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Houlihan Lokey Reports Third Quarter Fiscal 2020 Financial Results

·17 mins read

Third Quarter Fiscal 2020 Revenues of $334 million

Third Quarter Fiscal 2020 Diluted EPS of $0.75

Adjusted Third Quarter Fiscal 2020 Diluted EPS of $0.88

Announces Dividend of $0.31 per Share for Fourth Quarter Fiscal 2020

Houlihan Lokey, Inc. (NYSE:HLI) ("Houlihan Lokey" or the "Company") today reported financial results for its third quarter ended December 31, 2019. For the third quarter ended December 31, 2019, revenues increased 11.9% to $334 million, compared with $298 million for the third quarter ended December 31, 2018.

Net income was $49 million, or $0.75 per diluted share, for the third quarter ended December 31, 2019, compared with $44 million, or $0.67 per diluted share, for the third quarter ended December 31, 2018. Adjusted net income for the third quarter ended December 31, 2019 was $58 million, or $0.88 per diluted share, compared with $51 million, or $0.77 per diluted share, for the third quarter ended December 31, 2018.

"Houlihan Lokey had a strong fiscal third quarter and we enter the new decade with good momentum across all three of our product lines. 2019 was not without its macro-economic challenges, but our firm performed well in light of those challenges as a result of our balanced revenue model, strong diversification across clients, industries and products, and most importantly, an exceptional group of employees. Now that calendar 2019 is behind us, I am proud to report that we have maintained our leadership rankings. Houlihan Lokey is the No. 1 M&A advisor for the last five consecutive years in the U.S., the No. 1 global restructuring advisor for the last six consecutive years, and the No. 1 global M&A fairness opinion advisor over the past 20 years, all based on number of transactions, according to Refinitiv." stated Scott Beiser, Chief Executive Officer of Houlihan Lokey.

Selected Financial Data

(In thousands, except per share data)

U.S. GAAP

Three Months Ended December 31,

Nine Months Ended December 31,

2019

2018

2019

2018

Revenues

$

333,515

$

298,013

$

856,674

$

793,007

Operating expenses:

Employee compensation and benefits

213,107

187,180

551,056

501,682

Non-compensation expenses

52,392

48,590

144,672

132,779

Operating income

68,016

62,243

160,946

158,546

Other (income)/expense, net

(1,039

)

(688

)

(3,787

)

(3,301

)

Income before provision for income taxes

69,055

62,931

164,733

161,847

Provision for income taxes

20,161

18,974

39,954

48,089

Net income attributable to Houlihan Lokey, Inc.

$

48,894

$

43,957

$

124,779

$

113,758

Diluted earnings per share

$

0.75

$

0.67

$

1.90

$

1.72

Revenues

For the third quarter ended December 31, 2019, Corporate Finance ("CF") revenues increased 9%, Financial Restructuring ("FR") revenues increased 24%, and Financial and Valuation Advisory ("FVA"), formerly known as Financial Advisory Services, revenues increased 1% when compared with the third quarter ended December 31, 2018.

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 December 31,

(Dollars in thousands)

2019

2018

2019

2018

Expenses:

Employee compensation and benefits

$

213,107

$

187,180

$

203,430

$

181,042

% of Revenues

63.9

%

62.8

%

61.0

%

60.7

%

Non-compensation expenses

$

52,392

$

48,590

$

49,894

$

47,040

% of Revenues

15.7

%

16.3

%

15.0

%

15.8

%

Provision for Income Taxes

$

20,161

$

18,974

$

23,719

$

19,819

% of Pre-Tax Income

29.2

%

30.2

%

29.2

%

28.1

%

* 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) *

Nine Months Ended December 31,

(Dollars in thousands)

2019

2018

2019

2018

Expenses:

