UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Amendment No. 1)
CURRENT REPORT
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Explanatory Note
| Item 2.02. | Results of Operations and Financial Condition. |
On May 9, 2023, the Company announced financial results for the fiscal year and fourth fiscal quarter ended March 31, 2023 (the “Previously Released Financial Results”). Subsequent to issuing the Original Earnings Release, staff of the SEC’s Division of Enforcement proposed a potential settlement with the Company to resolve an investigation of the Company’s compliance with records preservation requirements related to business communications sent over off-channel electronic messaging platforms. The SEC has conducted similar investigations of other financial institutions as part of a widely publicized industry sweep that has already included publicly announced settlements with 14 firms to date, with civil penalties ranging from $7.5 million to $125 million each, and aggregating over $1.2 billion. The Company has notified the SEC’s Division of Enforcement of its present intention to agree to a settlement to resolve the investigation that includes a $15 million civil penalty. The potential settlement is subject to the negotiation of definitive documentation, which is expected to include terms consistent with previously announced settlements between other firms and the SEC, and any formal offer, proposed civil penalty, and additional terms submitted by the Company would be subject to approval by the Commission. As a result of the foregoing, while finalizing its financial statements for inclusion in its Annual Report on Form 10-K for the fiscal year ended March 31, 2023, the Company determined that it should recognize a $15 million accrual in other (income)/expense, net for the fourth fiscal quarter and fiscal year ended March 31, 2023 relating to the anticipated settlement with the SEC.
The effect of the accrual reduced net income, as originally reported on May 9, 2023, of $75 million and $269 million to $60 million and $254 million for the fourth fiscal quarter and fiscal year ended March 31, 2023, respectively, and reduced earnings per fully diluted share as originally reported of $1.10 and $3.98 to $0.88 and $3.76 for the fourth fiscal quarter and fiscal year ended March 31, 2023, respectively, in each case as calculated in accordance with generally accepted accounting principles in the U.S. (“GAAP”).
The accrual had no impact on the amounts of revenue, as reported in the Previously Released Financial Results. The full amount of the $15 million accrual recorded in other (income)/expense, net has been added back to adjusted earnings per fully diluted share such that the amounts of adjusted earnings per fully diluted share of $1.11 and $4.54 for the fourth fiscal quarter and fiscal year ended March 31, 2023, respectively, included in the Previously Released Financial Results remain unchanged.
On May 25, 2023, the Company provided a press release (the “Earnings Release Update”) with respect to its Previously Released Financial Results for the fiscal year and fourth fiscal quarter ended March 31, 2023 included in the Original Earnings Release. The Earnings Release Update reflects the revisions described above to the Company’s financial information for the fiscal year and fourth fiscal quarter ended March 31, 2023 and is furnished as Exhibit 99.1 and incorporated by reference herein.
The Unaudited Condensed Consolidated Balance Sheets and Unaudited Condensed Consolidated Statements of Income included within the Original Earnings Release have been updated to reflect the changes to the Company’s financial information for the fourth fiscal quarter and fiscal year ended March 31, 2023 as a result of the accrual, and is attached as Exhibit 99.2, and incorporated by reference herein.
Adjusted earnings per fully diluted share, and certain adjusted items used to determine adjusted earnings per fully diluted share, are presented and discussed in this Current Report on Form 8-K and are non-GAAP measures that management believes, when presented together with comparable GAAP measures, are useful to investors in understanding the Company’s operating results. These adjusted items remove the significant accounting impact of non-recurring charges associated with the Company’s non-recurring matters, as set forth in the tables at the end of this Current Report on Form 8-K.
The adjusted items included in this Current Report on Form 8-K as calculated by the Company are not necessarily comparable to similarly titled measures reported by other companies. Additionally, these adjusted amounts are not a measurement of financial performance or liquidity under GAAP and should not be considered as an alternative to the Company’s financial information determined under GAAP. For a description of the Company’s use of these adjusted items and a reconciliation with comparable GAAP items, see the section of this Current Report on Form 8-K titled “Reconciliation of GAAP to Adjusted Financial Information.” Please refer to our financial statements, prepared in accordance with GAAP, for purposes of evaluating our financial condition, results of operations, and cash flows.
