HOULIHAN LOKEY INC

Previous wording

CF provides general financial advisory services in addition to advice on mergers and acquisitions and capital markets offerings. We advise public and private institutions on a wide variety of situations, including buy-side and sell-side transactions, as well as leveraged loans, private mezzanine debt, high-yield debt, initial public offerings, follow-ons, convertibles, equity private placements, and private equity, and advise financial sponsors on all types of transactions. The majority of our CF revenues consists of Completion Fees. A CF transaction can fail to be completed for many reasons that are outside of our control. In these instances, our fees are generally limited to Retainer Fees and in some cases Progress Fees that may have been received.

Current wording

CF provides general financial advisory services and advice on mergers and acquisitions and capital markets offerings. We advise public and private institutions, including financial sponsors, on a wide variety of matters, including buy-side and sell-side M&A transactions, debt and equity financings in both the private and public markets, and other corporate finance transactions. The majority of our CF revenues consists of Completion Fees. A CF transaction can fail to be completed for many reasons that are outside of our control. In these instances, our fees are generally limited to Retainer Fees and in some cases Progress Fees that may have been received.

Previous wording

FVA primarily provides valuations of various assets, including: companies; illiquid debt and equity securities; and intellectual property (among other assets and liabilities). These valuations are used for financial reporting, tax reporting, and other purposes. In addition, our FVA business segment renders fairness opinions in connection with mergers and acquisitions and other transactions, and solvency opinions in connection with corporate spin-offs and dividend recapitalizations, and other types of financial opinions in connection with other transactions. Also, our FVA business segment provides dispute resolution services to clients where fees are usually based on the hourly rates of our financial professionals. Unlike our CF or FR segments, the fees generated in our FVA segment are generally not contingent on the successful completion of a transaction.

Current wording

FVA primarily provides financial advisory and valuation services with respect to companies, debt and equity interests (including complex illiquid investments), and other types of assets and liabilities; fairness opinions in connection with mergers and acquisitions and other transactions, solvency opinions in connection with corporate spin-offs and dividend recapitalizations, and other types of financial opinions in connection with other transactions; as well as diligence, tax, transaction accounting, and other financial advisory services to companies, boards of directors, special committees, retained counsel, financial and strategic investors, trustees, and other parties. Also, our FVA business segment provides dispute resolution services to clients where fees are usually based on the hourly rates of our financial professionals. Unlike our CF or FR segments, the fees generated in our FVA segment are generally not contingent on the successful completion of a transaction.

Previous wording

Other (income)/expense, net includes (i) interest income earned on non-marketable and investment securities, cash and cash equivalents, loans receivable from affiliates, employee loans, and commercial paper, (ii) interest expense and fees on our HLI Line of Credit (defined herein), (iii) equity income and/or gains or losses from funds and partnership interests where we have had more than a minor ownership interest or more than minor influence over operations, but do not have a controlling interest and are not the primary beneficiary, (iv) gains and/or losses associated with the reduction/increase of earnout liabilities, and (vi) other miscellaneous non-operating expenses.

Current wording

Other income, net includes (i) interest income earned on non-marketable and investment securities, cash and cash equivalents, loans receivable from affiliates, employee loans, and commercial paper, (ii) interest expense and fees on our HLI Line of Credit (defined herein), (iii) equity income and/or gains or losses from funds and partnership interests where we have had more than a minor ownership interest or more than minor influence over operations, but do not have a controlling interest and are not the primary beneficiary, (iv) gains and/or losses associated with the reduction/increase of earnout liabilities, and (v) other miscellaneous non-operating expenses.

Previous wording

The following is a discussion of our results of operations for the three and nine months ended December 31, 2023 and 2022. For a more detailed discussion of the factors that affected the revenues and the operating expenses of our CF, FR, and FVA business segments in these periods, see Part I, Item 2 of this Form 10-Q under the heading “Business Segments” below.

