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Houlihan Lokey Reports First Quarter Fiscal 2023 Financial Results

LOS ANGELES & NEW YORK–(BUSINESS WIRE)–Houlihan Lokey, Inc. (NYSE:HLI) (“Houlihan Lokey” or the “Company”) today reported financial results for its first quarter ended June 30, 2022. For the first quarter ended June 30, 2022, revenues were $419 million, compared with $373 million for the first quarter ended June 30, 2021.

Net income was $71 million, or $1.03 per diluted share, for the first quarter ended June 30, 2022, compared with $86 million, or $1.25 per diluted share, for the first quarter ended June 30, 2021. Adjusted net income for the first quarter ended June 30, 2022 was $76 million, or $1.10 per diluted share, compared with $82 million, or $1.19 per diluted share, for the first quarter ended June 30, 2021.

“We had a solid first fiscal quarter and our diversified business model is performing as we would expect it to in the face of current market conditions. We are seeing a slowdown in global M&A closings; however, new business activity in both our corporate finance and financial and valuation advisory business segments remains healthy. Furthermore, we are beginning to experience a meaningful increase in distressed business opportunities. Regardless of the business environment we encounter in the coming quarters, we believe we are well positioned to successfully address a variety of market conditions,” stated Scott Beiser, Chief Executive Officer of Houlihan Lokey.

Selected Financial Data

 

(In thousands, except per share data)

U.S. GAAP

Three Months Ended June 30,

2022

 

2021

Revenues

$

418,644

 

$

372,722

 

Operating expenses:

 

 

 

Employee compensation and benefits

 

265,735

 

 

232,304

 

Non-compensation

 

75,339

 

 

32,742

 

Operating income

 

77,570

 

 

107,676

 

Other (income)/expense, net

 

1,749

 

 

(101

)

Income before provision for income taxes

 

75,821

 

 

107,777

 

Provision for income taxes

 

5,039

 

 

21,817

 

Net income attributable to Houlihan Lokey, Inc.

$

70,782

 

$

85,960

 

 

 

 

 

Diluted earnings per share

$

1.03

 

$

1.25

 

Revenues

For the first quarter ended June 30, 2022, revenues were $419 million, compared with $373 million for the first quarter ended June 30, 2021. For the first quarter ended June 30, 2022, Corporate Finance (“CF”) revenues increased 26%, Financial Restructuring (“FR”) revenues decreased (20)%, and Financial and Valuation Advisory (“FVA”) revenues increased 19% when compared with the first quarter ended June 30, 2021.

Expenses

The Company’s employee compensation and benefits expenses, non-compensation expenses, and provision for income taxes during the periods presented and described below are on a GAAP and an adjusted basis.

 

U.S. GAAP

 

Adjusted (Non-GAAP) *

 

Three Months Ended June 30,

($ in thousands)

2022

 

2021

 

2022

 

2021

Expenses:

 

 

 

 

 

 

 

Employee compensation and benefits

$

265,735

 

 

$

232,304

 

 

$

257,467

 

 

$

229,225

 

% of Revenues

 

63.5

%

 

 

62.3

%

 

 

61.5

%

 

 

61.5

%

Non-compensation

$

75,339

 

 

$

32,742

 

 

$

59,574

 

 

$

31,678

 

% of Revenues

 

18.0

%

 

 

8.8

%

 

 

14.2

%

 

 

8.5

%

Provision for income taxes

$

5,039

 

 

$

21,817

 

 

$

25,205

 

 

$

29,844

 

% of Pre-tax income

 

6.6

%

 

 

20.2

%

 

 

24.9

%

 

 

26.7

%

* Adjusted figures represent non-GAAP information. See “Non-GAAP Financial Measures” and the tables at the end of this release for an explanation of the adjustments and reconciliations to the comparable GAAP numbers.

Employee compensation and benefits expenses were $266 million for the first quarter ended June 30, 2022, compared with $232 million for the first quarter ended June 30, 2021. Adjusted employee compensation and benefits expenses were $257 million for the first quarter ended June 30, 2022, compared with $229 million for the first quarter ended June 30, 2021. This resulted in an adjusted compensation ratio of 61.5% for both the first quarter ended June 30, 2022 and June 30, 2021.

