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Houlihan Lokey Reports Second Quarter Fiscal 2023 Financial Results

Second Quarter Fiscal 2023 Revenues of $490 million

Second Quarter Fiscal 2023 Diluted EPS of $0.87

Adjusted Second Quarter Fiscal 2023 Diluted EPS of $1.19

Announces Dividend of $0.53 per Share for Third Quarter Fiscal 2023

Houlihan Lokey, Inc. (NYSE:HLI) (“Houlihan Lokey” or the “Company”) today reported financial results for its second quarter ended September 30, 2022.

For the second quarter ended September 30, 2022, revenues were $490 million, compared with $537 million for the second quarter ended September 30, 2021. Net income was $61 million, or $0.87 per diluted share, for the second quarter ended September 30, 2022, compared with $113 million, or $1.65 per diluted share, for the second quarter ended September 30, 2021. Adjusted net income for the second quarter ended September 30, 2022 was $83 million, or $1.19 per diluted share, compared with $117 million, or $1.71 per diluted share, for the second quarter ended September 30, 2021.

“Our second quarter results reflect the benefit of our diversified business model. In a challenging market environment, growth in Financial Restructuring and Financial and Valuation Advisory partly offset headwinds in our Corporate Finance business. We are proud to note that our Financial and Valuation Advisory business recorded its second-best quarter ever, as we continue to grow that business across all service lines. Market conditions for Financial Restructuring continue to improve and we see potential that this cycle may produce an elevated level of restructuring revenues over an extended period of time. In Corporate Finance, despite difficult year-over-year comparisons, we are starting to see an increase in deal closings leading into the second half of the fiscal year, and the quality of our new deal activity continues to improve. We remain confident the Firm is well positioned across various types of macro-economic environments” 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,

2022

 

2021

 

2022

 

2021

Revenues by segment

 

 

 

 

 

 

 

Corporate Finance

$

315,016

 

$

388,410

 

$

578,967

 

$

598,401

Financial Restructuring

 

97,694

 

 

83,184

 

 

176,532

 

 

181,959

Financial and Valuation Advisory

 

76,827

 

 

65,678

 

 

152,682

 

 

129,634

Revenues

$

489,537

 

$

537,272

 

$

908,181

 

$

909,994

Operating expenses:

 

 

 

 

 

 

 

Employee compensation and benefits

$

309,859

 

$

333,374

 

$

575,594

 

$

565,678

Non-compensation

 

90,307

 

 

46,579

 

 

165,646

 

 

79,321

Operating income

 

89,371

 

 

157,319

 

 

166,941

 

 

264,995

Other expense, net

 

5,104

 

 

853

 

 

6,853

 

 

752

Income before provision for income taxes

 

84,267

 

 

156,466

 

 

160,088

 

 

264,243

Provision for income taxes

 

23,537

 

 

43,583

 

 

28,576

 

 

65,400

Net income attributable to Houlihan Lokey, Inc.

$

60,730

 

$

112,883

 

$

131,512

 

$

198,843

 

 

 

 

 

 

 

 

Diluted earnings per share

$

0.87

 

$

1.65

 

$

1.90

 

$

2.90

Revenues

For the second quarter ended September 30, 2022, revenues were $490 million, compared with $537 million for the second quarter ended September 30, 2021. Revenues decreased primarily as a result of a decrease in the number of closed transactions and the average transaction fee on closed transactions for our Corporate Finance (“CF”) business segment. For the second quarter ended September 30, 2022, CF revenues decreased (19)%, Financial Restructuring (“FR”) revenues increased 17%, and Financial and Valuation Advisory (“FVA”) revenues increased 17% when compared with the second quarter ended September 30, 2021. Revenues for the second quarter ended September 30, 2021 do not include GCA.

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 September 30,

($ in thousands)

2022

 

2021

 

2022

 

2021

Expenses:

 

 

 

 

 

 

 

Employee compensation and benefits

$

309,859

 

 

$

333,374

 

 

$

301,063

 

 

$

330,421

 

% of Revenues

 

63.3

%

 

 

62.0

%

 

 

61.5

%

 

 

61.5

%

Non-compensation

$

90,307

 

 

$

46,579

 

 

$

72,358

 

 

$

43,327

 

% of Revenues

 

18.4

%

 

 

8.7

%

 

 

14.8

%

 

 

8.1

%

Provision for income taxes

$

23,537

 

 

$

43,583

 

 

$

32,084

 

 

$

45,311

 

% of Pre-tax income

 

27.9

%

 

 

27.9

%

 

 

27.9

%

 

 

27.9

%

* 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.