HOULIHAN LOKEY, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED FINANCIAL INFORMATION
(UNAUDITED)
| Three Months Ended March 31, | Year Ended March 31, | |||||||||||||||
| (In thousands, except share and per share data) |
2023 | 2022 | 2023 | 2022 | ||||||||||||
| Revenues |
$ | 444,767 | $ | 471,166 | $ | 1,809,447 | $ | 2,269,958 | ||||||||
| Employee compensation and benefits expenses |
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| Employee compensation and benefits expenses (GAAP) |
$ | 282,937 | $ | 293,580 | $ | 1,147,879 | $ | 1,408,634 | ||||||||
| Less: Acquisition related retention payments |
(9,407 | ) | (3,812 | ) | (35,070 | ) | (12,609 | ) | ||||||||
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| Employee compensation and benefits expenses (adjusted) |
273,530 | 289,768 | 1,112,809 | 1,396,025 | ||||||||||||
| Non-compensation expenses |
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| Non-compensation expenses (GAAP) |
$ | 71,206 | $ | 78,977 | $ | 319,830 | $ | 248,460 | ||||||||
| Less: Integration and acquisition related costs |
— | (3,793 | ) | (2,325 | ) | (21,598 | ) | |||||||||
| Less: Acquisition amortization |
(3,215 | ) | (15,807 | ) | (44,971 | ) | (33,937 | ) | ||||||||
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| Non-compensation expenses (adjusted) |
67,991 | 59,377 | 272,534 | 192,925 | ||||||||||||
| Operating income |
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| Operating income (GAAP) |
$ | 90,624 | $ | 98,609 | $ | 341,738 | $ | 612,864 | ||||||||
| Plus: Adjustments (1) |
12,622 | 23,412 | 82,366 | 68,144 | ||||||||||||
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| Operating income (adjusted) |
103,246 | 122,021 | 424,104 | 681,008 | ||||||||||||
| Other (income)/expense, net |
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| Other (income)/expense, net (GAAP) |
$ | 10,322 | $ | 7,921 | $ | 17,738 | $ | 8,926 | ||||||||
| Less: Warrant revaluation |
— | — | (2,264 | ) | — | |||||||||||
| Less: SPAC wind-down write-off |
— | — | (2,742 | ) | — | |||||||||||
| Plus/(less): Change in acquisition earnout liability fair value |
738 | (7,613 | ) | (2,103 | ) | (7,613 | ) | |||||||||
| Less: Accrual of proposed civil penalty |
(15,000 | ) | — | (15,000 | ) | — | ||||||||||
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| Other (income)/expense, net (adjusted) |
(3,940 | ) | 308 | (4,371 | ) | 1,313 | ||||||||||
| Provision for income taxes |
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| Provision for income taxes (GAAP) |
$ | 20,642 | $ | 25,515 | $ | 69,777 | $ | 165,614 | ||||||||
| Plus: Impact of the excess tax benefit for stock vesting |
— | — | 8,102 | 6,922 | ||||||||||||
| Plus: Release of the provision for an uncertain tax position as a result of the successful closure of a state audit |
— | — | 5,762 | — | ||||||||||||
| Plus: Release of valuation allowance |
5,881 | — | 5,881 | — | ||||||||||||
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| Adjusted provision for income taxes |
26,523 | 25,515 | 89,522 | 172,536 | ||||||||||||
| Plus: Resulting tax impact (2) |
3,441 | 8,496 | 23,628 | 21,644 | ||||||||||||
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| Provision for income taxes (adjusted) |
29,964 | 34,011 | 113,150 | 194,180 | ||||||||||||
| Net income |
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| Net income (GAAP) |
$ | 59,660 | $ | 65,173 | $ | 254,223 | $ | 438,324 | ||||||||
| Plus: Adjustments (3) |
17,562 | 22,529 | 61,102 | 47,191 | ||||||||||||
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| Net income (adjusted) |
77,222 | 87,702 | 315,325 | 485,515 | ||||||||||||
| Net income attributable to noncontrolling interest |
— | — | — | (573 | ) | |||||||||||
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| Net income attributable to Houlihan Lokey, Inc. (GAAP) |
59,660 | 65,173 | 254,223 | 437,751 | ||||||||||||
| Net income attributable to Houlihan Lokey, Inc. (adjusted) |
77,222 | 87,702 | 315,325 | 484,942 | ||||||||||||
| Fully diluted shares outstanding |
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| Fully diluted shares outstanding (GAAP) |
68,107,465 | 67,461,779 | 67,586,263 | 68,259,708 | ||||||||||||
| Plus: Impact of unvested GCA retention and deferred share awards |
1,591,157 | — | 1,927,786 | — | ||||||||||||
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| Fully diluted shares outstanding (adjusted) |
69,698,622 | 67,461,779 | 69,514,049 | 68,259,708 | ||||||||||||
| Diluted EPS attributable to Houlihan Lokey, Inc. (GAAP) |
$ | 0.88 | $ | 0.97 | $ | 3.76 | $ | 6.41 | ||||||||
| Diluted EPS attributable to Houlihan Lokey, Inc. (adjusted) |
$ | 1.11 | $ | 1.30 | $ | 4.54 | $ | 7.10 | ||||||||
| (1) | The aggregate of adjustments from employee compensation and benefits and non-compensation expenses. |
| (2) | Reflects the tax impact of utilizing the adjusted effective tax rate on the non-tax adjustments identified above. |
| (3) | Consists of all adjustments identified above net of the associated tax impact. |
The information in Item 2.02 of this Current Report on Form 8-K, including the information contained in Exhibits 99.1 and 99.2, is being furnished to the Securities and Exchange Commission pursuant to Item 2.02, and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by a specific reference in such filing.
| Item 9.01. | Financial Statements and Exhibits. |
| Exhibit Number |
Description of Exhibit | |
| 99.1 | Press Release, dated May 25, 2023 | |
| 99.2 | Updated Unaudited Condensed Consolidated Balance Sheets and Unaudited Condensed Consolidated Statements of Income for the Fourth Quarter and Fiscal Year Ended March 31, 2023 | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Houlihan Lokey, Inc. | ||||||
| Date: May 25, 2023 | ||||||
| By: | /s/ J. Lindsey Alley | |||||
| Name: | J. Lindsey Alley | |||||
| Position: | Chief Financial Officer | |||||