open it up to questions.

Operator: [Operator Instructions] Our first question comes from Brennan Hawken with BMO Capital Markets.

Joshua Brechtel: This is Josh Breckel filling in for Brennan Hawken. Our first question is going to be on MashBerry. I understand the acquisition is about a year from close. Just some of the wealth comps have had a tough year-to-date. Just can you give us an update on how MarshBerry is performing and what you're seeing in your end of the market?

Robert Brown: Yes. And we did. We celebrated the 1-year anniversary of the closing of that transaction on October 31. So -- and I think just stepping back, if we think about the strategic and commercial case to do that deal as well as the cultural case when we went into it and where we sit a year later, we could not be more pleased with both their year is more back-end loaded than the rest of our investment banking business, and that tends to be the nature of their business. Their backlog is at an all-time high. and they're going to have good performance. And so we could not be happier with that acquisition.

And I will say, we closed that really in the face of the public insurance comps really being down. Those have come back a bit. But that was a very important acquisition for us and really bringing us industry expertise that is incredibly relevant to our legacy private equity clients.

Joshua Brechtel: Perfect. Appreciate the color. And then just kind of wanted to dive in a little bit more on sponsor activity. You noted in your opening remarks that you guys have seen strong sponsor increasing activity throughout the year. Just kind of where is it tracking relative to your expectations and pricing about the outlook in the year-end and 2027? And what kind of gives us that next leg up?

Robert Brown: We've got Eric Malchow, our Global Head of M&A on the call here, Eric. I'm going to turn that one over to you.

Eric Malchow: Yes. Thanks, Rob. Good morning. And Rob mentioned in his opening comments, demand is strong. Buyers remain selective, but we're seeing continued momentum that we saw the shift in Q2. But I think most importantly, buyers and sellers are entering the market with a constructive mentality, and we're seeing strong activity for A assets. We're seeing hypercompetitive processes. But I think importantly, we're seeing more and more activity for B and C assets as we get further away from the '21 and '22 acquisitions. There's a large population of those companies sitting in private equity. There is a desire on the part of private equity to move on from those assets and redeploy their capital.

I think importantly, and I think this is a broader state regarding your question, we're taking share from our competitors, and we're taking share in the private equity community. And I think that's a result of a couple of things. First of all, if you take a look at our coverage model, we think it's differentiated. We think it's differentiated in a couple of factors. First, with our relationship managers developing authentic and trusting relationships, which help us identify the right opportunities for our firm. You overlay that what we think is a proprietary business model on how we track assets. There is a very specific business plan for each one of the assets and recovery.

And it's not just to sell the asset. But if you think about the platform that we've built and the full suite of capabilities that we have, and you think about what our vision is, is to be the best adviser. We take that approach to private equity, looking to add value and fill the needs that they need when they need it. So by taking that adviser mentality bringing the full suite of Lincoln's products, we're continuing to take share with private equity.

And I think as importantly, I'd lay on top of that, if you think about where we play from a transaction value perspective, $250 million to $2 billion, although we're punching above that rate, you're seeing more activity, both with the A, B and C assets. Combination of all of that activity is resulting in stronger activity and us taking share against our competitors.

Robert Brown: The only thing I would add to that, all that's true, and we're still not in a great sponsor market. I think we're an improving sponsor market that I think, and you've heard me use this analogy before, it's an ice dam that's melted and we continue to see it melt.

Operator: Your next question comes from the line of Connor Smith with Morgan Stanley.

Unknown Analyst: So I guess, first on investment banking. So given the strength that you've seen year-to-date, are you still expecting 4Q to roughly equate to around 30% to 40% of annual revenues? Or is the pull forward in 3Q impacting that view today?

Robert Brown: We're definitely looking to still see it in that range. We did have a large deal that we expected in Q4 that we referenced that closed in Q3. But we're still expecting Q4 to be in that range. Our expectation is it will be in the lower end of that range.

Unknown Analyst: Got it. Very helpful. And then on hiring and the overall base. So you spoke to a large cohort of MD promotes heading into next year. Can you help size this potential MG based growth from here, just given the promotes as well as your expectations for lateral hiring and any potential for near-term acquisitions? And then within that, like which areas of white space are you most focused on?

Robert Brown: There's a lot to unpack in that question. It sounds like you were in a Board meeting yesterday. So I think -- we do have a large cohort of internal promotes, the largest we've ever had. And I think that's a result of several years ago we really stepped back and took a much more disciplined approach to how we promote MDs so that we could really increase the probability of MDs hitting the ground running and being successful. And so I think that rethinking of it has probably resulted in a little bit of an elongation of the period to become an MD and we're seeing that kind of catch up.

