HOULIHAN LOKEY INC

Previous wording

The following is a discussion of our results of operations for the three and six months ended September 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.

Current wording

The following is a discussion of our results of operations for the three and nine months ended December 31, 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 $444.3 million for the three months ended September 30, 2024, compared with $376.7 million for the three months ended September 30, 2023, representing an increase of 18%. Employee compensation and benefits expense, as a component of operating expenses, was $360.6 million for the three months ended September 30, 2024, compared with $296.5 million for the three months ended September 30, 2023, representing an increase of 22%. 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 62.7% for the three months ended September 30, 2024, compared with 63.5% for the three months ended September 30, 2023. Non-compensation expense, as a component of operating expenses, was $83.7 million for the three months ended September 30, 2024, compared with $80.2 million for the three months ended September 30, 2023, representing an increase of 4%. The increase in non-compensation expense was primarily a result of an increase in other operating expenses and information technology and communication expenses for the quarter when compared with the same quarter last year.

Current wording

Operating expenses were $498.3 million for the three months ended December 31, 2024, compared with $414.6 million for the three months ended December 31, 2023, representing an increase of 20%. Employee compensation and benefits expense, as a component of operating expenses, was $403.0 million for the three months ended December 31, 2024, compared with $324.0 million for the three months ended December 31, 2023, representing an increase of 24%. 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 63.5% for the three months ended December 31, 2024, compared with 63.4% for the three months ended December 31, 2023. Non-compensation expense, as a component of operating expenses, was $95.4 million for the three months ended December 31, 2024, compared with $90.6 million for the three months ended December 31, 2023, representing an increase of 5%. The increase in non-compensation expense was primarily a result of an increase in rent expense and depreciation and amortization for the quarter when compared with the same quarter last year, partially offset by a decrease in professional fees.

Previous wording

Other income, net was $(5.4) million for the three months ended September 30, 2024, compared with $(3.3) million for the three months ended September 30, 2023. Other income, net increased primarily due to a net increase in interest income.

Current wording

Other income, net was $(9.0) million for the three months ended December 31, 2024, compared with $(6.0) million for the three months ended December 31, 2023. Other income, net increased primarily due to a net increase in interest income.

Previous wording

The provision for income taxes for the three months ended September 30, 2024 was $42.5 million, which reflected an effective tax rate of 31.3%. The provision for income taxes for the three months ended September 30, 2023 was $26.5 million which reflected an effective tax rate of 28.4%. The increase in the Company’s tax rate was primarily a result of increased state taxes and increased taxes due to foreign operations.

Current wording

The provision for income taxes for the three months ended December 31, 2024 was $49.8 million, which reflected an effective tax rate of 34.3%. 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 increase in the Company’s tax rate was primarily a result of increased state taxes and non-deductible expenses.

Previous wording

Operating expenses were $862.3 million for the six months ended September 30, 2024, compared with $719.2 million for the six months ended September 30, 2023, an increase of 20%. Employee compensation and benefits expense, as a component of operating expenses, was $690.8 million for the six months ended September 30, 2024, compared with $560.0 million for the six months ended September 30, 2023, an increase of 23%. The increase in employee compensation and benefits expense was primarily a result of higher revenues when compared with the same period last year. The Compensation Ratio was 63.5% for the six months ended September 30, 2024, compared with 63.4% for the six months ended September 30, 2023. Non-compensation expense, as a component of operating expenses, was $171.6 million for the six months ended September 30, 2024, compared with $159.2 million for the six months ended September 30, 2023, representing an increase of 8%. The increase in non-compensation expense was primarily a result of an increase in information technology and communication expenses and other operating expenses when compared with the same period last year.

