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Houlihan Lokey Reports First Quarter Fiscal 2021 Financial Results

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First Quarter Fiscal 2021 Revenues of $211 million

First Quarter Fiscal 2021 Diluted EPS of $0.69

Adjusted First Quarter Fiscal 2021 Diluted EPS of $0.56

Increased Dividend to $0.33 per Share for Second Quarter Fiscal 2021

Houlihan Lokey, Inc. (NYSE:HLI) ("Houlihan Lokey" or the "Company") today reported financial results for its first quarter ended June 30, 2020. For the first quarter ended June 30, 2020, revenues were $211 million, compared with $250 million for the first quarter ended June 30, 2019.

Net income was $46 million, or $0.69 per diluted share, for the first quarter ended June 30, 2020, compared with $43 million, or $0.65 per diluted share, for the first quarter ended June 30, 2019. Adjusted net income for the first quarter ended June 30, 2020 was $38 million, or $0.56 per diluted share, compared with $44 million, or $0.67 per diluted share, for the first quarter ended June 30, 2019.

"The business environment continues to present many challenges, but also opportunities. Our Financial Restructuring and Capital Markets businesses are performing well, partially offsetting lower Merger & Acquisition activity, which is down along with the global M&A market. This dynamic is similar to previous economic downturns, where for a few quarters, we experienced restructuring growth that partially offsets a decrease in corporate finance. As the cycle extends, restructuring growth has the potential to fully offset the decrease in corporate finance. This balanced business model enables us to maintain long-term confidence in our results, it keeps our employees busy through the cycles and it allows us to exit any distressed environment better positioned than when we went in. I want to thank our employees who have worked remotely and tirelessly for months and our clients who have put their trust in us during these tumultuous times," 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,

 

2020

 

2019

Revenues

 

$

211,136

 

 

$

250,349

 

Operating expenses:

 

 

 

 

Employee compensation and benefits

 

137,121

 

 

163,311

 

Non-compensation expenses

 

31,425

 

 

39,264

 

Operating income

 

42,590

 

 

47,774

 

Other (income)/expense, net

 

(1,161

)

 

(1,651

)

Income before provision for income taxes

 

43,751

 

 

49,425

 

Provision for income taxes

 

(2,349

)

 

6,649

 

Net income attributable to Houlihan Lokey, Inc.

 

$

46,100

 

 

$

42,776

 

 

 

 

 

 

Diluted earnings per share

 

$

0.69

 

 

$

0.65

 

Revenues

For the first quarter ended June 30, 2020, revenues were $211 million, compared with $250 million for the first quarter ended June 30, 2019. For the first quarter ended June 30, 2020, Corporate Finance ("CF") revenues decreased (34)%, Financial Restructuring ("FR") revenues increased 12%, and Financial and Valuation Advisory ("FVA") revenues decreased (8)% when compared with the first quarter ended June 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 June 30,

(Dollars in thousands)

 

2020

 

2019

 

2020

 

2019

Expenses:

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

$

137,121

 

 

$

163,311

 

 

$

131,960

 

 

$

152,715

 

% of Revenues

 

64.9

%

 

65.2

%

 

62.5

%

 

61.0

%

Non-compensation expenses

 

$

31,425

 

 

$

39,264

 

 

$

30,009

 

 

$

37,297

 

% of Revenues

 

14.9

%

 

15.7

%

 

14.2

%

 

14.9

%

Provision for Income Taxes

 

$

(2,349

)

 

$

6,649

 

 

$

12,721

 

 

$

17,877

 

% of Pre-Tax Income

 

(5.4

)%

 

13.5

%

 

25.3

%

 

28.8

%

 *  

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.

Employee compensation and benefits expenses were $137 million for the first quarter ended June 30, 2020, compared with $163 million for the first quarter ended June 30, 2019. Adjusted employee compensation and benefits expenses were $132 million for the first quarter ended June 30, 2020, compared with $153 million for the first quarter ended June 30, 2019. This resulted in an adjusted compensation ratio of 62.5% for the first quarter ended June 30, 2020, versus 61.0% for the first quarter ended June 30, 2019. The decreases in GAAP and adjusted employee compensation and benefits expenses were primarily a result of a decrease in revenues for the quarter when compared with the same quarter last year.

Non-compensation expenses were $31 million for the first quarter ended June 30, 2020, compared with $39 million for the first quarter ended June 30, 2019. Adjusted non-compensation expenses were $30 million for the quarter ended June 30, 2020, compared with $37 million for the first quarter ended June 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, partially offset by an increase in information technology expenses. The decrease in travel, meals, and entertainment expense was primarily driven by the firm's current work-from-home policy implemented as a result of the COVID-19 pandemic.

