Houlihan Lokey(HLI) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's discussion for Houlihan Lokey, Inc. for the quarter ended June 30, 2019 Item 1. Financial Statements This section presents the unaudited consolidated financial statements of Houlihan Lokey, Inc. and its subsidiaries for the quarter ended June 30, 2019, including balance sheets, statements of comprehensive income, changes in stockholders' equity, and cash flows, along with detailed notes explaining accounting policies, financial instruments, and segment information Consolidated Balance Sheets This section provides a snapshot of the Company's financial position, detailing assets, liabilities, and stockholders' equity at specific points in time Consolidated Balance Sheet Highlights (June 30, 2019 vs. March 31, 2019) | (In thousands) | June 30, 2019 | March 31, 2019 | | :------------------------------------------------ | :------------ | :------------- | | Total assets | $1,392,900 | $1,423,058 | | Total liabilities | $499,581 | $531,729 | | Total stockholders' equity | $893,319 | $891,329 | - Total assets decreased by $30.158 million (2.12%) from March 31, 2019, to June 30, 2019, primarily due to a decrease in cash and cash equivalents and investment securities[9] - Total liabilities decreased by $32.148 million (6.05%) from March 31, 2019, to June 30, 2019, mainly driven by a significant reduction in accrued salaries and bonuses[9] Consolidated Statements of Comprehensive Income This section reports the Company's financial performance over a period, including revenues, operating income, net income, and earnings per share Consolidated Statements of Comprehensive Income Highlights (Three Months Ended June 30, 2019 vs. 2018) | (In thousands) | 2019 | 2018 | Change (%) | | :------------- | :---------- | :---------- | :--------- | | Revenues | $250,349 | $220,002 | 13.8% | | Operating income | $47,942 | $40,128 | 19.5% | | Net income | $42,776 | $29,682 | 44.1% | | Basic EPS | $0.69 | $0.47 | 46.8% | | Diluted EPS | $0.65 | $0.45 | 44.4% | - Revenues increased by 13.8% year-over-year, reaching $250.3 million for the three months ended June 30, 2019[11] - Net income saw a substantial increase of 44.1% to $42.8 million, and diluted EPS rose by 44.4% to $0.65[11] Consolidated Statements of Changes in Stockholders' Equity This section details the changes in the Company's equity accounts over a period, reflecting net income, dividends, and share transactions Stockholders' Equity Changes (April 1, 2019 to June 30, 2019) | (In thousands) | April 1, 2019 | June 30, 2019 | | :------------- | :------------ | :------------ | | Total Stockholders' Equity | $891,329 | $893,319 | | Net income | - | $42,776 | | Dividends | - | $(20,413) | | Share repurchases/forfeited | - | $(33,770) | - Total stockholders' equity increased slightly from $891.3 million to $893.3 million during the quarter, primarily due to net income offsetting dividends and share repurchases[12] - The company repurchased 55,164 shares of common stock for $2.502 million and paid $20.413 million in dividends during the quarter[12] Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities, providing insight into the Company's liquidity Consolidated Cash Flow Highlights (Three Months Ended June 30, 2019 vs. 2018) | (In thousands) | 2019 | 2018 | | :------------- | :---------- | :---------- | | Operating activities | $(109,209) | $(118,974) | | Investing activities | $93,481 | $121,202 | | Financing activities | $(56,746) | $(148,404) | | End of period cash, cash equivalents, and restricted cash | $212,102 | $144,610 | - Net cash used in operating activities decreased by 8% to $109.2 million, primarily due to cash bonus payments[14][174] - Net cash provided by investing activities was $93.5 million, mainly from sales or maturities of investment securities[14][174] - Net cash used in financing activities significantly decreased by 62% to $56.7 million, driven by lower share repurchases and the absence of a forward purchase contract settlement compared to the prior year[14][174][175] Notes to Consolidated Financial Statements This section provides detailed explanations of the accounting policies, financial instruments, and segment information supporting the consolidated financial statements Note 1 — Background This note outlines the Company's corporate structure, business segments, and recent acquisitions, providing context for its financial operations - Houlihan Lokey, Inc. is a Delaware corporation providing financial services and advice across the U.S., Europe, and Asia-Pacific regions[17][21] - The Company operates through three main business segments: Corporate Finance (CF), Financial Restructuring (FR), and Financial Advisory Services (FAS)[21][24] - Recent