Current wording

Operating expenses were $1.36 billion for the nine months ended December 31, 2024, compared with $1.13 billion for the nine months ended December 31, 2023, an increase of 20%. Employee compensation and benefits expense, as a component of operating expenses, was $1.09 billion for the nine months ended December 31, 2024, compared with $884.1 million for the nine months ended December 31, 2023, an increase of 24%. The increase in employee compensation and benefits expense was primarily a result of higher revenues when compared with the same period last year. The Compensation Ratio was 63.5% for the nine months ended December 31, 2024, compared with 63.4% for the nine months ended December 31, 2023. Non-compensation expense, as a component of operating expenses, was $266.9 million for the nine months ended December 31, 2024, compared with $249.7 million for the nine months ended December 31, 2023, representing an increase of 7%. The increase in non-compensation expense was primarily a result of an increase in information technology and communication expenses, other operating expenses, and depreciation and amortization when compared with the same period last year, partially offset by a decrease in professional fees.

Previous wording

Other income, net was $(9.7) million for the six months ended September 30, 2024, compared with $(6.3) million for the six months ended September 30, 2023. Other income, net increased primarily due to a net increase in interest income.

Current wording

Other income, net was $(18.7) million for the nine months ended December 31, 2024, compared with $(12.3) million for the nine months ended December 31, 2023. Other income, net increased primarily due to a net increase in interest income.

Previous wording

The provision for income taxes for the six months ended September 30, 2024 was $53.5 million, which reflected an effective tax rate of 22.7%. The provision for income taxes for the six months ended September 30, 2023 was $41.5 million, which reflected an effective tax rate of 24.4%. The decrease in the Company's tax rate was primarily a result of increased stock compensation deductions.

Current wording

The provision for income taxes for the nine months ended December 31, 2024 was $103.3 million, which reflected an effective tax rate of 27.1%. The provision for income taxes for the nine months ended December 31, 2023 was $73.3 million, which reflected an effective tax rate of 26.9%.

Previous wording

Revenues for CF were $364.0 million for the three months ended September 30, 2024, compared with $281.7 million for the three months ended September 30, 2023, representing an increase of 29%. Revenues increased primarily due to an increase in the average transaction fee on closed transactions, which was driven by transaction mix, and does not represent a trend in the average transaction fee on closed transactions.

Current wording

Revenues for CF were $421.6 million for the three months ended December 31, 2024, compared with $310.5 million for the three months ended December 31, 2023, representing an increase of 36%. Revenues increased due to an increase in the number of closed transactions during the quarter, which was driven by favorable market conditions for M&A and capital markets transactions when compared to the same quarter last year. This increase was partially offset by a decrease in the average transaction fee on closed transactions, which 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 $109.7 million for the three months ended September 30, 2024, compared with $90.5 million for the three months ended September 30, 2023, an increase of 21%. Profitability increased primarily as a result of an increase in revenues when compared to the same quarter last year.

Current wording

Segment profit for CF was $131.6 million for the three months ended December 31, 2024, compared with $93.3 million for the three months ended December 31, 2023, an increase of 41%. 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 CF were $692.4 million for the six months ended September 30, 2024, compared with $508.7 million for the six months ended September 30, 2023, representing an increase of 36%. Revenues increased primarily due to an increase in the average transaction fee on closed transactions, which was driven by transaction mix, and does not represent a trend in the average transaction fee on closed transactions.

Current wording

Revenues for CF were $1.11 billion for the nine months ended December 31, 2024, compared with $819.2 million for the nine months ended December 31, 2023, representing an increase of 36%. Revenues increased primarily due to an increase in the number of closed transactions during the period, driven by favorable market conditions for M&A and capital markets transactions.

Previous wording

Segment profit for CF was $210.1 million for the six months ended September 30, 2024, compared with $152.1 million for the six months ended September 30, 2023, an increase of 38%. Profitability increased primarily as a result of an increase in revenues when compared to the same period last year.

Current wording

Segment profit for CF was $341.6 million for the nine months ended December 31, 2024, compared with $245.4 million for the nine months ended December 31, 2023, an increase of 39%. 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 period last year.