Employee compensation and benefits

$

551,056

$

501,682

$

521,604

$

483,266

% of Revenues

64.3

%

63.3

%

60.9

%

60.9

%

Non-compensation expenses

$

144,672

$

132,779

$

131,413

$

125,272

% of Revenues

16.9

%

16.7

%

15.3

%

15.8

%

Provision for Income Taxes

$

39,954

$

48,089

$

59,848

$

54,073

% of Pre-Tax Income

24.3

%

29.7

%

28.9

%

28.9

%

* 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 $213 million for the third quarter ended December 31, 2019, compared with $187 million for the third quarter ended December 31, 2018. Adjusted employee compensation and benefits expenses were $203 million for the third quarter ended December 31, 2019, compared with $181 million for the third quarter ended December 31, 2018. This resulted in an adjusted compensation ratio of 61.0% for the third quarter ended December 31, 2019, versus 60.7% for the third quarter ended December 31, 2018. The increase in both employee compensation and benefits expenses and adjusted employee compensation and benefits expenses was primarily a result of an increase in revenues for the quarter when compared with the same quarter last year.

Non-compensation expenses were $52 million for the third quarter ended December 31, 2019, compared with $49 million for the third quarter ended December 31, 2018. Adjusted non-compensation expenses were $50 million for the quarter ended December 31, 2019, compared with $47 million for the third quarter ended December 31, 2018. The increase in both non-compensation expenses and adjusted non-compensation expenses was primarily driven by an increase in information technology and communication expenses and other operating expenses.

The provision for income taxes was $20 million, representing an effective tax rate of 29.2% for the third quarter ended December 31, 2019, compared with $19 million, representing an effective tax rate of 30.2% for the third quarter ended December 31, 2018. The adjusted provision for income taxes was $24 million, representing an adjusted effective tax rate of 29.2% for the third quarter ended December 31, 2019, compared with $20 million, representing an adjusted effective tax rate of 28.1% for the third quarter ended December 31, 2018.

Segment Reporting for the Third Quarter

Corporate Finance

CF revenues increased 9% to $201 million for the third quarter ended December 31, 2019, compared with $184 million for the third quarter ended December 31, 2018. Revenues increased primarily due to an increase in the number of closed transactions and an increase in the average transaction fee on closed transactions.

Three Months Ended December 31,

Nine Months Ended December 31,

(Dollars in thousands)

2019

2018

2019

2018

Corporate Finance

Revenues

$

201,137

$

183,965

$

490,707

$

462,893

# of Managing Directors

122

108

122

108

# of Closed transactions (1)

95

89

225

220

Financial Restructuring

FR revenues increased 24% to $93 million for the third quarter ended December 31, 2019, compared with $75 million for the third quarter ended December 31, 2018. Revenues increased primarily due to an increase in the number of closed transactions.

Three Months Ended December 31,

Nine Months Ended December 31,

(Dollars in thousands)

2019

2018

2019

2018

Financial Restructuring

Revenues

$

92,808

$

75,013

$

249,438

$

218,173

# of Managing Directors

45

44

45

44

# of Closed transactions (1)

28

21

70

54

Financial and Valuation Advisory

FVA revenues increased 1% to $40 million for the quarter ended December 31, 2019, compared with $39 million for the third quarter ended December 31, 2018. Revenues increased as a result of a higher number of Fee Events in the quarter, among other things.

Three Months Ended December 31,

Nine Months Ended December 31,

(Dollars in thousands)

2019

2018

2019

2018

Financial and Valuation Advisory

Revenues

$

39,570

$

39,035

$

116,529

$

111,941

# of Managing Directors

32

35

32

35

# of Fee Events (1)

530

502

1,086

1,046

(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 Quarterly Report on Form 10-Q for the quarter ended December 31, 2019.

Balance Sheet and Capital Allocation

The Board of Directors of the Company declared a regular quarterly cash dividend of $0.31 per share of Class A and Class B common stock. The dividend will be payable on March 16, 2020 to stockholders of record as of the close of business on March 5, 2020.

As of December 31, 2019, the Company had $368 million of cash and cash equivalents and investment securities, and $41 million of loans payable and other liabilities.