Current wording

The following is a discussion of our results of consolidated operations for the three months ended June 30, 2024 and 2023. For a more detailed discussion of the factors that affected the revenues and the operating expenses of our CF, FR, and FVA business segments in these periods, see Part I, Item 2 of this Form 10-Q under the heading “Business Segments” below.

Previous wording

Operating expenses were $414.6 million for the three months ended December 31, 2023, compared with $372.3 million for the three months ended December 31, 2022, representing an increase of 11%. Employee compensation and benefits expense, as a component of operating expenses, was $324.0 million for the three months ended December 31, 2023, compared with $289.3 million for the three months ended December 31, 2022, representing an increase of 12%. The increase in employee compensation and benefits expense was primarily a result of an increase in revenues for the quarter when compared with the same quarter last year. The Compensation Ratio was 63.4% for the three months ended December 31, 2023, compared with 63.4% for the three months ended December 31, 2022. Non-compensation expense, as a component of operating expenses, was $90.6 million for the three months ended December 31, 2023, compared with $83.0 million for the three months ended December 31, 2022, representing an increase of 9%. The increase in non-compensation expense was primarily the result of an increase in professional fees and rent expense.

Current wording

Operating expenses were $418.0 million for the three months ended June 30, 2024, compared with $342.5 million for the three months ended June 30, 2023, representing an increase of 22%. Employee compensation and benefits expense, as a component of operating expenses, was $330.1 million for the three months ended June 30, 2024, compared with $263.5 million for the three months ended June 30, 2023, representing an increase of 25%. The increase in employee compensation and benefits expense was a result of an increase in revenues for the quarter when compared with the same quarter last year. The Compensation Ratio was 64.3% for the three months ended June 30, 2024, compared with 63.4% for the three months ended June 30, 2023. Non-compensation expense, as a component of operating expenses, was $87.9 million for the three months ended June 30, 2024, compared with $79.0 million for the three months ended June 30, 2023, representing an increase of 11%. The increase in non-compensation expense was primarily a result of increases in information technology and communications expenses and in travel, meals, and entertainment expenses.

Previous wording

The provision for income taxes for the three months ended December 31, 2023 was $31.8 million, which reflected an effective tax rate of 31.0%. The provision for income taxes for the three months ended December 31, 2022 was $20.6 million which reflected an effective tax rate of 24.6%. The increase in the Company’s tax rate during the three months ended December 31, 2023 relative to the same period in 2022 was primarily a result of increased state taxes and increased taxes due to foreign operations.

Current wording

The provision for income taxes was $10.9 million, representing an effective tax rate of 10.9%, for the first quarter ended June 30, 2024, compared with $15.0 million, representing an effective tax rate of 19.6%, for the first quarter ended June 30, 2023. The decrease in the Company's tax rate during the quarter ended June 30, 2024 relative to the quarter ended June 30, 2023 was primarily a result of increased stock compensation deductions.

Previous wording

The following table presents revenues, expenses and contributions from our continuing operations by business segment. The revenues by segment represent each segment’s revenues, and the profit by segment represents profit for each segment before corporate expenses, other (income)/expense, net, and income taxes.

Current wording

The following table presents revenues, expenses and contributions from our continuing operations by business segment. The revenues by segment represents each segment’s revenues, and the profit by segment represents profit for each segment before corporate expenses, other expense, net, and income taxes.

Previous wording

(3)Fee Events applicable to FVA only; a Fee Event includes any engagement that involves revenue activity during the measurement period with a revenue minimum of $1,000. References to closed transactions should be understood to be the same as transactions that are “effectively closed” as described in Note 3 of our Consolidated Financial Statements.

Current wording

(3)Fee Events applicable to FVA only; a Fee Event includes any engagement that involves revenue activity during the measurement period with a revenue minimum of one thousand dollars. References to closed transactions should be understood to be the same as transactions that are “effectively closed” as described in Note 2 of our Consolidated Financial Statements.

Previous wording

Revenues for CF were $310.5 million for the three months ended December 31, 2023, compared with $291.7 million for the three months ended December 31, 2022, representing an increase of 6%. Revenues increased due to an increase in the average transaction fee on closed transactions during the quarter, which was driven by transaction mix, and did not represent a trend in the average transaction fee on closed transactions.