acquisitions include Quayle Munro Limited (April 2018), BearTooth Advisors (May 2018), and the remaining 51% of Lara (Italy Holdco) Limited (June 2019)[19][20] Note 2 — Summary of Significant Accounting Policies This note details the key accounting principles and policies applied in preparing the financial statements, including recent accounting standard adoptions - The financial statements are prepared in accordance with GAAP and SEC rules, consolidating accounts of the Company and its controlled subsidiaries[22][23] - The Company adopted ASU 2016-02, Leases (Topic 842), on April 1, 2019, recognizing right-of-use (ROU) assets and lease liabilities for operating leases[34][119] - The CECL model (ASU 2016-13) for credit losses will be adopted in fiscal year 2020, with the impact currently being evaluated[36] Note 3 — Revenue Recognition This note describes the Company's policies for recognizing revenue from its various advisory services, specifying criteria for timing and measurement - Revenues from advisory services are recognized upon satisfaction of performance obligations, which can be over time or at a point in time, with variable consideration included when probable of no significant reversal[38][39] - Corporate Finance (CF) Completion Fees are recognized at a point in time upon transaction closure, while Financial Restructuring (FR) Retainer and Progress Fees are recognized over time[40][42] - Financial Advisory Services (FAS) revenues are generally recognized at a point in time upon opinion delivery, or over time for hourly-based advisory services[43] Note 4 — Related Party Transactions This note discloses transactions with related parties, including fees from ORIX USA and changes in ORIX USA's ownership of the Company's stock Related Party Fees (Three Months Ended June 30) | (In thousands) | 2019 | 2018 | | :------------- | :--- | :--- | | Fees from ORIX USA and affiliates | $100 | $2,297 | - The Company provides financial advisory and management services to ORIX USA and its affiliates, with fees decreasing significantly in 2019 compared to 2018[51][52] - ORIX USA sold 3,000,000 shares of Class A common stock in May 2019, and subsequently, on August 1, 2019, sold its remaining 3,377,935 shares, ceasing to own any common stock[55][138] Note 5 — Fair Value Measurements This note explains the Company's methodology for fair value measurements, categorizing assets and liabilities into a three-level hierarchy based on input observability - Fair value measurements are categorized into a three-level hierarchy based on the observability of inputs, with Level 1 for unadjusted quoted prices in active markets, Level 2 for observable inputs other than quoted prices, and Level 3 for unobservable inputs[59][62] Fair Value of Investment Securities (June 30, 2019 vs. March 31, 2019) | (In thousands) | June 30, 2019 | March 31, 2019 | | :------------- | :------------ | :------------- | | Corporate debt securities | $16,800 | $116,577 | | U.S. treasury securities | $16,240 | $8,681 | | Total measured at fair value | $33,040 | $125,258 | - The fair value of investment securities significantly decreased from $125.3 million to $33.0 million between March 31, 2019, and June 30, 2019, primarily due to a reduction in corporate debt securities[60] Note 6 — Investment Securities This note details the composition and classification of the Company's investment securities portfolio, including changes in fair value and maturity profiles - Investment securities, consisting of corporate debt and U.S. Treasury securities, were reclassified from held-to-maturity to trading as of December 31, 2018, and are now measured at fair value[67] Investment Securities Portfolio Maturities (June 30, 2019 vs. March 31, 2019) | (In thousands) | June 30, 2019 (Fair Value) | March 31, 2019 (Fair Value) | | :------------- | :------------------------- | :-------------------------- | | Due within one year | $5,985 | $96,175 | | Due within years two through five | $27,055 | $29,083 | | Total debt securities | $33,040 | $125,258 | - A significant portion of the investment securities that were due within one year as of March 31, 2019, matured or were sold by June 30, 2019[68] Note 7 — Allowance for Doubtful Accounts This note describes the Company's policy and activity related to the allowance for doubtful accounts, reflecting management's estimate of uncollectible receivables - The allowance for doubtful accounts is management's estimate of probable losses on receivables, based on historical experience and review of uncollected revenues[69] Allowance for Doubtful Accounts (Three Months Ended June 30) | (In thousands) | 2019 | 2018 | | :------------- | :--- | :--- | | Beginning balance | $5,596 | $11,391 | | Provision