But it's by far the largest class we've had going through the cohort this year. We are in some really interesting ongoing discussions with managing directors. We have several who have committed to us that we expect to start in Q1. So we think that's going to continue. And we've seen that slow down a little. Obviously, we talked about this, I think, on the last call, at the end of 2023, when we're really kind of in the middle of this M&A winter, we took a very deliberate approach to really map our whole organization to determine where we have the greatest need for lateral hires and had a very aggressive hiring campaign, in '24 and '25.

We're seeing that slow down partly because it's more competitive to hire, partly because I think a lot of the good people have already moved platforms. With that said, we continue to have good candidates in the pipeline. And we're seeing it really globally. We're seeing it in Europe and in North America. With regards to acquisitions, we referenced the MarshBerry deal. Having done that deal a year ago, which is one of the largest deals in our space. And then having gone public, there -- anybody that has anything to sell is coming to us and talking to us. So our pipeline of potential opportunities have never been better.

And there are a handful of opportunities that are bubbling to the top that we think could strategically be very impactful for us. And that's from an industry standpoint, a product standpoint and a geographic standpoint. And we'll have more to report on those if they become more actionable.

Operator: Your next question comes from the line of Ben Rubin with Evercore ISI.

Benjamin Rubin: I wanted to ask specifically about M&A and maybe the early outlook for 2027. Based on your historical disclosures, your advisory fees have grown at, let's say, a mid-teens clip over the past decade, and you guys are clearly tracking well above that rate this year with some of the larger fee events that you flagged both in 2Q as well as again this quarter. So as you think about 2027, how do you weigh your backlog and maybe some of the readiness of some of these sponsor companies that come to market next year with some of the really strong growth you've seen in '26?

And maybe said another way, do you see another year of above-trend M&A growth in '27? Or does some of the non-M&A pieces pick up the slack as we look to next year?

Eric Malchow: Why don't I start with answering the M&A side of that question, which is what gives us confidence as we think into 2027. I'll give you a couple of factors. The first one is our backlog is at near record levels. But I think importantly, if you peel back that onion and you look at the backlog, where we scrubbed it for quality. The backlog is strong in terms of quality. Rob mentioned in his opening comments, the underlying performance of those businesses. So that's helpful. If you take a look at -- and we had an organizational meeting earlier this week where we look at new business activity.

And if you look at the September and October pitches, just in North America alone, the consecutive month pitch activity is as strong as it's ever been. So that gives us a lot of confidence going into 2027. The other thing is if you look at the backlog, Rob and Ted mentioned the very large fee that we had this year or this quarter, excuse me, the record -- excuse me, the double-digit number of fees that we have in our backlog is at record highs.

And again, back to your comment about the portfolio companies, I would go back to our coverage model where we've been tracking these businesses for in excess of 3, 4 and 5 years adding value to these companies and knowing when they're going to come to market. And although it will be a pitch opportunity, we think in many of these situations, we've got the pole position and is evidence of the strong win rate that we have across the industry groups that we operate in. Do you want to add the non?

Robert Brown: Yes. And I think it's a good question. As we, one of the things -- we talked about this on our road show. When we came out of the global financial crisis, our focus really since then has been to build a diversified platform and to be diversified across industry groups within our M&A business to be diversified across product groups and to be diversified geographically. And so I think -- we do believe our non-M&A business within investment banking are going to have outsized growth next year.

And I think partly as a result of -- we've actually invested in a lot of senior talent in those businesses as a percentage of NPE, those 2 businesses have probably had the biggest investment in the last several years. We've also had some initiatives on how can we really cross-sell that or bring the whole suite of solutions better to our clients. So we think that initiative is going to pay off as well. But industrials and services are having great years this year, right?

And our view is different industries go in different cycles and maybe those hold up, maybe they don't, but we think other industries will have cycle ups, other products will have cycle ups.And so when we look at our entire suite of services and industry expertise, we feel confident of sustaining that kind of mid-teens growth that we've had.

Unknown Analyst: That's great color, guys. And yes, definitely an important question as you start out '27, so thanks for addressing. My second follow-up is on maybe a 2-parter on the change in your comp structure, maybe a question more for Ted. And how that's playing into recruiting and retention. You mentioned in your prepared remarks this record pipeline of senior talent eligible for promotion next year. So I guess my question is, what has been the reaction internally to the move from deferred cash to deferred equity and also the additional year of vesting. Maybe how does that play into both the internal dialogues as well as some of the recruiting discussions you're having externally for senior talent?

