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Houlihan Lokey Reports Third Quarter Fiscal 2019 Financial Results

January 29, 2019

LOS ANGELES & NEW YORK--(BUSINESS WIRE)--Jan 29, 2019--Houlihan Lokey, Inc. (NYSE:HLI) (“Houlihan Lokey” or the “Company”) today reported financial results for its third fiscal quarter ended December 31, 2018. For the third quarter, revenues increased 15% to $298 million, compared with $259 million for the third quarter ended December 31, 2017.

Net income decreased 29% to $44 million, or $0.67 per diluted share, for the third quarter ended December 31, 2018, compared with $62 million, or $0.93 per diluted share, for the third quarter ended December 31, 2017. Adjusted net income for the third quarter ended December 31, 2018 grew 11% to $51 million, or $0.77 per diluted share, compared with $46 million, or $0.69 per diluted share, for the third quarter ended December 31, 2017.

“We had a strong third quarter, and we continue to see solid momentum across all three product lines as we enter a new calendar year. The firm received several important accolades this quarter, including being named as the #1 M&A advisor for all U.S. transactions under $1 billion in 2018 and the #1 global financial restructuring advisor in 2018, both in terms of number of transactions and value. We are also excited about reaching the $1 billion milestone based on our latest twelve months’ revenues through the end of the third quarter. We achieved this milestone as a result of a strong commitment by all of us at Houlihan Lokey to drive shareholder value by investing in growth. I want to thank every employee at HLI for their contribution to helping us achieve this milestone,” stated Scott Beiser, Chief Executive Officer of Houlihan Lokey.

Revenues

For the third quarter ended December 31, 2018, revenues increased to $298 million, compared with $259 million for the third quarter ended December 31, 2017. For the quarter, Corporate Finance (“CF”) revenues increased 43%, Financial Restructuring (“FR”) revenues decreased 20%, and Financial Advisory Services (“FAS”) revenues increased 9% when compared with the third quarter ended December 31, 2017. Revenues for the quarter ended December 31, 2018 included $8.9 million in expense reimbursements as a result of the adoption of ASC 606 effective April 1, 2018 that now clarifies that reimbursements of out-of-pocket expenses should be included in revenues, whereas prior to adoption we had been reporting non-compensation expenses net of such reimbursements.

Expenses

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

*Note: The 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 $187 million for the third quarter ended December 31, 2018, compared with $174 million for the third quarter ended December 31, 2017. The increase in employee compensation and benefits expenses was primarily a result of higher fee revenues when compared with the same quarter last year.

Adjusted employee compensation and benefits expenses were $181 million for the third quarter ended December 31, 2018, compared with $164 million for the third quarter ended December 31, 2017. The increase in adjusted employee compensation and benefits expenses was primarily a result of an increase in fee revenues for the quarter when compared with the same quarter last year. This resulted in an adjusted compensation ratio of 60.7% for the third quarter ended December 31, 2018, versus 63.5% for the third quarter ended December 31, 2017.

Non-compensation expenses were $49 million for the third quarter ended December 31, 2018 and $30 million for the third quarter ended December 31, 2017. The increase in non-compensation expenses was primarily driven by (i) the recognition of reimbursements of out-of-pocket expenses as revenues rather than reporting non-compensation expense net of such amounts as was the case in the prior year period, (ii) higher rent expense, (iii) higher professional fees, and (iv) general increases in travel, meals, and entertainment and other operating expenses.

Adjusted non-compensation expenses were $47 million for the third quarter ended December 31, 2018 and $29 million for the third quarter ended December 31, 2017. The increase in adjusted non-compensation expenses was primarily driven by (i) the recognition of reimbursements of out-of-pocket expenses as revenues rather than reporting non-compensation expense net of such amounts as was the case in the prior year period, (ii) higher rent expense, (iii) higher professional fees, and (iv) general increases in travel, meals, and entertainment and other operating expenses.

The provision for income taxes was $19 million, representing an effective tax rate of 30.2% for the third quarter ended December 31, 2018, compared with ($6) million, representing an effective tax rate of (11.7)% for the third quarter ended December 31, 2017. The increase in the Company’s tax rate was primarily a result of the Tax Cuts and Jobs Act (the “Tax Act”) that was enacted into law in December 2017, as well as the adoption of ASU 2016-09, Compensation - Stock Compensation, which resulted in a decrease to the provision for income taxes for the quarter ended December 31, 2017 due to the vesting of share awards that were accelerated during the quarter.

The adjusted provision for income taxes was $20 million, representing an adjusted effective tax rate of 28.1% for the third quarter ended December 31, 2018, compared with $21 million, representing an adjusted effective tax rate of 31.2% for the third quarter ended December 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 Third Quarter

Corporate Finance revenues increased 43% to $184 million for the third quarter ended December 31, 2018, compared with $129 million in the quarter ended December 31, 2017. Revenues increased primarily as a result of a significant increase in the number of transactions that closed during the quarter compared to the same period last year, coupled with the recognition of reimbursements of out-of-pocket expenses as revenues. CF closed 89 transactions in the third quarter ended December 31, 2018, versus 54 transactions in the third quarter ended December 31, 2017. CF’s average transaction fee for the quarter was slightly lower when compared with the same period last year.

For the third quarter ended December 31, 2018, Financial Restructuring revenues decreased 20% to $75 million, compared with $94 million in the third quarter ended December 31, 2017. FR closed 21 transactions in the third quarter ended December 31, 2018, versus 19 transactions in the third quarter ended December 31, 2017, but FR’s average transaction fee for the quarter was lower when compared with the same period last year.

For the third quarter ended December 31, 2018, Financial Advisory Services revenues increased 9% to $39 million, compared with $36 million in the third quarter ended December 31, 2017. The growth in revenues was primarily a result of the recognition of reimbursements of out-of-pocket expenses as revenues.

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 March 15, 2019 to stockholders of record as of the close of business on March 4, 2019.

For the third quarter ended December 31, 2018, the Company repurchased 370,728 shares of its common stock in open market purchases at an average price of $40.33 per share, for a total cost of $15 million.

As of December 31, 2018, the Company had $297 million of unrestricted cash and cash equivalents and investment securities, and loans payable and other liabilities aggregating $32 million.

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 29, 2019, to discuss its third quarter fiscal 2019 results. The number to call is 1-800-289-0438 (domestic) or 1-323-994-2082 (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 29, 2019 through February 5, 2019, by dialing 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and entering the passcode 7993332#. 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, adjusted operating expenses and adjusted provision for income taxes 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, adjusted operating expenses and adjusted provision for income taxes 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.

Adjusted net income as calculated by the Company is 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 net income, 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 in number of transactions, the No. 1 global restructuring advisor in both number of transactions and value, and the No. 1 global M&A fairness opinion advisor in number of transactions 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)

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CONTACT: Investor Relations

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KEYWORD: UNITED STATES NORTH AMERICA CALIFORNIA NEW YORK

INDUSTRY KEYWORD: PROFESSIONAL SERVICES BANKING FINANCE

SOURCE: Houlihan Lokey, Inc.

Copyright Business Wire 2019.

PUB: 01/29/2019 04:15 PM/DISC: 01/29/2019 04:15 PM

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