for bad debt | $(21) | $384 | | Recovery/(write-off) of uncollectible accounts | $155 | $(748) | | Ending balance | $5,730 | $11,027 | - The ending balance of the allowance for doubtful accounts decreased from $11.027 million in 2018 to $5.730 million in 2019, reflecting a net recovery in 2019 versus a net write-off in 2018[71] Note 8 — Property and Equipment This note provides information on the Company's property and equipment, including cost, accumulated depreciation, and net book value - Property and equipment are recorded at cost, with depreciation recognized on a straight-line basis over estimated useful lives[72] Property and Equipment, Net (June 30, 2019 vs. March 31, 2019) | (In thousands) | June 30, 2019 | March 31, 2019 | | :------------- | :------------ | :------------- | | Total cost | $82,850 | $74,347 | | Accumulated depreciation | $(46,400) | $(43,313) | | Total net book value | $36,450 | $31,034 | - Net property and equipment increased by $5.416 million (17.45%) from March 31, 2019, to June 30, 2019, primarily due to additions in leasehold improvements[73] Note 9 — Goodwill and Other Intangible Assets This note details the Company's goodwill and other intangible assets, including annual impairment reviews and changes due to acquisitions - Goodwill and indefinite-lived intangible assets (tradenames) are reviewed annually for impairment, with no impairment identified as of June 30, 2019[76][79] Goodwill and Other Intangibles, Net (June 30, 2019 vs. March 31, 2019) | (In thousands) | June 30, 2019 | March 31, 2019 | | :------------- | :------------ | :------------- | | Goodwill | $605,026 | $594,812 | | Tradename-Houlihan Lokey | $192,210 | $192,210 | | Other intangible assets | $16,919 | $18,614 | | Total net book value, after taxes | $752,165 | $742,928 | - Goodwill increased by $10.214 million (1.72%) from March 31, 2019, to June 30, 2019, reflecting additional goodwill recognized through acquisitions[82] Note 10 — Loans Payable This note outlines the Company's debt obligations, including its revolving line of credit and an assumed unsecured loan from a recent acquisition - The Company has a $75.0 million revolving line of credit with Bank of America, N.A., with no outstanding principal as of June 30, 2019[84] - The Company assumed an unsecured loan of EUR 14 million (now $15.4 million) payable on November 16, 2040, as part of acquiring the remaining 51% of Leonardo's Italy operations in June 2019[87][88][169] Scheduled Aggregate Repayments of Loans Payable (Year Ended March 31) | Year Ended March 31, | Amount (in thousands) | | :------------------- | :-------------------- | | Remaining 2020 | $606 | | 2021 | $575 | | 2022 | $1,248 | | 2023 | $16,241 | | 2024 | $337 | | 2025 and thereafter | $20,516 | | Total | $39,523 | Note 11 — Accumulated Other Comprehensive (Loss) This note explains the components of accumulated other comprehensive loss, primarily focusing on foreign currency translation adjustments - Accumulated other comprehensive loss primarily consists of foreign currency translation adjustments[93] Accumulated Other Comprehensive (Loss) (June 30, 2019) | (In thousands) | Amount | | :------------- | :----- | | Balance, April 1, 2019 | $(30,294) | | Foreign currency translation adjustment | $(3,971) | | Balance, June 30, 2019 | $(34,265) | - Foreign currency translation adjustments resulted in a loss of $3.971 million for the three months ended June 30, 2019, compared to a loss of $12.583 million in the prior year, influenced by Brexit-related volatility[93] Note 12 — Income Taxes This note describes the Company's accounting for income taxes, including the provision for income taxes and the effective tax rate - The Company accounts for income taxes under ASC Topic 740, recognizing tax benefits or expenses on temporary differences and uncertain tax positions[96][97] Provision for Income Taxes and Effective Tax Rate (Three Months Ended June 30) | (In thousands) | 2019 | 2018 | | :------------- | :---------- | :---------- | | Provision for income taxes | $6,649 | $12,052 | | Effective tax rate | 13.5% | 28.9% | - The effective tax rate significantly decreased to 13.5% in Q1 2019 from 28.9% in Q1 2018, primarily due to the vesting of stock in April and May 2019[99][154] Note 13 — Earnings Per Share This note presents the calculation of basic and diluted earnings per share, reflecting net income attributable to common stockholders Earnings Per Share (Three Months Ended June 30) | (In thousands, except per share data) | 2019 | 2018 | | :------------------------------------ | :---------- | :---------- | | Net income attributable to common stockholders | $42,776 | $29,682 | | Basic weighted average shares outstanding | 61,670,617 | 62,985,084 | | Diluted