Houlihan Lokey(HLI) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, statements of comprehensive income, changes in stockholders' equity, and cash flows, along with detailed notes explaining the company's accounting policies, financial instruments, and significant transactions like the GCA acquisition Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights (in thousands): | Metric | December 31, 2021 | March 31, 2021 | Change (%) | | :--------------------------------------- | :------------------ | :------------------ | :--------- | | Total Assets | $3,045,762 | $2,426,067 | 25.5% | | Goodwill | $1,082,934 | $671,065 | 61.4% | | Accrued salaries and bonuses | $986,043 | $648,399 | 52.1% | | Total Liabilities | $1,516,346 | $1,042,506 | 45.4% | | Total Stockholders' Equity | $1,529,416 | $1,383,561 | 10.5% | Consolidated Statements of Comprehensive Income This section outlines the company's financial performance, detailing revenues, operating income, net income, and earnings per share Consolidated Statements of Comprehensive Income (in thousands): Three Months Ended December 31, | Metric | 2021 | 2020 | Change (%) | | :-------------------------------- | :------- | :------- | :--------- | | Revenues | $888,798 | $537,876 | 65.2% | | Operating income | $249,260 | $158,416 | 57.3% | | Net income attributable to Houlihan Lokey, Inc. | $173,735 | $118,515 | 46.6% | | Basic Earnings per share | $2.68 | $1.78 | 50.6% | | Fully diluted Earnings per share | $2.54 | $1.71 | 48.5% | Nine Months Ended December 31, | Metric | 2021 | 2020 | Change (%) | | :-------------------------------- | :------- | :------- | :--------- | | Revenues | $1,798,792 | $1,024,748 | 75.5% | | Operating income | $514,255 | $267,881 | 91.9% | | Net income attributable to Houlihan Lokey, Inc. | $372,578 | $213,405 | 74.6% | | Basic Earnings per share | $5.71 | $3.25 | 75.7% | | Fully diluted Earnings per share | $5.44 | $3.11 | 74.9% | Consolidated Statements of Changes in Stockholders' Equity This section details changes in the company's equity, reflecting net income, dividends, and share transactions - Total Stockholders' Equity increased from $1,383,561 thousand on April 1, 2021, to $1,529,416 thousand on December 31, 2021[14] - Net income contributed $372,578 thousand to equity during the nine months ended December 31, 2021[14] - Dividends paid reduced equity by $(85,679) thousand during the nine months ended December 31, 2021[14] - Other shares repurchased/forfeited reduced equity by $(216,240) thousand during the nine months ended December 31, 2021[14] Consolidated Statements of Cash Flows This section summarizes cash flows from operating, investing, and financing activities, highlighting liquidity changes Consolidated Statements of Cash Flows (in thousands) - Nine Months Ended December 31, | Cash Flow Activity | 2021 | 2020 | Change (%) | | :--------------------------------------- | :------- | :------- | :--------- | | Net cash provided by operating activities | $672,135 | $307,184 | 118.8% | | Net cash used in investing activities | $(146,352) | $(122,067) | 19.9% | | Net cash provided by/(used in) financing activities | $(309,976) | $57,181 | (642.0)% | | Net increase in cash, cash equivalents, and restricted cash | $211,752 | $253,286 | (16.4)% | | Cash, cash equivalents, and restricted cash – end of period | $1,058,976 | $634,032 | 67.0% | - Acquisition of business, net of cash acquired, was a significant investing outflow of $(305,637) thousand in 2021[17] - Share repurchases were a major financing outflow of $(183,197) thousand in 2021[17] Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures for financial statements, covering accounting policies, transactions, and financial instruments Note 1 — Background This note describes Houlihan Lokey, Inc. as a global financial services firm with three primary business segments: Corporate Finance (CF), Financial Restructuring (FR), and Financial and Valuation Advisory (FVA) - Houlihan Lokey operates globally with offices across the U.S., Europe, the Middle East, and Asia-Pacific[18] - The three primary business segments are: * Corporate Finance (CF): Provides M&A advisory and capital markets offerings; majority of revenues are Completion Fees, contingent on successful transaction closure[20] * Financial Restructuring (FR): Offers advice on recapitalization/deleveraging and distressed M&A; fees are generally Retainer Fees and/or Progress Fees, with Completion Fees contingent on transaction closure or bankruptcy emergence[21] * Financial and Valuation Advisory (FVA): Primarily provides valuations, fairness/solvency opinions, and dispute resolution; fees are generally not contingent on transaction completion and often based on hourly rates[21] Note 2 — Summary of Significant Accounting Policies This note details the company's significant accounting policies, including