SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Commission File Number: 001-37537

(State or other jurisdiction of

incorporation or organization)

Identification Number)

10250 Constellation Blvd.

Los Angeles, California90067

(Address of principal executive offices) (Zip Code)

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.001	HLI	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” "smaller reporting company" and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	¨☐

		Emerging growth company	¨☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x

As of ~~February 4,~~August 5, 2019, the registrant had ~~34,542,286~~40,920,354 shares of Class A common stock, $0.001 par value per share, and ~~30,870,350~~25,219,080 shares of Class B common stock, $0.001 par value per share, outstanding.

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

~~($ in thousands, except share data and par value)~~(UNAUDITED)

~~The~~See accompanying ~~notes are an integral part of these unaudited interim consolidated financial statements.~~

Notes to Consolidated Financial Statements

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

~~($ in thousands, except share and per share data)~~

~~(unaudited)~~(UNAUDITED)



	Three Months Ended June 30,
(In thousands, except share and per share data)	2019			2018
Revenues	$	250,349		$	220,002
Operating expenses:
Employee compensation and benefits	163,311			139,181
Travel, meals, and entertainment	9,617			9,587
Rent	10,001			8,188
Depreciation and amortization	3,963			3,468
Information technology and communications	5,324			5,589
Professional fees	4,456			6,277
Other operating expenses, net	5,735			7,584
Total operating expenses	202,407			179,874
Operating income	47,942			40,128
Other (income)/expense, net	(1,483		)	(1,606		)
Income before provision for income taxes	49,425			41,734
Provision for income taxes	6,649			12,052
Net income	$	42,776		$	29,682
Other comprehensive income, net of tax:
Foreign currency translation adjustments	(3,971		)	(12,583		)
Comprehensive income	$	38,805		$	17,099

Attributable to Houlihan Lokey, Inc. common stockholders:
Weighted average shares of common stock outstanding:
Basic	61,670,617			62,985,084
Fully diluted	65,621,103			66,154,212
Earnings per share (Note 13)
Basic	$	0.69		$	0.47
Fully diluted	$	0.65		$	0.45

Three Months Ended December 31, Nine Months Ended December 31,
2018 2017 2018 2017
Revenues^(a)
$ 298,013
$ 258,937
$ 793,007
$ 718,611
Operating expenses:
Employee compensation and benefits 187,180
174,308
501,682
481,112
Travel, meals, and entertainment 12,991
8,034
32,689
19,941
Rent 9,987
7,159
28,612
21,308
Depreciation and amortization 3,635
1,971
10,809
6,120
Information technology and communications 5,775
4,424
16,073
13,666
Professional fees 6,087
4,484
18,148
10,242
Other operating expenses, net^(b)
10,099
4,072
26,432
11,538
Total operating expenses 235,754
204,452
634,445
563,927
Operating income 62,259
54,485
158,562
154,684
Other (income) expenses, net^(c)
(672 ) (632 ) (3,285 ) (2,338 )
Income before provision for income taxes 62,931
55,117
161,847
157,022
Provision for income taxes 18,974
(6,466 ) 48,089
22,838
Net income $ 43,957
$ 61,583
$ 113,758
$ 134,184
Other comprehensive income, net of tax:
Foreign currency translation adjustments (2,760 ) 880
(19,038 ) 8,641
Comprehensive income $ 41,197
$ 62,463
$ 94,720
$ 142,825

Attributable to Houlihan Lokey, Inc. common stockholders:
Weighted average shares of common stock outstanding:
Basic 61,972,027
62,552,777
62,399,221
62,338,102
Fully Diluted 65,758,679
66,122,939
65,985,660
66,467,378
Net income per share of common stock (note 13)
Basic $ 0.71
$ 0.98
$ 1.82
$ 2.15
Fully Diluted $ 0.67
$ 0.93
$ 1.72
$ 2.02

~~The~~See accompanying ~~notes are an integral part of these unaudited interim consolidated financial statements.~~

Notes to Consolidated Financial Statements

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

~~Nine Months Ended December 31, 2018 and 2017~~(UNAUDITED)