The provision for income taxes was ($2) million, representing an effective tax rate of (5.4)% for the first quarter ended June 30, 2020, compared with $7 million, representing an effective tax rate of 13.5% for the first quarter ended June 30, 2019. The decrease in the Company's tax rate during the quarter ended June 30, 2020 relative to the same period in 2019 was primarily a result of the vesting of stock that occurred in April and May 2020. The share vesting price in April and May 2020 was significantly higher as compared to the share vesting price over the same period in 2019. The adjusted provision for income taxes was $13 million, representing an adjusted effective tax rate of 25.3% for the first quarter ended June 30, 2020, compared with $18 million, representing an adjusted effective tax rate of 28.8% for the first quarter ended June 30, 2019.

Segment Reporting for the First Quarter

Corporate Finance

CF revenues decreased (34)% to $88 million for the first quarter ended June 30, 2020, compared with $134 million for the first quarter ended June 30, 2019. Revenues decreased due to a significant decline in the number of closed transactions as a result of the COVID-19 pandemic, partially offset by an increase in the average transaction fee on closed transactions.

 

 

Three Months Ended June 30,

(Dollars in thousands)

 

2020

 

2019

Corporate Finance

 

 

 

 

Revenues

 

$

87,971

 

 

$

133,589

 

# of Managing Directors

 

117

 

 

115

 

# of Closed transactions (1)

 

35

 

 

61

 

Financial Restructuring

FR revenues increased 12% to $89 million for the first quarter ended June 30, 2020, compared with $79 million for the first quarter ended June 30, 2019. Revenues increased primarily due to an 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 June 30,

(Dollars in thousands)

 

2020

 

2019

Financial Restructuring

 

 

 

 

Revenues

 

$

88,620

 

 

$

79,354

 

# of Managing Directors

 

48

 

 

45

 

# of Closed transactions (1)

 

29

 

 

25

 

Financial and Valuation Advisory

FVA revenues decreased (8)% to $35 million for the first quarter ended June 30, 2020, compared with $37 million for the first quarter ended June 30, 2019. Revenues declined as a result of a reduction in the average fee per fee event due to a shift in product mix driven by the COVID-19 pandemic, partially offset by a slight increase in the number of fee events.

 

 

Three Months Ended June 30,

(Dollars in thousands)

 

2020

 

2019

Financial and Valuation Advisory

 

 

 

 

Revenues

 

$

34,545

 

 

$

37,406

 

# of Managing Directors

 

31

 

 

32

 

# of Fee Events (1)

 

512

 

 

509

 (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 negative 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 first quarter ended June 30, 2020 continued to be negatively impacted by the COVID-19 pandemic and we expect it to continue to have an adverse effect on our business, revenues, and operating results in the short term. However, 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, an increase from the previous dividend rate of $0.31 per share. The dividend will be payable on September 15, 2020 to stockholders of record as of the close of business on September 2, 2020.

As of June 30, 2020, the Company had $546 million of cash and cash equivalents and investment securities, and $26 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 June 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 Tuesday, July 28, 2020, to discuss its first quarter fiscal 2021 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 July 28, 2020 through August 4, 2020, by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the passcode 13706571#. 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)

 

 

 

As of June 30,

2020

 

As of March 31,

2020

(In thousands, except share data and par value)

 

 

Assets

 

 

 

 

Cash and cash equivalents

 

$

422,164

 

 

$

380,373

 

Restricted cash

 

373

 

 

373

 

Investment securities

 

123,488

 

 

135,389

 

Accounts receivable, net of allowance for doubtful accounts

 

51,565

 

 

80,912

 

Unbilled work in process, net of allowance for doubtful accounts

 

36,378

 

 

39,821

 

Income taxes receivable

 

12,165

 

 

4,282

 

Deferred income taxes

 

5,017

 

 

6,507

 

Property and equipment, net

 

42,876

 

 

42,372

 

Operating lease right-of-use asset

 

152,428

 

 

135,240

 

Goodwill and other intangibles, net

 

812,355

 

 

812,844

 

Other assets

 

39,874

 

 

38,890

 

Total assets

 

$

1,698,683

 

 

$

1,677,003

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

Liabilities:

 

 

 

 

Accrued salaries and bonuses

 

$

222,393

 

 

$

420,376

 

Accounts payable and accrued expenses

 

37,233

 

 

53,883

 

Deferred income

 

28,570

 

 

26,780

 

Deferred income taxes

 

2,350

 

 

664

 

Loans payable to former shareholders

 

1,303

 

 

1,393

 

Loan payable to non-affiliate

 

3,362

 

 

3,283

 

Operating lease liabilities

 

172,871

 

 

