Houlihan Lokey(HLI) - 2024 Q4 - Annual Results

Financial Performance Summary Fiscal Year and Fourth Quarter 2024 Highlights Houlihan Lokey reported fiscal year 2024 revenues of $1.91 billion, a 6% increase year-over-year, with a diluted EPS of $4.11. The fourth quarter saw record revenues of $520 million, up 17% from the prior year, with a diluted EPS of $1.18. The company also announced an increase in its quarterly dividend to $0.57 per share Fiscal Year 2024 vs. 2023 Performance | Metric | Fiscal Year 2024 | Fiscal Year 2023 | Change | | :--- | :--- | :--- | :--- | | Revenues | $1.91 billion | $1.81 billion | +6% | | Net Income (GAAP) | $280 million | $254 million | +10.2% | | Diluted EPS (GAAP) | $4.11 | $3.76 | +9.3% | | Net Income (Adjusted) | $310 million | $315 million | -1.6% | | Diluted EPS (Adjusted) | $4.49 | $4.54 | -1.1% | Q4 Fiscal 2024 vs. Q4 2023 Performance | Metric | Q4 Fiscal 2024 | Q4 Fiscal 2023 | Change | | :--- | :--- | :--- | :--- | | Revenues | $520 million | $445 million | +16.9% | | Net Income (GAAP) | $81 million | $60 million | +35.0% | | Diluted EPS (GAAP) | $1.18 | $0.88 | +34.1% | | Net Income (Adjusted) | $88 million | $77 million | +14.3% | | Diluted EPS (Adjusted) | $1.27 | $1.11 | +14.4% | - The Board of Directors announced an increase in the quarterly dividend to $0.57 per share[1] CEO Commentary The CEO, Scott Beiser, highlighted the record-breaking fourth-quarter revenues and a 6% annual revenue growth despite a challenging market. He attributed this success to the firm's diversified business model and stability. While entering fiscal 2025 with good momentum, he remains cautious about the slow pace of recovery in the M&A environment - The company achieved its highest fourth-quarter revenues ever, with a 17% increase compared to the same quarter last year[4] - Full fiscal year 2024 revenues were up 6% versus the prior year, which is considered a good result in a challenging market[4] - The firm's performance is credited to its diversified business model and stability through economic cycles[4] - The company is realistic about the pace of recovery in what is described as a "sluggish M&A environment"[4] Detailed Financial Analysis Revenues Analysis Fiscal year 2024 revenues grew 6% to $1.91 billion, primarily driven by a strong 32% increase in Financial Restructuring (FR) revenues, which compensated for a 2% decrease in Corporate Finance (CF) revenues. The fourth quarter showed broad strength, with revenues up 17% to $520 million, reflecting growth across all segments: CF (+12%), FR (+29%), and Financial and Valuation Advisory (FVA) (+14%) Fiscal Year 2024 Revenue by Segment (vs. FY 2023) | Segment | FY 2024 Revenues | YoY Change | | :--- | :--- | :--- | | Corporate Finance | $1,106.8M | -2% | | Financial Restructuring | $522.0M | +32% | | Financial and Valuation Advisory | $285.6M | ~0% | | Total Revenues | $1,914.4M | +6% | Q4 Fiscal 2024 Revenue by Segment (vs. Q4 2023) | Segment | Q4 2024 Revenues | YoY Change | | :--- | :--- | :--- | | Corporate Finance | $287.6M | +12% | | Financial Restructuring | $155.4M | +29% | | Financial and Valuation Advisory | $77.5M | +14% | | Total Revenues | $520.5M | +17% | Expenses Analysis For fiscal year 2024, GAAP employee compensation expenses rose to $1.21 billion, maintaining a stable compensation ratio of 63.4%. Non-compensation expenses increased to $338 million, driven by higher rent and professional fees. The GAAP effective tax rate saw a significant rise to 28.2% from 21.5% in the prior year, mainly due to decreased stock compensation deductions and higher foreign taxes. Similar expense growth trends were observed in the fourth quarter Fiscal Year 2024 Expense Ratios (GAAP) | Expense Category | FY 2024 | FY 2023 | | :--- | :--- | :--- | | Employee compensation (% of Revenues) | 63.4% | 63.4% | | Non-compensation (% of Revenues) | 17.7% | 17.7% | | Provision for Income Taxes (% of Pre-Tax Income) | 28.2% | 21.5% | - The increase in FY2024 GAAP non-compensation expenses was primarily due to higher rent expense and professional fees[13] - The FY2024 effective tax rate increased mainly because of lower stock compensation deductions, higher taxes from foreign operations, and a non-recurring tax