Houlihan Lokey Reports Fiscal Year and Fourth Quarter Fiscal 2018 Financial Results

LOS ANGELES & NEW YORK--(BUSINESS WIRE)--Houlihan Lokey, Inc. (NYSE:HLI) (“Houlihan Lokey”, or the “Company”) today reported financial results for its fiscal year and fourth quarter ended March 31, 2018. For the fiscal year, total revenue grew 10% to a fiscal year record of $963 million, compared with $872 million for the fiscal year ended March 31, 2017. For the fourth quarter ended March 31, 2018, total revenue decreased 5% to $245 million, compared with $257 million for the fourth quarter ended March 31, 2017.

Net income grew 59% to $172 million, or $2.60 per diluted share, for the fiscal year ended March 31, 2018, compared with $108 million, or $1.63 per diluted share, for the fiscal year ended March 31, 2017. Adjusted net income for the fiscal year ended March 31, 2018 grew 26% to $159 million, or $2.39 per diluted share, compared with $126 million, or $1.89 per diluted share, for the fiscal year ended March 31, 2017.

Net income grew 12% to $38 million, or $0.58 per diluted share, for the fourth quarter ended March 31, 2018, compared with $34 million, or $0.51 per diluted share, for the fourth quarter ended March 31, 2017. Adjusted net income for the fourth quarter ended March 31, 2018 grew 9% to $43 million, or $0.65 per diluted share, compared with $39 million, or $0.59 per diluted share, for the fourth quarter ended March 31, 2017.

"We are pleased to report another record fiscal year at Houlihan Lokey resulting in our 6th consecutive year of revenue growth. All three business segments performed well, and we enter our fiscal year 2019 with strong momentum in our business. We promoted nine Directors to MD and hired 20 new MDs in fiscal 2018 which adds considerable talent to our senior banking staff and positions us well for continued growth. Also, last month, we completed the acquisition of Quayle Munro. Our management team is thankful to our employees who helped us achieve record results, and our investors who supported us throughout the year,” stated Scott Beiser, Chief Executive Officer of Houlihan Lokey.

Revenues

For the fiscal year ended March 31, 2018, total fee revenue grew 10% to $963 million from $872 million for the fiscal year ended March 31, 2017. For the fiscal year, Corporate Finance (“CF”) revenues increased 22%, Financial Restructuring (“FR”) revenues decreased 4%, and Financial Advisory Services (“FAS”) revenues increased 8% when compared with the fiscal year ended March 31, 2017.

For the fourth quarter ended March 31, 2018, total fee revenue decreased 5% to $245 million from $257 million for the fourth quarter ended March 31, 2017. For the quarter, CF revenues increased 13%, FR revenues decreased 25%, and FAS revenues decreased 1% when compared with the fourth quarter ended March 31, 2017.

Expenses

The Company’s employee compensation and benefits and non-compensation expenses during the periods presented and described below are on a GAAP, an adjusted, and an adjusted awarded basis, as appropriate.

Note: Figures may not sum due to rounding.

*Note: The adjusted and adjusted awarded figures represent non-GAAP information. See “Non-GAAP Financial Measures” and the tables at the end of this release for an explanation of the adjustments and reconciliations to the comparable GAAP numbers.

Total operating expenses were $749 million for the fiscal year ended March 31, 2018, an increase of 9% when compared with $690 million in operating expenses for the fiscal year ended March 31, 2017. Employee compensation and benefits expenses were $637 million for the fiscal year ended March 31, 2018, compared with $582 million for the fiscal year ended March 31, 2017. The increase in employee compensation and benefits expenses was primarily a result of the growth in revenues for the fiscal year.

Total adjusted operating expenses were $721 million for the fiscal year ended March 31, 2018, an increase of 9% when compared with $662 million in adjusted operating expenses for the fiscal year ended March 31, 2017. Adjusted employee compensation and benefits expenses were $612 million for the fiscal year ended March 31, 2018, compared with $556 million for the fiscal year ended March 31, 2017. The increase in adjusted employee compensation and benefits expenses was primarily a result of the growth in revenues for the fiscal year. This resulted in an adjusted compensation ratio of 63.5% for the fiscal year ended March 31, 2018, versus 63.8% for the fiscal year ended March 31, 2017.