~~($ in thousands)~~

~~(unaudited)~~

HLI Class A common stock HLI Class B
common stock Treasury Stock
Shares $ Shares $ Shares $ Additional paid-in capital Retained earnings Accumulated other comprehensive loss Stock subscriptions receivable Total stockholders' equity
Balances – April 1, 2017 22,026,811
$ 22
50,883,299
$ 51
(6,900,000 ) $ (193,572 ) $ 854,750
$ 87,407
$ (21,917 ) $ (124 ) $ 726,617
Shares issued —
—
1,306,704
1
—
—
1,961
—
—
—
1,962
Stock compensation vesting (note 14) —
—
—
—
—
—
42,289
—
—
—
42,289
Dividends —
—
—
—
—
—
—
(38,716 ) —
—
(38,716 )
Stock subscriptions receivable redeemed —
—
—
—
—
—
—
—
—
124
124
Retired shares upon settlement of forward purchase agreement —
—
(6,900,000 ) (7 ) 6,900,000
193,572
(193,565 ) —
—
—
—
Conversion of Class B to Class A shares 4,997,392
5
(4,997,392 ) (5 ) —
—
—
—
—
—
—
Shares issued to non-employee directors (note 14) 5,589
—
—
—
—
—
—
—
—
—
—
Shares repurchase program (note 14) (430,237 ) —
—
—
—
—
(15,139 ) —
—
—
(15,139 )
Other shares repurchased/forfeited —
—
(1,000,855 ) (1 ) —
—
(35,188 ) —
—
—
(35,189 )
Adjustment of noncontrolling interest to redeemable value —
—
—
—
—
—
—
(876 ) —
—
(876 )
Net income —
—
—
—
—
—
—
134,184
—
—
134,184
Change in unrealized translation —
—
—
—
—
—
—
—
8,641
—
8,641
Total comprehensive income —
—
—
—
—
—
—
—
—
—
142,825
Balances - December 31, 2017 26,599,555
$ 27
39,291,756
$ 39
—
$ —
$ 655,108
$ 181,999
$ (13,276 ) $ —
$ 823,897

HLI Class A common stock HLI Class B
common stock Treasury Stock
Shares $ Shares $ Shares $ Additional paid-in capital Retained earnings Accumulated other comprehensive loss Stock subscriptions receivable Total stockholders' equity
Balances – April 1, 2018 30,604,405
$ 31
37,187,932
$ 37
(2,000,000 ) $ (93,500 ) $ 753,077
$ 207,124
$ (13,956 ) $ —
$ 852,813
Cumulative effect of the change in accounting principle related to revenue recognition from contracts with clients, net of tax —
—
—
—
—
—
—
(19,681 ) —
—
(19,681 )
Shares issued —
—
1,198,254
1
—
—
9,646
—
—
—
9,647
Stock compensation vesting (note 14) —
—
—
—
—
—
36,732
—
—
—
36,732
Class B shares sold 360,213
—
(360,213 ) —
—
—
—
—
—
—
—
Dividends —
—
—
—
—
—
—
(52,611 ) —
—
(52,611 )
Secondary offering 3,000,000
3
(3,000,000 ) (3 ) —
—
—
—
—
—
—
Retired shares upon settlement of forward purchase agreement —
—
(2,000,000 ) (2 ) 2,000,000
93,500
(93,498 ) —
—
—
�� —
Conversion of Class B to Class A shares 2,020,474
2
(2,020,474 ) (2 ) —
—
—
—
—
—
—
Shares issued to non-employee directors (note 14) 6,570
—
—

—
—
187
—
—
—
187
Other shares repurchased/forfeited (1,480,869 ) (1 ) (93,691 ) —
—
—
(71,139 ) —
—
—
(71,140 )
Net income —
—
—
—
—
—
—
113,758
—
—
113,758
Change in unrealized translation —
—
—
—
—
—
—
—
(19,038 ) —
(19,038 )
Total comprehensive income —
—
—
—
—
—
—
—
—
—
94,720
Balances - December 31, 2018 34,510,793
$ 35
30,911,808
$ 31
—
$ —
$ 635,005
$ 248,590
$ (32,994 ) $ —
$ 850,667



