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Published: 2020-10-29 19:08:40 ET
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EX-99.1 2 q2fy21-ex991.htm EX-99.1 Document
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Houlihan Lokey Reports Second Quarter Fiscal 2021 Financial Results

– Second Quarter Fiscal 2021 Revenues of $276 million –
– Second Quarter Fiscal 2021 Diluted EPS of $0.70 –
– Adjusted Second Quarter Fiscal 2021 Diluted EPS of $0.75 –
– Announces Dividend of $0.33 per Share for Third Quarter Fiscal 2021 –

LOS ANGELES and NEW YORK - October 29, 2020 - 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,
2020201920202019
Revenues
$275,736 $272,810 $486,872 $523,159 
Operating expenses:
Employee compensation and benefits177,249 174,638 314,370 337,949 
Non-compensation expenses31,612 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.

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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. GAAPAdjusted (Non-GAAP) *
Three Months Ended September 30,
(Dollars in thousands)2020201920202019
Expenses:
Employee compensation and benefits$177,249 $174,638 $175,090 $165,459 
% of Revenues64.3 %64.0 %63.5 %60.7 %
Non-compensation expenses$31,612 $53,019 $28,730 $44,226 
% of Revenues11.5 %19.4 %10.4 %16.2 %
Provision for Income Taxes$18,281 $13,144 $19,655 $18,252 
% of Pre-Tax Income27.3 %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. GAAPAdjusted (Non-GAAP) *
Six Months Ended September 30,
(Dollars in thousands)2020201920202019
Expenses:
Employee compensation and benefits$314,370 $337,949 $307,050 $318,174 
% of Revenues64.6 %64.6 %63.1 %60.8 %
Non-compensation expenses$63,037 $92,280 $58,739 $81,519 
% of Revenues12.9 %17.6 %12.1 %15.6 %
Provision for Income Taxes$15,932 $19,793 $32,376 $36,129 
% of Pre-Tax Income14.4 %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.
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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)2020201920202019
Corporate Finance
Revenues$108,049 $155,981 $196,020 $289,570 
# of Managing Directors125 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)2020201920202019
Financial Restructuring
Revenues$125,391 $77,276 $214,011 $156,630 
# of Managing Directors47 45 47 45 
# of Closed transactions (1)
30 17 59 42 
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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)2020201920202019
Financial and Valuation Advisory
Revenues$42,296 $39,553 $76,841 $76,959 
# of Managing Directors31 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.

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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.



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Contact Information
Investor Relations
212.331.8225
IR@HL.com		ORPublic Relations
212.331.8223
PR@HL.com

Appendix

Condensed Consolidated Balance Sheet (Unaudited)
Condensed Consolidated Statement of Income (Unaudited)
Reconciliation of GAAP to Adjusted Financial Information (Unaudited)

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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 cash373 373 
Investment securities178,285 135,389 
Accounts receivable, net of allowance for doubtful accounts 73,916 80,912 
Unbilled work in process, net of allowance for doubtful accounts40,572 39,821 
Income taxes receivable16,573 4,282 
Deferred income taxes5,147 6,507 
Property and equipment, net43,642 42,372 
Operating lease right-of-use asset149,454 135,240 
Goodwill and other intangibles, net861,658 812,844 
Other assets43,956 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 expenses42,006 53,883 
Deferred income29,660 26,780 
Deferred income taxes4,016 664 
Loans payable to former shareholders1,206 1,393 
Loan payable to non-affiliate3,517 3,283 
Operating lease liabilities170,696 154,218 
Other liabilities45,063 32,024 
Total liabilities584,931 692,621 
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, respectively52 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, respectively18 19 
Treasury stock, at cost: 392,673 and 0 shares, respectively(22,711)— 
Additional paid-in capital880,370 649,954 
Retained earnings427,621 377,471 
Accumulated other comprehensive (loss)(34,738)(43,108)
Total stockholders' equity1,250,612 984,382 
Total liabilities and stockholders' equity$1,835,543 $1,677,003 
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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)2020201920202019
Revenues$275,736 $272,810 $486,872 $523,159 
Operating expenses:
Employee compensation and benefits177,249 174,638 314,370 337,949 
Travel, meals, and entertainment964 10,200 3,078 19,817 
Rent10,301 14,922 19,924 24,923 
Depreciation and amortization3,670 3,981 7,342 7,944 
Information technology and communications6,868 6,928 13,251 12,252 
Professional fees5,227 5,834 10,234 10,290 
Other operating expenses4,582 11,154 9,208 17,054 
Total operating expenses208,861 227,657 377,407 430,229 
Operating income66,875 45,153 109,465 92,930 
Other (income)/expense, net(196)(1,101)(1,357)(2,748)
Income before provision for income taxes67,071 46,254 110,822 95,678 
Provision for income taxes18,281 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:
Basic66,787,832 62,477,085 65,244,611 62,292,798 
Fully diluted69,615,060 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 

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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)2020201920202019
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 taxes18,281 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.
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