Houlihan Lokey Reports Second Quarter Fiscal 2020 Financial Results - Houlihan Lokey (NYSE:HLI)

– Second Quarter Fiscal 2020 Revenues of $273 million –

– Second Quarter Fiscal 2020 Diluted EPS of $0.50 –

– Adjusted Second Quarter Fiscal 2020 Diluted EPS of $0.70 –

– Announces Dividend of $0.31 per Share for Third Quarter Fiscal 2020 –

Houlihan Lokey, Inc. HLI ("Houlihan Lokey" or the "Company") today reported financial results for its second quarter ended September 30, 2019. For the second quarter ended September 30, 2019, revenues were $273 million compared with $275 million for the second quarter ended September 30, 2018.

Net income was $33 million, or $0.50 per diluted share, for the second quarter ended September 30, 2019, compared with $40 million, or $0.61 per diluted share, for the second quarter ended September 30, 2018. Adjusted net income for the second quarter ended September 30, 2019 was $46 million, or $0.70 per diluted share, compared with $46 million, or $0.70 per diluted share, for the second quarter ended September 30, 2018.

"We are very pleased with our second quarter and first half results. All three product lines have shown growth year-to-date and we enter the second half of our fiscal year with solid momentum across all our businesses. Client confidence and M&A transaction activity remain strong and there are enough pockets of business disruption to maintain strength in our restructuring business. Our positive financial results continue to reflect the benefits of our balanced and diversified business model in today's uncertain macroeconomic 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 September 30,						Six Months Ended September 30,
	2019			2018			2019			2018
Revenues	$	272,810		$	274,992		$	523,159		$	494,994
Operating expenses:
Employee compensation and benefits	174,638			175,321			337,949			314,501
Non-compensation expenses	53,019			43,496			92,280			84,188
Operating income	45,153			56,175			92,930			96,305
Other (income)/expense, net	(1,101		)	(1,007		)	(2,748		)	(2,613		)
Income before provision for income taxes	46,254			57,182			95,678			98,918
Provision for income taxes	13,144			17,063			19,793			29,115
Net income attributable to Houlihan Lokey, Inc.	$	33,110		$	40,119		$	75,885		$	69,803

Diluted earnings per share	$	0.50		$	0.61		$	1.15		$	1.06

Revenues

For the second quarter ended September 30, 2019, Corporate Finance ("CF") revenues increased 7%, Financial Restructuring ("FR") revenues decreased (17)%, and Financial Advisory Services ("FAS") revenues increased 9% when compared with the second quarter ended September 30, 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 September 30,
*(Dollars in thousands)*	2019			2018			2019			2018
Expenses:
Employee compensation and benefits	$	174,638		$	175,321		$	165,459		$	169,119
% of Revenues	64.0		%	63.8		%	60.7		%	61.5		%
Non-compensation expenses	$	53,019		$	43,496		$	44,226		$	41,286
% of Revenues	19.4		%	15.8		%	16.2		%	15.0		%
Provision for Income Taxes	$	13,144		$	17,063		$	18,252		$	19,573
% of Pre-Tax Income	28.4		%	29.8		%	28.4		%	29.8		%

* 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)*	2019			2018			2019			2018
Expenses:
Employee compensation and benefits	$	337,949		$	314,501		$	318,174		$	302,224
% of Revenues	64.6		%	63.5		%	60.8		%	61.1		%
Non-compensation expenses	$	92,280		$	84,188		$	81,519		$	78,232
% of Revenues	17.6		%	17.0		%	15.6		%	15.8		%
Provision for Income Taxes	$	19,793		$	29,115		$	36,129		$	34,254
% of Pre-Tax Income	20.7		%	29.4		%	28.6		%	29.4		%

Employee compensation and benefits expenses remained relatively flat at $175 million for the second quarter ended September 30, 2019 and the second quarter ended September 30, 2018. Adjusted employee compensation and benefits expenses were $165 million for the second quarter ended September 30, 2019, compared with $169 million for the second quarter ended September 30, 2018. This resulted in an adjusted compensation ratio of 60.7% for the second quarter ended September 30, 2019, versus 61.5% for the second quarter ended September 30, 2018. The decrease in adjusted employee compensation and benefits expenses was primarily a result of a decrease in fee revenues for the quarter when compared with the same quarter last year.