(In thousands, except share data)	Class A common stock					Class B common stock					Treasury Stock
	Shares		$			Shares		$			Shares		$			Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total stockholders' equity
Balances – April 1, 2018	30,604,405		$	31		37,187,932		$	37		(2,000,000	)	$	(93,500	)	$	753,077		$	207,124		$	(13,956	)	$	852,813
Cumulative effect of the change in accounting principle related to revenue recognition from contracts with clients, net of tax	—		—			—		—			—		—			—			(17,687		)	—			(17,687		)
Shares issued	—		—			1,152,675		2			—		—			6,007			—			—			6,009
Stock compensation vesting (Note 14)	—		—			—		—			—		—			14,537			—			—			14,537
Dividends	—		—			—		—			—		—			—			(17,417		)	—			(17,417		)
Secondary offering	3,000,000		3			(3,000,000	)	(3		)	—		—			—			—			—			—
Retired shares upon settlement of forward purchase agreement	—		—			(2,000,000	)	(2		)	2,000,000		93,500			(93,498		)	—			—			—
Conversion of Class B to Class A shares	597,880		1			(597,880	)	(1		)	—		—			—			—			—			—
Shares issued to non-employee directors (Note 14)	4,212		—			—		—			—		—			—			—			—			—
Other shares repurchased/forfeited	(697,000	)	(1		)	(64,251	)	—			—		—			(35,998		)	—			—			(35,999		)
Net income	—		—			—		—			—		—			—			29,682			—			29,682
Change in unrealized translation	—		—			—		—			—		—			—			—			(12,583		)	(12,583		)
Total comprehensive income	—		—			—		—			—		—			—			29,682			(12,583		)	17,099
Balance - June 30, 2018	33,509,497		$	34		32,678,476		$	33		—		$	—		$	644,125		$	201,702		$	(26,539	)	$	819,355



(In thousands, except share data)	Class A common stock			Class B common stock					Treasury Stock
	Shares	$		Shares		$			Shares		$			Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total stockholders' equity
Balances – April 1, 2019	38,200,802	$	38	27,197,734		$	27		—		$	—		$	645,090		$	276,468		$	(30,294	)	$	891,329
Shares issued	—	—		1,491,860		1			—		—			6,456			—			—			6,457
Stock compensation vesting (Note 14)	—	—		—		—			—		—			10,910			—			—			10,910
Class B shares sold	414,071	1		(414,071	)	—			—		—			—			—			—			1
Dividends	—	—		—		—			—		—			—			(20,413		)	—			(20,413		)
Conversion of Class B to Class A shares	2,291,827	2		(2,291,827	)	(2		)	—		—			—			—			—			—
Shares issued to non-employee directors (Note 14)	7,027	—		—		—			—		—			—			—			—			—
Other shares repurchased/forfeited	—	—		(675,403	)	(1		)	(55,164	)	(2,502		)	(31,267		)	—			—			(33,770		)
Net income	—	—		—		—			—		—			—			42,776			—			42,776
Change in unrealized translation	—	—		—		—			—		—			—			—			(3,971		)	(3,971		)
Total comprehensive income	—	—		—		—			—		—			—			42,776			(3,971		)	38,805
Balance - June 30, 2019	40,913,727	$	41	25,308,293		$	25		(55,164	)	$	(2,502	)	$	631,189		$	298,831		$	(34,265	)	$	893,319

See accompanying ~~notes are an integral part of these unaudited interim consolidated financial statements.~~

Notes to Consolidated Financial Statements

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

~~($ in thousands, except share data)~~(UNAUDITED)

~~The~~See accompanying ~~notes are an integral part of these unaudited interim consolidated financial statements.~~

Notes to Consolidated Financial Statements

Table of Contents

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

~~Notes to Consolidated Financial Statements (unaudited)~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(~~All tables and balances are in~~In thousands, except share data or as otherwise stated)

~~(1) BACKGROUND~~Note 1 — Background

Houlihan Lokey, Inc. ("Houlihan Lokey," or "HL, Inc." also referred to as the "Company," "we," "our," or "us") is a Delaware corporation that controls the following primary subsidiaries:

On August 18, 2015, the Company successfully completed an initial public offering ("IPO") of its Class A common stock. Expenses related to the corporate reorganization and IPO recorded in the Consolidated Statements of Comprehensive Income include the following:

