Houlihan Lokey, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2023 (the company’s fiscal second quarter and first half of fiscal 2024). Comparisons are with the corresponding 2022 periods. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions where indicated.
Business context
Houlihan Lokey provides financial advice through Corporate Finance (CF), Financial Restructuring (FR), and Financial and Valuation Advisory (FVA). CF revenue is largely contingent on completed transactions; FR also earns completion fees, while much of FVA is less transaction-dependent.
Financial performance
| Metric | Three months ended Sep. 30, 2023 | Year-over-year | Six months ended Sep. 30, 2023 | Year-over-year |
|---|---|---|---|---|
| Revenue | $467.0 million | Down 5% | $882.8 million | Down 3% |
| Operating income | $90.3 million | Up 1% | $163.6 million | Down 2% |
| Net income | $67.0 million | Up 10% | $128.4 million | Down 2% |
| Diluted EPS | $0.99 | Up from $0.87 | $1.89 | Down from $1.90 |
| Operating margin | 19.3% | Up from 18.3% | 18.5% | About flat versus 18.4% |
| Effective tax rate | 28.4% | Up from 27.9% | 24.4% | Up from 17.9% |
Quarterly revenue fell as CF and FVA declined, partly offset by FR growth. Segment revenue was CF $281.7 million (down 11%), FR $114.7 million (up 17%), and FVA $70.6 million (down 8%). For the six-month period, CF revenue declined 12% amid softer M&A markets and fewer closed transactions; FR rose 35% on favorable restructuring conditions; and FVA declined 11%, reflecting fewer fee events and M&A softness.
Quarterly operating expenses decreased 6% to $376.7 million; compensation expense fell 4%, while non-compensation expense fell 11%, including lower depreciation and amortization. The quarterly compensation ratio was 63.5%, compared with 63.3%. For six months, the ratio was 63.4% in both years. Quarterly other income/expense improved to $3.3 million of net income, primarily from gains associated with earnout liability settlements; six-month other income was $6.3 million, also benefiting from higher investment income and securities gains. The higher six-month tax rate reflected that a state audit-related uncertain-tax-position release recorded in 2022 did not recur.
Cash flow, balance sheet and capital
- Cash and liquidity: Cash and cash equivalents were $493.9 million at September 30, 2023, down from $714.4 million at March 31, 2023. Including investment securities, unrestricted cash and investments totaled $525.1 million. Cash, cash equivalents and restricted cash decreased $220.5 million over the six months.
- Cash flow: Operating cash flow was positive $2.3 million, compared with negative $192.9 million in the prior-year half. Investing cash outflow was $33.0 million, primarily for property and equipment; financing cash outflow was $178.8 million, primarily dividends and employee tax payments on share-based awards.
- Debt: No borrowings were outstanding under the $100 million revolving credit facility, which matures in August 2025. The company reported compliance with its financial covenants and expects continued compliance. No material conventional debt balance is reported in the supplied filing text.
- Other balance-sheet changes: Total assets were $2.78 billion and total liabilities $1.14 billion at September 30. Operating lease liabilities were $419.4 million. Accounts receivable was $152.2 million and unbilled work in progress $133.8 million, both net of credit-loss allowances.
- Shareholder returns: The company paid $77.4 million in dividends and repurchased $25.0 million of Class A shares during the six months. A quarterly dividend of $0.55 per share was declared October 24, payable December 15, 2023.
Outlook, risks and notable items
The filing provides no specific revenue, earnings, or other quantitative guidance. Management notes results are not necessarily indicative of the full fiscal year. CF completion-fee revenue depends on transactions closing, which can be affected by market conditions and factors outside the company’s control; management cited M&A softness. Restructuring activity benefited from favorable market conditions in the period, but may vary with the environment. Liquidity also depends on client receipts and collection timing. Foreign-currency movements affect reported results and other comprehensive income; the company had foreign-exchange forward contracts outstanding at quarter-end.
The company paid a $15.0 million SEC civil penalty in August 2023 under a settlement concerning records preservation for business communications on off-channel messaging platforms. It admitted the SEC’s factual findings, agreed to a cease-and-desist order, and undertook compliance measures including retaining an independent compliance consultant. The penalty had been accrued in the prior fiscal year. Management says ordinary-course legal matters are not expected to have a material adverse effect; no material changes to previously disclosed risk factors were reported. Disclosure controls were assessed as effective at the reasonable-assurance level, with no material change in internal control over financial reporting reported.
Important facts for investors to verify
- Whether CF transaction activity and FVA fee events recover, and whether FR demand remains supportive.
- Trends in receivables, unbilled work in progress, collections, and operating cash conversion given transaction-dependent fees and seasonal bonus payments.
- Effects of the SEC settlement undertakings and related compliance costs, beyond the penalty already paid.
- Future lease commitments and the company’s ability to sustain dividends and repurchases while cash balances decline.
- Tax-rate movements, currency exposure, and any changes in credit-loss allowances or contingent acquisition liabilities.