Global Operations and Workforce - As of March 31, 2024, the company had 1,853 financial professionals across 36 offices globally, serving over 2,000 clients annually[19] - The company employed 2,601, 2,610, and 2,257 people worldwide as of March 31, 2024, 2023, and 2022, respectively[39] - The company's European advisory business operates through subsidiaries in the UK, Germany, France, Spain, Italy, the Netherlands, Sweden, Belgium, and Switzerland, with regulated services provided by HL UK, HLA Ltd, and HLE GmbH[47] - HLE GmbH was established to mitigate Brexit impacts, allowing the company to continue regulated investment services in the EU under German regulatory authority BaFin[49] - HLE GmbH has exercised EU financial services passport rights to provide cross-border services and establish branches in France and Spain[50] - In the Middle East, the company operates through Houlihan Lokey (MEA Financial Advisory) Ltd., licensed by the Dubai Financial Services Authority (DFSA) to provide regulated financial services[51] - In Asia Pacific, the company operates through subsidiaries regulated by the Australian Securities & Investments Commission, Hong Kong's Securities and Futures Commission, and India's Securities and Exchange Board of India (SEBI)[53][54] Business Segments and Advisory Services - The Corporate Finance (CF) segment had 223 Managing Directors as of March 31, 2024, focusing on mid-cap transactions and global M&A advisory[21] - The Financial Restructuring (FR) segment had 54 Managing Directors globally, making it one of the largest restructuring groups in the investment banking industry[29] - The Financial and Valuation Advisory (FVA) segment had 39 Managing Directors, representing one of the largest valuation and financial opinion practices in the United States[34] - The company's M&A business is known for its sell-side advisory, consistently selling more companies under 1billionthananycompetitor[24]−Thecompany′sCapitalMarketsAdvisoryleveragesrelationshipswithtraditionalandnon−traditionalcapitalproviders,includinginstitutionalcreditfundsandprivateequity[27]−Thecompany′srevenuesaregeneratedfromthreebusinesssegments:CorporateFinance(CF),FinancialRestructuring(FR),andFinancialandValuationAdvisory(FVA)[248]−CFrevenuesprimarilyconsistofCompletionFees,RetainerFees,andProgressFees,withCompletionFeesrecognizeduponsuccessfultransactionclosure[256]−FRrevenuesincludeRetainerFeesandProgressFeesrecognizedovertime,andCompletionFeesrecognizedupontransactionclosure[257]−FVArevenuesareprimarilyfromvaluationservicesandfinancialopinions,recognizedatapointintime,withsomeadvisoryservicesrecognizedovertimebasedonhourlyrates[258]FinancialPerformanceandMetrics−Totalassetsincreasedto3,170.8 million in 2024 from 2,968.8millionin2023,reflectingagrowthof6.81,914.4 million, up 5.8% from 1,809.4millionin2023[238]−NetincomeattributabletoHoulihanLokey,Inc.roseto280.3 million in 2024, a 10.3% increase from 254.2millionin2023[238]−Operatingincomegrewto362.9 million in 2024, up 6.2% from 341.7millionin2023[238]−Employeecompensationandbenefitsincreasedto1,213.6 million in 2024, up 5.7% from 1,147.9millionin2023[238]−Totalstockholders′equityreached1,836.8 million in 2024, a 13.8% increase from 1,613.3millionin2023[236]−Cashandcashequivalentsstoodat721.2 million in 2024, slightly up from 714.4millionin2023[236]−Earningspershare(fullydiluted)were4.11 in 2024, compared to 3.76in2023,reflectinga9.31,127.5 million in 2024 from 1,087.8millionin2023,a3.7415.4 million in 2024, up 10.8% from 374.9millionin2023[236]−NetincomefortheyearendedMarch31,2024,was280,301 thousand, compared to 254,223thousandin2023and438,324 thousand in 2022[244] - Net cash provided by operating activities in 2024 was 328,458thousand,asignificantincreasefrom136,273 thousand in 2023 and 736,604thousandin2022[244]−Thecompanypaid148,454 thousand in dividends in 2024, up from 140,384thousandin2023and114,806 thousand in 2022[244] - Cash, cash equivalents, and restricted cash at the end of 2024 were 721,854thousand,slightlyhigherthan714,812 thousand in 2023 but lower than 834,070thousandin2022[244]RegulatoryComplianceandRisks−Thecompany′sbroker−dealersubsidiary,HoulihanLokeyCapital,isregulatedbytheSECandFINRA,withongoingregulatoryreorganizationexpectedtobecompletedbytheendofQ22024[42]−ThecompanyissubjecttocompliancewiththeUSAPATRIOTActandFinCENregulations,requiringanti−moneylaunderingprogramsandcustomerduediligence,includingverifyingbeneficialownershipandmaintaininginternalcontrols[45]−Compliancewithinternationalregulations,includingFCPAandanti−briberylaws,posesrisksofpenaltiesandreputationaldamage[77]−Thecompanyincurreda15 