Non-compensation expenses were $75 million for the first quarter ended June 30, 2022, compared with $33 million for the first quarter ended June 30, 2021. The increase in GAAP non-compensation expenses was primarily a result of the inclusion of GCA’s non-compensation expenses in the first quarter ended June 30, 2022, which were not included in the first quarter ended June 30, 2021, and the amortization of intangible assets recognized in connection with the acquisition of GCA. Adjusted non-compensation expenses were $60 million for the first quarter ended June 30, 2022, compared with $32 million for the first quarter ended June 30, 2021. The increase in adjusted non-compensation expenses was primarily a result of the inclusion of GCA’s non-compensation expenses in the first quarter ended June 30, 2022, which were not included in the first quarter ended June 30, 2021, and an increase in travel, meals, and entertainment expenses.

The provision for income taxes was $5 million, representing an effective tax rate of 6.6% for the first quarter ended June 30, 2022, compared with $22 million, representing an effective tax rate of 20.2% for the first quarter ended June 30, 2021. The decrease in the Company’s GAAP tax rate during the first quarter ended June 30, 2022, relative to the same period in 2021, was primarily a result of the release of the provision for an uncertain tax position as a result of the successful closure of a state audit. The adjusted provision for income taxes was $25 million, representing an adjusted effective tax rate of 24.9% for the first quarter ended June 30, 2022, compared with $30 million, representing an adjusted effective tax rate of 26.7% for the first quarter ended June 30, 2021.

Segment Reporting for the First Quarter

Corporate Finance

CF revenues were $264 million for the first quarter ended June 30, 2022, compared with $210 million for the first quarter ended June 30, 2021, representing an increase of 26%. Revenues increased primarily due to a significant increase in the number of closed transactions.

 

Three Months Ended June 30,

($ in thousands)

2022

 

2021

Corporate Finance

 

 

 

Revenues

$

263,951

 

$

209,991

# of Managing Directors

 

217

 

 

127

# of Closed transactions (1)

 

124

 

 

84

Financial Restructuring

FR revenues decreased (20)% to $79 million for the first quarter ended June 30, 2022, compared with $99 million for the first quarter ended June 30, 2021. Revenues decreased primarily due to a significant decrease in the number of closed transactions.

 

Three Months Ended June 30,

($ in thousands)

2022

 

2021

Financial Restructuring

 

 

 

Revenues

$

78,838

 

$

98,775

# of Managing Directors

 

55

 

 

52

# of Closed transactions (1)

 

16

 

 

24

Financial and Valuation Advisory

FVA revenues increased 19% to $76 million for the first quarter ended June 30, 2022, compared with $64 million for the first quarter ended June 30, 2021. Revenues increased primarily due to an increase in the average fee per fee event and the number of fee events.

 

Three Months Ended June 30,

($ in thousands)

2022

 

2021

Financial and Valuation Advisory

 

 

 

Revenues

$

75,855

 

$

63,956

# of Managing Directors

 

42

 

 

35

# of Fee Events (1)

 

876

 

 

820

(1)

A Fee Event includes any engagement that involves revenue activity during the measurement period based on a revenue minimum of one thousand dollars. References in this press release to closed transactions should be understood to be the same as transactions that are “effectively closed” as described in our periodic reports on Forms 10-K and 10-Q.

Balance Sheet and Capital Allocation

The Board of Directors of the Company declared a regular quarterly cash dividend of $0.53 per share of Class A and Class B common stock. The dividend will be payable on September 15, 2022, to stockholders of record as of the close of business on September 2, 2022.

As of June 30, 2022, the Company had $525 million of cash and cash equivalents and investment securities, and $53 million of other liabilities, loan payable to non-affiliate, and loans payable to former shareholders.

Investor Conference Call and Webcast

The Company will host a conference call and live webcast at 5:00 p.m. Eastern Time on Thursday, July 28, 2022, to discuss its first quarter fiscal 2023 results. The number to call is 1-800-263-0877 (domestic) or 1-646-828-8143 (international). A live webcast will be available in the Investor Relations section of the Company’s website. A replay of the conference call will be available from July 28, 2022 through August 4, 2022, by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the passcode 1239305#. A replay of the webcast will be archived and available on the Company’s website.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws. You can identify these statements by our use of the words “assumes,” “believes,” “estimates,” “expects,” “guidance,” “intends,” “plans,” “projects,” and similar expressions that do not relate to historical matters. You should exercise caution in interpreting and relying on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors (including the significant effect that the COVID-19 pandemic has had on our business and may continue to have on our business) which are, in some cases, beyond the Company’s control and could materially affect actual results, performance, or achievements. For a further description of such factors, you should read the Company’s filings with the Securities and Exchange Commission. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. The Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