154,218

 

Other liabilities

 

20,961

 

 

32,024

 

Total liabilities

 

489,043

 

 

692,621

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

Class A common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 50,713,967 and 46,178,633 shares, respectively

 

51

 

 

46

 

Class B common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 18,774,077 and 19,345,277 shares, respectively

 

19

 

 

19

 

Additional paid-in capital

 

848,756

 

 

649,954

 

Retained earnings

 

400,995

 

 

377,471

 

Accumulated other comprehensive (loss)

 

(40,181

)

 

(43,108

)

Total stockholders' equity

 

1,209,640

 

 

984,382

 

Total liabilities and stockholders' equity

 

$

1,698,683

 

 

$

1,677,003

 

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

 

 

 

Three Months Ended June 30,

(In thousands, except share and per share data)

 

2020

 

2019

Revenues

 

$

211,136

 

 

$

250,349

 

Operating expenses:

 

 

 

 

Employee compensation and benefits

 

137,121

 

 

163,311

 

Travel, meals, and entertainment

 

2,114

 

 

9,617

 

Rent

 

9,623

 

 

10,001

 

Depreciation and amortization

 

3,672

 

 

3,963

 

Information technology and communications

 

6,383

 

 

5,324

 

Professional fees

 

5,007

 

 

4,456

 

Other operating expenses

 

4,626

 

 

5,903

 

Total operating expenses

 

168,546

 

 

202,575

 

Operating income

 

42,590

 

 

47,774

 

Other (income)/expense, net

 

(1,161

)

 

(1,651

)

Income before provision for income taxes

 

43,751

 

 

49,425

 

Provision for income taxes

 

(2,349

)

 

6,649

 

Net income attributable to Houlihan Lokey, Inc.

 

$

46,100

 

 

$

42,776

 

 

 

 

 

 

Weighted average shares of common stock outstanding:

 

 

 

 

Basic

 

63,684,431

 

 

61,670,617

 

Fully diluted

 

66,798,560

 

 

65,621,103

 

Earnings per share

 

 

 

 

Basic

 

$

0.72

 

 

$

0.69

 

Fully diluted

 

$

0.69

 

 

$

0.65

 

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP TO ADJUSTED FINANCIAL INFORMATION

(UNAUDITED)

   

 

 

Three Months Ended June 30,

(In thousands, except per share data)

 

2020

 

2019

Revenues

 

$

211,136

 

 

$

250,349

 

 

 

 

 

 

Employee compensation and benefits

 

 

 

 

Employee compensation and benefits (GAAP)

 

$

137,121

 

 

$

163,311

 

(Less)/plus: Pre-IPO grant vesting

 

 

 

(6,112

)

(Less)/plus: Acquisition related retention payments

 

(5,161

)

 

(4,484

)

Employee compensation and benefits (adjusted)

 

131,960

 

 

152,715

 

 

 

 

 

 

Non-compensation expenses

 

 

 

 

Non-compensation expenses (GAAP)

 

$

31,425

 

 

$

39,264

 

(Less)/plus: Secondary offering related costs

 

(418

)

 

(414

)

(Less)/plus: Acquisition amortization

 

(998

)

 

(1,553

)

Non-compensation expenses (adjusted)

 

30,009

 

 

37,297

 

 

 

 

 

 

Operating income

 

 

 

 

Operating income (GAAP)

 

$

42,590

 

 

$

47,774

 

(Less)/plus: Adjustments (1)

 

6,577

 

 

12,563

 

Operating income (adjusted)

 

49,167

 

 

60,337

 

 

 

 

 

 

Other (income)/expense, net

 

 

 

 

Other (income)/expense, net (GAAP)

 

$

(1,161

)

 

$

(1,651

)

Other (income)/expense, net (adjusted)

 

(1,161

)

 

(1,651

)

 

 

 

 

 

Provision for income taxes

 

 

 

 

Provision for income taxes (GAAP)

 

$

(2,349

)

 

$

6,649

 

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

 

13,408

 

 

7,605

 

Adjusted provision for income taxes

 

11,059

 

 

14,254

 

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

 

1,662

 

 

3,623

 

Provision for income taxes (adjusted)

 

12,721

 

 

17,877

 

 

 

 

 

 

Net income

 

 

 

 

Net income (GAAP)

 

$

46,100

 

 

$

42,776

 

(Less)/plus: adjustments (3)

 

(8,493

)

 

1,335

 

Net income (adjusted)

 

37,607

 

 

44,111

 

 

 

 

 

 

Diluted EPS (GAAP)

 

$

0.69

 

 

$

0.69

 

Diluted EPS (adjusted)

 

$

0.56

 

 

$

0.67

 

 (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.

 

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