Houlihan Lokey Reports Third Quarter Fiscal 2023 Financial Results

– Third Quarter Fiscal 2023 Revenues of $456 million –
– Third Quarter Fiscal 2023 Diluted EPS of $0.90 –
– Adjusted Third Quarter Fiscal 2023 Diluted EPS of $1.14 –
– Announces Dividend of $0.53 per Share for Fourth Quarter Fiscal 2023 –

LOS ANGELES & NEW YORK, January 31, 2023--(BUSINESS WIRE)--Houlihan Lokey, Inc. (NYSE:HLI) ("Houlihan Lokey" or the "Company") today reported financial results for its third quarter ended December 31, 2022.

For the third quarter ended December 31, 2022, revenues were $456 million, compared with $889 million for the third quarter ended December 31, 2021. Net income was $63 million, or $0.90 per diluted share, for the third quarter ended December 31, 2022, compared with $174 million, or $2.54 per diluted share, for the third quarter ended December 31, 2021. Adjusted net income for the third quarter ended December 31, 2022 was $79 million, or $1.14 per diluted share, compared with $198 million, or $2.90 per diluted share, for the third quarter ended December 31, 2021.

"Houlihan Lokey continues to operate in a challenging M&A environment, which negatively impacted our third quarter fiscal 2023 results. However, once again the firm distinguished itself in the industry in calendar year 2022. I am proud to announce that in 2022 we were recognized as the #1 M&A advisor globally based on number of completed transactions, the #1 restructuring advisor globally based on both the number of completed transactions and value, and the #1 most active fairness opinion advisor by volume for the past 25 years, per Refinitiv. The firm is well poised to continue its long term growth profile when the market dynamics improve." stated Scott Beiser, Chief Executive Officer of Houlihan Lokey.

Selected Financial Data
(In thousands, except per share data)	U.S. GAAP
	Three Months Ended December 31,							Nine Months Ended December 31,
	2022			2021				2022			2021
Revenues by segment
Corporate Finance	$	291,734		$	715,663			$	870,701		$	1,314,064
Financial Restructuring		98,819			89,273				275,351			271,232
Financial and Valuation Advisory		65,946			83,862				218,628			213,496
Revenues	$	456,499		$	888,798			$	1,364,680		$	1,798,792
Operating expenses:
Employee compensation and benefits	$	289,348		$	549,376			$	864,942		$	1,115,054
Non-compensation		82,978			90,162				248,624			169,483
Operating income		84,173			249,260				251,114			514,255
Other expense, net		563			253				7,416			1,005
Income before provision for income taxes		83,610			249,007				243,698			513,250
Provision for income taxes		20,559			74,699				49,135			140,099
Net income	$	63,051		$	174,308			$	194,563		$	373,151
Net income attributable to noncontrolling interest		—			(573	)			—			(573	)
Net income attributable to Houlihan Lokey, Inc.	$	63,051		$	173,735			$	194,563		$	372,578
Diluted earnings per share attributable to Houlihan Lokey, Inc.	$	0.90		$	2.54			$	2.80		$	5.44

Revenues

For the third quarter ended December 31, 2022, revenues were $456 million, compared with $889 million for the third quarter ended December 31, 2021. Revenues decreased primarily as a result of a decrease in the number of closed transactions. For the third quarter ended December 31, 2022, Corporate Finance ("CF") revenues decreased (59)%, Financial Restructuring ("FR") revenues increased 11%, and Financial and Valuation Advisory ("FVA") revenues decreased (21)% when compared with the third quarter ended December 31, 2021.

Expenses

The Company’s employee compensation and benefits expenses, non-compensation expenses, and provision for income taxes during the periods presented and described below are on a GAAP and an adjusted basis.

	U.S. GAAP								Adjusted (Non-GAAP) *
	Three Months Ended December 31,
($ in thousands)	2022				2021				2022				2021
Expenses:
Employee compensation and benefits	$	289,348			$	549,376			$	280,749			$	546,611
% of Revenues		63.4	%			61.8	%			61.5	%			61.5	%
Non-compensation	$	82,978			$	90,162			$	72,611			$	58,543
% of Revenues		18.2	%			10.1	%			15.9	%			6.6	%
Provision for income taxes	$	20,559			$	74,699			$	25,897			$	85,014
% of Pre-tax income		24.6	%			30.0	%			24.6	%			30.0	%
* Adjusted 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.