the basis of presentation under GAAP and SEC rules, principles of consolidation, and the extensive use of estimates - Financial statements are prepared in accordance with U.S. GAAP and SEC rules[22] - The company consolidates subsidiaries where it has a controlling financial interest and uses the equity method for unconsolidated entities with significant influence[24][25] - Revenue recognition for CF and FR Completion Fees is considered variable and constrained until transaction closure, while FVA fees are generally not contingent[31][33][34][35] - The majority of operating expenses are related to employee compensation and benefits[37] - Fair value measurements are categorized into Level 1, 2, and 3 inputs, with Level 3 involving significant management judgment for unobservable inputs[40][41] - Adopted ASU 2016-13 (Credit Losses) on April 1, 2020, resulting in a net decrease to retained earnings of $(682) thousand[64] Note 3 — Revenue Recognition This note details the company's revenue recognition policies, emphasizing that revenues are recognized when performance obligations are satisfied, either over time or at a point in time - Revenues are recognized upon satisfaction of the performance obligation, which may be satisfied over time or at a point in time[30][32] - Variable consideration (e.g., Completion Fees) is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur[31] Contract Balances (in thousands): | Metric | April 1, 2021 | Increase/(Decrease) | December 31, 2021 | | :--------------------------------------- | :------------ | :------------------ | :---------------- | | Receivables | $103,987 | $88,401 | $192,388 | | Unbilled work in progress, net | $118,115 | $(31,611) | $86,504 | | Contract Assets | $4,422 | $(898) | $3,524 | | Contract Liabilities (Deferred income) | $27,868 | $(549) | $27,319 | - $19 million of Revenues recognized during the nine months ended December 31, 2021, were included in the Deferred income balance at the beginning of the period[69] Note 4 — Related Party Transactions This note discloses the company's related party transactions, specifically detailing loans receivable from certain employees that are recorded within other assets on the Consolidated Balance Sheets Loans Receivable from Employees (in thousands): | Date | Amount | | :---------------- | :------- | | December 31, 2021 | $14,763 | | March 31, 2021 | $16,657 | Note 5 — Fair Value Measurements This note presents information about the company's financial assets measured at fair value, primarily investment securities, categorized within the fair value hierarchy Financial Assets Measured at Fair Value (in thousands) - December 31, 2021: | Asset Type | Level I | Level II | Level III | Total | | :---------------------- | :------ | :------- | :-------- | :------ | | Corporate debt securities | $— | $30,121 | $— | $30,121 | | U.S. treasury securities | $— | $4,866 | $— | $4,866 | | Certificates of Deposit | $— | $516 | $— | $516 | | Total assets | $— | $35,503 | $— | $35,503 | Financial Assets Measured at Fair Value (in thousands) - March 31, 2021: | Asset Type | Level I | Level II | Level III | Total | | :---------------------- | :------ | :------- | :-------- | :------ | | Corporate debt securities | $— | $178,659 | $— | $178,659 | | U.S. treasury securities | $— | $24,083 | $— | $24,083 | | Total assets | $— | $202,742 | $— | $202,742 | - There were no transfers between fair value levels during the nine months ended December 31, 2021[75] Note 6 — Investment Securities This note provides details on the company's investment securities, primarily corporate debt and U.S. treasury securities, classified as trading securities and measured at fair value Investment Securities Fair Value (in thousands): | Date | Fair Value | | :---------------- | :--------- | | December 31, 2021 | $35,503 | | March 31, 2021 | $202,742 | - As of December 31, 2021, the investment securities portfolio consisted of corporate debt securities ($30,121 thousand), U.S. treasury securities ($4,866 thousand), and Certificates of Deposit ($516 thousand)[76] Scheduled Maturities of Debt Securities (in thousands) - December 31, 2021: | Maturity Period | Amortized Cost | Estimated Fair Value | | :---------------------- | :------------- | :------------------- | | Due within one year | $2,576 | $2,576 | | Due within years two through five | $33,232 | $32,927 | | Total debt securities | $35,808 | $35,503 | Note 7 — Allowance for Credit Losses This note presents the reconciliation of the allowance for credit losses, showing an increase in the balance as of December 31, 2021, primarily due to the provision for bad debt Allowance for Credit Losses (in thousands) - December 31, 2021: | Metric | Amount | | :-------------------------------- | :------- | | Beginning balance | $11,782 | | Provision for bad debt, net | $4,626 | | Recovery/(write-off) of