Investor Conference Call and Webcast

The Company will host a conference call and live webcast at 5:00 p.m. Eastern Time on Monday, February 3, 2020, to discuss its third quarter fiscal 2020 results. The number to call is 1-877-407-4018 (domestic) or 1-201-689-8471 (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 February 3, 2020 through February 10, 2020, by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the passcode 13698114#. 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 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. 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 Quarterly Report on Form 10-Q for the quarter ended December 31, 2019, 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 last five consecutive years in the U.S., the No. 1 global restructuring advisor for the last 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)

(In thousands, except share data and par value)

December 31,
2019

March 31,
2019

Assets

Cash and cash equivalents

$276,735

$285,746

Restricted cash

373

369

Investment securities

91,195

125,258

Accounts receivable, net of allowance for doubtful accounts

62,412

70,830

Unbilled work in process, net of allowance for doubtful accounts

67,957

71,891

Receivable from affiliates

8,631

Deferred income taxes

7,610

2,854

Property and equipment, net

41,556

31,034

Operating lease right-of-use asset

129,403

Goodwill and other intangibles, net

822,732

794,604

Other assets

38,657

34,695

Total assets

$

1,538,630

$

1,425,912

Liabilities and Stockholders' Equity

Liabilities:

Accrued salaries and bonuses

$

322,156

$

404,717

Accounts payable and accrued expenses

45,391

55,048

Deferred income

27,896

27,812

Income taxes payable

3,758

7,759

Deferred income taxes

1,686

8,058

Loans payable to former shareholders

1,602

2,047

Loan payable to non-affiliate

3,342

6,610

Operating lease liabilities

150,157

Other liabilities

35,949

22,532

Total liabilities

591,937

534,583

Stockholders' equity:

Class A common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 43,569,993 and 38,200,802 shares, respectively

44

38

Class B common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 21,998,937 and 27,197,734 shares, respectively

22

27

Additional paid-in capital

636,123

645,090

Retained earnings

339,821

276,468

Accumulated other comprehensive (loss)

(29,317

)

(30,294

)

Total stockholders' equity

946,693

891,329

Total liabilities and stockholders' equity

$

1,538,630

$

1,425,912

HOULIHAN LOKEY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

Three Months Ended December 31,

Nine Months Ended December 31,

(In thousands, except share and per share data)

2019

2018

2019

2018

Revenues

$

333,515

$

298,013

$

856,674

$

793,007

Operating expenses:

Employee compensation and benefits

213,107

187,180

551,056

501,682

Travel, meals, and entertainment

12,943

12,991

32,760

32,689

Rent

9,531

9,987

34,454

28,612

Depreciation and amortization

4,336

3,635

12,280

10,809

Information technology and communications

7,225

5,775

19,477

16,073

Professional fees

6,204

6,087

16,494

18,148

Other operating expenses

12,153

10,115

29,207

26,448

Total operating expenses

265,499

235,770

695,728

634,461

Operating income

68,016

62,243

160,946

158,546

Other (income)/expense, net

(1,039

)

(688

)

(3,787

)

(3,301

)

Income before provision for income taxes

69,055

62,931

164,733

161,847

Provision for income taxes

20,161

18,974

39,954

48,089

Net income attributable to Houlihan Lokey, Inc.

$

48,894

$

43,957

$

124,779

$

113,758

Weighted average shares of common stock outstanding:

Basic

62,014,564

61,972,027

62,199,716

62,399,221

Fully diluted

65,608,026

65,758,679

65,770,056

65,985,660

Earnings per share

Basic

$

0.79

$

0.71

$

2.01

$

1.82

Fully diluted

$

0.75

$

0.67

$

1.90

$

1.72

HOULIHAN LOKEY, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED FINANCIAL INFORMATION
(UNAUDITED)

Three Months Ended December 31,

Nine Months Ended December 31,

(In thousands, except per share data)

2019

2018

2019

2018

Revenues

$

333,515

$

298,013

$

856,674

$

793,007

Employee compensation and benefits

Employee compensation and benefits (GAAP)

$

213,107

$

187,180

$

551,056

$

501,682

Less/plus: adjustments (1)

(9,677

)

(6,138

)

(29,452

)

(18,417

)