weighted average shares outstanding | 65,621,103 | 66,154,212 | | Basic earnings per share | $0.69 | $0.47 | | Diluted earnings per share | $0.65 | $0.45 | - Basic EPS increased by 46.8% to $0.69, and diluted EPS increased by 44.4% to $0.65 for the three months ended June 30, 2019, compared to the same period in 2018[102] Note 14 — Employee Benefit Plans This note details the Company's employee benefit plans, including 401(k) contributions and share-based incentive awards - The Company sponsors 401(k) and other defined contribution retirement plans, contributing $779 thousand in Q1 2019[103] - Share-based incentive awards, primarily under the 2016 Incentive Plan, generally vest over four years, with compensation expenses totaling $12.762 million for Q1 2019[104][106] - An excess tax benefit of $7.605 million was recognized in Q1 2019 due to stock vesting, contributing to the lower effective tax rate[105] Note 15 — Stockholders' Equity This note provides information on the Company's capital structure, including Class A and Class B common stock, conversions, and share repurchase programs - The Company has Class A (one vote) and Class B (ten votes) common stock, with Class B convertible to Class A upon holder's option or transfer[108][114] - During Q1 2019, 2,291,827 shares were converted from Class B to Class A, and 7,027 Class A shares were issued to non-employee directors[113] - The board authorized an additional $100 million for common stock repurchases in July 2018, with $62.55 million remaining as of June 30, 2019[117][198] Note 16 — Leases This note details the impact of adopting the new lease accounting standard, including the recognition of right-of-use assets and lease liabilities - The Company adopted ASU 2016-02, Leases (Topic 842), on April 1, 2019, recognizing $136.9 million in ROU assets and $152.3 million in lease liabilities for operating leases[119][124] - Lease expense is recognized on a straight-line basis, and the Company elected practical expedients to combine lease and non-lease components and exempt short-term leases[121][123] Operating Lease Liabilities Maturity (June 30, 2019) | Year Ended March 31, | Operating Leases (in thousands) | | :------------------- | :------------------------------ | | Remaining 2020 | $17,588 | | 2021 | $26,385 | | 2022 | $22,178 | | 2023 | $18,291 | | 2024 | $13,462 | | Thereafter | $81,513 | | Total | $179,417 | | Less: present value discount | $(31,991) | | Operating lease liabilities | $147,426 | Note 17 — Commitments and Contingencies This note discloses the Company's legal actions, indemnifications, and other commitments, assessing their potential financial impact - The Company is involved in various legal actions in the normal course of business, but management does not expect these to have a material adverse effect on financial condition[129] - Routine indemnifications related to real estate leases are provided, but no liability has been recorded as the maximum obligation cannot be estimated and is not expected to be material[130] Note 18 — Segment and Geographical Information This note disaggregates the Company's revenues and assets by its three business segments and geographical operating regions - The Company disaggregates revenues and assets by its three business segments (Corporate Finance, Financial Restructuring, Financial Advisory Services) and geographical areas (United States, International)[132][136] Revenues by Segment (Three Months Ended June 30, 2019 vs. 2018) | (In thousands) | 2019 | 2018 | Change (%) | | :------------- | :---------- | :---------- | :--------- | | Corporate Finance | $133,589 | $132,871 | 1% | | Financial Restructuring | $79,354 | $50,476 | 57% | | Financial Advisory Services | $37,406 | $36,655 | 2% | | Total Revenues | $250,349 | $220,002 | 14% | - Financial Restructuring revenues showed significant growth of 57% year-over-year, while Corporate Finance and Financial Advisory Services remained relatively flat[133] Note 19 — Subsequent Events This note reports significant events that occurred after the balance sheet date, including dividend declarations and changes in major shareholder ownership - On July 23, 2019, the board declared a quarterly cash dividend of $0.31 per share, payable on September 16, 2019[137] - On August 1, 2019, ORIX USA sold its remaining 3,377,935 shares of Class A common stock, terminating its Stockholders' Agreement and Registration Rights Agreement with the Company[138] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance and condition for the three months ended June 30, 2019, compared to the prior year. It details key financial measures, consolidated operating results, segment performance, liquidity, capital resources, and cash flow analysis, highlighting