Current wording

Revenues for CF were $328.4 million for the three months ended June 30, 2024, compared with $227.1 million for the three months ended June 30, 2023, representing an increase of 45%. Revenues increased due to an increase in the number of closed transactions during the quarter, driven by favorable market conditions for M&A and capital markets transactions. Revenues also increased due to an increase in the average transaction fee on closed transactions. The increase in the average transaction fee on closed transactions was driven by transaction mix, and does not represent a trend in the average transaction fee on closed transactions.

Previous wording

Segment profit for CF was $93.3 million for the three months ended December 31, 2023, compared with $83.8 million for the three months ended December 31, 2022, an increase of 11%. Profitability increased primarily as a result of an increase in revenues and lower compensation expenses as a percentage of revenues when compared to the same quarter last year.

Current wording

Segment profit for CF was $100.4 million for the three months ended June 30, 2024, compared with $61.6 million for the three months ended June 30, 2023, representing an increase of 63%. Profitability increased primarily as a result of an increase in revenues and lower non-compensation expenses as a percentage of revenues when compared to the same quarter last year.

Previous wording

Revenues for FR were $128.6 million for the three months ended December 31, 2023, compared with $98.8 million for the three months ended December 31, 2022, representing an increase of 30%. Revenues increased primarily due to an increase in the average transaction fee on closed transactions, which was driven by transaction mix, and did not represent a trend in the average transaction fee on closed transactions.

Current wording

Revenues for FR were $117.4 million for the three months ended June 30, 2024, compared with $123.4 million for the three months ended June 30, 2023, representing a decrease of (5)%. Revenues decreased primarily due to a decrease in the average transaction fee on closed transactions and lower retainer fees relative to the same quarter last year, partially offset by an increase in the number of closed transactions. The decrease in average transaction fee on closed transactions was driven by transaction mix, and does not represent a trend in the average transaction fee on closed transactions.

Previous wording

Segment profit for CF was $245.4 million for the nine months ended December 31, 2023, compared with $269.1 million for the nine months ended December 31, 2022, a decrease of (9)%. Profitability decreased primarily as a result of a decrease in revenues when compared to the same quarter last year.

Current wording

Segment profit for FR was $39.1 million for the three months ended June 30, 2024, compared with $43.6 million for the three months ended June 30, 2023, a decrease of (10)%. Profitability decreased primarily as a result of a decrease in revenues and an increase in non-compensation expenses when compared to the same quarter last year.

Previous wording

Revenues for FVA were $72.1 million for the three months ended December 31, 2023, compared with $65.9 million for the three months ended December 31, 2022, representing an increase of 9%. Revenues increased primarily due to an increase in the number of Fee Events. The increase in the number of Fee Events was driven by expanding our scope of work for new and existing clients for one or more of the service lines within our FVA business.

Current wording

Revenues for FVA were $67.8 million for the three months ended June 30, 2024, compared with $65.4 million for the three months ended June 30, 2023, representing an increase of 4%. Revenues increased primarily due to an increase in the number of Fee Events. The increase in the number of Fee Events was driven by expanding our scope of work for existing clients for one or more of the service lines within our FVA business.

Previous wording

Segment profit for FVA was $14.3 million for the three months ended December 31, 2023, compared with $12.4 million for the three months ended December 31, 2022, an increase of 16%. Profitability increased primarily as a result of higher revenues and lower compensation expenses as a percentage of revenues when compared to the same quarter last year.

Current wording

Segment profit for FVA was $17.6 million for the three months ended June 30, 2024, compared with $14.9 million for the three months ended June 30, 2023, an increase of 18%. Profitability increased primarily as a result of an increase in revenues and a decrease in compensation expenses when compared to the same quarter last year.

Previous wording

Our current assets comprise cash and cash equivalents, investment securities, receivables from affiliates, accounts receivable, and unbilled work in progress related to fees earned from providing advisory services. Our current liabilities include deferred income, accounts payable and accrued expenses, accrued salaries and bonuses, income taxes payable, and the current portion of loan obligations.