Non-compensation expenses were $53 million for the second quarter ended September 30, 2019, compared with $43 million for the second quarter ended September 30, 2018. The increase in non-compensation expenses was primarily driven by an increase in rent expense and other operating expenses as a result of the one-time write-down of lease assets and fixed assets that are no longer in use in London, among other one-time items associated with the move. In July 2019, we moved all bankers from two separate locations in London into a new London headquarters. Adjusted non-compensation expenses were $44 million for the quarter ended September 30, 2019, compared with $41 million for the second quarter ended September 30, 2018. The increase in adjusted non-compensation expenses was primarily driven by an increase in information technology and communication expenses and adjusted other operating expenses.

The provision for income taxes was $13 million, representing an effective tax rate of 28.4% for the second quarter ended September 30, 2019, compared with $17 million, representing an effective tax rate of 29.8% for the second quarter ended September 30, 2018. The adjusted provision for income taxes was $18 million, representing an adjusted effective tax rate of 28.4% for the second quarter ended September 30, 2019, compared with $20 million, representing an adjusted effective tax rate of 29.8% for the second quarter ended September 30, 2018.

Segment Reporting for the Second Quarter

Corporate Finance

CF revenues increased 7% to $156 million for the second quarter ended September 30, 2019, compared with $146 million for the second quarter ended September 30, 2018. Revenues increased primarily due to an increase in the number of closed transactions. CF closed 69 transactions in the second quarter ended September 30, 2019, versus 62 transactions in the second quarter ended September 30, 2018.

	Three Months Ended September 30,				Six Months Ended September 30,
*(Dollars in thousands)*	2019		2018		2019		2018
Corporate Finance
Revenues	$	155,981	$	146,057	$	289,570	$	278,928
# of MDs	119		106		119		106
# of Closed transactions	69		62		130		131

Financial Restructuring

FR revenues were $77 million for the second quarter ended September 30, 2019, compared with $93 million for the second quarter ended September 30, 2018. Revenues decreased primarily as a result of a decrease in the number of closed transactions and a reduction in the average transaction fee.

	Three Months Ended September 30,				Six Months Ended September 30,
*(Dollars in thousands)*	2019		2018		2019		2018
Financial Restructuring
Revenues	$	77,276	$	92,684	$	156,630	$	143,160
# of MDs	45		45		45		45
# of Closed Transactions	17		20		42		33

Financial Advisory Services

FAS revenues increased 9% to $40 million for the quarter ended September 30, 2019, compared with $36 million for the second quarter ended September 30, 2018. The number of Fee Events increased to 523 in the second quarter ended September 30, 2019, compared with 469 for the second quarter ended September 30, 2018.

	Three Months Ended September 30,				Six Months Ended September 30,
*(Dollars in thousands)*	2019		2018		2019		2018
Financial Advisory Services
Revenues	$	39,553	$	36,251	$	76,959	$	72,906
# of MDs	32		35		32		35
# of Fee Events ⁽¹⁾	523		469		821		771

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

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 December 16, 2019 to stockholders of record as of the close of business on December 5, 2019.

As of September 30, 2019, the Company had $305 million of cash and cash equivalents and investment securities, and $33 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 Thursday, October 24, 2019, to discuss its second 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 October 24, 2019 through October 31, 2019, by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the passcode 13694940#. 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, adjusted operating expenses and adjusted provision for income taxes 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. Adjusted net income, adjusted operating expenses and adjusted provision for income taxes 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.