Prior to a corporate reorganization that was consummated immediately prior to the closing of the IPO, the Company was incorporated in California as Houlihan Lokey, Inc., a California corporation ("HL CA"), and was a wholly owned indirect subsidiary of Fram Holdings, Inc., a Delaware corporation ("Fram"), which, in turn, was a majority owned subsidiary of ORIX Corporation USA (formerly ORIX USA Corporation), a Delaware corporation ("ORIX USA"), with the remaining minority interest being held by Company employees ("HL Holders"). ORIX USA and the HL Holders held their interests in HL CA indirectly through their ownership of Fram. On July 24, 2015, HL CA merged with and into HL, Inc., with HL, Inc. as the surviving entity. In connection with the IPO, the HL Holders deposited their shares of HL, Inc. Class B common stock into a voting trust (the "HL Voting Trust") and own such common stock through the HL Voting Trust. Houlihan Lokey separated from Fram and as a result, HL, Inc. common stock is held ~~directly~~ by ORIX USA (through ORIX HLHZ Holding, LLC, its wholly owned subsidiary), the HL Voting Trust, for the benefit of the HL Holders, non-employee directors, and public shareholders.

In addition, prior to the consummation of the IPO, the Company distributed to its existing owners a dividend of $270.0 million, consisting of (i) a short-term note in the aggregate amount of $197.2 million, which was repaid immediately after the consummation of the IPO, and was allocated $94.5 million to ORIX USA and $102.7 million to the HL Holders, (ii) a note to ORIX USA in the amount of $45.0 million (see note 10), and (iii) certain of our non-operating assets to certain of the HL Holders (consisting of non-marketable minority equity interests in four separate businesses that ranged in carrying value from $2.5 million to $11.0 million, and were valued in the aggregate at approximately $22.8 million as of June 30, 2015), together with $5.0 million in cash to be used to complete a potential additional investment and in the administration of these assets in the future. All issued and outstanding Fram shares were converted to HL, Inc. common stock at a ratio of 10.425 shares for each share of Fram stock. Immediately following the IPO, there were two classes of authorized HL, Inc. common stock: Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote per share, and each share of Class B common stock is entitled to ten votes per share. Each share of Class B common stock may be converted into one share of Class A common stock at the option of its holder and will be automatically converted into one share of Class A common stock upon transfer thereof, subject to certain exceptions. As of December 31, 2018, there were 33,846,132 Class A shares held by the public, 54,940 Class A shares held by non-employee directors, and 609,721 Class A shares held by ORIX USA. In addition, there were 25,143,594 Class B shares held by the HL Voting Trust, and 5,768,214 Class B shares held by ORIX USA.

~~The Company did not receive any proceeds from the sale of its Class A common stock in the IPO.~~

~~Table of Contents~~

~~HOULIHAN LOKEY, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(All tables and balances are in thousands, except share data or as otherwise stated)~~

~~Expenses related to the corporate reorganization and IPO recorded in the consolidated statements of comprehensive income include the following:~~

~~On February 14, 2017, pursuant to a registered underwritten public offering, we issued and sold 6,000,000 shares of our~~

Class A common stock and certain of our former and current employees and members of our management (the “Selling Stockholders”) sold 2,000,000 shares of our Class A common stock, in each case, at a price to the public of $29.25 per share (the “February 2017 Follow-on Offering”). On March 15, 2017, we issued and sold an additional 900,000 shares of Class A common stock and the Selling Stockholders sold an additional 300,000 shares of Class A common stock in connection with the underwriters’ exercise in full of their option to purchase additional shares in the February 2017 Follow-on Offering.

In connection with, and prior to, the February 2017 Follow-on Offering, on February 6, 2017, we entered into a Forward Share Purchase Agreement (the "February 2017 Forward Share Purchase Agreement"), with an indirect wholly owned subsidiary of ORIX USA pursuant to which we agreed to repurchase from ORIX USA on April 5, 2017 the number of shares of our Class B common stock equal to the number of shares of our Class A common stock sold by us in the February 2017 Follow-on Offering (including any shares sold upon the exercise by the underwriters of their option to purchase additional shares of our Class A common stock) for a purchase price per share equal to the public offering price in the February 2017 Follow-on Offering less underwriting discounts and commissions. The cash proceeds from the February 2017 Follow-on Offering that were used to consummate the purchase pursuant to the February 2017 Forward Share Purchase Agreement were held in an escrow account as of March 31, 2017 and presented as restricted cash as discussed in note 2. On April 5, 2017 we settled the transaction provided for in the February 2017 Forward Share Purchase Agreement and acquired 6,900,000 shares of Class B common stock from ORIX USA using the net proceeds we received from the February 2017 Follow-on Offering. In accordance with the terms of the February 2017 Forward Share Purchase Agreement, the purchase price per share was reduced by the per share amount of the dividend paid to ORIX USA on the shares of our Class B common stock subject to the February 2017 Forward Share Purchase Agreement prior to the settlement of such transaction. As the February 2017 Forward Share Purchase Agreement required physical settlement by purchase of a fixed number of shares in exchange for cash, the 6,900,000 shares that were purchased are excluded from the Company's calculation of basic and diluted earnings per share in the Company's financial statements for the year ended March 31, 2017. In addition, as the agreement provides for the refund of any dividends paid during the term on the underlying Class A common stock, such shares are not classified as participating securities and the Company does not apply the two-class method for calculating its earnings per share.