Theodore Heidloff: Yes, Ben, I think one of the things -- our compensation philosophy hasn't changed, first and foremost. And so again, the change that you're referencing is really only attributable to our managing directors, many of whom have been very positive in terms of having more equity and building more wells over time. It's certainly been -- the change has been well received by a lot of our bankers and functional teams as well to have the opportunity to own more equity as we move forward. So that's been really positively received by our employee base.

And again, we've tried to end our transition to becoming a public company, change as little as possible for the vast majority of the organization to keep everyone focused on clients. And as it relates to recruiting, maybe Rob?

Robert Brown: . Yes. I feel on Ted's point, and I think we mentioned this before. As part of our IPO, we get that RSUs used to every employee in the firm. So everybody is an owner in the firm. And I think it's focused on the equity value firm. So the change from deferred cash to stock has really been a nonissue. Now our stock has been up. So that's always great. People -- it's viewed as a positive. That's been a nonissue. On the recruiting side, it really hadn't put an issue at all because our biggest asset in recruiting is our culture.

People want to be part of a culture that has had the employee retention and the growth that we've had. And so the financial package to get somebody to come over. You have to be competitive, you have to be market. But in our recruiting and really at all levels of the organization, not just senior talent the deciding factor of somebody deciding to join us or not, whether it's the RSUs or deferred cash, that's pretty part on the list. It tends to be culture.

Unknown Analyst: And maybe just as a follow-up there, Rob. Has the brand as a public company helps more so in those conversations?

Robert Brown: Yes, that's a really good question. It has. And I think we were told by other people that have gone public that you do get kind of a brand. And some of it is like people just didn't know the breadth and depth and reach of our company. And now that they do. Interestingly, we've seen more brand impact in Europe, partly because I think our brand, given that we're a U.S. headquartered company, it was more well known in the U.S. I think in Europe, being listed on the New York Stock Exchange in some ways have more cache outside of the U.S. than in the U.S.

So we have seen more people coming to us and the caliber of people that want to engage in discussions, I think, across the firm as a whole, but a bit more pronounced in Europe.

Operator: Your next question comes from the line of Alex Bond with KBW.

Alexander Bond: Maybe just a follow-up on the last point about Europe. Maybe it would be helpful if you could just speak to when you look across the pipeline right now, if you're seeing maybe more relative strength in the U.S. versus Europe or vice versa and maybe just near-term expectations for the 2 regions as you look out over the next couple of periods?

Robert Brown: Yes. We're seeing Year-to-date, we're seeing more strength in the U.S. than in Europe. I think Europe is still going to have a good year. Europe's forecast is more back-end loaded there, MarshBerry and Europe. If we think about more in the fourth quarter, those are 2 areas. But if you look at our improving win rate in Europe. If you look at the increase in the quality and the size of transaction that we continue to see is working out in Europe, we're bullish about Europe. And so the U.S. is, I think, going to be the biggest part of the business for the foreseeable future.

But we have some people at Super Return in Berlin and talking to LPs and what some LPs will say is they want to allocate more money to Europe because they believe that in the U.S., there's industries that are much further along the consolidation path than in Europe, and there's opportunities there. So we think there's going to be capital deployment in Europe. We think we have the right strategy in Europe with feet on the street and the right local economies and being globally coordinated. So to date, U.S. control. But I think our mix between U.S. and Europe, historically, we don't see that changing materially this year or next year.

Alexander Bond: Great. Okay. That makes sense. And then you also highlighted and spoke to the elevated amount of MD promotions and turnover you all have had over the last few years. Just wondering if you could comment on where you are in the broader ramp cycle on that newer cohort that are on the platform today and if some of the strong year-to-date revenue trends in your view, are maybe attributable to that base ramping at an accelerated pace.

Robert Brown: Yes. Interestingly, a little bit year-to-date, but more to come. We were talking about this yesterday. I think if you look at those -- if you look at the MDs we've hired in 2024, 2025 and 2026, we'd say kind of 20% are kind of ahead of where we expected the ramp to be, and those are the ones we're starting to see in our historical numbers. We'd say 20% are below or in some cases, not here anymore. And the middle is just kind of ramping up the way we would expect. I think one area that we're really seeing some recruits have a more pronounced impact on the business is in aerospace and defense.

We hired a couple of MDs a couple of years ago and as well as in kind of specialty distribution. So I think the ramp is kind of where we wanted it. In our backlog right now, if you look at that cohort, that cohort accounts percent of our backlog.

