Houlihan Lokey Reports Second Quarter Fiscal 2021 Financial Results

Houlihan Lokey, Inc. (NYSE:HLI) (“Houlihan Lokey” or the “Company”) today reported financial results for its second quarter ended September 30, 2020. For the second quarter ended September 30, 2020, revenues were $276 million, compared with $273 million for the second quarter ended September 30, 2019.

Net income was $49 million, or $0.70 per diluted share, for the second quarter ended September 30, 2020, compared with $33 million, or $0.50 per diluted share, for the second quarter ended September 30, 2019. Adjusted net income for the second quarter ended September 30, 2020 was $52 million, or $0.75 per diluted share, compared with $46 million, or $0.70 per diluted share, for the second quarter ended September 30, 2019.

“As the markets continue to navigate a challenging environment, our platform is performing as it should. Revenues in Financial Restructuring and Capital Markets were strong for the first half of our year, partially offsetting lower revenues in M&A due to the pandemic. We enter the second half of our year with good momentum in all three product lines. I want to thank our employees for working hard to deliver exceptional advice to our clients, while facing many obstacles along the way.” stated Scott Beiser, Chief Executive Officer of Houlihan Lokey.

Selected Financial Data

 

(In thousands, except per share data)

U.S. GAAP

Three Months Ended September 30,

Six Months Ended September 30,

2020

2019

2020

2019

Revenues

$

275,736

$

272,810

$

486,872

$

523,159

Operating expenses:

Employee compensation and benefits

177,249

174,638

314,370

337,949

Non-compensation expenses

31,612

53,019

63,037

92,280

Operating income

66,875

45,153

109,465

92,930

Other (income)/expense, net

(196

)

(1,101

)

(1,357

)

(2,748

)

Income before provision for income taxes

67,071

46,254

110,822

95,678

Provision for income taxes

18,281

13,144

15,932

19,793

Net income attributable to Houlihan Lokey, Inc.

$

48,790

$

33,110

$

94,890

$

75,885

Diluted earnings per share

$

0.70

$

0.50

$

1.39

$

1.15

Revenues

For the second quarter ended September 30, 2020, revenues were $276 million, compared with $273 million for the second quarter ended September 30, 2019. For the second quarter ended September 30, 2020, Corporate Finance (“CF”) revenues decreased (31)%, Financial Restructuring (“FR”) revenues increased 62%, and Financial and Valuation Advisory (“FVA”) revenues increased 7% when compared with the second quarter ended September 30, 2019.

Expenses

The Company’s employee compensation and benefits, 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 September 30,

(Dollars in thousands)

2020

2019

2020

2019

Expenses:

Employee compensation and benefits

$

177,249

$

174,638

$

175,090

$

165,459

% of Revenues

64.3

%

64.0

%

63.5

%

60.7

%

Non-compensation expenses

$

31,612

$

53,019

$

28,730

$

44,226

% of Revenues

11.5

%

19.4

%

10.4

%

16.2

%

Provision for Income Taxes

$

18,281

$

13,144

$

19,655

$

18,252

% of Pre-Tax Income

27.3

%

28.4

%

27.3

%

28.4

%

 

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.

 

U.S. GAAP

Adjusted (Non-GAAP) *

Six Months Ended September 30,

(Dollars in thousands)

2020

2019

2020

2019

Expenses:

Employee compensation and benefits

$

314,370

$

337,949

$

307,050

$

318,174

% of Revenues

64.6

%

64.6

%

63.1

%

60.8

%

Non-compensation expenses

$

63,037

$

92,280

$

58,739

$

81,519

% of Revenues

12.9

%

17.6

%

12.1

%

15.6

%

Provision for Income Taxes

$

15,932

$

19,793

$

32,376

$

36,129

% of Pre-Tax Income

14.4

%

20.7

%

26.4

%

28.6

%

 

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 $177 million for the second quarter ended September 30, 2020, compared with $175 million for the second quarter ended September 30, 2019. Adjusted employee compensation and benefits expenses were $175 million for the second quarter ended September 30, 2020, compared with $165 million for the second quarter ended September 30, 2019. This resulted in an adjusted compensation ratio of 63.5% for the second quarter ended September 30, 2020, versus 60.7% for the second quarter ended September 30, 2019. The increases in GAAP and adjusted employee compensation and benefits expenses were primarily a result of an increase in fee revenues and an increase in the GAAP and adjusted compensation ratios for the quarter when compared with the same quarter last year.