	U.S. GAAP								Adjusted (Non-GAAP) *
	Nine Months Ended December 31,
($ in thousands)	2022				2021				2022				2021
Expenses:
Employee compensation and benefits	$	864,942			$	1,115,054			$	839,279			$	1,106,257
% of Revenues		63.4	%			62.0	%			61.5	%			61.5	%
Non-compensation	$	248,624			$	169,483			$	204,543			$	133,548
% of Revenues		18.2	%			9.4	%			15.0	%			7.4	%
Provision for income taxes	$	49,135			$	140,099			$	83,186			$	160,169
% of Pre-tax income		20.2	%			27.3	%			25.9	%			28.7	%
* Adjusted 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.

Employee compensation and benefits expenses were $289 million for the third quarter ended December 31, 2022, compared with $549 million for the third quarter ended December 31, 2021. Adjusted employee compensation and benefits expenses were $281 million for the third quarter ended December 31, 2022, compared with $547 million for the third quarter ended December 31, 2021. This resulted in an adjusted compensation ratio of 61.5% for both the third quarter ended December 31, 2022 and the third quarter ended December 31, 2021. The decrease in GAAP and adjusted employee compensation and benefits expenses was a result of a decrease in fee revenues for the quarter when compared with the same quarter last year.

Non-compensation expenses were $83 million for the third quarter ended December 31, 2022, compared with $90 million for the third quarter ended December 31, 2021. The decrease in GAAP non-compensation expenses was primarily a result of a decrease in depreciation and amortization and a decrease in professional fees for the quarter when compared with the same quarter last year. Adjusted non-compensation expenses were $73 million for the third quarter ended December 31, 2022, compared with $59 million for the third quarter ended December 31, 2021. The increase in adjusted non-compensation expenses was primarily a result of an increase in travel, meals, and entertainment expenses and other operating expenses.

The provision for income taxes was $21 million, representing an effective tax rate of 24.6% for the third quarter ended December 31, 2022, compared with $75 million, representing an effective tax rate of 30.0% for the third quarter ended December 31, 2021. The decrease in the Company's tax rate during the three months ended December 31, 2022 relative to the same period in 2021 was primarily the result of decreased state taxes and decreased taxes due to foreign operations.

Segment Reporting for the Third Fiscal Quarter

Corporate Finance

CF revenues were $292 million for the third quarter ended December 31, 2022, compared with $716 million for the third quarter ended December 31, 2021, representing a decrease of (59)%. Revenues decreased primarily due to a decrease in the number of closed transactions and a decrease in the average transaction fee on closed transactions.

	Three Months Ended December 31,						Nine Months Ended December 31,
($ in thousands)	2022			2021			2022			2021
Corporate Finance
Revenues	$	291,734		$	715,663		$	870,701		$	1,314,064
# of Managing Directors		215			198			215			198
# of Closed transactions (1)		125			238			363			456

Financial Restructuring

FR revenues increased 11% to $99 million for the third quarter ended December 31, 2022, compared with $89 million for the third quarter ended December 31, 2021. Revenues increased primarily due to an increase in the number of closed transactions during the quarter, partially offset by a decrease in the average transaction fee on closed transactions during the quarter.

	Three Months Ended December 31,						Nine Months Ended December 31,
($ in thousands)	2022			2021			2022			2021
Financial Restructuring
Revenues	$	98,819		$	89,273		$	275,351		$	271,232
# of Managing Directors		56			52			56			52
# of Closed transactions (1)		28			21			68			65

Financial and Valuation Advisory

FVA revenues decreased (21)% to $66 million for the third quarter ended December 31, 2022, compared with $84 million for the third quarter ended December 31, 2021. Revenues decreased primarily due to a decrease in the average fee per fee event.