significant changes and their drivers Forward-Looking Statements This section cautions readers that the report contains forward-looking statements subject to risks and uncertainties, which may cause actual results to differ - The discussion includes forward-looking statements subject to risks, uncertainties, and assumptions, which may cause actual results to differ materially from projections[139] - The Company does not undertake any obligation to update or review these statements after the filing date[139] Key Financial Measures This section defines the primary financial metrics used to evaluate the Company's performance, including revenue components and operating expenses - Revenues primarily consist of fee revenues from advisory services across Corporate Finance (CF), Financial Restructuring (FR), and Financial Advisory Services (FAS) segments[140][141] - Employee compensation and benefits constitute the majority of operating expenses, influenced by fee revenues, headcount, and market competitiveness[146] - Other (income)/expenses, net includes interest income/expense, equity income, and gains/losses from earnout liabilities[148] Results of Consolidated Operations This section analyzes the Company's overall financial performance, detailing changes in revenues, operating expenses, and net income Consolidated Operations Summary (Three Months Ended June 30, 2019 vs. 2018) | ($ in thousands) | 2019 | 2018 | Change (%) | | :--------------- | :---------- | :---------- | :--------- | | Revenues | $250,349 | $220,002 | 14% | | Operating expenses | $202,407 | $179,874 | 13% | | Operating income | $47,942 | $40,128 | 19% | | Income before provision for income taxes | $49,425 | $41,734 | 18% | | Net income attributable to Houlihan Lokey, Inc. | $42,776 | $29,682 | 44% | - Revenues increased by 14% to $250.3 million, primarily driven by a $28.9 million increase in Financial Restructuring revenues[151] - Net income surged by 44% to $42.8 million, benefiting from higher revenues and a significantly lower effective tax rate (13.5% vs. 28.9%) due to stock vesting[150][154] Business Segments This section provides a detailed analysis of the financial performance of each of the Company's three business segments, highlighting revenue and profit drivers Segment Revenues and Profit (Three Months Ended June 30, 2019 vs. 2018) | ($ in thousands) | 2019 Revenues | 2018 Revenues | Revenue Change (%) | 2019 Segment Profit | 2018 Segment Profit | Profit Change (%) | | :--------------- | :------------ | :------------ | :----------------- | :------------------ | :------------------ | :---------------- | | Corporate Finance | $133,589 | $132,871 | 1% | $37,428 | $40,096 | (7)% | | Financial Restructuring | $79,354 | $50,476 | 57% | $23,977 | $12,354 | 94% | | Financial Advisory Services | $37,406 | $36,655 | 2% | $8,281 | $7,413 | 12% | - Financial Restructuring (FR) was the primary growth driver, with revenues increasing 57% and segment profit increasing 94% due to more closed transactions[157][162][163] - Corporate Finance (CF) revenues were flat, but segment profit decreased by 7% due to higher non-compensation expenses, despite an increase in managing directors[157][160][161] - Financial Advisory Services (FAS) revenues and profit saw modest increases of 2% and 12% respectively, with profitability boosted by decreased non-compensation expenses[157][164][165] Corporate Expenses This section details the Company's corporate-level operating expenses, explaining the factors contributing to changes in these costs Corporate Expenses (Three Months Ended June 30) | ($ in thousands) | 2019 | 2018 | Change (%) | | :--------------- | :---------- | :---------- | :--------- | | Corporate expenses | $21,744 | $19,735 | 10% | - Corporate expenses increased by 10% to $21.7 million, mainly due to higher compensation and benefits expense, partially offset by lower professional fees and other operating expenses[166] Liquidity and Capital Resources This section discusses the Company's ability to meet its short-term and long-term financial obligations, including cash position and credit facilities - Liquidity is highly dependent on cash receipts from clients, which are tied to transaction completion and receivable collections, typically within 60 days[171] Unrestricted Cash, Cash Equivalents, and Investment Securities (June 30, 2019 vs. March 31, 2019) | (In thousands) | June 30, 2019 | March 31, 2019 | | :------------- | :------------ | :------------- | | Cash and cash equivalents | $211,731 | $285,746 | | Investment securities | $33,040 | $125,258 | | Total unrestricted | $244,771 | $411,004 | - Total unrestricted cash, cash equivalents, and investment securities decreased by $166.233 million (40.45%) from