Non-GAAP Financial Measures

Adjusted net income, total and on a per share basis, and certain adjusted items used to determine adjusted net income, are presented and discussed in this earnings press release and are non-GAAP measures that management believes, when presented together with comparable GAAP measures, are useful to investors in understanding the Company’s operating results. These adjusted items remove the significant accounting impact of one-time or non-recurring charges associated with the Company’s one-time/non-recurring matters, as set forth in the tables at the end of this release.

The adjusted items included in this earnings press release as calculated by the Company are not necessarily comparable to similarly titled measures reported by other companies. Additionally, these adjusted amounts are not a measurement of financial performance or liquidity under GAAP and should not be considered as an alternative to the Company’s financial information determined under GAAP. For a description of the Company’s use of these adjusted items and a reconciliation with comparable GAAP items, see the section of this press release titled “Reconciliation of GAAP to Adjusted Financial Information.” Please refer to our financial statements, prepared in accordance with GAAP, for purposes of evaluating our financial condition, results of operations, and cash flows.

About Houlihan Lokey

Houlihan Lokey (NYSE:HLI) is a global investment bank with expertise in mergers and acquisitions, capital markets, financial restructuring, and financial and valuation advisory. The firm serves corporations, institutions, and governments worldwide with offices in the United States, Europe, the Middle East, and the Asia-Pacific region. Independent advice and intellectual rigor are hallmarks of the firm’s commitment to client success across its advisory services. Houlihan Lokey is the No. 1 investment bank for all global M&A transactions, the No. 1 M&A advisor for the past seven consecutive years in the U.S., the No. 1 global restructuring advisor for the past eight consecutive years, and the No. 1 global M&A fairness opinion advisor over the past 20 years, all based on number of transactions and according to data provided by Refinitiv.

For more information, please visit www.HL.com.

Appendix

Condensed Consolidated Balance Sheet (Unaudited)

Condensed Consolidated Statement of Income (Unaudited)

Reconciliation of GAAP to Adjusted Financial Information (Unaudited)

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except share data and par value)

June 30, 2022

 

March 31, 2022

Assets

 

 

 

Cash and cash equivalents

$

488,949

 

 

$

833,697

 

Restricted cash

 

373

 

 

 

373

 

Investment securities

 

35,587

 

 

 

109,143

 

Accounts receivable, net of allowance for credit losses

 

132,039

 

 

 

144,029

 

Unbilled work in process, net of allowance for credit losses

 

108,604

 

 

 

104,751

 

Deferred income taxes

 

101,955

 

 

 

95,278

 

Property and equipment, net

 

52,955

 

 

 

52,176

 

Operating lease right-of-use assets

 

165,803

 

 

 

171,942

 

Goodwill

 

1,062,408

 

 

 

1,070,442

 

Other intangible assets, net

 

230,944

 

 

 

247,333

 

Other assets

 

56,247

 

 

 

57,646

 

Total assets

$

2,435,864

 

 

$

2,886,810

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

Liabilities:

 

 

 

Accrued salaries and bonuses

$

573,472

 

 

$

953,604

 

Accounts payable and accrued expenses

 

98,644

 

 

 

126,190

 

Deferred income

 

35,803

 

 

 

28,753

 

Income taxes payable

 

68,409

 

 

 

61,266

 

Deferred income taxes

 

683

 

 

 

789

 

Loans payable to former shareholders

 

537

 

 

 

539

 

Operating lease liabilities

 

188,039

 

 

 

197,091

 

Other liabilities

 

52,714

 

 

 

74,873

 

Total liabilities

 

1,018,301

 

 

 

1,443,105

 

 

 

 

 

Stockholders’ equity:

 

 

 

Class A common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 49,649,765 and 49,853,564 shares, respectively

 

50

 

 

 

50

 

Class B common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 19,136,952 and 17,649,555 shares, respectively

 

19

 

 

 

18

 

Additional paid-in capital

 

527,666

 

 

 

564,761

 

Retained earnings

 

955,484

 

 

 

922,223

 

Accumulated other comprehensive loss

 

(65,656

)

 

 