Non-compensation expenses were $112 million for the fiscal year ended March 31, 2018, compared with $108 million for the fiscal year ended March 31, 2017. Non-compensation expenses increased primarily as a result of higher general operating expenses during the fiscal year ended March 31, 2018. Adjusted non-compensation expenses were $109 million for the fiscal year ended March 31, 2018, compared with $106 million for the fiscal year ended March 31, 2017. The increase in adjusted non-compensation expenses was primarily a result of higher general operating expenses during the fiscal year ended March 31, 2018.

The provision/(benefit) for income taxes was $46 million, representing an effective tax rate of 21% for the fiscal year ended March 31, 2018, compared with $70 million, representing an effective tax rate of 39% for the fiscal year ended March 31, 2017. The significant decrease in the effective tax rate was a result of (i) the Tax Cuts and Jobs Acts (the "Tax Act") that was enacted into law in December 2017 that resulted in a lower effective federal tax rate; the re-measurement of deferred tax assets and liabilities based on the new tax rate; a one-time deemed repatriation tax on foreign earnings, among other discrete items and (ii) the positive difference between the price of the stock at the time of vesting in October 2017 (accelerated from April/May 2018) and our stock price at the time of grant for the shares that vested. The adjusted provision for income taxes was $85 million, representing an adjusted effective tax rate of 35% for the fiscal year ended March 31, 2018, compared with $81 million, representing an adjusted effective tax rate of 39% for the fiscal year ended March 31, 2017. The decrease in the adjusted effective tax rate was a result of a lower statutory federal tax rate per the Tax Act.

Total operating expenses were $185 million for the fourth quarter ended March 31, 2018, a decrease of 7% when compared with $200 million in operating expenses for the fourth quarter ended March 31, 2017. Employee compensation and benefits expenses were $156 million for the fourth quarter ended March 31, 2018, compared with $171 million for the fourth quarter ended March 31, 2017. The decrease in employee compensation and benefits expenses was primarily a result of (i) the decline in revenues and (ii) a lower compensation ratio in the fourth quarter ended March 31, 2018 compared with the same period last year.

Total adjusted operating expenses were $181 million for the fourth quarter ended March 31, 2018, a decrease of 5% when compared with $191 million in adjusted operating expenses for the fourth quarter ended March 31, 2017. Adjusted employee compensation and benefits expenses were $153 million for the fourth quarter ended March 31, 2018, compared with $164 million for the fourth quarter ended March 31, 2017. The decrease in adjusted employee compensation and benefits expenses was primarily a result of the decline in revenues for the quarter. This resulted in an adjusted compensation ratio of 62.6% for the fourth quarter ended March 31, 2018, versus 63.7% for the fourth quarter ended March 31, 2017.

Non-compensation expenses were $29 million for both the fourth quarter ended March 31, 2018 and March 31, 2017. Non-compensation expenses remained flat primarily due to increases in general operating expenses that were offset by a decline in costs related to the Company's completed secondary stock offerings quarter-over-quarter. Adjusted non-compensation expenses were $28 million for the fourth quarter ended March 31, 2018 and $27 million for the fourth quarter ended March 31, 2017. The slight increase in adjusted non-compensation expenses was primarily a result of higher general operating expenses during the fiscal year ended March 31, 2018.

The provision/(benefit) for income taxes was $23 million, representing an effective tax rate of 37% for the fourth quarter ended March 31, 2018, compared with $22 million, representing an effective tax rate of 40% for the fourth quarter ended March 31, 2017. The adjusted provision for income taxes was $22 million, representing an adjusted effective tax rate of 34% for the fourth quarter ended March 31, 2018, compared with $26 million, representing an adjusted effective tax rate of 40% for the fourth quarter ended March 31, 2017. The decrease in the adjusted effective tax rate was a result of a lower statutory federal tax rate per the Tax Act.

Segment Reporting for the Fourth Quarter

For the fourth quarter ended March 31, 2018, Corporate Finance revenue grew 13% to $130 million, compared with $115 million during the fourth quarter ended March 31, 2017. The growth in revenues was driven by an increase in the average transaction fee per closed transaction offset by a decline in the number of closed transactions. CF closed 56 transactions in the fourth quarter ended March 31, 2018, versus 62 transactions in the fourth quarter ended March 31, 2017. Segment profit equaled $48 million for the fourth quarter ended March 31, 2018, compared with $28 million for the fourth quarter ended March 31, 2017. Segment profitability increased primarily as a result of lower employee compensation and benefits as a percentage of revenues when compared to the same quarter of the prior year.

