Houlihan Lokey Reports Third Quarter Fiscal 2017 Financial Results

Third Quarter Fiscal 2017 Revenue of $248 million, up 21% Year-Over-Year

Third Quarter Fiscal 2017 Diluted EPS of $0.51, up 46% Year-Over-Year

Adjusted Third Quarter Fiscal 2017 Diluted EPS of $0.57, up 21% Year-Over-Year

Increased Dividend by 18% to $0.20 per Share for Fourth Quarter Fiscal 2017

LOS ANGELES & NEW YORK--()--Houlihan Lokey, Inc. (NYSE: HLI) (“Houlihan Lokey”, the “Company”), the global investment bank, today reported financial results for its third quarter ended December 31, 2016. For the third quarter, total revenue grew 21% to a third quarter record of $248 million, as compared with $206 million for the third quarter ended December 31, 2015.

“Reconciliation of GAAP to Adjusted Financial Information.”

Net income grew 50% to $34 million, or $0.51 per diluted share, for the third quarter ended December 31, 2016, compared with $23 million, or $0.35 per diluted share, for the third quarter ended December 31, 2015. Adjusted net income for the third quarter ended December 31, 2016 grew 23% to $38 million, or $0.57 per diluted share, compared with $31 million, or $0.47 per diluted share, for the third quarter ended December 31, 2015.

"We are pleased to have achieved record results for the quarter and the first nine months of the fiscal year with all three of our business segments reporting strong year-to-date revenue growth from the previous year. Our firm continues to benefit from the ongoing investments we have made over the last few years, as well as an improved business and market environment over the last quarter,” stated Scott Beiser, Chief Executive Officer of Houlihan Lokey.

 
Selected Financial Data

(Unaudited and in thousands, except per share data)

 
U.S. GAAP

Three Months Ended
December 31,

  Nine Months Ended
December 31,
2016   2015 2016   2015
Fee revenue $247,680 $205,523 $614,991 $510,169
Operating expenses:
Employee compensation and benefits 164,971 135,981 411,677 340,926
Non-compensation expenses 25,886   25,856   78,653   84,340  
Total operating expenses 190,857 161,837 490,330 425,266
Operating income 56,823 43,686 124,661 84,903
Other income (expense), net (1,084 ) (1,094 ) (2,741 ) (106 )
Income before provision for income taxes 55,739 42,592 121,920 84,797
Provision for income taxes 21,759   19,931   47,653   37,810  
Net income 33,980 22,661 74,267 46,987
Net income attributable to noncontrolling interests       (26 )
Net income attributable to Houlihan Lokey, Inc. $33,980   $22,661   $74,267   $46,961  
 
Diluted net income per share of common stock $0.51 $0.35 $1.11 $0.75
 

Revenues

For the third quarter ended December 31, 2016, total fee revenue grew 21% to $248 million from $206 million for the third quarter ended December 31, 2015. For the quarter, Corporate Finance (“CF”) revenues decreased 1%, Financial Restructuring (“FR”) revenues increased 80%, and Financial Advisory Services (“FAS”) revenues increased 10% when compared with the third quarter ended December 31, 2015.

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.

(Unaudited and in thousands)

 
Three Months Ended December 31,
U.S. GAAP   Adjusted (Non-GAAP)*
2016   2015 2016   2015
Expenses:
Employee compensation and benefits $164,971 $135,981 $158,516 $128,315
% of Revenues 66.6% 66.2% 64.0% 62.4%
Non-compensation expenses $25,886 $25,856 $25,886 $24,460
% of Revenues 10.5% 12.6% 10.5% 11.9%
Total operating expenses $190,857 $161,837 $184,402 $152,775
% of Revenues   77.1%   78.7%   74.5%   74.3%
Adjusted awarded employee compensation and benefits $162,233 $133,952
% of Revenues 65.5% 65.2%
 
  Nine Months Ended December 31,
U.S. GAAP   Adjusted (Non-GAAP)*
2016   2015 2016   2015
Expenses:
Employee compensation and benefits $411,677 $340,926 $392,216 $332,446
% of Revenues 66.9% 66.8% 63.8% 65.2%
Non-compensation expenses $78,653 $84,340 $78,653 $67,914
% of Revenues 12.8% 16.5% 12.8% 13.3%
Total operating expenses $490,330 $425,266 $470,869 $400,360
% of Revenues   79.7%   83.4%   76.6%   78.5%
Adjusted awarded employee compensation and benefits $401,900 $343,872
% of Revenues 65.4% 67.4%
 

*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 $191 million for the third quarter ended December 31, 2016, an increase of 18% when compared with $162 million in operating expenses for the third quarter ended December 31, 2015. Employee compensation and benefits expenses were $165 million for the third quarter ended December 31, 2016, compared with $136 million for the third quarter ended December 31, 2015. The increase in employee compensation and benefits expenses was primarily a result of the growth in revenues for the quarter.