uncollectible accounts, net | $(1,063) | | Ending balance | $15,345 | Note 8 — Property and Equipment This note details the composition of property and equipment, net of accumulated depreciation, showing an increase in net book value primarily from leasehold improvements Property and Equipment, Net (in thousands): | Metric | December 31, 2021 | March 31, 2021 | | :-------------------------- | :------------------ | :------------------ | | Total net book value | $51,750 | $46,370 | - Additions to property and equipment during the nine months ended December 31, 2021, were primarily related to leasehold improvement costs[80] Depreciation Expense (in thousands) - Nine Months Ended December 31, | Year | Amount | | :--- | :------- | | 2021 | $10,460 | | 2020 | $8,212 | Note 9 — Goodwill and Other Intangible Assets This note provides a reconciliation of goodwill and other intangible assets, highlighting a substantial increase in goodwill primarily due to the acquisition of GCA Corporation Goodwill and Other Intangibles, Net (in thousands): | Metric | December 31, 2021 | March 31, 2021 | | :-------------------------------- | :------------------ | :------------------ | | Goodwill | $1,082,934 | $671,065 | | Tradename-Houlihan Lokey | $192,210 | $192,210 | | Other intangible assets | $93,264 | $6,809 | | Goodwill and other intangibles, net | $1,346,427 | $866,221 | - The increase in goodwill is primarily attributable to the acquisition of GCA Corporation, with a change of $411,869 thousand[83] - Goodwill recognized is attributable to the Corporate Finance business segment[136] Amortization Expense (in thousands) - Nine Months Ended December 31, | Year | Amount | | :--- | :------- | | 2021 | $18,130 | | 2020 | $3,079 | Estimated Future Amortization for Finite-Lived Intangible Assets (in thousands): | Year Ended March 31, | Amount | | :------------------- | :------- | | Remainder of 2022 | $15,796 | | 2023 | $45,120 | | 2024 | $8,091 | | 2025 | $1,877 | | 2026 and thereafter | $97 | Note 10 — Loans Payable This note details the company's various loan obligations, including an undrawn syndicated revolving line of credit, loans payable to former shareholders, and unsecured notes - The company has a syndicated revolving line of credit (2019 Line of Credit) allowing borrowings of up to $100 million, maturing August 23, 2022, with no principal outstanding as of December 31, 2021[86] Loans Payable to Former Shareholders (in thousands): | Date | Amount | | :---------------- | :------- | | December 31, 2021 | $539 | | March 31, 2021 | $818 | Scheduled Aggregate Repayments of Loans Payable and Other Liabilities (in thousands) - As of December 31, 2021: | Fiscal Year-End | Amount | | :-------------------- | :------- | | Remaining 2022 | $71,466 | | 2023 | $28,020 | | 2024 | $7,260 | | 2025 | $15,863 | | 2026 | $713 | | 2027 and thereafter | $10,227 | | Total | $133,549 | - The remaining 2022 repayment schedule includes $57.7 million for the acquisition of GCA Corporation shares not purchased through the tender offer[93] Note 11 — Accumulated Other Comprehensive (Loss) This note reports the accumulated other comprehensive loss, primarily consisting of foreign currency translation adjustments, with a loss recorded for the nine months ended December 31, 2021 Accumulated Other Comprehensive (Loss) (in thousands): | Date | Amount | | :---------------- | :--------- | | December 31, 2021 | $(26,412) | | April 1, 2021 | $(20,176) | Foreign Currency Translation Adjustments (in thousands) - Nine Months Ended December 31, | Year | Amount | | :--- | :--------- | | 2021 | $(6,236) | | 2020 | $22,407 | Note 12 — Income Taxes This note provides the provision for income taxes and effective tax rates, which increased in 2021 primarily due to higher state and foreign taxes and increased non-deductible expenses Provision for Income Taxes (in thousands) - Three Months Ended December 31, | Year | Amount | | :--- | :------- | | 2021 | $74,699 | | 2020 | $40,088 | Effective Tax Rate - Three Months Ended December 31, | Year | Rate | | :--- | :----- | | 2021 | 30.0% | | 2020 | 25.3% | Provision for Income Taxes (in thousands) - Nine Months Ended December 31, | Year | Amount | | :--- | :------- | | 2021 | $140,099 | | 2020 | $56,020 | Effective Tax Rate - Nine Months Ended December 31, | Year | Rate | | :--- | :----- | | 2021 | 27.3% | | 2020 | 20.8% | - The increase in the effective tax rate in 2021 was primarily a result of increased state taxes, increased non-deductible expenses, and increased foreign taxes[156][161] Note 13 — Earnings Per Share This note presents the calculations for basic and diluted earnings per share (EPS) attributable to common stockholders, showing significant year-over-year growth Earnings Per Share - Three Months Ended December 31, | Metric | 2021 | 2020 | | :---------------- | :--- | :--- | | Basic