Non-compensation expenses were $32 million for the second quarter ended September 30, 2020, compared with $53 million for the second quarter ended September 30, 2019. Adjusted non-compensation expenses were $29 million for the quarter ended September 30, 2020, compared with $44 million for the second quarter ended September 30, 2019. The decrease in GAAP and adjusted non-compensation expenses was primarily a result of a decrease in travel, meals, and entertainment expense and other operating expenses. The decrease in travel, meals, and entertainment expense was primarily driven by reduced travel and entertainment activity as a result of the COVID-19 pandemic. The decrease in other operating expenses was due to a reduction in marketing costs, office-related costs, and other costs.

The provision for income taxes was $18 million, representing an effective tax rate of 27.3% for the second quarter ended September 30, 2020, compared with $13 million, representing an effective tax rate of 28.4% for the second quarter ended September 30, 2019. The decrease in the Company’s tax rate during the quarter ended September 30, 2020 relative to the same period in 2019 was primarily a result of a decrease in non-deductible expenses and state taxes. The adjusted provision for income taxes was $20 million, representing an adjusted effective tax rate of 27.3% for the second quarter ended September 30, 2020, compared with $18 million, representing an adjusted effective tax rate of 28.4% for the second quarter ended September 30, 2019.

Segment Reporting for the Second Quarter

Corporate Finance

CF revenues were $108 million for the second quarter ended September 30, 2020, compared with $156 million for the second quarter ended September 30, 2019, a decrease of (31)%. Revenues decreased due to a significant decline in the number of closed transactions as a result of the COVID-19 pandemic and a decrease in the average transaction fee on closed transactions.

Three Months Ended September 30,

Six Months Ended September 30,

(Dollars in thousands)

2020

2019

2020

2019

Corporate Finance

Revenues

$

108,049

$

155,981

$

196,020

$

289,570

# of Managing Directors

125

119

125

119

# of Closed transactions (1)

53

69

88

130

Financial Restructuring

FR revenues increased 62% to $125 million for the second quarter ended September 30, 2020, compared with $77 million for the second quarter ended September 30, 2019. Revenues increased primarily due to a significant increase in the number of closed transactions and an increase in monthly retainer fees as a result of the increase in new engagements driven by the COVID-19 pandemic.

Three Months Ended September 30,

Six Months Ended September 30,

(Dollars in thousands)

2020

2019

2020

2019

Financial Restructuring

Revenues

$

125,391

$

77,276

$

214,011

$

156,630

# of Managing Directors

47

45

47

45

# of Closed transactions (1)

30

17

59

42

Financial and Valuation Advisory

FVA revenues increased 7% to $42 million for the second quarter ended September 30, 2020, compared with $40 million for the second quarter ended September 30, 2019. Revenues increased as a result of an increase in the average fee per fee event and a slight increase in the number of fee events.

Three Months Ended September 30,

Six Months Ended September 30,

(Dollars in thousands)

2020

2019

2020

2019

Financial and Valuation Advisory

Revenues

$

42,296

$

39,553

$

76,841

$

76,959

# of Managing Directors

31

32

31

32

# of Fee Events (1)

539

523

798

821

(1)

 

A Fee Event includes any engagement that involves revenue activity during the measurement period based on a revenue minimum of $1,000. 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.