	Three Months Ended December 31,						Nine Months Ended December 31,
($ in thousands)	2022			2021			2022			2021
Financial and Valuation Advisory
Revenues	$	65,946		$	83,862		$	218,628		$	213,496
# of Managing Directors		38			34			38			34
# of Fee Events (1)		876			901			1,815			1,673

(1)

A Fee Event includes any engagement that involves revenue activity during the measurement period based on a revenue minimum of one thousand dollars. References in this press release to closed transactions should be understood to be the same as transactions that are "effectively closed" as described in our periodic reports on Forms 10-K and 10-Q.

Balance Sheet and Capital Allocation

The Board of Directors of the Company declared a regular quarterly cash dividend of $0.53 per share of Class A and Class B common stock. The dividend will be payable on March 15, 2023 to stockholders of record as of the close of business on March 2, 2023. As of December 31, 2022, the Company had $586 million of cash and cash equivalents and investment securities, and $47 million of other liabilities and loans payable to former shareholders.

Investor Conference Call and Webcast

The Company will host a conference call and live webcast at 5:00 p.m. Eastern Time on Tuesday, January 31, 2023, to discuss its third quarter fiscal 2023 results. The number to call is 1-888-394-8218 (domestic) or 1-646-828-8193 (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 from January 31, 2023 through February 7, 2023, by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the passcode 1668989#. 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. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. 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 certain adjusted items used to determine adjusted net income, 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. These adjusted items remove the significant accounting impact of one-time or non-recurring charges associated with the Company’s one-time/non-recurring matters, as set forth in the tables at the end of this release.

The adjusted items included in this earnings press release 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 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, and financial and valuation advisory. 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 the No. 1 investment bank for global M&A transactions under $1 billion, the No. 1 M&A advisor for the past eight consecutive years in the U.S., the No. 1 global restructuring advisor for the past nine consecutive years, and the No. 1 global M&A fairness opinion advisor over the past 25 years, all based on number of transactions and according to data provided by Refinitiv.

For more information, please visit www.HL.com.

Appendix

Condensed Consolidated Balance Sheets (Unaudited)
Condensed Consolidated Statements of Income (Unaudited)
Reconciliation of GAAP to Adjusted Financial Information (Unaudited)

HOULIHAN LOKEY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share data and par value)	December 31, 2022				March 31, 2022
Assets
Cash and cash equivalents	$	549,422			$	833,697
Restricted cash		373				373
Investment securities		36,775				109,143
Accounts receivable, net of allowance for credit losses		138,028				144,029
Unbilled work in process, net of allowance for credit losses		152,052				104,751
Income taxes receivable		9,864				—
Deferred income taxes		112,726				95,278
Property and equipment, net		75,624				52,176
Operating lease right-of-use assets		255,725				171,942
Goodwill		1,060,666				1,070,442
Other intangible assets, net		204,845				247,333
Other assets		75,542				57,646
Total assets	$	2,671,642			$	2,886,810
Liabilities and Stockholders' Equity
Liabilities:
Accrued salaries and bonuses	$	638,646			$	953,604
Accounts payable and accrued expenses		119,974				126,190
Deferred income		40,576				28,753
Income taxes payable		—				61,266
Deferred income taxes		619				789
Loans payable to former shareholders		307				539
Operating lease liabilities		283,728				197,091
Other liabilities		47,135				74,873
Total liabilities		1,130,985				1,443,105
Stockholders' equity:
Class A common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 50,351,143 and 49,853,564 shares, respectively		50				50
Class B common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 18,271,833 and 17,649,555 shares, respectively		18				18
Additional paid-in capital		602,349				564,761
Retained earnings		1,008,246				922,223
Accumulated other comprehensive loss		(70,006	)			(43,347	)
Total stockholders’ equity		1,540,657				1,443,705
Total liabilities and stockholders’ equity	$	2,671,642			$	2,886,810