Total adjusted operating expenses were $184 million for the third quarter ended December 31, 2016, an increase of 21% when compared with $153 million in adjusted operating expenses for the third quarter ended December 31, 2015. Adjusted employee compensation and benefits expenses were $159 million for the third quarter ended December 31, 2016, compared with $128 million for the third quarter ended December 31, 2015. The additional adjusted employee compensation and benefits expenses were primarily a result of the growth in revenues for the quarter. This resulted in an adjusted awarded compensation ratio of 65.5% for the third quarter ended December 31, 2016, versus 65.2% for the third quarter ended December 31, 2015.

Total non-compensation expenses were $26 million for the third quarter ended both December 31, 2016 and December 31, 2015. Non-compensation expenses remained flat primarily as a result of increases in general operating expenses during the third quarter fiscal 2017 that was essentially offset by third quarter fiscal 2016 costs incurred related to the Company’s acquisitions that did not occur in the third quarter fiscal 2017.

Adjusted non-compensation expenses were $26 million for the third quarter ended December 31, 2016, compared with $24 million for the third quarter ended December 31, 2015. The rise in adjusted non-compensation expenses was primarily a result of an increase in general operating expenses.

Segment Reporting for the Third Quarter

For the third quarter ended December 31, 2016, Corporate Finance revenue was $123 million, compared with $124 million during the third quarter ended December 31, 2015. CF closed 50 transactions in the third quarter, versus 52 transactions in the same quarter last year. Segment profit equaled $40 million for the third quarter ended December 31, 2016, compared with $35 million for the third quarter ended December 31, 2015, an increase of 14%. Profitability increased primarily as a result of lower employee compensation and benefits.

           

(Unaudited and in $ thousands)

Three Months Ended
December 31,

Nine Months Ended
December 31,
2016 2015 2016 2015
Corporate Finance
Revenues $123,240 $124,133 $319,483 $292,461
Segment Profit¹ 40,423 35,346 91,517 79,155
# of MDs 90 93 90 93
# of Closed Transactions 50 52 154 122
 

For the third quarter ended December 31, 2016, Financial Restructuring revenue grew 80% to $90 million, compared with $50 million during the third quarter ended December 31, 2015. The growth in revenues was driven by an increase in the number of closed transactions as well as an increase in the average transaction fee per closed transaction. FR closed 23 transactions in the third quarter ended December 31, 2016 versus 14 transactions in the third quarter ended December 31, 2015. Segment profit was $25 million for the third quarter ended December 31, 2016, compared with $14 million for the third quarter ended December 31, 2015, an increase of 76%. The increase in profitability was a result of the corresponding increase in revenues.

       

(Unaudited and in $ thousands)

Three Months Ended
December 31,

Nine Months Ended
December 31,
2016 2015 2016 2015
Financial Restructuring
Revenues $90,180 $50,216 $203,372 $130,139
Segment Profit¹ 24,664 14,021 55,542 34,468
# of MDs 42 42 42 42
# of Closed Transactions 23 14 45 35
 

For the third quarter ended December 31, 2016, Financial Advisory Services revenue grew 10% to $34 million, compared with $31 million in the third quarter ended December 31, 2015. Revenues for FAS increased primarily as a result of (i) strong performance by our transaction advisory, portfolio valuation and strategic consulting product lines and (ii) an increase in average project fees for the quarter. This increase in revenues was partially offset by a decline in revenues for our transaction-based product lines. Segment profit was $9 million for the third quarter ended December 31, 2016, compared with $8 million for the third quarter ended December 31, 2015, an increase of 11%. Segment profitability increased primarily as a result of the corresponding increase in revenues. FAS generated 517 fee events in the third quarter ended December 31, 2016, versus 506 fee events during the same quarter last year.

       

(Unaudited and in $ thousands)

Three Months Ended
December 31,

Nine Months Ended
December 31,
2016 2015 2016 2015
Financial Advisory Services
Revenues $34,260 $31,174 $92,136 $87,569
Segment Profit¹ 8,507 7,688 21,777 20,785
# of MDs 34 34 34 34
# of Fee Events2 517 506 950 902
 
1.  

We adjust the compensation expense for a business segment in situations where an employee assigned to one business segment is performing work in another business segment and we want to adequately reflect the compensation expense in the business segment where the revenue is being booked.

2.

A Fee Event includes any engagement that involves revenue activity during the measurement period based on a revenue minimum of $1,000.

