Houlihan Lokey, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended March 31, 2023; comparisons are with fiscal 2022. Although the request metadata says “2022 Q4,” this filing reports the full fiscal year, not a standalone quarter.
Business context
Houlihan Lokey is a global independent investment bank providing Corporate Finance (M&A and capital markets), Financial Restructuring, and Financial and Valuation Advisory services. It reported 1,904 financial professionals and 37 offices at year-end. Revenue is substantially fee-based; many Corporate Finance and Restructuring fees depend on transactions closing, making results volatile.
Financial performance
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $1.809 billion | $2.270 billion | -20% |
| Operating income | $341.7 million | $612.9 million | -44% |
| Net income attributable to Houlihan Lokey | $254.2 million | $437.8 million | -42% |
| Diluted EPS | $3.76 | $6.41 | -41% |
| Operating margin | 18.9% | 27.0% | Down 8.1 percentage points |
| Net margin | 14.0% | 19.3% | Down 5.3 percentage points |
| Operating cash flow | $136.3 million | $736.6 million | Down substantially |
Corporate Finance revenue fell 29% to $1.127 billion, principally due to fewer closed transactions and lower average fees on those transactions. Restructuring revenue rose 1% to $395.7 million, while Financial and Valuation Advisory revenue rose 1% to $286.6 million. Segment profit declined 42% in Corporate Finance, increased 21% in Restructuring, and declined 8% in Advisory.
Employee compensation and benefits fell 19% to $1.148 billion, but the compensation ratio increased to 63% from 62%. Non-compensation expense rose 29% to $319.8 million, including increased travel and other operating costs. The effective tax rate decreased to 21.5% from 27.4%.
Liquidity, capital and balance sheet
- Year-end cash and cash equivalents were $714.4 million; investment securities were $37.3 million, for $751.7 million of unrestricted cash and investments, versus $942.8 million a year earlier.
- Operating cash flow of $136.3 million was affected by working-capital movements, including lower accrued salaries and bonuses and tax payments. Cash declined by $119.3 million over the year.
- No borrowings were outstanding under the $100 million revolving credit facility, which matures in August 2025; the company reported compliance with its covenants.
- Operating lease liabilities were $374.9 million. Other liabilities were $60.1 million; the filing also describes acquisition-related notes and contingent consideration.
- Accounts receivable, net, increased to $182.0 million from $144.0 million; unbilled work in progress increased to $115.0 million from $104.8 million.
- Cash dividends paid were $140.4 million. The board declared a subsequent quarterly dividend of $0.55 per share. The company repurchased $48.7 million of shares during FY2023 and had approximately $482.7 million remaining under its repurchase authorization.
Changes, outlook and material items
The main year-over-year deterioration was the contraction in Corporate Finance activity after the strong FY2022 comparison; FY2022 revenue had grown 49% over FY2021. Restructuring and Advisory revenues were comparatively stable. International revenue was $520.1 million, or about 29% of total revenue, versus $579.3 million in FY2022.
Management described client M&A discussions as measured but cited activity in the mid-cap market. Restructuring activity had moderately improved; management remained optimistic about the medium- and long-term outlook, citing high leverage, inflation, supply-chain issues, geopolitical events and tighter monetary policy. Management said it was too early to know whether the improvement would translate into revenue. The filing provides no numerical earnings or revenue guidance.
A $15 million accrual was recorded for a proposed SEC settlement concerning records preservation for business communications sent through unapproved messaging channels. The company stated its present intention to agree to a settlement including a $15 million civil penalty; definitive terms and Commission approval remained outstanding, and payment was expected in FY2024. The filing also identifies inflation, rising rates, market volatility, fee timing, talent retention, competition, international and currency exposure, cyber and operational risks, and client collections as significant risks. No material pending legal proceedings were identified as expected to materially affect the company, based on current knowledge and consultation with counsel.
KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Revenue recognition for uncollected Corporate Finance and Restructuring completion fees was identified as a critical audit matter. Goodwill and other intangible assets totaled approximately $1.29 billion; management reported no impairment indicated by its FY2023 review.
Most important facts for investors to verify
- Whether Corporate Finance transaction volumes and fees recover, and whether Restructuring activity produces sustained revenue.
- Cash-flow conversion and working-capital trends, especially receivables, unbilled work and bonus-payment timing.
- Final SEC settlement terms, approval and payment timing relative to the $15 million accrual.
- Progress in controlling non-compensation and corporate costs as revenue fluctuates.
- Potential effects of market conditions, foreign exchange, talent retention and the large goodwill and intangible-asset balance.
- The implications of the HL Voting Trust’s approximately 79.1% voting control and the company’s controlled-company governance status.