Operator: Your next question comes from the line of Steven Chubak with Wolfe Research.

Unknown Analyst: This is Annie on for Steven. I wanted to just start with a question regarding the impact of midterms and whether you could speak to how you anticipate the midterms will affect deal activity across different sectors. And any sectors you expect will be more or less impacted?

Robert Brown: Yes, very good question, very timely question. I think for us, if we look at these midterms, and we commented this before. In our market, what really helps drive activity is stability. And in some ways, if you have divided government where there's checks and balances, and you have an executive branch that's one party and Congress and other party, it's very hard for either party to over advance their agenda, and that tends to create a little more stability. So I think just in general, a feeling of stability should be good for activity in the private capital markets. And I don't know if this is going to be the case or not.

But the one thing we have seen drive activity in the past is when there is a feeling that Congress for the government is moving towards increasing capital gains rates. If we start seeing that, you may see some accelerated activity. But I think in general, midterms, don't move the needle much. This was a very, I think, unique midterm in that it was such a one-sided midterm. But I think for us, our hope and our belief is that the stability of a divided government is going to result in more activity. And we've heard others comment on kind of the regulatory environment. Obviously, the regulatory environment right now is very good for transactions.

And I think if you believe that's going to change, maybe you accelerate something. For us, I don't see that element affecting our business as much. And as Eric mentioned, the sweet spot of where we play tends to get less regulatory scrutiny anyway just based on size.

Unknown Analyst: Okay. Great. And then I just wanted to ask a follow-up question regarding tax code Section 162M. It appears this tax change, which goes into effect next year could limit tax reductions by increasing the number of covered employees. So I was hoping you could provide any preliminary guidance as to how impactful this could be to your go-forward tax rate beginning in 2027 versus the current baseline.

Theodore Heidloff: Yes, Annie, it's definitely something we're evaluating for next year. It certainly depends on the compensation environment. As we move forward, there will definitely be some upward pressure on the tax rate, but that's consistent with everybody across the industry. And I think we tend not to have as much revenue concentration across our MD base as perhaps some others. So I think that should be somewhat of a mitigating factor. But you're right, that will create upward pressure as we move forward but a lot of variables there continuing to model it.

Operator: Your next question comes from the line of James Yaro with Goldman Sachs.

James Yaro: Rob, are higher interest rates having any meaningful impact on your clients? How are sponsors reacting, if at all? And is it the sharp move upward in rates that has more of an impact versus an absolutely higher level of rates?

Robert Brown: Yes, very good question. I would say to date, we're not seeing it affect our business. In fact, to date probably is helping our capital advisory business, about 30%, 40% of what we're doing there is stressed or distressed. So if a cost of capital can push something into needing more of that work. We're not seeing it affect the M&A business. Eric, you may want to talk about kind of why we think that's the case?

Eric Malchow: James, I would say a couple of things. First of all, there is increasing pressure for private equity to deploy assets. And the margin -- the increase of interest rates on the margin is not impacting a sponsor running hard after an A asset. The opportunity cost of not putting those dollars to work is far greater than -- or putting them to work far greater than not putting more. I think also importantly, the strategic buyers that are coming to our processes and competing in our processes, there's often significant synergies that are outlaying any marginal increase in the cost of capital.

So in theory, you would think that the rise in interest rates would decrease in values, but we're just not seeing it in our marketplace. It is predictable, if it's small in interest rate increase, it's just not going to impact it.

Robert Brown: Yes. James, I think you alluded to something. I think if you have a rapid rise where people don't know where it's going to end, then that gets back to creating instability. It doesn't seem like that the interest rate increase environment that we're in. And we'll continue to monitor it because, obviously, conventional wisdom is a higher cost of capital, lower values. But I think what's driving transaction activity, and we've mentioned this in the comments as well as the questions. We'll continue to monitor it. But right now, we're not overly worried about it.

In fact, there's some thought that the interest rate increase could be the catalyst for some sponsors to maybe mark down some of their businesses that are overvalued and could result in more activity, but that remains to be seen.

James Yaro: Fascinating. Okay. Well, that actually brings me to my second question, which is on valuations opinion part of the business. So hoping you might be able to just talk a little bit about trends there that are not related necessarily just to the market backdrop. The first is the impact of the continued shift to more frequent valuations out of a monthly or daily and how this has evolved over, let's say, the period since the IPO.

And then number two, the impact of some of the newer products that you've built in this business, the senior debt indices and the private market index being the 2 that I'm thinking about and how the growth of those 2 products has gone.