EPS | $2.68 | $1.78 | | Diluted EPS | $2.54 | $1.71 | Earnings Per Share - Nine Months Ended December 31, | Metric | 2021 | 2020 | | :---------------- | :--- | :--- | | Basic EPS | $5.71 | $3.25 | | Diluted EPS | $5.44 | $3.11 | Note 14 — Employee Benefit Plans This note describes the company's employee benefit plans, including defined contribution plans and share-based incentive plans, detailing compensation expenses and unrecognized costs - The company contributed $5,304 thousand to its defined contribution plans during the nine months ended December 31, 2021[99] - Equity-based incentive awards granted under the 2016 Incentive Plan generally vest over a four-year period[100] Compensation Expense for Share Awards (in thousands) - Nine Months Ended December 31, | Year | Amount | | :--- | :------- | | 2021 | $72,398 | | 2020 | $46,779 | - As of December 31, 2021, total unrecognized compensation cost related to unvested share awards was $159,084 thousand, to be recognized over a weighted average period of 1.5 years[104] Note 15 — Stockholders' Equity This note outlines the company's two classes of common stock with different voting rights and details activities impacting stockholders' equity, including share repurchases and dividends - Class A common stock is entitled to one vote per share, while Class B common stock is entitled to ten votes per share and is convertible to Class A[106] - The company repurchased 2,072,934 shares of Class A common stock for $183,136 thousand and 455,402 shares of Class B common stock for $33,700 thousand (to satisfy tax obligations) during the nine months ended December 31, 2021[114] - In July 2021, the board authorized an increase to the share repurchase program to an aggregate amount of up to $250 million[112] - Unpaid dividends related to unvested shares totaled $7,894 thousand as of December 31, 2021[110] Note 16 — Leases This note provides details on the company's operating lease arrangements for real estate and equipment, including the maturity schedule of lease liabilities and future commitments Operating Lease Liabilities (in thousands) - December 31, 2021: | Metric | Amount | | :------------------------ | :------- | | Operating lease liabilities | $187,264 | Maturity of Operating Leases (in thousands) - December 31, 2021: | Year | Operating Leases | | :---------------- | :--------------- | | Remaining 2022 | $8,997 | | 2023 | $32,830 | | 2024 | $26,598 | | 2025 | $26,486 | | 2026 | $23,704 | | Thereafter | $95,638 | | Total | $214,253 | | Less: present value discount | $(26,989) | | Operating lease liabilities | $187,264 | Operating Lease Expense (in thousands) - Nine Months Ended December 31, | Year | Amount | | :--- | :------- | | 2021 | $28,379 | | 2020 | $21,967 | - The weighted-average remaining lease term was 8 years as of December 31, 2021[119] - The company has entered into operating leases for approximately $131 million for additional office space that have not yet commenced[117] Note 17 — Commitments and Contingencies This note addresses the company's legal actions and indemnification obligations, stating that ongoing legal proceedings are not expected to materially affect financial condition - Legal actions arising in the normal course of business are not expected to have a material adverse effect on the company's financial condition, operations, and cash flows[121] - The company provides routine indemnifications relating to certain real estate lease agreements, but a maximum obligation cannot be estimated[122] Note 18 — Segment and Geographical Information This note provides disaggregated financial information by the company's three business segments and by geographical area, detailing revenues, segment profit, and assets Revenues by Segment (in thousands) - Nine Months Ended December 31, | Segment | 2021 | 2020 | Change (%) | | :-------------------------------- | :------- | :------- | :--------- | | Corporate Finance | $1,314,064 | $502,191 | 161.7% | | Financial Restructuring | $271,232 | $392,006 | (30.8)% | | Financial and Valuation Advisory | $213,496 | $130,551 | 63.5% | | Total Revenues | $1,798,792 | $1,024,748 | 75.5% | Segment Profit (in thousands) - Nine Months Ended December 31, | Segment | 2021 | 2020 | Change (%) | | :-------------------------------- | :------- | :------- | :--------- | | Corporate Finance | $513,880 | $143,167 | 258.9% | | Financial Restructuring | $61,485 | $169,832 | (63.8)% | | Financial and Valuation Advisory | $68,703 | $33,213 | 107.0% | | Total Segment Profit | $644,068 | $346,212 | 86.0% | Revenues by Geography (in thousands) - Nine Months Ended December 31, | Geography | 2021 | 2020 | Change (%) | | :---------------- | :------- | :------- | :--------- | | United States | $1,390,754 | $815,904 | 70.4% | | International | $408,038 | $208,844 | 95.4% | | Total Revenues | $1,798,792 | $1,024,748 | 75.5% | Corporate Expenses (in thousands) - Nine Months Ended December 31, | Year | Amount | | :--- | :------- | | 2021 | $129,813 | | 2020 | $78,331 | Note 19 — Business Combinations This note details the acquisition of GCA Corporation for approximately $589.6 million, which significantly expanded the company's presence in the technology sector and international operations - The company completed the acquisition of GCA Corporation on October 4, 2021, for approximately $589.6 million in cash[131][133] - GCA is a global technology-focused investment bank, significantly increasing the company's position in the technology sector, UK/European operations, and Asia Pacific footprint[132] - Goodwill of $403.8 million was recognized as a result of the acquisition, attributable to the Corporate Finance business segment[136] - GCA contributed $210.5 million to Revenue and $12.1 million to Net income for the period from the acquisition date to December 31, 2021[137] Unaudited Pro Forma Financial Information (in thousands) - Nine Months Ended December 31, | Metric | 2021 | 2020 | | :--------- | :--------- | :--------- | | Revenue | $2,047,030 | $1,198,360 | | Net income | $397,285 | $187,270 | Note 20 — Subsequent Events This note discloses significant events that occurred after the reporting period, including the final payment for the GCA acquisition and the declaration of a quarterly cash dividend - The final payment of $57.7 million for the remaining GCA shares was completed on January 20, 2022[140] - A quarterly cash dividend of $0.43 per share of Class A and Class B common stock was declared on January 26, 2022, payable on March 15, 2022[140] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's comprehensive analysis of the company's financial condition and results of operations for the periods presented, emphasizing the impact of the GCA acquisition Forward-Looking Statements This subsection serves as a cautionary note regarding forward-looking statements, emphasizing that they are predictions based on current expectations and are subject to various risks - Forward-looking statements are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially[141] - The company is under no duty to update or review any forward-looking statements after the filing date[141] Key Financial Measures This subsection defines and explains the primary financial measures used to assess the company's performance, detailing revenue generation and expense classifications - Revenues are primarily derived from advisory services across CF, FR, and FVA segments, recognized upon satisfaction of performance obligations[142][143] - CF revenues are predominantly Completion Fees, contingent on successful transaction closure; FR revenues include Retainer/Progress Fees and contingent Completion Fees; FVA fees are generally not contingent on transaction completion[144][145][146] - Operating expenses are mainly employee compensation and benefits, influenced by revenues, headcount, and labor market competitiveness[147][148] - The Compensation Ratio is defined as the ratio of employee compensation and benefits expenses to revenues[149] - Non-compensation expenses include travel, rent, depreciation, IT, professional fees, and other operating expenses[149] - Other (income)/expense, net encompasses interest income/expense, equity income/losses from unconsolidated entities, and gains/losses on earnout liabilities[150] Results of Consolidated Operations This subsection provides a detailed analysis of the company's consolidated financial performance for the three and nine months ended December 31, 2021, compared to the prior year Three Months Ended December 31, 2021 versus December 31, 2020 For the three months ended December 31, 2021, revenues increased by 65% to $888.8 million, largely due to the GCA acquisition and a significant rise in Corporate Finance transactions - Revenues increased by 65% to $888.8 million, primarily due to the GCA acquisition and a significant increase in closed transactions and average transaction fees for the CF business segment[153] - Operating expenses increased by 69% to $639.5 million; Employee compensation and benefits rose by 62% to $549.4 million, while non-compensation expense surged by 127% to $90.2 million, driven by GCA-related expenses, intangible asset amortization, and integration costs[154] - The Compensation Ratio was 61.8% for the three months ended December 31, 2021, down from 63.2% in the prior year[154] - The effective tax rate increased to 30.0% from 25.3%, primarily due to increased state taxes, increased non-deductible expenses, and increased foreign taxes[156] Nine Months Ended December 31, 2021 versus December 31, 2020 For the nine months ended December 31, 2021, revenues increased by 76% to $1,798.8 million, driven by the GCA acquisition and strong Corporate Finance performance - Revenues increased by 76% to $1,798.8 million, primarily due to the GCA acquisition and a significant increase in closed transactions and average transaction fees for the CF business segment[158] - Operating expenses increased by 70% to $1,284.5 million; Employee compensation and benefits rose by 70% to $1,115.1 million, while non-compensation expense increased by 65% to $169.5 million, driven by GCA-related expenses, intangible asset amortization, and integration costs[159] - The Compensation Ratio was 62.0% for the nine months ended December 31, 2021, down from 63.8% in the prior year[159] - The effective tax rate increased to 27.3% from 20.8%, primarily due to increased state and foreign taxes and decreased stock compensation deductions[161] Business Segments This subsection analyzes the performance of the company's three business segments, highlighting strong revenue and profit growth in CF and FVA, while FR experienced a decline Revenues by Segment (in thousands) - Nine Months Ended December 31, | Segment | 2021 | 2020 | Change (%) | | :-------------------------------- | :------- | :------- | :--------- | | Corporate Finance | $1,314,064 | $502,191 | 161.7% | | Financial Restructuring | $271,232 | $392,006 | (30.8)% | | Financial and Valuation Advisory | $213,496 | $130,551 | 63.5% | Segment Profit (in thousands) - Nine Months Ended December 31, | Segment | 2021 | 2020 | Change (%) | | :-------------------------------- | :------- | :------- | :--------- | | Corporate Finance | $513,880 | $143,167 | 258.9% | | Financial Restructuring | $61,485 | $169,832 | (63.8)% | | Financial and Valuation Advisory | $68,703 | $33,213 | 107.0% | Number of Managing Directors - December 31, | Segment | 2021 | 2020 | Change (%) | | :-------------------------------- | :--- | :--- | :--------- | | Corporate Finance | 198 | 123 | 61% | | Financial Restructuring | 52 | 47 | 11% | | Financial and Valuation Advisory | 34 | 31 | 10% | Number of Closed Transactions/Fee Events - Three Months Ended December 31, | Segment | 2021 | 2020 | Change (%) | | :-------------------------------- | :--- | :--- | :--------- | | Corporate Finance | 238 | 121 | 97% | | Financial Restructuring | 21 | 44 | (52)% | | Financial and Valuation Advisory | 901 | 639 | 41% | Corporate Finance The Corporate Finance segment experienced substantial growth, with revenues increasing by 134% for the three months and 162% for the nine months ended December 31, 2021 - Revenues for CF increased by 134% to $715.7 million for the three months ended December 31, 2021, and by 162% to $1,314.1 million for the nine months ended December 31, 2021[167][169] - Growth was primarily due to the GCA acquisition and a significant increase in the number of closed transactions and average transaction fees[167][169] - Segment profit for CF increased by 188% to $277.5 million for the three months and by 259% to $513.9 million for the nine months ended December 31, 2021[168][170] Financial Restructuring The Financial Restructuring segment saw a decline in performance, with revenues decreasing by 50% for the three months and 31% for the nine months ended December 31, 2021 - Revenues for FR decreased by 50% to $89.3 million for the three months ended December 31, 2021, and by 31% to $271.2 million for the nine months ended December 31, 2021[171][173] - The decrease in revenues was primarily a result of a decrease in the number of closed transactions[171][173] - Segment profit for FR decreased by 81% to $15.3 million for the three months and by 64% to $61.5 million for the nine months ended December 31, 2021[172][174] Financial and Valuation Advisory The Financial and Valuation Advisory segment demonstrated strong growth, with revenues increasing by 56% for the three months and 64% for the nine months ended December 31, 2021 - Revenues for FVA increased by 56% to $83.9 million for the three months ended December 31, 2021, and by 64% to $213.5 million for the nine months ended December 31, 2021[175][177] - The increase in revenues was primarily a result of an increase in the number of Fee Events[175][177] - Segment profit for FVA increased by 102% to $28.1 million for the three months and by 107% to $68.7 million for the nine months ended December 31, 2021[176][178] Corporate Expenses Corporate expenses significantly increased for both the three and nine months ended December 31, 2021, primarily due to costs associated with the GCA acquisition - Corporate expenses increased by 133% to $71.7 million for the three months ended December 31, 2021, and by 66% to $129.8 million for the nine months ended December 31, 2021[179][180] - The increase was primarily driven by corporate expenses attributable to GCA, integration and acquisition-related costs associated with the GCA acquisition, and amortization and depreciation[179][180] Liquidity and Capital Resources