March 31, 2019, to June 30, 2019[170] - The Company maintains a $75.0 million revolving credit facility with no outstanding borrowings and is in compliance with all loan covenants as of June 30, 2019[172] Cash Flows This section analyzes the Company's cash inflows and outflows from operating, investing, and financing activities, explaining significant changes Cash Flow Summary (Three Months Ended June 30, 2019 vs. 2018) | (In thousands) | 2019 | 2018 | Change (%) | | :------------- | :---------- | :---------- | :--------- | | Operating activities | $(109,209) | $(118,974) | (8)% | | Investing activities | $93,481 | $121,202 | (23)% | | Financing activities | $(56,746) | $(148,404) | (62)% | | Decrease in cash, cash equivalents, and restricted cash | $(74,013) | $(155,613) | (52)% | - Operating cash outflow improved by 8% in Q1 2019, while investing cash inflow decreased by 23% due to lower sales/maturities of investment securities[173][174] - Financing cash outflow significantly reduced by 62%, primarily due to lower dividends paid and share repurchases compared to the prior year, which included a forward share purchase agreement settlement[173][174][175] Contractual Obligations This section outlines the Company's material contractual obligations, noting any changes since the previous annual report - There have been no material changes to the Company's known contractual obligations since the 2019 Annual Report[176] Off-Balance Sheet Arrangements This section clarifies the Company's limited involvement in off-balance sheet arrangements and related potential liabilities - The Company does not invest in off-balance sheet vehicles or engage in activities that expose it to unreflected liabilities, except for approximately $0.6 million in stand-by letters of credit and bank guarantees for office leases[177] Critical Accounting Policies and Estimates This section highlights the accounting policies that require significant management judgment and estimates in preparing the financial statements - The preparation of financial statements requires management to make estimates and assumptions, which are reviewed periodically[178] - No material changes to critical accounting policies were disclosed in this report compared to the 2019 Annual Report[179] Recent Accounting Developments This section discusses the impact of newly adopted accounting standards on the Company's financial statements - The Company adopted ASU 2016-02, Leases (Topic 842), on April 1, 2019, resulting in the recognition of $132 million in Operating right-of-use assets and $147 million in Operating lease liabilities[180] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses the Company's exposure to market risks, including credit risk and exchange rate risk. It highlights that the business is not capital intensive and generally avoids debt or derivative instruments, thus limiting significant market risk, but acknowledges foreign currency exposure from international operations Market Risk and Credit Risk This section assesses the Company's exposure to market fluctuations and credit defaults, given its non-capital intensive business model - The Company's business is not capital intensive and generally does not issue debt or invest in derivative instruments, limiting exposure to significant market or credit risk (except for receivables)[182] - Cash and cash equivalents are held with high-credit-rating financial institutions, mitigating significant credit risk[182] Risks Related to Cash and Short Term Investments This section addresses potential risks associated with the Company's cash and short-term investments, including foreign exchange exposure - Cash is maintained in U.S. and non-U.S. bank accounts, with exposure to foreign exchange risks through international affiliates[184] - The Company believes its cash is not subject to material interest rate risk, equity price risk, credit risk, or other market risk[184] Exchange Rate Risk This section details the Company's exposure to fluctuations in foreign currency exchange rates and its hedging strategies - Foreign currency translation adjustments resulted in a loss of $(3.971) million for the three months ended June 30, 2019, a decrease from $(12.583) million in the prior year[185] - The Company uses foreign currency forward contracts to hedge exposure, with a notional value of $20 million for pound sterling/U.S. dollar as of June 30, 2019[187] - While earnings are subject to foreign currency fluctuations, the Company does not believe it faces material risk at this time, though potential impact may increase with international expansion[186][188] Credit Risk This section describes the Company's management of credit risk, particularly concerning accounts receivable