 

U.S. GAAP

 

Adjusted (Non-GAAP) *

 

Six Months Ended September 30,

($ in thousands)

2022

 

2021

 

2022

 

2021

Expenses:

 

 

 

 

 

 

 

Employee compensation and benefits

$

575,594

 

 

$

565,678

 

 

$

558,530

 

 

$

559,646

 

% of Revenues

 

63.4

%

 

 

62.2

%

 

 

61.5

%

 

 

61.5

%

Non-compensation

$

165,646

 

 

$

79,321

 

 

$

131,932

 

 

$

75,005

 

% of Revenues

 

18.2

%

 

 

8.7

%

 

 

14.5

%

 

 

8.2

%

Provision for income taxes

$

28,576

 

 

$

65,400

 

 

$

57,289

 

 

$

75,155

 

% of Pre-tax income

 

17.9

%

 

 

24.7

%

 

 

26.5

%

 

 

27.4

%

* 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.

Employee compensation and benefits expenses were $310 million for the second quarter ended September 30, 2022, compared with $333 million for the second quarter ended September 30, 2021. Adjusted employee compensation and benefits expenses were $301 million for the second quarter ended September 30, 2022, compared with $330 million for the second quarter ended September 30, 2021. This resulted in an adjusted compensation ratio of 61.5% for both the second quarter ended September 30, 2022 and the second quarter ended September 30, 2021. The decrease in GAAP and 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 $90 million for the second quarter ended September 30, 2022, compared with $47 million for the second quarter ended September 30, 2021. The increase in GAAP non-compensation expenses was primarily a result of the inclusion of GCA’s non-compensation expenses in the second quarter ended September 30, 2022, which were not included in the second quarter ended September 30, 2021, amortization of intangible assets recognized in connection with the acquisition of GCA, integration related costs associated with our acquisition of GCA and an increase in other operating expenses and travel, meals, and entertainment expenses. Adjusted non-compensation expenses were $72 million for the second quarter ended September 30, 2022, compared with $43 million for the second quarter ended September 30, 2021. The increase in adjusted non-compensation expenses was primarily a result of GCA’s non-compensation expenses in the second quarter ended September 30, 2022, which were not included in the second quarter ended September 30, 2021, and an increase in other operating expenses and travel, meals, and entertainment expenses.

The provision for income taxes was $24 million, representing an effective tax rate of 27.9% for the second quarter ended September 30, 2022, compared with $44 million, representing an effective tax rate of 27.9% for the second quarter ended September 30, 2021. The adjusted provision for income taxes was $32 million, representing an adjusted effective tax rate of 27.9% for the second quarter ended September 30, 2022, compared with $45 million, representing an adjusted effective tax rate of 27.9% for the second quarter ended September 30, 2021.

Segment Reporting for the Second Fiscal Quarter

Corporate Finance

CF revenues were $315 million for the second quarter ended September 30, 2022, compared with $388 million for the second quarter ended September 30, 2021, representing a decrease of (19)%. Revenues decreased primarily due to a decrease in the number of closed transactions.

 

Three Months Ended September 30,

 

Six Months Ended September 30,

($ in thousands)

2022

 

2021

 

2022

 

2021

Corporate Finance

 

 

 

 

 

 

 

Revenues

$

315,016

 

$

388,410

 

$

578,967

 

$

598,401

# of Managing Directors

 

210

 

 

126

 

 

210

 

 

126

# of Closed transactions (1)

 

114

 

 

134

 

 

238

 

 

218

Financial Restructuring

FR revenues increased 17% to $98 million for the second quarter ended September 30, 2022, compared with $83 million for the second quarter ended September 30, 2021. Revenues increased primarily due to an increase in the number of closed transactions and the closing of a significant fee event during the quarter.

 

Three Months Ended September 30,

 

Six Months Ended September 30,

($ in thousands)

2022

 

2021

 

2022

 

2021

Financial Restructuring

 

 

 

 

 

 

 

Revenues

$

97,694

 

$

83,184

 

$

176,532

 

$

181,959

# of Managing Directors

 

56

 

 

51

 

 

56

 

 

51

# of Closed transactions (1)

 

24

 

 

20

 

 

40

 

 

44

Financial and Valuation Advisory

FVA revenues increased 17% to $77 million for the second quarter ended September 30, 2022, compared with $66 million for the second quarter ended September 30, 2021. Revenues increased primarily due to an increase in the number of fee events.

