Houlihan Lokey, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended September 30, 2021 (fiscal 2022); filed November 5, 2021. The filing covers the company’s advisory businesses: Corporate Finance (CF), Financial Restructuring (FR), and Financial and Valuation Advisory (FVA).
Financial performance
| Metric | Three months ended Sep. 30, 2021 | Year-over-year change | Six months ended Sep. 30, 2021 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $537.3 million | +95% | $910.0 million | +87% |
| Operating income | $157.3 million | +135% | $265.0 million | +142% |
| Operating margin | 29.3% | 24.3% prior year | 29.1% | 22.5% prior year |
| Net income | $112.9 million | +131% | $198.8 million | +110% |
| Diluted EPS | $1.65 | $0.70 prior year | $2.90 | $1.39 prior year |
| Effective tax rate | 27.9% | 27.3% prior year | 24.7% | 14.4% prior year |
For the quarter, CF revenue rose 259% to $388.4 million and FVA rose 55% to $65.7 million; FR fell 34% to $83.2 million. For the six months, CF increased 205% to $598.4 million, FVA increased 69% to $129.6 million, and FR decreased 15% to $182.0 million. Management attributed CF growth mainly to more closed transactions and higher average transaction fees; lower FR revenue reflected fewer closed transactions.
Employee compensation and benefits were $333.4 million for the quarter and $565.7 million for the half-year. The compensation ratio improved to 62.0% and 62.2%, respectively, from 64.3% and 64.6%. Non-compensation expenses increased 47% for the quarter and 26% for the half-year, with higher other operating costs and, to a lesser extent, travel and professional fees among the cited drivers.
Cash flow, balance sheet, and liquidity
- Six-month operating cash flow was $120.1 million, versus an outflow of $1.3 million a year earlier. Investing cash flow was $164.8 million, principally reflecting net sales and maturities of investment securities; financing cash flow was an outflow of $207.5 million, mainly from repurchases, dividends, and employee share-award tax settlements.
- Cash and cash equivalents were $923.0 million at September 30, 2021; investment securities were $40.4 million. Unrestricted cash and securities totaled $963.4 million, down from $1,055.5 million at March 31, 2021. Receivables were $127.3 million and unbilled work in progress was $115.7 million, both net of credit-loss allowances.
- Total liabilities were $919.1 million and stockholders’ equity was $1,437.7 million. The company had no borrowings under its $100 million revolving credit facility; it reported compliance with its covenants. Operating lease liabilities were $164.2 million.
- The six-month provision for credit losses was $5.6 million; the ending allowance for credit losses was $14.5 million. The filing notes that cash receipts depend substantially on successful transaction completions and receivables are typically collected within 60 days of billing.
Material changes, outlook, and risks
- Performance was markedly stronger than the comparable 2020 periods, led by CF and supported by FVA, while FR declined. Higher revenue drove higher compensation expense, but compensation ratios and operating margins improved.
- The filing provides no specific revenue, earnings, or other forward guidance. Management cautions that interim results are not necessarily indicative of full-year results and that forward-looking statements are subject to risks and uncertainty.
- After quarter-end, Houlihan Lokey acquired approximately 90% of GCA Corporation on October 4 and completed the second-step transaction for remaining shares on November 5. The all-cash transaction was valued at approximately $601.0 million and financed with cash on hand. Purchase accounting remained incomplete, and the filing did not provide pro forma revenue or earnings or full acquisition-date asset and liability disclosures.
- The board increased the share repurchase authorization in July 2021 to $250 million. The company repurchased approximately 1.43 million Class A shares for $112.9 million during the six months. A quarterly dividend of $0.43 per share was declared after quarter-end, payable December 15, 2021.
- Key exposures include completion-dependent advisory fees, variability in transaction activity, foreign-currency movements, and collectibility of receivables. The company reported a foreign-currency forward contract with a €1.7 million notional balance. Management said ordinary-course legal matters were not expected to materially affect financial condition or results; it reported no material changes to previously disclosed risk factors or contractual obligations.
Important facts for investors to verify
- Whether unusually strong CF deal activity and completion fees are sustainable, and how lower FR activity develops.
- GCA’s final purchase accounting, acquired financial results and liabilities, integration costs, and effect on liquidity after the cash-funded acquisition.
- Receivables, unbilled work in progress, credit-loss allowances, and operating cash conversion as transaction volumes and compensation payments fluctuate.
- The ongoing effects of compensation, share-based awards, repurchases, and dilution on margins and per-share results.
- Future tax rates and foreign-currency effects; the six-month effective tax rate rose to 24.7% from 14.4%.