Business context and reporting period
Houlihan Lokey, Inc. provides corporate finance, financial restructuring, and financial and valuation advisory services. This Form 10-Q covers the three months ended June 30, 2023, the company’s fiscal 2024 first quarter (not calendar 2023 Q1). Comparisons are with the three months ended June 30, 2022 unless noted. Dollar amounts below are in millions, rounded.
Financial results and liquidity
- Revenue: $415.8, down 1%. Operating expenses were $342.5, broadly flat; operating income was $73.3, down 5%. Operating margin was approximately 17.6%, versus 18.5%.
- Profit: Pretax income was $76.4, up 1%; net income was $61.4, down 13%. Diluted EPS was $0.90, versus $1.03. The effective tax rate rose to 19.6% from 6.6%.
- Expenses and margins: Compensation expense was $263.5, down 1%; compensation ratio was 63.4%, versus 63.5%. Non-compensation expense rose 5% to $79.0, mainly from rent and travel.
- Cash flow: Operating cash flow was negative $133.6, compared with negative $278.0. Management attributed the outflow primarily to cash bonuses paid in May. Investing cash flow was negative $12.4, including property and equipment purchases; financing cash flow was negative $111.2, primarily dividends and employee tax-withholding payments. Cash and restricted cash decreased $258.3 during the quarter.
- Liquidity and debt: At June 30, cash and cash equivalents were $456.1 and investment securities were $33.9; combined unrestricted cash and investments were $490.0. No borrowings were outstanding under the $100 million revolving credit facility, which matures in August 2025. The company reported compliance with its debt covenants.
- Other balance-sheet items: Operating lease liabilities were $429.1; undiscounted lease payments totaled $589.0. Total assets were $2,706.8 and stockholders’ equity was $1,615.1 at June 30.
Material changes versus the prior comparable period
- Corporate Finance revenue fell 14% to $227.1, with segment profit down 33% to $61.6; management cited softness in M&A markets and fewer closed transactions.
- Financial Restructuring revenue rose 56% to $123.4 and segment profit rose 63% to $43.6, reflecting more completed transactions and favorable restructuring markets.
- Financial and Valuation Advisory revenue declined 14% to $65.4 and segment profit declined 22% to $14.9, primarily due to fewer fee events amid M&A market softness.
- Other income/expense shifted to net income of $3.0 from net expense of $1.7, primarily reflecting higher interest and dividend income. The higher tax rate reflected a prior-year benefit from closing a state tax audit that did not recur.
- Revenue mix shifted toward restructuring: CF and FVA declines largely offset FR growth. Net income declined despite slightly higher pretax income, primarily because of the higher tax provision.
Outlook, risks, and unusual items
The filing provides no specific revenue or earnings guidance. Management cautions that quarterly results are not necessarily indicative of full-year results. Results are exposed to transaction volumes and successful deal completions—particularly for success-fee-based CF and FR work—as well as market conditions, client collections, compensation costs, and foreign exchange movements. Cash receipts depend on transaction completions and collection timing.
The company reported no material changes to its previously disclosed risk factors or legal proceedings. Ordinary-course legal matters are not expected by management to have a material adverse effect; lease-related indemnities have no stated maximum exposure, and no liability was recorded. Goodwill and intangible asset reviews identified no impairment indicators requiring further testing at June 30. The company had five GBP forward contracts with $85.2 million aggregate notional value.
After quarter-end, the board declared a $0.55-per-share quarterly dividend, payable September 15, 2023. The quarter’s reported share withholding activity related to employee tax obligations; the company reported no open-market repurchases under its public program during the quarter.
Most important facts for investors to verify
- Whether M&A softness persists and whether restructuring activity sustains the recent revenue gains.
- Whether operating cash flow normalizes after the seasonal May bonus payments, and how quickly receivables and unbilled work are collected.
- Whether the higher effective tax rate continues; the prior-year comparison included a tax-audit-related benefit.
- Quarter-end liquidity, zero revolver borrowings, covenant compliance, and the scale of lease obligations.
- Dividend and share activity: the $0.55 dividend was declared after quarter-end, while reported share withholding is distinct from program repurchases.