Current wording

Our current assets comprise cash and cash equivalents, investment securities, accounts receivable, and unbilled work in progress related to fees earned from providing advisory services. Our current liabilities include deferred income, accounts payable and accrued expenses, accrued salaries and bonuses, income taxes payable, and current portion of loan obligations.

Previous wording

Our cash and cash equivalents include cash held at banks. We maintain moderate levels of cash on hand in support of regulatory requirements for our registered broker-dealer. As of December 31, 2023 and March 31, 2023, we had $464.8 million and $475.0 million of cash in foreign subsidiaries, respectively. Our excess cash may be invested from time to time in short-term investments, including treasury securities, commercial paper, certificates of deposit, and investment grade corporate and government debt securities. Please refer to Note 6 for further detail.

Current wording

Our cash and cash equivalents include cash held at banks. We maintain moderate levels of cash on hand in support of regulatory requirements for our registered broker-dealer. As of June 30, 2024 and March 31, 2024, we had $363.5 million and $545.0 million of cash in foreign subsidiaries, respectively. Our excess cash may be invested from time to time in short-term investments, including treasury securities, commercial paper, certificates of deposit, and investment grade corporate and government debt securities. Please refer to Note 6 for further detail.

Previous wording

Our liquidity is highly dependent upon cash receipts from clients that are generally dependent upon the successful completion of transactions, as well as the timing of receivables collections, which typically occur within 60 days of billing. As of December 31, 2023, accounts receivable, net of credit losses was $152.8 million. As of December 31, 2023, unbilled work in progress, net of credit losses was $174.2 million.

Current wording

Our liquidity is highly dependent upon cash receipts from clients that are generally dependent upon the successful completion of transactions, as well as the timing of receivables collections, which typically occur within 60 days of billing. As of June 30, 2024, accounts receivable, net of credit losses was $192.6 million. As of June 30, 2024, unbilled work in progress, net of credit losses was $156.0 million.

Previous wording

On August 23, 2019, the Company entered into a syndicated revolving line of credit with the Bank of America, N.A. and certain other financial institutions party thereto, which was amended by the First Amendment to Credit Agreement dated as of August 2, 2022 (the "HLI Line of Credit"), which allows for borrowings of up to $100.0 million (and, subject to certain conditions, provides the Company with an uncommitted expansion option, which, if exercised in full, would provide for a total credit facility of $200.0 million), and matures on August 23, 2025. As of December 31, 2023 and March 31, 2023, no principal was outstanding under the HLI Line of Credit. Borrowings under the HLI Line of Credit bear interest at a floating rate, which can be either, at the Company’s option, (i) Term Secured Overnight Financing Rate (“SOFR”) plus a 0.10% SOFR adjustment plus a 1.00% margin or (ii) base rate, which is the highest of (a) the Federal Funds Rate plus one-half of one percent (0.50%), (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate,” and (c) Term SOFR plus a 0.10% SOFR adjustment. Commitment fees apply to unused amounts, and the HLI Line of Credit contains debt covenants which require that the Company maintain certain financial ratios. The loan agreement requires compliance with certain loan covenants including but not limited to the maintenance of minimum consolidated earnings before interest, taxes, depreciation and amortization of no less than $150 million as of the end of any quarterly 12-month period and certain leverage ratios including a consolidated leverage ratio of less than 2.00 to 1.00. As of December 31, 2023, we were, and expect to continue to be, in compliance with such covenants.