Adjusted net income as calculated by the Company is not necessarily comparable to similarly titled measures reported by other companies. Additionally, adjusted net income is 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 adjusted net income and a reconciliation with net income, as well as a reconciliation of the specific line items in adjusted net income, 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 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 ranked as the No. 1 M&A advisor for all U.S. transactions in number of transactions, the No. 1 global restructuring advisor in both number of transactions and value, and the No. 1 global M&A fairness opinion advisor in number of transactions over the past 20 years, according to 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,			March 31,
*(In thousands, except share data and par value)*	2019			2019
Assets
Cash and cash equivalents	$	220,248		$	285,746
Restricted cash		372			369
Investment securities		84,822			125,258
Accounts receivable, net of allowance for doubtful accounts		64,814			70,830
Unbilled work in process, net of allowance for doubtful accounts		62,722			71,891
Receivable from affiliates	—				8,631
Income taxes receivable		3,380		—
Deferred income taxes		6,539			2,854
Property and equipment, net		40,938			31,034
Operating lease right-of-use asset		131,776		—
Goodwill and other intangibles, net		797,564			794,604
Other assets		34,725			34,695
Total assets	$	1,447,900		$	1,425,912

Liabilities and Stockholders' Equity
Liabilities:
Accrued salaries and bonuses	$	297,396		$	404,717
Accounts payable and accrued expenses		40,911			55,048
Deferred income		29,709			27,812
Income taxes payable	—				7,759
Deferred income taxes		3,327			8,058
Loans payable to former shareholders		1,810			2,047
Loan payable to non-affiliate		6,458			6,610
Operating lease liabilities		151,669		—
Other liabilities		24,756			22,532
Total liabilities		556,036			534,583

Stockholders' equity:
Class A common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 41,817,614 and 38,200,802 shares, respectively		42			38
Class B common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 24,079,076 and 27,197,734 shares, respectively		24			27
Treasury stock, at cost: 252,306 and 0 shares, respectively		(11,219	)	—
Additional paid-in capital		635,362			645,090
Retained earnings		311,360			276,468
Accumulated other comprehensive (loss)		(43,705	)		(30,294	)
Total stockholders' equity		891,864			891,329
Total liabilities and stockholders' equity	$	1,447,900		$	1,425,912

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)*	2019			2018			2019			2018
Revenues	$	272,810		$	274,992		$	523,159		$	494,994
Operating expenses:
Employee compensation and benefits	174,638			175,321			337,949			314,501
Travel, meals, and entertainment	10,200			10,111			19,817			19,697
Rent	14,922			10,437			24,923			18,625
Depreciation and amortization	3,981			3,706			7,944			7,174
Information technology and communications	6,928			4,709			12,252			10,298
Professional fees	5,834			5,784			10,290			12,061
Other operating expenses	11,154			8,749			17,054			16,333
Total operating expenses	227,657			218,817			430,229			398,689
Operating income	45,153			56,175			92,930			96,305
Other (income)/expense, net	(1,101		)	(1,007		)	(2,748		)	(2,613		)
Income before provision for income taxes	46,254			57,182			95,678			98,918
Provision for income taxes	13,144			17,063			19,793			29,115
Net income attributable to Houlihan Lokey, Inc.	$	33,110		$	40,119		$	75,885		$	69,803

Weighted average shares of common stock outstanding:
Basic	62,477,085			62,258,919			62,292,798			62,620,017
Fully diluted	66,086,210			66,045,921			65,851,514			66,099,770
Earnings per share
Basic	$	0.53		$	0.64		$	1.22		$	1.11
Fully diluted	$	0.50		$	0.61		$	1.15		$	1.06

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)*	2019			2018			2019			2018
*Revenues*	$	272,810		$	274,992		$	523,159		$	494,994

*Employee compensation and benefits*
Employee compensation and benefits (GAAP)	$	174,638		$	175,321		$	337,949		$	314,501
Less/plus: adjustments⁽¹⁾	(9,179		)	(6,202		)	(19,775		)	(12,278		)
Employee compensation and benefits (adjusted)	165,459			169,119			318,174			302,224