Previous wording

Revenues for FR were $131.6 million for the three months ended September 30, 2024, compared with $114.7 million for the three months ended September 30, 2023, representing an increase of 15%. Revenues increased primarily due to an increasein the average transaction fee on closed transactions, which was driven by transaction mix, and does not represent a trend in the average transaction fee on closed transactions.

Current wording

Revenues for FR were $130.9 million for the three months ended December 31, 2024, compared with $128.6 million for the three months ended December 31, 2023, representing an increase of 2%. Revenues increased primarily due to an increasein the number of closed transactions during the quarter, which was driven by favorable market conditions for restructuring transactions when compared to the same quarter last year. This increase was partially offset by a decrease in the average transaction fee on closed transactions, which was driven by transaction mix, and does not represent a trend in the average transaction fee on closed transactions.

Previous wording

Segment profit for FR was $60.9 million for the three months ended September 30, 2024, compared with $32.5 million for the three months ended September 30, 2023, an increase of 87%. Profitability increased primarily as a result of higher revenues and lower compensation expenses when compared to the same quarter last year.

Current wording

Segment profit for FR was $44.2 million for the three months ended December 31, 2024, compared with $43.3 million for the three months ended December 31, 2023, an increase of 2%. Profitability increased primarily as a result of an increase in revenues when compared to the same quarter last year.

Previous wording

Revenues for FR were $249.0 million for the six months ended September 30, 2024, compared with $238.0 million for the six months ended September 30, 2023, representing an increase of 5%. The increase in revenues was a result of an increase in the number of closed transactions, which was driven by favorable market conditions for restructuring transactions.

Current wording

Revenues for FR were $379.9 million for the nine months ended December 31, 2024, compared with $366.6 million for the nine months ended December 31, 2023, representing an increase of 4%. The increase in revenues was a result of an increase in the number of closed transactions, which was driven by favorable market conditions for restructuring transactions when compared to the same period last year. This increase was partially offset by a decrease in the average transaction fee on closed transactions, which was driven by transaction mix, and does not represent a trend in the average transaction fee on closed transactions.

Previous wording

Segment profit for FR was $100.1 million for the six months ended September 30, 2024, compared with $76.1 million for the six months ended September 30, 2023, an increase of 32%. Profitability increased primarily as a result of lower compensation expenses and higher revenues when compared to the same period last year.

Current wording

Segment profit for FR was $144.3 million for the nine months ended December 31, 2024, compared with $119.4 million for the nine months ended December 31, 2023, an increase of 21%. Profitability increased primarily as a result of lower compensation expenses and higher revenues when compared to the same period last year.

Previous wording

Revenues for FVA were $79.4 million for the three months ended September 30, 2024, compared with $70.6 million for the three months ended September 30, 2023, representing an increase of 12%. Revenues increased due to an increase in the number of Fee Events and an increase in the average fee per Fee Event, driven by improvements in the M&A markets, which impacted one or more of the service lines within our FVA business.

Current wording

Revenues for FVA were $81.9 million for the three months ended December 31, 2024, compared with $72.1 million for the three months ended December 31, 2023, representing an increase of 14%. Revenues increased due to an increase in the number of Fee Events and an increase in the average fee per Fee Event, driven by improvements in the M&A markets, which impacted one or more of the service lines within our FVA business.

Previous wording

Revenues for FVA were $147.1 million for the six months ended September 30, 2024, compared with $136.0 million for the six months ended September 30, 2023, representing an increase of 8%. The increase in revenues was primarily due to an increase in the number of Fee Events, driven by improvements in the M&A markets, which impacted one or more of the service lines within our FVA business.

Current wording

Revenues for FVA were $229.0 million for the nine months ended December 31, 2024, compared with $208.1 million for the nine months ended December 31, 2023, representing an increase of 10%. The increase in revenues was primarily due to an increase in the number of Fee Events, driven by improvements in the M&A markets, which impacted one or more of the service lines within our FVA business.