(43,347

)

Total stockholders’ equity

 

1,417,563

 

 

 

1,443,705

 

Total liabilities and stockholders’ equity

$

2,435,864

 

 

$

2,886,810

 

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

Three Months Ended June 30,

(In thousands, except share and per share data)

2022

 

2021

Revenues

$

418,644

 

$

372,722

 

Operating expenses:

 

 

 

Employee compensation and benefits

 

265,735

 

 

232,304

 

Travel, meals, and entertainment

 

11,050

 

 

1,687

 

Rent

 

11,790

 

 

10,225

 

Depreciation and amortization

 

19,143

 

 

4,171

 

Information technology and communications

 

10,990

 

 

6,961

 

Professional fees

 

6,469

 

 

6,701

 

Other operating expenses

 

15,897

 

 

2,997

 

Total operating expenses

 

341,074

 

 

265,046

 

Operating income

 

77,570

 

 

107,676

 

Other (income)/expense, net

 

1,749

 

 

(101

)

Income before provision for income taxes

 

75,821

 

 

107,777

 

Provision for income taxes

 

5,039

 

 

21,817

 

Net income attributable to Houlihan Lokey, Inc.

$

70,782

 

$

85,960

 

 

 

 

 

Weighted average shares of common stock outstanding:

Basic

 

63,277,596

 

 

65,713,370

 

Fully diluted

 

68,828,246

 

 

68,718,629

 

Earnings per share

 

 

 

Basic

$

1.12

 

$

1.31

 

Fully diluted

$

1.03

 

$

1.25

 

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO ADJUSTED FINANCIAL INFORMATION

(UNAUDITED)

 

 

Three Months Ended June 30,

(In thousands, except per share data)

2022

 

2021

Revenues

$

418,644

 

 

$

372,722

 

 

 

 

 

Employee compensation and benefits expenses

 

 

 

Employee compensation and benefits expenses (GAAP)

$

265,735

 

 

$

232,304

 

Less: Acquisition related retention payments

 

(8,268

)

 

 

(3,079

)

Employee compensation and benefits expenses (adjusted)

 

257,467

 

 

 

229,225

 

 

 

 

 

Non-compensation expenses

 

 

 

Non-compensation expenses (GAAP)

$

75,339

 

 

$

32,742

 

Less: Acquisition amortization

 

(15,765

)

 

 

(1,064

)

Non-compensation expenses (adjusted)

 

59,574

 

 

 

31,678

 

 

 

 

 

Operating income

 

 

 

Operating income (GAAP)

$

77,570

 

 

$

107,676

 

Plus: Adjustments (1)

 

24,033

 

 

 

4,143

 

Operating income (adjusted)

 

101,603

 

 

 

111,819

 

 

 

 

 

Other (income)/expense, net

 

 

 

Other (income)/expense, net (GAAP)

$

1,749

 

 

$

(101

)

Less: Warrant revaluation

 

(1,250

)

 

 

 

Other (income)/expense, net (adjusted)

 

499

 

 

 

(101

)

 

 

 

 

Provision for income taxes

 

 

 

Provision for income taxes (GAAP)

$

5,039

 

 

$

21,817

 

Plus: Impact of the excess tax benefit for stock vesting

 

8,102

 

 

 

6,922

 

Plus: Release of the provision for an uncertain tax position as a result of the successful closure of a state audit

 

5,762

 

 

 

 

Adjusted provision for income taxes

 

18,903

 

 

 

28,739

 

Plus: Resulting tax impact (2)

 

6,302

 

 

 

1,105

 

Provision for income taxes (adjusted)

 

25,205

 

 

 

29,844

 

 

 

 

 

Net income

 

 

 

Net income (GAAP)

$

70,782

 

 

$

85,960

 

(Less)/plus: Adjustments (3)

 

5,117

 

 

 

(3,884

)

Net income (adjusted)

 

75,899

 

 

 

82,076

 

 

 

 

 

Diluted EPS (GAAP)

$

1.03

 

 

$

1.25

 

Diluted EPS (adjusted)

$

1.10

 

 

$

1.19

 

(1)

The aggregate of adjustments from employee compensation and benefits and non-compensation expenses.

(2)

Reflects the tax impact of utilizing the adjusted effective tax rate on the non-tax adjustments identified above.

(3)

Consists of all adjustments identified above net of the associated tax impact.