Employee compensation and benefits (adjusted)

203,430

181,042

521,604

483,266

Non-compensation expenses

Non-compensation expenses (GAAP)

$

52,392

$

48,590

$

144,672

$

132,779

Less/plus: adjustments (2)

(2,498

)

(1,550

)

(13,259

)

(7,507

)

Non-compensation expenses (adjusted)

49,894

47,040

131,413

125,272

Operating income

Operating income (GAAP)

$

68,016

$

62,243

$

160,946

$

158,546

Less/plus: adjustments (3)

12,175

7,688

42,711

25,924

Operating income (adjusted)

80,191

69,931

203,657

184,469

Other (income)/expense, net

Other (income)/expense, net (GAAP)

$

(1,039

)

$

(688

)

$

(3,787

)

$

(3,301

)

Less/plus: adjustments (4)

719

Other (income)/expense, net (adjusted)

(1,039

)

(688

)

(3,787

)

(2,582

)

Provision for income taxes

Provision for income taxes (GAAP)

$

20,161

$

18,974

$

39,954

$

48,089

Less/plus: adjustments (5)

3,558

845

19,894

5,984

Provision for income taxes (adjusted)

23,719

19,819

59,848

54,073

Net income

Net income (GAAP)

$

48,894

$

43,957

$

124,779

$

113,758

Less/plus: adjustments (6)

8,617

6,843

22,817

19,221

Net income (adjusted)

57,511

50,799

147,596

132,979

Diluted EPS (GAAP)

$

0.75

$

0.67

$

1.90

$

1.72

Diluted adjusted EPS

$

0.88

$

0.77

$

2.24

$

2.02

Note: Figures may not sum due to rounding.

(1)

Consists of pre-IPO grant vesting, including grants re-awarded following forfeiture, if any ($(6,193) in Q3 FY20 and $(6,138) in Q3 FY19; $(18,269) in YTD Q3 FY20 and $(18,417) in YTD Q3 FY19), and acquisition-related retention pools ($(3,484) in Q3 FY20 and $0 in Q3 FY19; $(11,183) in YTD Q3 FY20 and $0 in YTD Q3 FY19).

(2)

Includes costs associated with Houlihan Lokey, Inc.'s secondary offering of stock ($0 in Q3 FY20 and $0 in Q3 FY19; $(665) in YTD Q3 FY20 and $(498) in YTD Q3 FY19), acquisition related costs ($(579) in Q3 FY20 and $0 Q3 FY19; $(579) YTD Q3 FY20 and $(1,929) in YTD Q3 FY19), acquisition-related amortization ($(1,919) in Q3 FY20 and $(1,550) in Q3 FY19; $(5,184) YTD Q3 FY20 and $(4,461) YTD Q3 FY19), HL Finance setup costs ($0 in Q3 FY20 and $0 in Q3 FY19; $0 in YTD Q3 FY20 and $(619) in YTD Q3 FY19), and costs associated with our London office consolidation and move ($0 in Q3 FY20 and $0 in Q3 FY19; $(6,831) YTD Q3 FY20 and $0 YTD Q3 FY19).

(3)

Includes adjustments from (1) and (2) above.

(4)

Includes the reduction of an earnout liability ($0 in Q3 FY20 and $0 in Q3 FY19; $0 YTD Q3 FY20 and $719 YTD Q3 FY19).

(5)

Includes adjustments to determine the adjusted effective tax rate, which are: the Tax Act ($0 in Q3 FY20 and $(1,313) in Q3 FY19; $0 in YTD Q3 FY20 and $(1,313) in YTD Q3 FY19) and a YTD Q3 FY20 adjustment of $7,605 relating to shares vested during the first quarter of the fiscal year. The resulting tax impact using the adjusted effective tax rate, of the adjustments described in footnotes 1, 2, and 4 above is ($3,558 in Q3 FY20 and $2,158 in Q3 FY19; $12,289 YTD Q3 FY20 and $7,297 YTD Q3 FY19).

(6)

Consists of the adjustments described above net of the tax impact of described adjustments.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200203005738/en/

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