On October 25, 2017, pursuant to a registered underwritten public offering, ORIX USA sold 1,750,000 shares of our Class A common stock and certain of our former and current employees and members of our management sold 1,750,000 shares of our Class A common stock, in each case, at a price to the public of $42.00 per share, and such transaction closed on October 30, 2017 (the "October 2017 Follow-on Offering"). On November 3, 2017, ORIX USA sold an additional 125,000 shares of Class A common stock and our former and current employees and members of our management sold an additional 125,000 shares of Class A common stock in connection with the underwriters’ partial exercise of their option to purchase additional shares in the offering.

~~Table of Contents~~

~~HOULIHAN LOKEY, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(All tables and balances are in thousands, except share data or as otherwise stated)~~

In connection with, and prior to, the March 2018 Follow-on Offering, on January 26, 2018, we entered into a Forward Share Purchase Agreement (the "January 2018 Forward Share Purchase Agreement"), with an indirect wholly owned subsidiary of ORIX USA pursuant to which we agreed to purchase from ORIX USA on April 5, 2018 the number of shares of our Class B common stock equal to the number of shares of our Class A common stock sold by us in the March 2018 Follow-on Offering for a purchase price per share equal to the public offering price in the March 2018 Follow-on Offering less underwriting discounts and commissions. The cash proceeds from the March 2018 Follow-on Offering that were used to consummate the purchase pursuant to the January 2018 Forward Share Purchase Agreement were held in an escrow account as of March 31, 2018 and presented as restricted cash as discussed in note 2. On April 5, 2018 we settled the transaction provided for in the January 2018 Forward Share Purchase Agreement and acquired 2,000,000 shares of Class B common stock from ORIX USA using the net proceeds we received from the March 2018 Follow-on Offering. As the January 2018 Forward Share Purchase Agreement required physical settlement by purchase of a fixed number of shares in exchange for cash, the 2,000,000 shares that were purchased are excluded from the Company's calculation of basic and diluted earnings per share in the Company's financial statements for the year ended March 31, 2018. In addition, as the agreement provides for the refund of any dividends paid during the term on the underlying Class A common stock, such shares are not classified as participating securities and the Company does not apply the two-class method for calculating its earnings per share.

In April 2018, the Company completed the acquisition of Quayle Munro Limited, an independent advisory firm that provides corporate finance advisory services to companies underpinned by data & analytics, content, software, and services.

In May 2018, the Company completed the acquisition of BearTooth Advisors, an independent advisory business providing strategic advisory and placement agency services to alternative investment managers.

OnIn June ~~4, 2018, pursuant~~2019, the Company exercised its option to ~~a registered underwritten public offering, ORIX USA sold 1,985,983~~acquire the remaining 51% of the shares of ~~our Class A common stock and certain~~Lara (Italy Holdco) Limited ("Lara"). Lara's only operating subsidiary, Houlihan Lokey S.p.A., is an Italian-based company which provides corporate financial advisory services.

Table of ~~our former and current employees and members of our management sold 1,014,017 shares, in each case, at a price to the public of $49.15~~ ~~per~~Contents

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands, except share ~~(the "June 2018 Follow-on Offering"). Concurrently with the closing of the offering, the Company repurchased from ORIX USA 697,000 shares of Class A common stock at a price per share of $49.11.~~data or as otherwise stated)

The Company offers financial services and financial advice to a broad clientele located throughout the United States of America ("U.S."), Europe, and the Middle East and ~~the~~ Asia-Pacific ~~region.~~regions. The Company has U.S. offices in Los Angeles, San Francisco, Chicago, New York City, Minneapolis, McLean (Virginia), Dallas, Houston, Miami, and Atlanta as well as foreign offices in London, Paris, Frankfurt, Madrid, Amsterdam, Dubai, Sydney, Tokyo, Hong Kong, Beijing and Singapore. Together, the Company and its subsidiaries form an organization that provides financial services to meet a wide variety of client needs. The Company concentrates its efforts toward the earning of professional fees with focused services across the following three business segments:

Financial Restructuring provides advice to debtors, creditors and other parties-in-interest in connection with recapitalization/deleveraging transactions implemented both through bankruptcy proceedings and though out-of-court exchanges, consent solicitations or other mechanisms, as well as in distressed mergers and acquisitions and capital markets activities. As part of these engagements, our Financial Restructuring business segment offers a wide range of advisory services to our clients, including: the structuring, negotiation, and confirmation of plans of reorganization; structuring and analysis of exchange offers; corporate viability assessment; dispute resolution and expert testimony; and procuring debtor-in-possession financing. Although atypical, a Financial Restructuring transaction can fail to be completed for many reasons that are outside of our control. In these instances, our fees are generally limited to the initial Retainer Fees and/or Progress Fees.

~~Table of Contents~~

~~HOULIHAN LOKEY, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(All tables and balances are in thousands, except share data or as otherwise stated)~~

Financial Advisory Services primarily provides valuations of various assets, including: companies; illiquid debt and equity securities; and intellectual property (among other assets and liabilities). These valuations are used for financial reporting, tax reporting, and other purposes. In addition, our Financial Advisory Services business segment renders fairness opinions in connection with mergers and acquisitions and other transactions, and solvency opinions in connection with corporate spin-offs and dividend recapitalizations, and other types of financial opinions in connection with other transactions. Also, our Financial Advisory Services business segment provides dispute resolution services to clients where fees are usually based on the hourly rates of our financial professionals. Lastly, our Financial Advisory Services business segment provides strategic consulting services to clients where fees are either fixed or based on the hourly rates of our consulting professionals. Unlike our Corporate Finance or Financial Restructuring segments, the fees generated in our Financial Advisory Services segment are generally not contingent on the successful completion of a transaction.

~~(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~

Financial Restructuring ("FR") provides advice to debtors, creditors and other parties-in-interest in connection with recapitalization/deleveraging transactions implemented both through bankruptcy proceedings and though out-of-court exchanges, consent solicitations or other mechanisms, as well as in distressed mergers and acquisitions and capital markets activities. As part of ~~Presentation~~these engagements, our FR business segment offers a wide range of advisory services to our clients, including: the structuring, negotiation, and confirmation of plans of reorganization; structuring and analysis of exchange offers; corporate viability assessment; dispute resolution and expert testimony; and procuring debtor-in-possession financing. Although atypical, a FR transaction can fail to be completed for many reasons that are outside of our control. In these instances, our fees are generally limited to the Retainer Fees and/or Progress Fees.

Financial Advisory Services ("FAS") primarily provides valuations of various assets, including: companies; illiquid debt and equity securities; and intellectual property (among other assets and liabilities). These valuations are used for financial reporting, tax reporting, and other purposes. In addition, our FAS business segment renders fairness opinions in connection with mergers and acquisitions and other transactions, and solvency opinions in connection with corporate spin-offs and dividend recapitalizations, and other types of financial opinions in connection with other transactions. Also, our FAS business segment provides dispute resolution services to clients where fees are usually based on the hourly rates of our financial professionals. Lastly, our FAS business segment provides strategic consulting services to clients where fees are either fixed or based on the hourly rates of our consulting professionals. Unlike our CF or FR segments, the fees generated in our FAS segment are generally not contingent on the successful completion of a transaction.

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP") ~~and~~, pursuant to the rules and regulations of the ~~United States~~U.S. Securities and Exchange Commission (the "SEC"), and include all information and footnotes required for consolidated financial statement presentation. The results of operations for the ~~nine~~three months ended ~~December 31, 2018~~June 30, 2019 are not necessarily indicative of the results of operations to be expected for the fiscal year ending March 31, ~~2019.~~2020. The unaudited interim consolidated financial statements and notes to consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended March 31, ~~2018.~~2019 (the "2019 Annual Report").

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries where it has a controlling financial interest. All ~~significant~~ intercompany balances and transactions have been eliminated in consolidation.

