Houlihan Lokey(HLI) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents Houlihan Lokey's unaudited consolidated financial statements for Q2 2020, highlighting decreased revenues but increased net income Consolidated Balance Sheet Highlights (Unaudited) | (In thousands) | June 30, 2020 | March 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $422,164 | $380,373 | | Goodwill and other intangibles, net | $812,355 | $812,844 | | Total assets | $1,698,683 | $1,677,003 | | Liabilities & Stockholders' Equity | | | | Accrued salaries and bonuses | $222,393 | $420,376 | | Total liabilities | $489,043 | $692,621 | | Total stockholders' equity | $1,209,640 | $984,382 | | Total liabilities and stockholders' equity | $1,698,683 | $1,677,003 | Consolidated Statements of Comprehensive Income Highlights (Unaudited) | (In thousands, except per share data) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | Revenues | $211,136 | $250,349 | | Total operating expenses | $168,546 | $202,575 | | Operating income | $42,590 | $47,774 | | Net income | $46,100 | $42,776 | | Basic earnings per share | $0.72 | $0.69 | | Fully diluted earnings per share | $0.69 | $0.65 | Consolidated Statements of Cash Flows Highlights (Unaudited) | (In thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash (used in) operating activities | ($115,240) | ($109,209) | | Net cash provided by investing activities | $9,229 | $93,481 | | Net cash provided by/(used in) financing activities | $145,282 | ($56,746) | | Net increase/(decrease) in cash | $41,791 | ($74,013) | Notes to Consolidated Financial Statements These notes detail accounting policies, segment performance, and key events including new credit loss standards and a May 2020 stock offering - The company operates through three business segments: Corporate Finance (CF), Financial Restructuring (FR), and Financial and Valuation Advisory (FVA)[19][24] - On April 1, 2020, the company adopted ASU 2016-13 regarding credit losses, resulting in a net decrease to retained earnings of $682 thousand[57] - In May 2020, the company completed a public offering of 3,000,000 shares of Class A common stock, generating net proceeds of approximately $188.7 million[110] Revenues by Segment (Three Months Ended June 30) | (In thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Corporate Finance | $87,971 | $133,589 | | Financial Restructuring | $88,620 | $79,354 | | Financial and Valuation Advisory | $34,545 | $37,406 | | Total Revenues | $211,136 | $250,349 | - On July 22, 2020, the board declared a quarterly cash dividend of $0.33 per share, payable on September 15, 2020[133] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2020 financial results, noting a 16% revenue decrease offset by an 8% net income increase and strong liquidity Results of Consolidated Operations Q2 2020 saw revenues decline 16% to $211.1 million, while operating expenses fell 17%, leading to an 8% net income increase due to tax benefits Consolidated Operations Summary (Three Months Ended June 30) | ($ in thousands) | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Revenues | $211,136 | $250,349 | (16)% | | Total operating expenses | $168,546 | $202,575 | (17)% | | Operating income | $42,590 | $47,774 | (11)% | | Net income | $46,100 | $42,776 | 8% | - The decrease in non-compensation expense was primarily driven by a significant reduction in travel, meals, and entertainment expenses due to the firm's work-from-home policy implemented as a result of the COVID-19 pandemic[147] - The effective tax rate was (5.4)% for the quarter, a significant decrease from 13.5% in the prior year, primarily due to higher share vesting prices for stock awards that vested in April and May 2020[149] Business Segments Analysis Segment performance diverged, with Corporate Finance revenues down 34% due to COVID-19, while Financial Restructuring revenues rose 12% Segment Performance (Three Months Ended June 30) | ($ in thousands) | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Revenues by Segment | | | | | Corporate Finance | $87,971 | $133,589 | (34)% | | Financial Restructuring | $88,620 | $79,354 | 12% | | Financial and Valuation Advisory | $34,545 | $37,406 | (8)% | | Segment Profit | | | | | Corporate Finance | $22,650 | $37,428 | (39)% | | Financial Restructuring | $36,169 | $23,977 | 51% | | Financial and Valuation Advisory | $7,397 | $8,281 | (11)% | - Corporate Finance revenues decreased due to a significant decline in the number of closed transactions (35 in Q1'21 vs. 61 in Q1'20) as a result of the COVID-19 pandemic[153][156] - Financial Restructuring revenues increased due to a higher number of closed transactions and an increase in new engagements driven by the COVID-19 pandemic[158] Liquidity and Capital Resources The company maintains strong liquidity with $546.0 million in cash and investments, bolstered by a May 2020 equity offering Cash and Investment Securities Position | (In thousands) | June 30, 2020 | March 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $422,164 | $380,373 | | Investment securities | $123,488 | $135,389 | | Total unrestricted cash and investments | $545,652 | $515,762 | - The company has a syndicated revolving line of credit allowing for borrowings up to $100 million, with an expansion option to $200 million; as of June 30, 2020, no principal was outstanding[169] - Net cash used in operating activities was $115.2 million, primarily due to cash bonus payments in May 2020; net cash from financing activities was $145.3 million, mainly from the May 2020 stock offering[171] Quantitative and Qualitative Disclosures about Market Risk Primary market risk is foreign currency fluctuations, with limited exposure to interest rate or credit risk due to the non-capital-intensive business model - The company's business is not capital intensive, resulting in minimal exposure to significant market risks like interest rate risk; the primary risk is foreign exchange rate fluctuations[178][179] - As of June 30, 2020, the company held one foreign currency forward contract with a notional value of €4.9 million to hedge exposure between the pound sterling and the euro[184] - The net impact of foreign currency fluctuations recorded in other comprehensive income was a gain of $2.9 million for the three months ended June 30, 2020, compared to a loss of $(4.0) million for the same period in 2019[182] Controls and Procedures Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of the end of the reporting period, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[187] - No changes in internal control over financial reporting were identified during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[188] PART II. OTHER INFORMATION Legal Proceedings No material changes in legal proceedings were reported since the 2020 Annual Report - The company reports no material change in its legal proceedings since its 2020 Annual Report[191] Risk Factors No material changes to risk factors were reported since the 2020 Annual Report - The company reports no material changes to its risk factors since its 2020 Annual Report[192] Unregistered Sales of Equity Securities and Use of Proceeds The company issued Class B common stock in a private transaction and withheld shares for tax obligations, with no open market repurchases - On June 10, 2020, the Company issued 102,165 shares of Class B common stock to former employees of an acquired business, relying on the Section 4(a)(2) exemption for non-public offerings[193] Shares Withheld for Tax Obligations (Quarter Ended June 30, 2020) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2020 | 239,865 | $59.38 | | May 2020 | 26,918 | $61.99 | | June 2020 | 14,110 | $60.26 | | Total | 280,893 | $59.72 | Defaults Upon Senior Securities The company reports no defaults upon senior securities - The company reports no defaults upon senior securities[197] Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[198] Other Information The company reports no other information for this item - The company reports no other information for this item[199] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and Inline XBRL documents - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL data files[201]