Houlihan Lokey(HLI) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company's financial statements for the period ended September 30, 2024, show an increase in total assets to $3.21 billion, with revenues growing 23% year-over-year to $1.09 billion and net income increasing by 42% to $182.5 million, while operating cash flow significantly improved to $224.7 million Consolidated Balance Sheets As of September 30, 2024, total assets were $3.21 billion, a slight increase from $3.17 billion at March 31, 2024, primarily driven by growth in Goodwill and Property and Equipment, leading to a rise in total stockholders' equity to $1.96 billion as total liabilities decreased Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2024 | March 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $691,410 | $721,235 | | Goodwill | $1,177,757 | $1,127,497 | | Total assets | $3,212,751 | $3,170,759 | | Liabilities & Equity | | | | Accrued salaries and bonuses | $641,370 | $726,031 | | Total liabilities | $1,255,664 | $1,334,009 | | Total stockholders' equity | $1,957,087 | $1,836,750 | Consolidated Statements of Comprehensive Income For the three and six months ended September 30, 2024, the company reported significant year-over-year growth, with quarterly revenue increasing 23% to $575.0 million and net income rising 40% to $93.5 million, while six-month revenue grew 23% to $1.09 billion and net income increased 42% to $182.5 million Income Statement Summary (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | YoY Change | 6M 2024 | 6M 2023 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenues | $574,957 | $466,989 | +23.1% | $1,088,566 | $882,818 | +23.3% | | Operating Income | $130,669 | $90,277 | +44.7% | $226,237 | $163,624 | +38.3% | | Net Income | $93,549 | $67,031 | +39.6% | $182,489 | $128,421 | +42.1% | | Diluted EPS | $1.37 | $0.99 | +38.4% | $2.67 | $1.89 | +41.3% | Consolidated Statements of Cash Flows For the six months ended September 30, 2024, net cash provided by operating activities was $224.7 million, a substantial improvement from $2.3 million in the prior-year period, driven by higher net income, while net cash used in investing activities increased to $71.3 million due to a business acquisition, and net cash used in financing activities was $200.6 million Cash Flow Summary for Six Months Ended September 30 (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $224,711 | $2,252 | | Net cash used in investing activities | $(71,311) | $(32,974) | | Net cash used in financing activities | $(200,626) | $(178,833) | | Net decrease in cash | $(28,992) | $(220,510) | Notes to Consolidated Financial Statements The notes detail the company's accounting policies and provide further information on financial statement items, including revenue recognition practices for its three segments (CF, FR, FVA), the basis of consolidation, and the use of estimates, with significant notes covering segment performance, goodwill, intangible assets, lease obligations, share-based compensation plans, and a subsequent quarterly dividend declaration - The company operates through three business segments: Corporate Finance (CF), Financial Restructuring (FR), and Financial and Valuation Advisory (FVA), with revenue recognition varying by segment, where CF fees are mostly contingent on transaction completion, FR includes retainer/progress fees, and FVA fees are generally not contingent[20][21][22] - Beginning with this report, 'Acquisition related compensation and benefits' are disclosed separately from 'Employee compensation and benefits' to provide better clarity to stakeholders, with prior year statements reclassified accordingly and no impact on net income[25] - On October 24, 2024, the Board of Directors declared a quarterly cash dividend of $0.57 per share, payable on December 15, 2024[136] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 23% revenue growth for the first six months of fiscal 2025 to strong performance across all segments, particularly a 36% increase in Corporate Finance revenue, resulting in operating income growth of 38% to $226.2 million, while maintaining a strong liquidity position with $749.7 million in total cash, cash equivalents, and investment securities Results of Consolidated Operations For the six months ended September 30, 2024, revenues increased 23% to $1.09 billion, and operating expenses rose 20% to $862.3 million, driven by higher compensation costs tied to revenue growth, resulting in a 38% increase in operating income to $226.2 million and a 42% rise in net income due to a decreased effective tax rate Consolidated Operations Summary (in thousands) | Metric | 6M 2024 | 6M 2023 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $1,088,566 | $882,818 | 23% | | Total operating expenses | $862,329 | $719,194 | 20% | | Operating income | $226,237 | $163,624 | 38% | | Net income | $182,489 | $128,421 | 42% | - The Compensation Ratio was relatively stable at 63.5% for the six months ended Sep 30, 2024, compared to 63.4% in the prior year period[157] - The decrease in the effective tax rate for the six-month period to 22.7% from 24.4% was primarily due to increased stock compensation