 

Three Months Ended September 30,

 

Six Months Ended September 30,

($ in thousands)

2022

 

2021

 

2022

 

2021

Financial and Valuation Advisory

 

 

 

 

 

 

 

Revenues

$

76,827

 

$

65,678

 

$

152,682

 

$

129,634

# of Managing Directors

 

40

 

 

37

 

 

40

 

 

37

# of Fee Events (1)

 

890

 

 

806

 

 

1,404

 

 

1,242

(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 December 15, 2022 to stockholders of record as of the close of business on December 2, 2022.

As of September 30, 2022, the Company had $540 million of cash and cash equivalents and investment securities, and $51 million of other liabilities 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, October 27, 2022, to discuss its second quarter fiscal 2023 results. The number to call is 1-888-254-3590 (domestic) or 1-646-828-8193 (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 27, 2022 through November 3, 2022, by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the passcode 3937326#. 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 Sheets (Unaudited)

Condensed Consolidated Statements 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)

September 30, 2022

 

March 31, 2022

Assets

 

 

 

Cash and cash equivalents

$

503,806

 

 

$

833,697

 

Restricted cash

 

373

 

 

 

373

 

Investment securities

 

35,742

 

 

 

109,143

 

Accounts receivable, net of allowance for credit losses

 

135,191

 

 

 

144,029

 

Unbilled work in process, net of allowance for credit losses

 

155,935

 

 

 

104,751

 

Deferred income taxes

 

112,092

 

 

 

95,278

 

Property and equipment, net

 

62,206

 

 

 

52,176

 

Operating lease right-of-use assets

 

168,291

 

 

 

171,942

 

Goodwill

 

1,051,294

 

 

 

1,070,442

 

Other intangible assets, net

 

214,598

 

 

 

247,333

 

Other assets

 

70,671

 

 

 

57,646

 

Total assets

$

2,510,199

 

 

$

2,886,810

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

Liabilities:

 

 

 

Accrued salaries and bonuses

$

685,568

 

 

$

953,604

 

Accounts payable and accrued expenses

 

98,182

 

 

 

126,190

 

Deferred income

 

35,482

 

 

 

28,753

 

Income taxes payable

 

3,869

 

 

 

61,266

 

Deferred income taxes

 

538

 

 

 

789

 

Loans payable to former shareholders

 

506

 

 

 

539

 

Operating lease liabilities

 

188,937

 

 

 

197,091

 

Other liabilities

 

50,449

 

 

 

74,873

 

Total liabilities

 

1,063,531

 

 

 

1,443,105

 

 

 

 

 

Stockholders' equity:

 

 

 

Class A common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 49,780,875 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 18,874,122 and 17,649,555 shares, respectively

 

19

 

 

 

18

 

Additional paid-in capital

 

559,605

 

 

 

564,761

 

Retained earnings

 

981,204

 

 

 

922,223

 

Accumulated other comprehensive loss

 

(94,210

)

 

 

(43,347

)

Total stockholders’ equity

 

1,446,668

 

 

 

1,443,705

 

Total liabilities and stockholders’ equity

$

2,510,199

 

 

$

2,886,810

 

 

 

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)

2022

 

2021

 

2022

 

2021

Revenues

$

489,537

 

$

537,272

 

$

908,181

 

$

909,994

Operating expenses:

 

 

 

 

 

 

 

Employee compensation and benefits

 

309,859

 

 

333,374

 

 

575,594

 

 

565,678

Travel, meals, and entertainment

 

12,370

 

 

4,687

 

 

23,420

 

 

6,374

Rent

 

13,285

 

 

9,050

 

 

25,075

 

 

19,275

Depreciation and amortization

 

19,475

 

 

4,344

 

 

38,618

 

 

8,515

Information technology and communications

 

13,183

 

 

8,858

 

 

24,173

 

 

15,819

Professional fees

 

9,598

 

 

6,915

 

 

16,067

 

 

13,616

Other operating expenses

 

22,396

 

 

12,725

 

 

38,293

 

 

15,722

Total operating expenses

 

400,166

 

 

379,953

 

 

741,240

 

 

644,999

Operating income

 

89,371

 

 

157,319

 

 

166,941

 

 

264,995

Other expense, net

 

5,104

 

 

853

 

 

6,853

 

 

752

Income before provision for income taxes

 

84,267

 

 

156,466

 

 

160,088

 

 

264,243

Provision for income taxes

 

23,537

 

 

43,583

 

 

28,576

 

 

65,400

Net income attributable to Houlihan Lokey, Inc.