million civil penalty to settle an SEC investigation regarding compliance with records preservation requirements[102] - The company's regulatory compliance costs have increased in recent years, including legal fees and payments to regulatory authorities[102] - The company's cybersecurity risk management program is integrated into its overall enterprise risk management program[124] - The company's cybersecurity risk management program has not identified any material risks from known cybersecurity threats that have affected or are likely to affect operations, business strategy, results of operations, or financial condition[125] - The company's cybersecurity governance includes regular reports to the Audit Committee and the full board of directors, with management updates on material cybersecurity incidents[126][127] - The cybersecurity team, with an average of 25 years of experience, leads monthly meetings and reviews key cybersecurity metrics, monitoring public threats and consulting with external experts[128] - The company's cybersecurity measures include risk assessment processes, security controls, incident response plans, and third-party risk management for service providers[129] Corporate Governance and Ownership - Approximately 1,000 present and former employee shareholders collectively owned 25% of the company's equity as of March 31, 2024[36] - The company's organizational structure includes a voting trust controlling approximately 77.1% of the total voting power as of March 31, 2024[59] - The company qualifies as a "controlled company" under NYSE rules, allowing exemptions from certain corporate governance requirements[60] - The HL Voting Trust controls 77.1% of the voting power of the company's outstanding capital stock as of March 31, 2024[105] - The HL Voting Trust beneficially owns 17,590,406 shares of common stock, representing approximately 25.1% of the economic interest[105] - 17,590,406 shares of Class A common stock are eligible for sale upon conversion of outstanding Class B common stock as of March 31, 2024[114] - The company's board of directors has the authority to issue preferred stock, which could affect the rights of Class A common stockholders[119] - The company's dividend policy may change, and future dividends are subject to various factors including financial condition and capital requirements[115] - The company's share price may be volatile due to factors such as limited shares outstanding and market fluctuations[117] - The company qualifies as a "controlled company" under NYSE listing standards, allowing exemptions from certain corporate governance requirements[107] Market and Economic Risks - The company's business is materially affected by global financial market conditions, including economic downturns, which can reduce transaction volumes and demand for M&A, capital raising, and advisory services[65] - Profitability may be adversely affected by rising interest rates and inflation, potentially impacting transaction volumes and financial condition[66] - Revenue from CF and FR business segments is highly volatile, with advisory fees contingent on transaction milestones, leading to unpredictable quarterly results[68] - Advisory fees are expected to remain a significant revenue source, but reliance on contingent fees may increase working capital volatility and stock price fluctuations[69] - Acquisitions and joint ventures pose risks, including integration challenges, increased costs, and potential failure to realize anticipated benefits[70][71] - Goodwill and intangible assets totaled 1.32billionasofMarch31,2024,withpotentialimpairmentrisksduetomarketconditionsoroperationalperformance[73]−Internationaloperationscontributed300.4 million in fiscal 2024, compared to 