HOULIHAN LOKEY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
	Three Months Ended December 31,							Nine Months Ended December 31,
(In thousands, except share and per share data)	2022			2021				2022			2021
Revenues	$	456,499		$	888,798			$	1,364,680		$	1,798,792
Operating expenses:
Employee compensation and benefits		289,348			549,376				864,942			1,115,054
Travel, meals, and entertainment		14,271			11,090				37,691			17,464
Rent		12,852			14,352				37,927			33,627
Depreciation and amortization		13,256			20,074				51,874			28,589
Information technology and communications		14,751			12,398				38,924			28,217
Professional fees		7,795			14,372				23,862			27,988
Other operating expenses		20,053			17,876				58,346			33,598
Total operating expenses		372,326			639,538				1,113,566			1,284,537
Operating income		84,173			249,260				251,114			514,255
Other expense, net		563			253				7,416			1,005
Income before provision for income taxes		83,610			249,007				243,698			513,250
Provision for income taxes		20,559			74,699				49,135			140,099
Net income		63,051			174,308				194,563			373,151
Net income attributable to noncontrolling interest		—			(573	)			—			(573	)
Net income attributable to Houlihan Lokey, Inc.	$	63,051		$	173,735			$	194,563		$	372,578
Weighted average shares of common stock outstanding:
Basic		63,381,024			64,914,373				63,360,741			65,259,927
Fully diluted		69,725,692			68,279,939				69,453,588			68,520,849
Earnings per share attributable to Houlihan Lokey, Inc.
Basic	$	0.99		$	2.68			$	3.07		$	5.71
Fully diluted	$	0.90		$	2.54			$	2.80		$	5.44

HOULIHAN LOKEY, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO ADJUSTED FINANCIAL INFORMATION
(UNAUDITED)
	Three Months Ended December 31,								Nine Months Ended December 31,
(In thousands, except per share data)	2022				2021				2022				2021
Revenues	$	456,499			$	888,798			$	1,364,680			$	1,798,792
Employee compensation and benefits expenses
Employee compensation and benefits expenses (GAAP)	$	289,348			$	549,376			$	864,942			$	1,115,054
Less: Acquisition related retention payments		(8,599	)			(2,765	)			(25,663	)			(8,797	)
Employee compensation and benefits expenses (adjusted)		280,749				546,611				839,279				1,106,257
Non-compensation expenses
Non-compensation expenses (GAAP)	$	82,978			$	90,162			$	248,624			$	169,483
Less: Integration and acquisition related costs		—				(16,165	)			(2,325	)			(17,805	)
Less: Acquisition amortization		(10,367	)			(15,454	)			(41,756	)			(18,130	)
Non-compensation expenses (adjusted)		72,611				58,543				204,543				133,548
Operating income
Operating income (GAAP)	$	84,173			$	249,260			$	251,114			$	514,255
Plus: Adjustments (1)		18,966				34,384				69,744				44,732
Operating income (adjusted)		103,139				283,644				320,858				558,987
Other expense, net
Other expense, net (GAAP)	$	563			$	253			$	7,416			$	1,005
Less: Warrant revaluation		—				—				(2,264	)			—
Less: SPAC wind-down write-off		(2,742	)			—				(2,742	)			—
Less: Increase in acquisition earnout liability		—				—				(2,841	)			—
Other (income)/expense, net (adjusted)		(2,179	)			253				(431	)			1,005
Provision for income taxes
Provision for income taxes (GAAP)	$	20,559			$	74,699			$	49,135			$	140,099
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				—
Adjusted provision for income taxes		20,559				74,699				62,999				147,021
Plus: Resulting tax impact (2)		5,338				10,315				20,187				13,148
Provision for income taxes (adjusted)		25,897				85,014				83,186				160,169
Net income
Net income (GAAP)	$	63,051			$	174,308			$	194,563			$	373,151
Plus: Adjustments (3)		16,370				24,069				43,540				24,662
Net income (adjusted)		79,421				198,377				238,103				397,813
Net income attributable to noncontrolling interest		—				(573	)			—				(573	)
Net income attributable to Houlihan Lokey, Inc. (GAAP)		63,051				173,735				194,563				372,578
Net income attributable to Houlihan Lokey, Inc. (adjusted)		79,421				197,804				238,103				397,240
Diluted EPS attributable to Houlihan Lokey, Inc. (GAAP)	$	0.90			$	2.54			$	2.80			$	5.44
Diluted EPS attributable to Houlihan Lokey, Inc. (adjusted)	$	1.14			$	2.90			$	3.43			$	5.79

(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.

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