The Company carries its investments in unconsolidated entities over which it has significant influence but does not control using the equity method, and includes its ownership share of the income and losses in ~~other (income) expenses,~~Other income/(expense), net in the ~~consolidated statements~~Consolidated Statements of ~~comprehensive income.~~Comprehensive Income.

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HOULIHAN LOKEY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands, except share data or as otherwise stated)

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements. Management estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period, and disclosure of contingent assets and liabilities at the reporting date. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Items subject to such estimates and assumptions ~~include:~~include, but are not limited to: the allowance for doubtful accounts; the valuation of deferred tax assets, goodwill, accrued expenses, and share based compensation; the allocation of goodwill and other assets across the reporting units (segments); and reserves for income tax uncertainties and other contingencies.

Revenues consist of fee revenues from advisory services and reimbursed costs incurred in fulfilling the contract. Revenues reflect fees generated from our CF, FR, and FAS business segments. See Note 3 for additional information.

Translation of Foreign Currency Transactions

The reporting currency for the consolidated financial statements of the Company is the U.S. dollar. The assets and liabilities of subsidiaries whose functional currency is other than the U.S. dollar are included in the consolidation by translating the assets and liabilities at the reporting period-end exchange rates; however, revenues and expenses are translated using the applicable exchange rates determined on a monthly basis throughout the fiscal year. Resulting translation adjustments are reported as a separate component of accumulated other comprehensive loss, net of applicable taxes.

From time to time, we enter into transactions to hedge our exposure to certain foreign currency fluctuations through the use of derivative instruments or other methods. As of June 30, 2019, we entered into a foreign currency forward contract between the pound sterling and the U.S. dollar with an aggregate notional value of $20 million. As of June 30, 2018, we entered into a foreign currency forward contract between the euro and pound sterling with an aggregate notional value of EUR 5.7 million. The fair value of these contracts represented a loss included in Other operating expenses, net of $41 and $77 during the three months ended June 30, 2019 and 2018, respectively.

Cash and Cash Equivalents, and Restricted Cash

Cash and cash equivalents include cash held at banks and highly liquid investments with original maturities of three months or less. As of June 30, 2019 and March 31, 2019, the Company had cash balances with banks in excess of insured limits. The Company has not experienced any losses in its cash accounts and believes it is not exposed to any significant credit risk with respect to Cash and cash equivalents.

The following table provides a reconciliation of Cash and cash equivalents, and Restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows.



	June 30, 2019		March 31, 2019
Cash and cash equivalents	$	211,731	$	285,746
Restricted cash ⁽¹⁾	371		369
Total cash, cash equivalents, and restricted cash	$	212,102	$	286,115

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HOULIHAN LOKEY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands, except share data or as otherwise stated)

Recent Accounting Pronouncements

The Financial Accounting Standards Board (the “FASB”) issued the following authoritative guidance amending the FASB Accounting Standards Codification (“ASC”).

On April 1, 2019, we adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), and all related amendments. See Note 16 for additional information.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting which clarifies when changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting. The amended guidance states an entity should account for the effects of a modification unless certain criteria are met, which include that the modified award has the same fair value, vesting conditions and classification as the original award. The Company adopted guidance effective April 1, 2019 and its application did not have a material impact on the consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses - Measurement of Credit Losses on Financial Instruments. The amended guidance involves several aspects of the accounting for credit losses related to certain financial assets that are not accounted for at fair value through net income and includes trade receivables and net investments in leases. The new guidance, and subsequent updates, broadens the information that an entity must consider in developing its estimated credit losses expected to occur over the remaining life of assets measured either collectively or individually to include historical experience, current conditions and reasonable and supportable forecasts, replacing the existing incurred credit loss model and other models with the Current Expected Credit Losses (“CECL”) model. The new guidance expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating credit losses and requires new disclosures of the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. This new guidance is first effective for our fiscal year beginning on April 1, 2020 and will be adopted under a modified retrospective approach. We are evaluating the impact the adoption of this new guidance will have on our financial position and results of operations, which will depend on, among other things, the current and expected macroeconomic conditions and the nature and characteristics of financial assets held by us on the date of adoption.

In 2019, the following ASU became effective, but there was no quantitative or qualitative effect on our financial statements:

ASU 2019-01, Leases - Topic 842: Codification Improvements.