COVID-19 Update

The COVID-19 pandemic has had a substantial effect on the global markets, and has created uncertainty, volatility and dislocation among a wide variety of sectors. The scale, scope and duration of the impact of the COVID-19 pandemic on our business, revenues and operating results is unpredictable and depends on many factors outside of our control. We note that revenues during the second quarter ended September 30, 2020 continued to be impacted by the COVID-19 pandemic and we expect it to continue to have an effect on our business, revenues, and operating results in the short term. While our CF revenues will be adversely impacted for an indeterminable period of time by the economic effects of COVID-19, we continue to see an increase in the demand for services in our FR business.

Balance Sheet and Capital Allocation

The Board of Directors of the Company declared a regular quarterly cash dividend of $0.33 per share of Class A and Class B common stock. The dividend will be payable on December 15, 2020 to stockholders of record as of the close of business on December 2, 2020.

As of September 30, 2020, the Company had $600 million of cash and cash equivalents and investment securities, and $50 million of loans payable and other liabilities.

The Company has a syndicated revolving line of credit with the Bank of America, N.A. and certain other financial institutions party thereto, which allows for borrowings of up to $100 million (the “2019 Line of Credit”). As of September 30, 2020, no principal was outstanding under the 2019 Line of Credit.

Investor Conference Call and Webcast

The Company will host a conference call and live webcast at 5:00 p.m. Eastern Time on Thursday, October 29, 2020, to discuss its second quarter fiscal 2021 results. The number to call is 1-800-430-8332 (domestic) or 1-323-289-6576 (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 October 29, 2020 through November 5, 2020, by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the passcode 5816898#. 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 is expected to 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 valuation. 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 M&A advisor for the past five consecutive years in the U.S., the No. 1 global restructuring advisor for the past six 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 (formerly Thomson Reuters).

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)

 

September 30,

2020

March 31,

2020

(In thousands, except share data and par value)

Assets

Cash and cash equivalents

$

421,967

$

380,373

Restricted cash

373

373

Investment securities

178,285

135,389

Accounts receivable, net of allowance for doubtful accounts

73,916

80,912

Unbilled work in process, net of allowance for doubtful accounts

40,572

39,821

Income taxes receivable

16,573

4,282

Deferred income taxes

5,147

6,507

Property and equipment, net

43,642

42,372

Operating lease right-of-use asset

149,454

135,240

Goodwill and other intangibles, net

861,658

812,844

Other assets

43,956

38,890

Total assets

$

1,835,543

$

1,677,003

Liabilities and Stockholders' Equity

Liabilities:

Accrued salaries and bonuses

$

288,767

$

420,376

Accounts payable and accrued expenses

42,006

53,883

Deferred income

29,660

26,780

Deferred income taxes

4,016

664

Loans payable to former shareholders

1,206

1,393

Loan payable to non-affiliate

3,517

3,283

Operating lease liabilities

170,696

154,218

Other liabilities

45,063

32,024

Total liabilities

584,931

692,621

Stockholders' equity:

Class A common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 51,506,192 and 46,178,633 shares, respectively

52

46

Class B common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 18,296,320 and 19,345,277 shares, respectively

18

19

Treasury stock, at cost: 392,673 and 0 shares, respectively

(22,711

)

Additional paid-in capital

880,370

649,954

Retained earnings

427,621

377,471

Accumulated other comprehensive (loss)

(34,738

)

(43,108

)

Total stockholders' equity

1,250,612

984,382

Total liabilities and stockholders' equity

$

1,835,543

$

1,677,003

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

Three Months Ended September 30,

Six Months Ended September 30,

(In thousands, except share and per share data)

2020

2019

2020

2019

Revenues

$

275,736

$

272,810

$

486,872

$

523,159

Operating expenses:

Employee compensation and benefits

177,249

174,638

314,370

337,949

Travel, meals, and entertainment

964

10,200

3,078

19,817

Rent

10,301

14,922

19,924

24,923

Depreciation and amortization

3,670

3,981

7,342

7,944

Information technology and communications

6,868

6,928

13,251

12,252

Professional fees

5,227

5,834

10,234

10,290

Other operating expenses

4,582

11,154

9,208

17,054

Total operating expenses

208,861

227,657

377,407

430,229

Operating income

66,875

45,153

109,465

92,930

Other (income)/expense, net

(196

)

(1,101

)

(1,357

)

(2,748

)

Income before provision for income taxes

67,071

46,254

110,822

95,678

Provision for income taxes

18,281

13,144

15,932

19,793

Net income attributable to Houlihan Lokey, Inc.

$

48,790

$

33,110

$

94,890

$

75,885

Weighted average shares of common stock outstanding:

Basic

66,787,832

62,477,085

65,244,611

62,292,798

Fully diluted

69,615,060

66,086,210

68,214,505

65,851,514

Earnings per share

Basic

$

0.73

$

0.53

$

1.45

$

1.22

Fully diluted

$

0.70

$

0.50

$

1.39

$

1.15

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO ADJUSTED FINANCIAL INFORMATION

(UNAUDITED)

 

Three Months Ended September 30,

Six Months Ended September 30,

(In thousands, except per share data)

2020

2019

2020

2019

Revenues

$

275,736

$

272,810

$

486,872

$

523,159

Employee compensation and benefits

Employee compensation and benefits (GAAP)

$

177,249

$

174,638

$

314,370

$

337,949

(Less)/plus: Pre-IPO grant vesting

(5,964

)

(12,076

)

(Less)/plus: Acquisition related retention payments

(2,159

)

(3,215

)

(7,320

)

(7,699

)

Employee compensation and benefits (adjusted)

175,090

165,459

307,050

318,174

Non-compensation expenses

Non-compensation expenses (GAAP)

$

31,612

$

53,019

$

63,037

$

92,280

(Less)/plus: Secondary offering related costs

(251

)

(418

)

(665

)

(Less)/plus: Acquisition related costs

(1,258

)

(1,258

)

(Less)/plus: Acquisition amortization

(888

)

(1,711

)

(1,886

)

(3,265

)

(Less)/plus: Oracle ERP implementation

(736

)

(736

)

(Less)/plus: London office buildout

(6,831

)

(6,831

)

Non-compensation expenses (adjusted)

28,730

44,226

58,739

81,519

Operating income

Operating income (GAAP)

$

66,875

$

45,153

$

109,465

$

92,930

(Less)/plus: Adjustments (1)

5,041

17,972

11,618

30,536

Operating income (adjusted)

71,916

63,125

121,083

123,466

Other (income)/expense, net

Other (income)/expense, net (GAAP)

$

(196

)

$

(1,101

)

$

(1,357

)

$

(2,748

)

Other (income)/expense, net (adjusted)

(196

)

(1,101

)

(1,357

)

(2,748

)

Provision for income taxes

Provision for income taxes (GAAP)

$

18,281

$

13,144

$

15,932

$

19,793

(Less)/plus: Impact of the excess tax benefit for stock vesting

13,408

7,605

Adjusted provision for income taxes

18,281

13,144

29,340

27,398

(Less)/plus: Resulting tax impact (2)

1,374

5,108

3,036

8,731

Provision for income taxes (adjusted)

19,655

18,252

32,376

36,129

Net income

Net income (GAAP)

$

48,790

$

33,110

$

94,890

$

75,885

(Less)/plus: adjustments (3)

3,667

12,864

(4,826

)

14,200

Net income (adjusted)

52,457

45,974

90,064

90,085

Diluted EPS (GAAP)

$

0.70

$

0.50

$

1.39

$

1.15

Diluted EPS (adjusted)

$

0.75

$

0.70

$

1.32

$

1.37

(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.

Contacts:

Investor Relations
212.331.8225
IR@HL.com

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