*Non-compensation expenses*
Non-compensation expenses (GAAP)	$	53,019		$	43,496		$	92,280		$	84,188
Less/plus: adjustments⁽²⁾	(8,793		)	(2,209		)	(10,761		)	(5,955		)
Non-compensation expenses (adjusted)	44,226			41,286			81,519			78,232

*Operating income*
Operating income (GAAP)	$	45,153		$	56,175		$	92,930		$	96,305
Less/plus: adjustments⁽³⁾	17,972			8,411			30,536			18,233
Operating income (adjusted)	63,125			64,586			123,466			114,538

*Other (income)/expense, net*
Other (income)/expense, net (GAAP)	$	(1,101	)	$	(1,007	)	$	(2,748	)	$	(2,613	)
Less/plus: adjustments⁽⁴⁾	—			—			—			719
Other (income)/expense, net (adjusted)	(1,101		)	(1,007		)	(2,748		)	(1,894		)

*Provision for income taxes*
Provision for income taxes (GAAP)	$	13,144		$	17,063		$	19,793		$	29,115
Less/plus: adjustments⁽⁵⁾	5,108			2,510			16,336			5,139
Provision for income taxes (adjusted)	18,252			19,573			36,129			34,254

*Net income*
Net income (GAAP)	$	33,110		$	40,119		$	75,885		$	69,803
Less/plus: adjustments⁽⁶⁾	12,864			5,902			14,200			12,375
Net income (adjusted)	45,974			46,020			90,085			82,178

Diluted adjusted EPS	$	0.70		$	0.70		$	1.37		$	1.24

Note: Figures may not sum due to rounding

Consists of pre-IPO grant vesting, including grants re-awarded following forfeiture, if any ($(5,964) in Q2 FY20 and $(6,202) in Q2 FY19; $(12,076) in YTD Q2 FY20 and $(12,278) in YTD Q2 FY19), and acquisition-related retention pools ($(3,215) in Q2 FY20 and $0 in Q2 FY19; $(7,699) in YTD Q2 FY20 and $0 in YTD Q2 FY19).
Includes costs associated with Houlihan Lokey, Inc.'s secondary offering of stock ($(251) in Q2 FY20 and $0 in Q2 FY19; $(665) in YTD Q2 FY20 and $(498) in YTD Q2 FY19), acquisition related costs ($0 in Q2 FY20 and $0 Q2 FY19; $0 YTD Q2 FY20 and $(1,929) in YTD Q2 FY19), acquisition-related amortization ($(1,712) in Q2 FY20 and $(1,589) in Q2 FY19; $(3,265) YTD Q2 FY20 and $(2,910) YTD Q2 FY19), HL Finance setup costs ($0 in Q2 FY20 and $(619) in Q2 FY19; $0 in YTD Q2 FY20 and $(619) in YTD Q2 FY19), and costs associated with our London office consolidation and move ($(6,831) in Q2 FY20 and $0 in Q2 FY19; $(6,831) YTD Q2 FY20 and $0 YTD Q2 FY19).
Includes adjustments from (1) and (2) above.
Includes the reduction of an earnout liability ($0 in Q2 FY20 and $0 in Q2 FY19; $0 YTD Q2 FY20 and $719 YTD Q2 FY19).
Includes adjustments relating to the tax impact, using the adjusted effective tax rate, of the adjustments described in footnotes 1, 2, and 4 above ($5,108 in Q2 FY20 and $2,510 in Q2 FY19; $8,731 YTD Q2 FY20 and $5,139 YTD Q2 FY19). Additionally, YTD Q2 FY20 includes an adjustment of $7,605 relating to shares vested during the first quarter of the applicable fiscal year.
Consists of the adjustments described above net of the tax impact of described adjustments.

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