Houlihan Lokey, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended March 31, 2022. Although the request metadata references 2021 Q4, this filing is an annual report, not a standalone quarterly filing; figures below are for the full fiscal year unless noted.
Business context
Houlihan Lokey is a global independent investment bank operating in Corporate Finance (CF), Financial Restructuring (FR), and Financial and Valuation Advisory (FVA). It reported 1,686 financial professionals across 35 offices at year-end. Revenue is primarily advisory fees, with a substantial portion of CF and FR fees contingent on transaction completion.
Financial results and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $2.270 billion | $1.525 billion | +49% |
| Operating income | $612.9 million | $408.2 million | +50% |
| Operating margin | 27.0% | 26.8% | +0.2 percentage points |
| Net income attributable to Houlihan Lokey | $437.8 million | $312.8 million | +40% |
| Diluted EPS | $6.41 | $4.55 | +41% |
| Operating cash flow | $736.6 million | $579.8 million | +27% |
The effective tax rate rose to 27.4% from 23.6%, primarily reflecting higher state and foreign taxes and lower stock-compensation deductions. Compensation expense was $1.409 billion, or 62% of revenue, versus 64% in FY2021. Non-compensation expense increased 70% to $248.5 million, including GCA-related costs and acquired-intangible amortization.
At March 31, 2022, cash and cash equivalents were $833.7 million and investment securities were $109.1 million, totaling $942.8 million of unrestricted cash and securities. The company had no borrowings under its $100 million revolving credit line; it reported $0.5 million in loans payable to former shareholders and $74.9 million in other liabilities. Operating lease liabilities were $197.1 million, with approximately $202 million of additional office leases signed but not yet commenced. Accounts receivable were $144.0 million and unbilled work in progress was $104.8 million.
Investing cash outflow was $273.9 million, mainly reflecting the GCA acquisition; financing cash outflow was $459.1 million, primarily due to share repurchases. The company paid $114.8 million in dividends and repurchased $304.8 million of shares during FY2022. A quarterly dividend of $0.53 per share was declared after year-end.
Changes versus FY2021
- CF revenue rose 98% to $1.593 billion, reflecting GCA consolidation, more closed transactions, and higher average transaction fees.
- FR revenue declined 27% to $392.8 million as closed transactions fell; segment profit decreased 55% to $100.9 million.
- FVA revenue increased 51% to $284.1 million, with segment profit up 89% to $88.1 million.
- GCA, acquired in October/November 2021 for approximately $589.6 million in cash, contributed $261.2 million of revenue and $100.2 million of net income from acquisition through fiscal year-end. Goodwill increased to $1.070 billion; goodwill and other intangible assets totaled $1.318 billion.
- Net income growth lagged revenue growth, while operating margin edged higher. Other expense was $8.9 million versus $1.1 million of other income in FY2021, primarily due to an acquisition-related earnout fair-value loss.
Outlook, risks, and unusual items
Management provided no numeric earnings or revenue guidance. It described M&A and capital-markets activity as generally supportive, while citing inflation and the war in Ukraine as sources of uncertainty. Restructuring activity had moderately improved; management remained optimistic about the medium- and long-term outlook, citing leverage, inflation, supply-chain issues, geopolitical events, and tighter monetary policy.
Key risks include volatile, transaction-dependent fees; changing economic and market conditions; retention and recruitment of senior professionals; competition; acquisition integration and execution; foreign exchange exposure; regulation, litigation, conflicts, and cybersecurity. COVID-19 had not materially adversely affected FY2022, but future effects were described as uncertain. Foreign currency movements reduced cash by $16.8 million and reduced other comprehensive income by $23.2 million during FY2022.
The company said it was in compliance with revolving-credit covenants and did not expect ordinary-course legal matters to have a material adverse effect, although the amounts or outcomes of some proceedings could not be estimated. Goodwill impairment was not indicated by management’s FY2022 assessment. KPMG issued unqualified opinions on the financial statements and internal control; GCA’s controls, representing 12% of revenue and 6% of assets, were excluded from the control assessment during the permitted post-acquisition period.
Additional investor considerations include the HL Voting Trust’s control of approximately 78.9% of voting power, reliance on certain controlled-company governance exemptions, and the board’s April 2022 authorization of a share-repurchase program of up to $500 million. The $100 million credit facility was due to mature in August 2022, shortly after the filing date.
Important facts to verify
- Confirm the full-year fiscal period and distinguish reported FY2022 results from any standalone Q4 figures.
- Assess how much of revenue and earnings growth was organic versus attributable to GCA, and review the acquisition’s integration, purchase-price allocation, and intangible-asset assumptions.
- Track CF and FR transaction activity, fee timing, and the potential for lower completion fees or further FR declines.
- Review cash conversion and working-capital movements, including accrued bonuses, receivables, and unbilled work in progress.
- Check the status and terms of the revolving credit facility after its August 2022 maturity, as well as future lease commitments and repurchase/dividend capital allocation.
- Monitor the effective tax rate, uncertain tax positions and audits, foreign exchange exposure, goodwill impairment assumptions, and the GCA control-integration process.