Robert Brown: Yes. Good questions. And in terms of the frequency evaluations, James, we just see that continue. I think when we were on the road show, we quoted that over 30% of our valuations are now done more frequently than quarterly and largely driven by the retail money that's coming in. And when you have to have redemptions on a more frequent basis than quarterly, you need valuations. We're seeing that number has gone up. And I think the last I heard in talking to Brian was it's kind of mid-30s now. So we are seeing that continue. You've got some large asset managers come out and say, we're just going to value everything daily because we want to.

And so part of it is the redemptions. I think part of it is there's just a shift for more transparency. So that trend is continuing. And there's no indication that's going to stop. And also on that point, the question on how do we see the midterm effect and to the extent there are more regulations for this business, regulations tend to be good. So we'll see what plays out there. In terms of the product, as we previously communicated, we, earlier this year, announced the S&P Lincoln Senior debt index. We brought that to market. We signed up contracts.

We continue to feel that this index will become and if it's not already, kind of the benchmark of choice over time. In Q3, we launched the monthly and sub-industry indices for this with a very favorable market reaction. Nobody else is doing that on a monthly basis. So we're still not modeling any of this in a material way into our revenues gains, but we think that this is a product that's a branding element to it, and we think, ultimately, this has the ability to have an impact on earnings.

Operator: Your next question comes from the line of Devin Ryan with Citizens Bank.

Devin Ryan: I want to come back to the opportunity that you guys highlighted several times around kind of larger fees. I'm just trying to understand what's driving that and kind of mapping this out into the future? I mean I'm curious, is that mainly you just pay off from building relationships over a long period of time. And so Lincoln just getting involved in larger assignments as you kind of win those customers over trust? Or is it about expanded capabilities and so now you're kind of opening up maybe a different part of the market that wasn't there for you before.

And then connected there certain verticals here where you feel like you have more of a right to win at least initially here?

Eric Malchow: Good questions. I would say to you that it's an evolution of our business. And if I go back to my prior comments, which is, we have built a platform over time with one, diversified, but two full-service products and building value for those portfolio companies over their hold periods. Our goal is to serve the entire life cycle of that company and have round trips. So perhaps sell that business when it's $15 million of EBITDA and then $40 million or $50 million of EBITDA and then maybe $100 million or $200 million of EBITDA. And you're seeing that. And to your sector question, there are different maturation levels of our industry groups.

And we had particularly strong success this quarter, for example, in data centers and power and those -- we've got the leading position there. So we're taking advantage of the structural trends in that market. But also the expertise that we have in that market but no different across other groups like services or health care or even technology where we've had multibillion-dollar deals. And it really goes to the long-term investments that we made that are now paying off because of the expertise that we have, the deals that we've done in that space, the value we're adding to the private equity groups and the portfolio of companies that we are tracking. Anything you'd add?

Robert Brown: I would just say none of this is a change in our strategy. None of this is, hey, we have a strategy to go up market. I think both Lincoln, and I think many of our peers, I think our clients are realizing that firms like us, our expertise in M&A, the industry expertise that we've built up over decades the disciplined processes that we run can be really, really effective at all sides of business. So I completely agree with Eric. I think it's just it's advising companies over decades and deals to get deals. And when you've announced larger deals and more complex deals than more of those tend to compete.

So I think it's been a function of a lot of building blocks over a long period of time that have put us in a position to continually advise on better, larger and more complex transactions.

Devin Ryan: Appreciate that great color. And just a model question. I don't think I missed this, but on non-compensation costs, the outlook last quarter, I think you framed for full year growth in the high single digits off of the -- I think the comparable base was $157 million from 2025. The third quarter of $43 million was better than we had modeled. So that would seemingly imply something in the low $50 million range in 4Q, if that's still the right framework. So just checking to see if that's still the right framework and any modeling help would be appreciated.

Theodore Heidloff: Yes, Devin thanks for the question. Yes, we continue to expect high single-digit growth for noncomp on a pro forma basis once you had MarshBerry,. Q4 tends to be a little bit seasonally higher as you work through some of the year-end billing for firms like consultants, things like that and tend to come through in the fourth quarter there. But yes, consistent expectations with high single digits for full year.

Operator: This concludes our question-and-answer session. I would now like to turn the conference back over to Rob Brown for any closing remarks.

Robert Brown: Really just thank you all for the engagement today. And hopefully what came through is that we believe we're well positioned to capitalize on the momentum that we have. And we look forward to updating you on our fourth quarter and full year results early next year.

Operator: The conference has now ended. Thank you for attending today's presentation. You may now disconnect.

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