Current wording

On August 23, 2019, the Company entered into a syndicated revolving line of credit with the Bank of America, N.A. and certain other financial institutions party thereto, which was amended by a First Amendment to Credit Agreement dated as of August 2, 2022 (the "HLI Line of Credit"), which allows for borrowings of up to $100 million (and, subject to certain conditions, provides the Company with an uncommitted expansion option, which, if exercised in full, would provide for a total credit facility of $200 million), and matures on August 23, 2025 (or if such date is not a business day, the immediately preceding business day). Borrowings under the HLI Line of Credit bear interest at a floating rate, which can be either, at the Company’s option, (i) Term Secured Overnight Financing Rate (“SOFR”) plus a 0.10% SOFR adjustment plus a 1.00% margin or (ii) base rate, which is the highest of (a) the Federal Funds Rate plus one-half of one percent (0.50%), (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate,” and (c) Term SOFR plus a 0.10% SOFR adjustment. Commitment fees apply to unused amounts, and the HLI Line of Credit contains debt covenants which require that the Company maintain certain financial ratios. The loan agreement requires compliance with certain loan covenants including but not limited to the maintenance of minimum consolidated earnings before interest, taxes, depreciation and amortization of no less than $150 million as of the end of any quarterly 12-month period and certain leverage ratios including a consolidated leverage ratio of less than 2.00 to 1.00. As of June 30, 2024, we were, and expect to continue to be, in compliance with such covenants. As of June 30, 2024 and March 31, 2024, no principal was outstanding under the HLI Line of Credit.

Previous wording

In connection with certain acquisitions, certain employees may be entitled to deferred consideration, primarily in the form of retention payments, should certain service and/or performance conditions be met in the future. As a result of these conditions, such deferred consideration would be expensed as compensation in current and future periods and a portion thereof has been accrued as liabilities on the Consolidated Balance Sheets as of December 31, 2023 and March 31, 2023.

Current wording

In connection with certain acquisitions, certain employees may be entitled to deferred consideration, primarily in the form of retention payments, should certain service and/or performance conditions be met in the future. As a result of these conditions, such deferred consideration would be expensed as compensation in current and future periods and has been accrued as liabilities on the Consolidated Balance Sheets as of June 30, 2024 and March 31, 2024.

Previous wording

Operating activities resulted in a net outflow of $(101.9) million, primarily attributable to a significant decrease in accrued salaries and bonuses and income taxes payable. Investing activities resulted in a net inflow of $36.5 million, primarily attributable to sales or maturities of investment securities, offset by purchases of property and equipment. Financing activities resulted in a net outflow of $(207.8) million, primarily attributable to dividends paid, share repurchases, and payments to settle employee tax obligations on share-based awards.

Current wording

Operating activities resulted in a net outflow of $(64.5) million, primarily attributable to cash bonus payments in May 2024. Investing activities resulted in a net outflow of $(40.4) million, primarily attributable to the acquisition of Triago and the purchase of property and equipment, net. Financing activities resulted in a net outflow of $(161.5) million, primarily attributable to payments made to settle employee tax obligations on share-based awards and dividends paid.

Previous wording

Operating activities resulted in a net inflow of $103.1 million, primarily attributable to net income plus equity and liability classified share awards issued, offset by cash bonus payments paid in May, 2023. Investing activities resulted in a net outflow of $(55.7) million, primarily attributable to purchases of property and equipment, net. Financing activities resulted in a net outflow of $(214.4) million, primarily attributable to dividends paid and payments made to settle employee tax obligations on share-based awards.

Current wording

Operating activities resulted in a net outflow of $(133.6) million, primarily attributable to cash bonus payments paid in May 2023. Investing activities resulted in a net outflow of $(12.4) million, primarily attributable to purchases of property and equipment, net. Financing activities resulted in a net outflow of $(111.2) million, primarily attributable to payments made to settle employee tax obligations on share-based awards and dividends paid.

Previous wording

Accounting for business combinations requires management to make significant estimates and assumptions. We allocate the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair value as of the acquisition date, with the consideration in excess recorded a goodwill. Critical estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows, expected asset lives, geographic risk premiums, discount rates, and more. The amounts and useful lives assigned to acquisition-related intangible assets impact the amount and timing of future amortization expense.

Current wording

Accounting for business combinations requires management to make significant estimates and assumptions. Critical estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows, expected asset lives, geographic risk premiums, discount rates, and more. The amounts and useful lives assigned to acquisition-related intangible assets impact the amount and timing of future amortization expense.