and the allowance for doubtful accounts - The Company regularly reviews accounts receivable and the allowance for doubtful accounts, considering historical experience, credit quality, and economic conditions[189] - An adequate reserve is maintained to cover probable inherent losses from uncollectible accounts[189] Item 4. Controls and Procedures This section addresses the effectiveness of the Company's disclosure controls and procedures and internal control over financial reporting. Management, including the CEO and CFO, concluded that disclosure controls were effective as of June 30, 2019, and reported no material changes to internal control over financial reporting during the quarter Limitations on Effectiveness of Controls and Procedures This section acknowledges the inherent limitations of internal controls, providing reasonable rather than absolute assurance - Management acknowledges that controls and procedures provide only reasonable, not absolute, assurance due to inherent limitations and resource constraints[190] Evaluation of Disclosure Controls and Procedures This section presents management's conclusion on the effectiveness of the Company's disclosure controls and procedures - The CEO and CFO evaluated the effectiveness of disclosure controls and procedures as of June 30, 2019, and concluded they were effective at the reasonable assurance level[191] Changes in Internal Control Over Financial Reporting This section reports on any material changes to the Company's internal control over financial reporting during the quarter - No material changes in internal control over financial reporting were identified during the fiscal quarter ended June 30, 2019[192] PART II. OTHER INFORMATION This section provides additional disclosures not covered in the financial statements, including legal proceedings, risk factors, and equity security sales Item 1. Legal Proceedings This section states that the Company is subject to legal proceedings in the ordinary course of business, with no material changes from the descriptions in its 2019 Annual Report - No material changes in legal proceedings have occurred since the 2019 Annual Report[195] Item 1A. Risk Factors This section indicates that there have been no material changes to the risk factors previously disclosed in the Company's 2019 Annual Report - No material changes to risk factors have occurred since the 2019 Annual Report[196] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's unregistered sales of equity securities, specifically the conversion of Class B to Class A common stock, and summarizes equity security repurchases during the quarter ended June 30, 2019 Unregistered Sales of Equity Securities This section details the Company's issuance of equity securities without registration, specifically Class B to Class A common stock conversions - During Q1 2019, 414,071 shares of Class A common stock were issued upon conversion of an equal number of Class B shares, relying on Section 3(a)(9) exemption from registration[197] Purchases of Equity Securities This section summarizes the Company's common stock repurchase activities during the quarter, including shares bought and remaining authorization Equity Security Repurchases (Three Months Ended June 30, 2019) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :----- | :------------------------------- | :--------------------------- | | April 1, 2019 - April 30, 2019 | 248,804 | $49.32 | | May 1, 2019 - May 31, 2019 | 403,726 | $47.22 | | June 1, 2019 - June 30, 2019 | 55,252 | $45.32 | | Total | 707,782 | $47.81 | - The Company repurchased 707,782 shares of equity securities at an average price of $47.81 per share during the quarter, primarily to satisfy tax withholding obligations on restricted stock awards[198][199] - Approximately $62.55 million remained authorized for repurchases under the existing program as of June 30, 2019[198] Item 3. Defaults upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred[200] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[201] Item 5. Other Information This section states that there is no other information to report - No other information to report[202] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including organizational documents, certifications, and XBRL-related documents - The exhibits include the Amended and Restated Certificate of Incorporation and Bylaws, CEO/CFO certifications (Rule 13a-14(a)/15d-14(a) and Section 1350), and Inline XBRL documents[204] SIGNATURES This section formally certifies the accuracy of the report by the Chief Executive Officer and Chief Financial Officer - The report is signed by Scott L. Beiser, Chief Executive Officer, and J. Lindsey Alley, Chief Financial Officer, on August 7, 2019[208]