This subsection discusses the company's liquidity, which is highly dependent on cash receipts from client fees and timely collection of receivables, and confirms compliance with debt covenants - Liquidity is highly dependent upon cash receipts from clients, which are generally contingent on the successful completion of transactions, and the timing of receivables collections[185] Total Unrestricted Cash and Cash Equivalents, Including Investment Securities (in thousands): | Date | Amount | | :---------------- | :----------- | | December 31, 2021 | $1,098,432 | | March 31, 2021 | $1,055,469 | - The company has a syndicated revolving line of credit of up to $100 million, maturing August 23, 2022, with no principal outstanding as of December 31, 2021[186] - The company was in compliance with all debt covenants, including minimum consolidated earnings before interest, taxes, depreciation, and amortization and certain leverage ratios, as of December 31, 2021[186] - Accounts receivable, net of credit losses, was $195.9 million, and unbilled work in progress, net of credit losses, was $86.5 million as of December 31, 2021[185] Cash Flows This subsection summarizes the company's cash flow activities, showing a significant increase in operating cash flow and a shift to net outflow from financing activities in 2021 Summary of Cash Flows (in thousands) - Nine Months Ended December 31, | Activity | 2021 | 2020 | Change (%) | | :--------------------------------------- | :------- | :------- | :--------- | | Net cash provided by operating activities | $672,135 | $307,184 | 119% | | Net cash used in investing activities | $(146,352) | $(122,067) | 20% | | Net cash provided by/(used in) financing activities | $(309,976) | $57,181 | (642)% | | Cash, cash equivalents, and restricted cash — end of period | $1,058,976 | $634,032 | 67% | - Investing activities in 2021 were primarily impacted by the acquisition of GCA, resulting in a net outflow of $(146.4) million[190] - Financing activities in 2021 resulted in a net outflow of $(310.0) million, primarily due to share repurchases, dividend payments, and payments to settle employee tax obligations on share-based awards[190] Contractual Obligations This subsection states that there have been no material changes to the company's known contractual obligations outside the ordinary course of business since the filing of its 2021 Annual Report - No material changes to contractual obligations have occurred outside the ordinary course of business since the 2021 Annual Report[192] Critical Accounting Policies and Estimates This subsection reiterates that the preparation of consolidated financial statements requires significant management estimates and assumptions, particularly in accounting for business combinations - The preparation of consolidated financial statements requires significant management estimates and assumptions[193] - Critical estimates in business combinations include valuing acquired tangible and intangible assets, future expected cash flows, expected asset lives, geographic risk premiums, and discount rates[194] Recent Accounting Developments This subsection refers readers to Note 2 of the unaudited consolidated financial statements for information on recently issued accounting developments and their potential impact - Refer to Note 2 for information on recently issued accounting developments and their impact or potential impact on consolidated financial statements[196] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section addresses the company's exposure to market risk, credit risk, and exchange rate risk, acknowledging foreign currency risk from international operations and hedging strategies Market Risk and Credit Risk This subsection states that the company's non-capital intensive business model and limited use of debt or derivatives mean it is not subject to significant market or credit risk, except for receivables - The company's business is not capital intensive and generally does not issue debt or invest in derivative instruments (other than for foreign currency hedging), limiting exposure to significant market risk or credit risk (except for receivables)[197] - Cash and cash equivalents are maintained with financial institutions with high credit ratings[197] - An allowance for credit losses is maintained for accounts receivable and unbilled work in progress[199] Risks Related to Cash and Short Term Investments This subsection clarifies that while the company's cash balances in non-U.S. bank accounts expose it to foreign exchange risks, management believes its cash is not subject to material interest rate, equity price, credit, or other market risks - The company has exposure to foreign exchange risks through its international affiliates due to cash balances and other assets and liabilities held in non-U.S. accounts[198][200] - Management