 

Balance Sheet and Capital Allocation

The Board of Directors of the Company declared a regular quarterly cash dividend of $0.20 per share of Class A and Class B common stock. The dividend will be payable on March 15, 2017 to stockholders of record as of the close of business on March 3, 2017.

As of December 31, 2016, the Company had $254 million of cash and cash equivalents, and loans payable aggregating $44 million.

Investor Conference Call and Webcast

The Company will host a conference call and live webcast at 5:00 p.m. Eastern Standard Time on Wednesday, February 1, 2017, to discuss its third quarter fiscal 2017 results. The number to call is 1-888-523-1225 (domestic) or 1-719-325-2354 (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 February 1, 2017 through February 8, 2017, by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the passcode 4968822#. 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, and the Asia-Pacific region. Independent advice and intellectual rigor are hallmarks of our commitment to client success across our 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 15 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)

   
Houlihan Lokey, Inc.
Consolidated Balance Sheet

(In thousands, except share data and par value)

 
December 31, 2016 March 31, 2016
(unaudited) (audited)
Assets
Cash and cash equivalents $ 253,605 $ 166,169
Accounts receivable, net of allowance for doubtful accounts 33,230 58,100
Unbilled work in process 41,756 51,300
Income taxes receivable 7,204
Receivable from affiliates 8,198 27,408
Property and equipment, net of accumulated depreciation 30,329 21,701
Goodwill and other intangibles 708,152 717,368
Other assets 18,184   21,634  
Total assets $ 1,093,454   $ 1,070,884  
Liabilities and Stockholders' Equity
Liabilities:
Accrued salaries and bonuses $ 233,104 $ 254,058
Accounts payable and accrued expenses 39,608 34,400
Income Taxes Payable 7,454
Deferred income 6,851 5,547
Deferred income taxes 32,461 37,288
Loan payable to affiliate 22,500 45,000
Loans payable to former shareholders 5,917 16,738
Loan payable to non-affiliate 15,345 14,882
Other liabilities 7,879   9,416  
Total liabilities $ 371,119   $ 417,329  
 
Redeemable noncontrolling interest 3,368 2,395
 
Stockholders' equity:

Class A common stock, $0.001 par value per share.
Authorized 1,000,000,000 shares; issued and outstanding 12,826,811 and
12,084,524 shares at December 31 and March 31, 2016, respectively

13 12

Class B common stock, $0.001 par value per share.
Authorized 1,000,000,000 shares; issued and outstanding 53,855,497 and
53,219,303 shares at December 31 and March 31, 2016, respectively

54 53
Additional paid-in capital 678,148 637,332
Retained earnings 67,861 28,623
Accumulated other comprehensive loss (26,986 ) (14,613 )
Stock subscription receivable (123 ) (247 )
Total stockholders' equity 718,967   651,160  
Total liabilities and stockholders' equity $ 1,093,454   $ 1,070,884  
       
Houlihan Lokey, Inc.
Consolidated Statement of Income

(Unaudited and in thousands, except share and per share data)

 

Three Months Ended
December 31,

Nine Months Ended
December 31,

2016 2015 2016 2015
Fee revenue $247,680 $205,523 $614,991 $510,169
 
Operating expenses:
Employee compensation and benefits 164,971 135,981 411,677 340,926
Travel, meals, and entertainment 4,782 6,699 15,927 16,897
Rent 7,012 7,021 20,748 19,373
Depreciation and amortization 2,277 1,921 6,898 5,066
Information technology and communications 4,631 4,656 13,482 11,530
Professional fees 2,783 2,829 8,214 18,788
Other operating expenses 3,401 2,198 10,940 10,433
Provision for bad debt 1,000   532   2,444   2,253  
Total operating expenses 190,857 161,837 490,330 425,266
 
Operating income 56,823 43,686 124,661 84,903
 
Other income (expense), net (1,084 ) (1,094 ) (2,741 ) (106 )
Income before provision for income taxes 55,739 42,592 121,920 84,797
 
Provision for income taxes 21,759   19,931   47,653   37,810  
Net income 33,980 22,661 74,267 46,987
 
Net income attributable to noncontrolling interests       (26 )
Net income attributable to Houlihan Lokey, Inc. $33,980 $22,661 $74,267 $46,961
 
Attributable to Houlihan Lokey, Inc. common stockholders:
Weighted average shares of common stock outstanding:
Basic 61,104,822 59,410,797 60,941,996 58,944,776
Fully Diluted 66,692,326 65,405,521 66,619,214 62,864,435
Net income per share of common stock:
Basic $0.56 $0.38 $1.22 $0.80
Fully Diluted $0.51 $0.35 $1.11 $0.75
 
     
Houlihan Lokey, Inc.
Reconciliation of GAAP to Adjusted Financial Information

(Unaudited and in thousands, except per share data)