deductions[159] Business Segments For the six months ended September 30, 2024, all business segments showed revenue growth, with Corporate Finance (CF) revenue surging 36% to $692.4 million, Financial Restructuring (FR) revenue growing 5% to $249.0 million, and Financial and Valuation Advisory (FVA) revenue increasing 8% to $147.1 million Segment Revenue and Profit for Six Months Ended Sep 30 (in thousands) | Segment | Revenue 2024 | Revenue 2023 | % Change | Profit 2024 | Profit 2023 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Corporate Finance | $692,445 | $508,735 | 36% | $210,077 | $152,139 | 38% | | Financial Restructuring | $248,990 | $238,038 | 5% | $100,068 | $76,093 | 32% | | Financial & Valuation Advisory | $147,131 | $136,045 | 8% | $37,030 | $34,492 | 7% | - The number of closed transactions/fee events increased across all segments for the six months ended Sep 30, 2024, compared to the prior year: CF (+17%), FR (+8%), and FVA (+5%)[162] Liquidity and Capital Resources The company's liquidity remains strong, with total cash, cash equivalents, and investment securities at $749.7 million as of September 30, 2024, supported by access to a $100 million undrawn revolving line of credit and a significant operating cash flow inflow of $224.7 million for the six-month period Liquidity Position (in thousands) | Item | September 30, 2024 | March 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $691,410 | $721,235 | | Investment securities | $56,829 | $38,005 | | Total unrestricted cash & investments | $748,239 | $759,240 | - The company has a $100 million syndicated revolving line of credit maturing in August 2025, with an uncommitted expansion option up to $200 million, and no principal was outstanding as of September 30, 2024[180] - As of September 30, 2024, the company had $457.0 million of cash held in foreign subsidiaries[178] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is exchange rate risk from international operations, with foreign currency fluctuations resulting in a positive adjustment of $28.4 million to other comprehensive income for the six months ended September 30, 2024, and this exposure is partially hedged using foreign currency forward contracts with a notional value of $37.0 million, while credit risk is managed through monitoring receivables and maintaining cash with high-credit-rating institutions - The company's main market risk exposure is from foreign currency exchange rates, primarily the U.S. dollar versus the pound sterling and euro[192][196] - To mitigate currency risk, the company uses foreign currency forward contracts, holding two contracts between the USD and GBP with an aggregate notional value of $37.0 million as of September 30, 2024[197] - For the six months ended September 30, 2024, the net impact of foreign currency fluctuations on other comprehensive income was a gain of $28.4 million[195] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2024[201] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[202] PART II. OTHER INFORMATION Legal Proceedings The company reports no material changes in its legal proceedings from those described in its Annual Report on Form 10-K for the fiscal year ended March 31, 2024, and is subject to various legal actions in the ordinary course of business not expected to have a material adverse effect - There has been no material change in the nature of the company's legal proceedings from the descriptions contained in the 2024 Annual Report[203] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2024 - No material changes to the risk factors disclosed in the 2024 Annual Report have occurred[204] Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended September 30, 2024, the company repurchased 3,440 shares of Class B common stock at an average price of $140.46 per share to satisfy employee tax withholding obligations from restricted stock awards, not as part of the publicly announced repurchase program, under which $457.7 million remained available for purchase - The company has a share repurchase program with an authorized amount of up to $500 million, and as of September 30, 2024, $457.7 million remained available under this program[115][205] - During the third quarter of 2024, the company repurchased 3,440 shares of Class B common stock to satisfy tax withholding obligations for employees, not under the public repurchase plan[205] Defaults Upon Senior Securities None reported - None[206] Other Information The company reported that during the fiscal quarter ended September 30, 2024, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer of the Company adopted or terminated a 'Rule 10b5-1 trading arrangement' or a 'non-Rule 10b5-1 trading arrangement' during the quarter[206] Exhibits The report lists exhibits filed, including CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents, and incorporates by reference the Second Amendment to the 2016 Incentive Award Plan and other corporate governance documents - Exhibits filed include CEO/CFO certifications and XBRL data, and a Second Amendment to the Amended and Restated Houlihan Lokey, Inc. 2016 Incentive Award Plan is incorporated by reference[208][211]