Houlihan Lokey(HLI) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Financial statements reveal significant revenue and net income growth, driven by the Corporate Finance segment, alongside a positive shift in operating cash flow Consolidated Balance Sheets Consolidated Balance Sheet Highlights (Unaudited) | (In thousands) | September 30, 2021 | March 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $923,009 | $846,851 | | Investment securities | $40,425 | $208,618 | | Total assets | $2,356,829 | $2,426,067 | | Liabilities & Stockholders' Equity | | | | Accrued salaries and bonuses | $577,698 | $648,399 | | Total liabilities | $919,092 | $1,042,506 | | Total stockholders' equity | $1,437,737 | $1,383,561 | | Total liabilities and stockholders' equity | $2,356,829 | $2,426,067 | - Total assets decreased slightly to $2.36 billion as of September 30, 2021, from $2.43 billion as of March 31, 2021, primarily due to a reduction in investment securities[9] - Total stockholders' equity increased to $1.44 billion from $1.38 billion, driven by retained earnings growth from net income[9] Consolidated Statements of Comprehensive Income Consolidated Income Statement Highlights (Unaudited) | (In thousands, except per share data) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Six Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $537,272 | $275,736 | $909,994 | $486,872 | | Operating income | $157,319 | $66,875 | $264,995 | $109,465 | | Net income | $112,883 | $48,790 | $198,843 | $94,890 | | Fully diluted EPS | $1.65 | $0.70 | $2.90 | $1.39 | - Revenues for the three months ended September 30, 2021, increased 95% year-over-year to $537.3 million, while net income grew 131% to $112.9 million[11] - For the six months ended September 30, 2021, revenues increased 87% year-over-year to $910.0 million, and net income grew 110% to $198.8 million[11] Consolidated Statements of Changes in Stockholders' Equity - For the six months ended September 30, 2021, total stockholders' equity increased from $1.38 billion to $1.44 billion[13] - Key drivers of the change in stockholders' equity for the six-month period were net income of $198.8 million, offset by dividends of $57.3 million and share repurchases/forfeitures that reduced paid-in capital by $146.6 million[13] Consolidated Statements of Cash Flows Consolidated Cash Flow Highlights (Unaudited) | (In thousands) | Six Months Ended Sep 30, 2021 | Six Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by/(used in) operating activities | $120,118 | $(1,330) | | Net cash provided by/(used in) investing activities | $164,814 | $(61,179) | | Net cash provided by/(used in) financing activities | $(207,502) | $99,790 | | Net increase in cash, cash equivalents, and restricted cash | $76,158 | $41,594 | - Cash from operating activities was a net inflow of $120.1 million for the six months ended Sep 30, 2021, a significant improvement from a net outflow of $1.3 million in the prior-year period, primarily due to higher net income[15] - Financing activities resulted in a net cash outflow of $207.5 million, driven by $112.9 million in share repurchases and $59.5 million in dividend payments[15] Notes to Consolidated Financial Statements - The company operates across three business segments: Corporate Finance (CF), Financial Restructuring (FR), and Financial and Valuation Advisory (FVA)[16][17][18] - Revenue from CF and certain FR engagements is largely contingent on the successful completion of transactions (Completion Fees), while FVA fees are generally not contingent[17][18][30] - Subsequent to the quarter end, on October 4, 2021, the company acquired approximately 90% of GCA Corporation for an all-cash transaction valued at approximately $601.0 million to expand its technology sector capabilities and geographic footprint in Europe and Asia[128][129][130] - On October 21, 2021, the board declared a quarterly cash dividend of $0.43 per share[134] Management's Discussion and Analysis of Financial Condition and Results of Operations Record revenues were driven by exceptional performance in Corporate Finance, offsetting a decline in Financial Restructuring, while maintaining strong liquidity Financial Performance Summary | ($ in thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Change | | :--- | :--- | :--- | :--- | | Revenues | $537,272 | $275,736 | 95% | | Operating income | $157,319 | $66,875 | 135% | | Net income | $112,883 | $48,790 | 131% | - The Compensation Ratio decreased to 62.0% for the three months ended September 30, 2021, from 64.3% in the prior-year period, despite an 88% increase in absolute compensation expense[150] Business Segments Analysis Revenues by Segment (Three Months Ended Sep 30) | ($ in thousands) | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Corporate Finance | $388,410 | $108,049 | 259% | | Financial Restructuring | $83,184 | $125,391 | (34)% | | Financial and Valuation Advisory | $65,678 | $42,296 | 55% | - Corporate Finance (CF) revenue growth was driven by a significant increase in both the number of closed transactions (134 vs. 53) and the average transaction fee[159][162] - Financial Restructuring (FR) revenue declined due to a decrease in the number of closed transactions (20 vs. 30) compared to the same quarter last year[159][166] - Financial and Valuation Advisory (FVA) revenue increased due to a higher number of fee events (806 vs. 539)[159][170] Liquidity and Capital Resources - As of September 30, 2021, the company had $963.4 million in total unrestricted cash, cash equivalents, and investment securities[179] - The company has a $100 million syndicated revolving line of credit maturing in August 2022, with an option to expand to $200 million; no principal was outstanding as of September 30, 2021[182] - For the six months ended September 30, 2021, net cash inflow from operations was $120.1 million, a reversal from a $1.3 million outflow in the prior year period[185][186] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk exposure is foreign currency exchange rate risk from international operations, which it occasionally hedges - The company's main market risk is from foreign currency fluctuations, as its business is not capital-intensive and does not rely on debt or complex derivatives[192] - The net impact of foreign currency fluctuations on other comprehensive income was a loss of $6.0 million for the three months ended September 30, 2021, compared to a gain of $5.4 million in the prior-year period[196] - As of September 30, 2021, the company had one foreign currency forward contract outstanding with a notional balance of €1.7 million to hedge exposure between the pound sterling and the euro[198] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[201] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[202] PART II. OTHER INFORMATION Legal Proceedings There have been no material changes in the company's legal proceedings since the last annual report - No material changes to legal proceedings were reported since the 2021 Annual Report[204] Risk Factors There have been no material changes to the risk factors disclosed in the company's last annual report - No material changes to risk factors were reported since the 2021 Annual Report[205] Unregistered Sales of Equity Securities and Use of Proceeds The company issued unregistered shares for acquisitions and repurchased shares under its authorized program - The company issued 24,777 shares of Class B common stock on July 8, 2021, and 7,090 shares on September 29, 2021, in unregistered sales related to previous acquisitions[207][208] Equity Securities Repurchases (Quarter Ended Sep 30, 2021) | Period | Total Shares Purchased | Average Price Paid Per Share | Total Shares Purchased (Public Program) | | :--- | :--- | :--- | :--- | | July 1 - July 30, 2021 | 499,386 | $82.89 | 498,896 | | Aug 1 - Aug 31, 2021 | — | — | — | | Sep 1 - Sep 30, 2021 | — | — | — | | Total | 499,386 | $82.89 | 498,896 | - In July 2021, the board of directors increased the authorization for the share repurchase program to an aggregate amount of up to $250 million[109][209] Exhibits The filing includes the GCA Corporation transaction agreement, CEO/CFO certifications, and Inline XBRL documents - Key exhibits filed include the Transaction Agreement for the GCA Corporation acquisition, CEO/CFO certifications (Rule 13a-14(a) and Section 1350), and XBRL data files[215]