benefit in the prior year from a state audit closure[14] - In Q4 2024, GAAP non-compensation expenses increased primarily due to a rise in professional fees and travel, meals, and entertainment expenses[16] Segment Performance In the fourth quarter of fiscal 2024, Corporate Finance revenue increased to $288 million, driven by a higher average transaction fee despite fewer closed deals. Financial Restructuring revenue grew to $155 million, also due to larger average transaction fees. Financial and Valuation Advisory revenue rose to $77 million, benefiting from an increase in the number of fee events, which was attributed to improvements in the M&A markets Corporate Finance Performance - Q4 2024 vs Q4 2023 | Metric | Q4 2024 | Q4 2023 | | :--- | :--- | :--- | | Revenues | $287.6M | $256.4M | | of Closed transactions | 121 | 140 | Financial Restructuring Performance - Q4 2024 vs Q4 2023 | Metric | Q4 2024 | Q4 2023 | | :--- | :--- | :--- | | Revenues | $155.4M | $120.4M | | of Closed transactions | 35 | 38 | Financial and Valuation Advisory Performance - Q4 2024 vs Q4 2023 | Metric | Q4 2024 | Q4 2023 | | :--- | :--- | :--- | | Revenues | $77.5M | $68.0M | | of Fee Events | 1,025 | 957 | Shareholder Information Dividend Announcement The Board of Directors has approved an increased regular quarterly cash dividend of $0.57 per share for both Class A and Class B common stock. The dividend is scheduled to be paid on June 15, 2024, to shareholders of record as of the close of business on June 3, 2024 - A quarterly cash dividend of $0.57 per share was declared for Class A and Class B common stock[25] - The dividend is payable on June 15, 2024[25] - The record date for the dividend is the close of business on June 3, 2024[25] Appendix: Financial Statements Condensed Consolidated Balance Sheets As of March 31, 2024, Houlihan Lokey's total assets grew to $3.17 billion from $2.97 billion in the prior year, driven by increases in unbilled work in process and property/equipment. Total liabilities saw a slight decrease to $1.33 billion from $1.36 billion. Consequently, total stockholders' equity increased significantly to $1.84 billion from $1.61 billion year-over-year Balance Sheet Summary (as of March 31) | (In thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $721,235 | $714,439 | | Total assets | $3,170,759 | $2,968,814 | | Total liabilities | $1,334,009 | $1,355,517 | | Total stockholders' equity | $1,836,750 | $1,613,297 | Condensed Consolidated Statements of Income For the fiscal year ended March 31, 2024, the company generated $1.91 billion in revenues, an increase from $1.81 billion in the previous year. Operating income rose to $362.9 million from $341.7 million. Net income attributable to the company increased to $280.3 million, or $4.11 per diluted share, compared to $254.2 million, or $3.76 per diluted share, in fiscal 2023 Income Statement Summary (Year Ended March 31) | (In thousands, except per share data) | 2024 | 2023 | | :--- | :--- | :--- | | Revenues | $1,914,404 | $1,809,447 | | Operating income | $362,861 | $341,738 | | Net income | $280,301 | $254,223 | | Fully diluted EPS | $4.11 | $3.76 | Reconciliation of GAAP to Adjusted Financial Information The company provided a reconciliation from GAAP to non-GAAP (adjusted) results. For fiscal year 2024, GAAP net income of $280.3 million was adjusted to $310.4 million. Key adjustments included adding back $36.2 million in acquisition-related retention payments and $10.8 million in acquisition amortization, among other items, net of tax effects. This resulted in an adjusted diluted EPS of $4.49, compared to the GAAP diluted EPS of $4.11 FY 2024 GAAP to Adjusted Net Income Reconciliation | (In thousands) | Amount | | :--- | :--- | | Net income (GAAP) | $280,301 | | Plus: Adjustments (net of tax) | $30,122 | | Net income (adjusted) | $310,423 | FY 2024 GAAP to Adjusted Diluted EPS Reconciliation | Metric | Amount | | :--- | :--- | | Diluted EPS (GAAP) | $4.11 | | Diluted EPS (adjusted) | $4.49 | - Major pre-tax adjustments for fiscal year 2024 included $36.2 million for acquisition-related retention payments, $10.8 million for acquisition amortization, and a $10.4 million change in acquisition earnout liability fair value[36]