 

Three Months Ended
December 31,

Nine Months Ended
December 31,
2016   2015 2016 2015
Fee revenue $247,680 $205,523 $614,991 $510,169
 
Employee Compensation and Benefits                      
Employee Compensation and Benefits (GAAP) $164,971 $135,981 $411,677 $340,926
Less/Plus: Adjustments1 (6,455 ) (7,666 ) (19,461 ) (8,480 )
Employee Compensation and Benefits (Adjusted) 158,516 128,315 392,216 332,446
Less/Plus: Adjustments2 3,717   5,637   9,684   11,426  
Employee Compensation and Benefits (Adjusted Awarded) 162,233 133,952 401,900 343,872
 
Non-Compensation Expenses                      
Non-Compensation Expenses (GAAP) $25,886 $25,856 $78,653 $84,340
Less/Plus: Adjustments3   (1,396 )   (16,426 )
Non-Compensation Expenses (Adjusted) 25,886 24,460 78,653 67,914
 
Operating Income                      
Operating Income (GAAP) $56,823 $43,686 $124,661 $84,903
Less/Plus: Adjustments4 6,455   9,062   19,461   24,906  
Operating Income (Adjusted) 63,278 52,748 144,122 109,809
 
Other Income (Expenses), net                      
Other Income (Expenses), net (GAAP) $(1,084) $(1,094) $(2,741) $(106)
Less/Plus: Adjustments5   461     282  
Other Income (Expenses), net (Adjusted) (1,084 ) (633 ) (2,741 ) 176
 
Provision for Income Taxes                      
Provision for Income Taxes (GAAP) $21,759 $19,931 $47,653 $37,810
Less/Plus: Adjustments6 2,520   1,285   7,631   7,133  
Provision for Income Taxes (Adjusted) 24,279 21,216 55,284 44,943
 
Net Income                      
Net Income (GAAP) $33,980 $22,661 $74,267 $46,961
Less/Plus: Adjustments7 3,935   8,238   11,830   18,081  
Net Income (Adjusted) 37,915 30,899 86,097 65,042
               
Diluted adjusted net income per share of common stock $0.57 $0.47 $1.29 $1.03
 
____________________________
Note:   Figures may not sum due to rounding.
1. Consists of pre-IPO grant vesting, including grants re-awarded following forfeiture, if any (($6,455) in Q3 FY17; ($6,811) in Q3 FY16; ($19,461) in YTD FY17; ($9,255) in YTD FY16); and adjustments relating to previous ownership agreements (($855) in Q3 FY16; $775 in YTD FY16).
2. Reflects (i) the expected vesting of grants that were made in prior year periods that were expensed during the period (($6,091) in Q3 FY17; ($5,510) in Q3 FY16; ($18,585) in YTD FY17; ($16,721) in YTD FY16), and (ii) estimated normal year-end grants of deferred stock during the period ($9,808 in Q3 FY17; $11,147 in Q3 FY16; $28,269 in YTD FY17; $28,147 in YTD FY16).
3. Includes costs associated with (i) Houlihan Lokey’s initial public offering, corporate reorganization, spin-out of non-operating assets, shareholder solicitation process and other related activities (($12,783) in YTD FY16), (ii) costs incurred from completed acquisitions of (($1,396) in Q3 FY16; ($2,637) in YTD FY16), and (iii) adjustments relating to previous ownership agreements (($1,006) in YTD FY16).
4. Consists of pre-IPO grant vesting, including grants re-awarded following forfeiture, if any. Q3 and YTD FY16 includes costs associated with (i) Houlihan Lokey’s initial public offering, corporate reorganization, spin-out of non-operating assets, shareholder solicitation process and other related activities, (ii) costs incurred from completed acquisitions, and (iii) adjustments relating to previous ownership agreements.
5. Includes adjustments relating to previous ownership agreements ($461 in Q3 FY16; $282 in YTD FY16).
6. Reflects the tax impact of described adjustments.
7. Consists of pre-IPO grant vesting, including grants re-awarded following forfeiture, if any, net of the tax impact of described adjustments. Q3 and YTD FY16 includes costs associated with (i) Houlihan Lokey’s initial public offering, corporate reorganization, spin-out of non-operating assets, shareholder solicitation process and other related activities, (ii) costs incurred from completed acquisitions, (iii) adjustments relating to previous ownership agreements, (iv) the tax impact of described adjustments, and (v) net income/loss attributable to noncontrolling interests ($26 in YTD FY16).
 

Contacts

Houlihan Lokey, Inc.
Investor Relations:
212-331-8225
IR@HL.com
or
Public Relations:
212-331-8223
PR@HL.com

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