believes its cash is not subject to any material interest rate risk, equity price risk, credit risk, or other market risk[200] Exchange Rate Risk This subsection explains that exchange rate fluctuations affect the reported value of non-U.S. dollar denominated assets, liabilities, revenues, and expenses, and discusses hedging strategies - Foreign currency translation adjustments resulted in a net impact of $(6,236) thousand in other comprehensive income during the nine months ended December 31, 2021[201] - The company uses derivative instruments, such as foreign currency forward contracts, to hedge exposure to certain foreign currency fluctuations[203] - At this time, the company does not believe it faces any material risk from foreign currency fluctuations, but the potential impact will increase as international expansion continues[202][204] Item 4. Controls and Procedures This section addresses the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting, concluding they were effective with no material changes Limitations on Effectiveness of Controls and Procedures This subsection acknowledges that any control system can only provide reasonable, not absolute, assurance of achieving control objectives, highlighting inherent limitations such as resource constraints - Controls and procedures can provide only reasonable, not absolute, assurance of achieving desired control objectives[205] - Inherent limitations include resource constraints and the application of management judgment in evaluating benefits versus costs[205] Evaluation of Disclosure Controls and Procedures This subsection reports that management, including the chief executive officer and chief financial officer, evaluated the effectiveness of the company's disclosure controls and procedures as of December 31, 2021 - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2021[206] Changes in Internal Control Over Financial Reporting This subsection states that no material changes in internal control over financial reporting were identified during the fiscal quarter ended December 31, 2021 - No material changes in internal control over financial reporting were identified during the fiscal quarter ended December 31, 2021[207] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section states that there have been no material changes to the nature of the company's legal proceedings from the descriptions provided in its 2021 Annual Report - There have been no material changes to the nature of legal proceedings from the descriptions contained in the 2021 Annual Report[209] Item 1A. Risk Factors This section reports that there have been no material changes to the risk factors previously disclosed in the company's 2021 Annual Report - There have been no material changes to the risk factors disclosed in the 2021 Annual Report[210] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the issuance of Class B common stock to former employees of an acquired business and summarizes the company's share repurchase activities during the quarter ended December 31, 2021 - On October 22, 2021, the company issued 31,954 shares of Class B common stock to certain former employees of a business acquired in 2020, relying on the Section 4(a)(2) exemption from registration[211] - During the three months ended December 31, 2021, the company repurchased 644,900 shares of its outstanding Class A common stock at a weighted average price of $108.90 per share, for an aggregate purchase price of $70,232 thousand[113][212] - As of December 31, 2021, the approximate dollar value of shares that may yet be purchased under the share repurchase program was $169.021 million[212] Item 3. Defaults Upon Senior Securities This section states that there are no defaults upon senior securities to report - None[213] Item 4. Mine Safety Disclosures This section indicates that the disclosures related to mine safety are not applicable to the company - Not applicable[214] Item 5. Other Information This section states that there is no other information to report - None[215] Item 6. Exhibits This section provides a list of all exhibits filed as part of the Form 10-Q, including organizational documents, transaction agreements, various certifications, and Inline XBRL documents - Exhibits include the Amended and Restated Certificate of Incorporation and Bylaws, the Transaction Agreement for GCA Corporation, Rule 13a-14(a) / 15d-14(a) Certifications of the Chief Executive Officer and Chief Financial Officer, Section 1350 Certifications, and Inline XBRL documents[216] Signatures This section contains the required signatures of the company's Chief Executive Officer and Chief Financial Officer, certifying the accuracy and completeness of the report - The report was signed by Scott L. Beiser (Chief Executive Officer) and J. Lindsey Alley (Chief Financial Officer) on February 8, 2022[220]