12.1millioninfiscal2023[78]−Retentionofseniorprofessionalsiscritical,withpotentialadverseeffectsonbusinessifkeypersonneldepart[80]−Reputationalandlegalrisksarisefromemployeemisconduct,conflictsofinterest,orfailuretomeetclientexpectations[81][82]−Thecompanyfacesrisksrelatedtoemployeemisconductandpotentialreputationaldamage,whichcouldleadtoregulatorysanctionsandlegalliability[83]−Thecompany′sgrowthinitiativesmaynotachieveexpectedbenefitsduetodelays,increasedcosts,orinaccurateassumptions[84]−Sustaininggrowthrequiresadditionalresources,andfailuretomanageexpansioneffectivelycouldimpactrevenueandexpenses[85]−Operationalrisks,includingrelianceonthird−partyserviceproviders,couldimpairthecompany′sbusinessandreputation[87]−Thecompanyisvulnerabletocyber−attacksandsecuritybreaches,whichcoulddisruptoperationsandleadtofinanciallosses[88]−Revenueisdependentonthenumberoffee−payingclientsandtransactionsize,withasignificantreductionpotentiallyimpactingoperatingresults[90]−Thecompanyaccruednetbaddebtexpenseof7.3 million in fiscal 2024 and 6.4millioninfiscal2023relatedtouncollectibleaccounts[92]−Thecompanyhad37.8 million of other liabilities as of March 31, 2024, and may face challenges servicing future indebtedness[93] - Inflation could increase costs and reduce client demand, adversely affecting the company's financial condition[94] - The company faces intense competition from larger financial institutions and independent advisory firms, which could lead to pricing pressures[97] Financial Instruments and Hedging - The company is not subject to significant market or credit risk, with cash and cash equivalents held in high-credit-rated financial institutions[206] - The company faces foreign currency risk due to cash balances and assets held in non-U.S. accounts, with a net impact of (3.8)million,(19.5) million, and (23.2)millioninothercomprehensiveincomefortheyearsendedMarch31,2024,2023,and2022,respectively[210]−Thecompanyusesforeigncurrencyforwardcontractstohedgeexposuretocurrencyfluctuations,withanotionalvalueof38.3 million and €6.5 million as of March 31, 2024, and 2023, respectively[212] - The company held a foreign currency forward contract between the U.S. dollar and pound sterling with a notional value of 38.3millionasofMarch31,2024[262]−Thefairvalueofforeigncurrencyforwardcontractsresultedinagainof55 included in Other operating expenses for the year ended March 31, 2024[262] Accounting and Financial Reporting - The company's internal control over financial reporting was deemed effective as of March 31, 2024, based on criteria established by the Committee of Sponsoring Organizations of the Treadway Commission[228] - The company's investment securities consist primarily of corporate debt and U.S. treasury securities, classified as trading and measured at fair value[270] - The allowance for credit losses on accounts receivable and unbilled work in progress is estimated using an internal current expected credit losses model[271] - The company's goodwill and intangible assets are reviewed annually for impairment, with no impairment identified as of March 31, 2024[282][283] - The company accounts for income taxes in accordance with ASC Topic 740, recognizing deferred tax assets and liabilities based on enacted tax laws and rates[274] - The company evaluates the potential impact of the OECD's Pillar Two minimum tax on future periods, with EU effective dates starting January 1, 2024[277] - The company recognizes lease liabilities and right-of-use assets based on the present value of future lease payments, utilizing a portfolio approach for similar leases[278] - The company records contract assets for costs incurred in fulfilling advisory contracts with point-in-time revenue recognition, amortizing these costs based on fee revenue recognition[288] - Receivables, net increased to 192,952thousandasofMarch31,2024,comparedto175,023 thousand in the previous year[289] - Unbilled work in progress, net of allowance for credit losses, rose to 192,012thousandfrom115,045 thousand year-over-year[289] - Contract Assets decreased slightly to 6,678thousandfrom7,006 thousand[289] - Contract Liabilities reduced to 33,139thousandfrom40,695 thousand[289] - Revenues recognized from Deferred income were 28.4millionfortheyearendedMarch31,2024,upfrom16.8 million in the previous year[290] - The Company provided financial advisory services to affiliates and related parties, generating fees of 9,044thousandin2024,comparedto284 thousand in 2023 and 0in2022[292]−AccountsreceivableandUnbilledworkinprogressrelatedtotheseserviceswere37 thousand and $7,191 thousand, respectively, as of March 31, 2024[292] Real Estate and Leasing - The company leases office space in multiple U.S. and international locations, with no owned real property, and considers these arrangements adequate for present and future needs[130][131]
Houlihan Lokey(HLI)2024-05-21 20:47