For the fourth quarter ended March 31, 2018, Financial Restructuring revenue decreased 25% to $78 million, compared with $104 million during the fourth quarter ended March 31, 2017. FR closed 26 transactions in the fourth quarter ended March 31, 2018, versus 30 transactions in the fourth quarter ended March 31, 2017. Segment profit was $22 million for the fourth quarter ended March 31, 2018, compared with $37 million for the fourth quarter ended March 31, 2017, a decrease of 40%. The decrease in profitability was primarily a result of higher employee compensation and benefits expenses and higher non-compensation expenses as a percentage of revenues when compared to the same quarter last year.

(Unaudited and $ in thousands)

For the fourth quarter ended March 31, 2018, Financial Advisory Services revenue decreased 1% to $37 million, compared with $38 million in the fourth quarter ended March 31, 2017. Segment profit was $6 million for the fourth quarter ended March 31, 2018, compared with $7 million for the fourth quarter ended March 31, 2017. Segment profitability decreased primarily as a result of higher non-compensation expenses when compared to the same quarter last year.

(Unaudited and $ in thousands)

Balance Sheet and Capital Allocation

The Board of Directors of the Company declared a regular quarterly cash dividend of $0.27 per share of Class A and Class B common stock. The dividend will be payable on June 15, 2018 to stockholders of record as of the close of business on June 4, 2018.

As of March 31, 2018, the Company had $416 million of cash and cash equivalents and investment securities, and loans payable aggregating $12 million.

Investor Conference Call and Webcast

The Company will host a conference call and live webcast at 5:00 p.m. Eastern Time on Wednesday, May 9, 2018, to discuss its fourth quarter fiscal year 2018 results. The number to call is 1-888-394-8218 (domestic) or 1-323-701-0225 (international). A live webcast will be available in the Investor Relations section of the Company’s website. A replay of the conference call will be available on May 9, 2018 through May 16, 2018, by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the passcode 5061549#. A replay of the webcast will be archived and available on the Company’s website.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws. You can identify these statements by our use of the words “assumes,” “believes,” “estimates,” “expects,” “guidance,” “intends,” “plans,” “projects,” and similar expressions that do not relate to historical matters. You should exercise caution in interpreting and relying on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors which are, in some cases, beyond the Company’s control and could materially affect actual results, performance, or achievements. For a further description of such factors, you should read the Company’s filings with the Securities and Exchange Commission. The Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

Non-GAAP Financial Measures

Adjusted net income, total and on a per share basis, and adjusted operating expenses are presented and discussed in this earnings press release 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. Adjusted net income and adjusted operating expenses remove the significant accounting impact of one-time charges associated with the Company’s IPO and other matters, as set forth in the tables at the end of this release.

Adjusted net income and adjusted operating expenses as calculated by the Company are not necessarily comparable to similarly titled measures reported by other companies. Additionally, adjusted net income is 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 adjusted net income and a reconciliation with net income, as well as a reconciliation of the specific line items in adjusted operating expenses, see the section of this press release 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.

About Houlihan Lokey

Houlihan Lokey (NYSE:HLI) is a global investment bank with expertise in mergers and acquisitions, capital markets, financial restructuring, valuation, and strategic consulting. The firm serves corporations, institutions, and governments worldwide with offices in the United States, Europe, the Middle East, and the Asia-Pacific region. Independent advice and intellectual rigor are hallmarks of the firm's commitment to client success across its advisory services. Houlihan Lokey is ranked as the No. 1 M&A advisor for all U.S. transactions, the No. 1 global restructuring advisor, and the No. 1 global M&A fairness opinion advisor over the past 20 years, according to Thomson Reuters. For more information, please visit www.HL.com.

Appendix

Consolidated Balance Sheet (Unaudited)
Consolidated Statement of Income (Unaudited)
Reconciliation of GAAP to Adjusted Financial Information (Unaudited)