$

60,730

 

$

112,883

 

$

131,512

 

$

198,843

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding:

Basic

 

63,422,701

 

 

65,156,968

 

 

63,350,545

 

 

65,433,649

Fully diluted

 

69,800,028

 

 

68,566,127

 

 

69,316,792

 

 

68,641,962

Earnings per share

 

 

 

 

 

 

 

Basic

$

0.96

 

$

1.73

 

$

2.08

 

$

3.04

Fully diluted

$

0.87

 

$

1.65

 

$

1.90

 

$

2.90

 

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)

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Revenues

$

489,537

 

 

$

537,272

 

 

$

908,181

 

 

$

909,994

 

 

 

 

 

 

 

 

 

Employee compensation and benefits expenses

 

 

 

 

 

 

 

Employee compensation and benefits expenses (GAAP)

$

309,859

 

 

$

333,374

 

 

$

575,594

 

 

$

565,678

 

Less: Acquisition related retention payments

 

(8,796

)

 

 

(2,953

)

 

 

(17,064

)

 

 

(6,032

)

Employee compensation and benefits expenses (adjusted)

 

301,063

 

 

 

330,421

 

 

 

558,530

 

 

 

559,646

 

 

 

 

 

 

 

 

 

Non-compensation expenses

 

 

 

 

 

 

 

Non-compensation expenses (GAAP)

$

90,307

 

 

$

46,579

 

 

$

165,646

 

 

$

79,321

 

Less: Integration and acquisition related costs

 

(2,325

)

 

 

(1,640

)

 

 

(2,325

)

 

 

(1,640

)

Less: Acquisition amortization

 

(15,624

)

 

 

(1,612

)

 

 

(31,389

)

 

 

(2,676

)

Non-compensation expenses (adjusted)

 

72,358

 

 

 

43,327

 

 

 

131,932

 

 

 

75,005

 

 

 

 

 

 

 

 

 

Operating income

 

 

 

 

 

 

 

Operating income (GAAP)

$

89,371

 

 

$

157,319

 

 

$

166,941

 

 

$

264,995

 

Plus: Adjustments (1)

 

26,745

 

 

 

6,205

 

 

 

50,778

 

 

 

10,348

 

Operating income (adjusted)

 

116,116

 

 

 

163,524

 

 

 

217,719

 

 

 

275,343

 

 

 

 

 

 

 

 

 

Other expense, net

 

 

 

 

 

 

 

Other expense, net (GAAP)

$

5,104

 

 

$

853

 

 

$

6,853

 

 

$

752

 

Less: Warrant revaluation

 

(1,014

)

 

 

 

 

 

(2,264

)

 

 

 

Less: Increase in acquisition earnout liability

 

(2,841

)

 

 

 

 

 

(2,841

)

 

 

 

Other expense, net (adjusted)

 

1,249

 

 

 

853

 

 

 

1,748

 

 

 

752

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

 

 

 

 

 

Provision for income taxes (GAAP)

$

23,537

 

 

$

43,583

 

 

$

28,576

 

 

$

65,400

 

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

 

23,537

 

 

 

43,583

 

 

 

42,440

 

 

 

72,322

 

Plus: Resulting tax impact (2)

 

8,547

 

 

 

1,728

 

 

 

14,849

 

 

 

2,833

 

Provision for income taxes (adjusted)

 

32,084

 

 

 

45,311

 

 

 

57,289

 

 

 

75,155

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

Net income (GAAP)

$

60,730

 

 

$

112,883

 

 

$

131,512

 

 

$

198,843

 

Plus: Adjustments (3)

 

22,053

 

 

 

4,477

 

 

 

27,170

 

 

 

593

 

Net income (adjusted)

 

82,783

 

 

 

117,360

 

 

 

158,682

 

 

 

199,436

 

 

 

 

 

 

 

 

 

Diluted EPS (GAAP)

$

0.87

 

 

$

1.65

 

 

$

1.90

 

 

$

2.90

 

Diluted EPS (adjusted)

$

1.19

 

 

$

1.71

 

 

$

2.29

 

 

$

2.91

 

(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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