Business Wire | Jul 28, 2020 04:16PM EDT

Houlihan Lokey Reports First Quarter Fiscal 2021 Financial Results

Jul. 28, 2020

LOS ANGELES & NEW YORK--(BUSINESS WIRE)--Jul. 28, 2020--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

U.S. GAAP

(In thousands, except per share data) 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 $ 137,121 $ 163,311 $ 131,960 $ 152,715 benefits

% 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

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(1) 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 As of March 30, 31,(In thousands, except share data and par value) 2020 2020

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 51,565 80,912 doubtful accounts

Unbilled work in process, net of allowance for 36,378 39,821 doubtful accounts

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 51 46 outstanding 50,713,967 and 46,178,633 shares, respectively

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

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 13,408 7,605 stock vesting

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

The aggregate of adjustments from employee compensation and benefits and(1) non-compensation expenses.

Reflects the tax impact of utilizing the adjusted effective tax rate on(2) the non-tax adjustments identified above.

Consists of all adjustments identified above net of the associated tax(3) impact.

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CONTACT: Investor Relations 212.331.8225 IR@HL.com

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