Previous wording

Segment profit for FVA was $37.0 million for the six months ended September 30, 2024, compared with $34.5 million for the six months ended September 30, 2023, an increase of 7%. Profitability increased primarily as a result of increased revenues, partially offset by higher compensation expenses when compared to the same period last year.

Current wording

Segment profit for FVA was $60.4 million for the nine months ended December 31, 2024, compared with $48.8 million for the nine months ended December 31, 2023, an increase of 24%. Profitability increased primarily as a result of increased revenues and a decrease in non-compensation expenses when compared to the same period last year.

Previous wording

Corporate expenses were $59.3 million for the three months ended September 30, 2024, compared with $52.3 million for the three months ended September 30, 2023. This 13% increase was driven primarily by increased compensation expenses and other operating expenses, partially offset by a reduction in professional fees when compared to the same quarter last year.

Current wording

Corporate expenses were $63.0 million for the three months ended December 31, 2024, compared with $54.3 million for the three months ended December 31, 2023. This 16% increase was driven primarily by increased compensation expense, partially offset by a reduction in other operating expense when compared to the same quarter last year.

Previous wording

Corporate expenses were $120.9 million for the six months ended September 30, 2024, compared with $99.1 million for the six months ended September 30, 2023. This 22% increase was driven primarily by increased compensation expense and rent expense, partially offset by a reduction in professional fees when compared to the same period last year.

Current wording

Corporate expenses were $183.9 million for the nine months ended December 31, 2024, compared with $153.4 million for the nine months ended December 31, 2023. This 20% increase was driven primarily by increased compensation expense, partially offset by a reduction in professional fees when compared to the same period last year.

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 September 30, 2024 and March 31, 2024, we had $457.0 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.

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 December 31, 2024 and March 31, 2024, we had $571.7 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

(1)Restricted cash as of September 30, 2024 and March 31, 2024 consisted of cash deposits in support of two letters of credit for our Frankfurt office. Restricted cash as of September 30, 2024 also includes cash held in escrow accounts.

Current wording

(1)Restricted cash as of December 31, 2024 and March 31, 2024 consisted of cash deposits in support of two letters of credit for our Frankfurt office. Restricted cash as of December 31, 2024 also included cash held in escrow accounts.

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 September 30, 2024, accounts receivable, net of credit losses was $219.1 million. As of September 30, 2024, unbilled work in progress, net of credit losses was $138.3 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 December 31, 2024, accounts receivable, net of credit losses was $166.7 million. As of December 31, 2024, unbilled work in progress, net of credit losses was $202.7 million.

Previous wording

Operating activities resulted in a net inflow of $224.7 million, primarily attributable to net income plus equity and liability classified share awards issued, partially offset by cash bonus payments paid in May, 2024. Investing activities resulted in a net outflow of $(71.3) million, primarily attributable to the acquisition of Triago during the three months ended June 30, 2024, and the purchase of investment securities and property and equipment, net. Financing activities resulted in a net outflow of $(200.6) million, primarily attributable to payments made to settle employee tax obligations on share-based awards and dividends paid.

Current wording

Operating activities resulted in a net inflow of $490.2 million, primarily attributable to net income plus equity and liability classified share awards issued, partially offset by cash bonus payments paid in May 2024. Investing activities resulted in a net outflow of $(158.7) million, primarily attributable to the purchase of investment securities and several acquisitions closing during the nine months ended December 31, 2024. Financing activities resulted in a net outflow of $(238.0) million, primarily attributable to dividends paid and payments made to settle employee tax obligations on share-based awards.

Previous wording

Operating activities resulted in a net inflow of $2.3 million, primarily attributable to net income plus equity and liability classified share awards issued, almost entirely offset by cash bonus payments paid in May, 2023. Investing activities resulted in a net outflow of $(33.0) million, primarily attributable to purchases of property and equipment, net. Financing activities resulted in a net outflow of $(178.8) 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 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.