Note 3 — Revenue Recognition

The Company generates revenues from ~~our Corporate Finance (“CF”), Financial Restructuring (“FR”),~~contractual advisory services and ~~Financial Advisory Services (“FAS”) business segments.~~

reimbursed costs incurred in fulfilling those contracts. Revenues for all three business segments (CF, FR, and FAS) are recognized upon satisfaction of the performance obligation, ~~and~~which may be satisfied over time or at a point in time. The amount and timing of the fees paid vary by the type of engagement.

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~~HOULIHAN LOKEY, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(All tables and balances are in thousands, except share data or as otherwise stated)~~

~~In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update ("ASU") No. 2014-09,~~ ~~Revenue from Contracts with Customers~~, which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the standard effective April 1, 2018 and under the new standard, we recognize revenue from contracts with customers upon satisfaction of our performance obligations by transferring the promised services to the customers. A service is transferred to a customer when the customer obtains control of and derives benefit from that service. Revenue from a performance obligation satisfied over time is recognized by measuring our progress in satisfying the performance obligation in a manner that depicts the transfer of the services to the customer.

The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for those promised services (i.e., the “transaction price”). In determining the transaction price, we consider multiple factors, including the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. In determining when to include variable consideration in the transaction price, we consider the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as market volatility or the judgment and actions of third parties. The substantial majority of the Company’s advisory ~~fee~~fees (i.e., ~~the success related~~ Completion Fees) are considered variable and constrained as they are contingent upon a future ~~event~~events, which ~~includes~~include factors outside of our control (e.g., completion of a transaction or third party emergence from bankruptcy or approval by the court).

Revenues from ~~Corporate Finance~~CF engagements primarily consist of fees generated in connection with advisory services related to corporate finance, mergers and acquisitions, and capital markets offerings. Completion Fees from these engagements are recognized at a point in time when the related transaction has been effectively closed. At that time, the Company has transferred control of the promised service and the customer obtains control. ~~Corporate Finance~~CF contracts generally contain a variety of promised services that may be capable of being distinct, but they are not distinct within the context of the contract as the various services are inputs to the combined output of successfully brokering a specific transaction. ~~Effective April 1, 2018, fees received prior to the completion~~

Table of ~~the transaction including Retainer Fees and Progress Fees are deferred within deferred income in the consolidated balance sheets and not recognized until the performance obligation is satisfied,~~Contents

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands, except share data or when the transaction is deemed by management to be terminated. Management’s judgment is required in determining when a transaction is considered to be terminated. Prior to April 1, 2018, the timing of the recognition of these various fees were generally recognized on a monthly basis, except in situations where there is uncertainty as to the timing of collection of the amount due. Progress Fees were recognized based on management’s estimates of the relative proportion of services provided through the financial reporting date to the total services required to be performed.otherwise stated)

Revenues from ~~Financial Restructuring~~FR engagements primarily consist of fees generated in connection with advisory services to debtors, creditors and other parties-in-interest involving recapitalization or deleveraging transactions implemented both through bankruptcy proceedings and through out-of-court exchanges, consent solicitations or other mechanisms, as well as in distressed mergers and acquisitions and capital markets activities. Retainer Fees and Progress Fees from restructuring engagements are recognized over timeusing a time elapsed measure of progressas our clients simultaneously receive and consume the benefits of those services as they are provided. Completion Fees from these engagements are recognized at a point in time when the related transaction has been effectively closed. At that time, the Company has transferred control of the promised service and the customer obtains control.

Revenues from ~~Financial Advisory Services~~FAS engagements primarily consist of fees generated in connection with valuation and diligence services and rendering fairness, solvency and other financial opinions. Revenues are recognized at a point in time as these engagements include a singular objective that does not transfer any notable value to the Company’s clients until the opinions have been rendered and delivered to the client. However, certain engagements consists of advisory services where fees are usually based on the hourly rates of our financial professionals. Such revenues are recognized over time as the benefits of these advisory services are transferred to the Company’s clients throughout the course of the engagement and as a practical expedient, the Company has elected to use the ‘as-invoiced’ approach to recognize revenue.

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~~HOULIHAN LOKEY, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(All tables and balances are in thousands, except share data or as otherwise stated)~~

Taxes, including value added taxes, collected from customers and remitted to governmental authorities are accounted for on a net basis, and therefore, are excluded from revenue in the ~~consolidated statements~~Consolidated Statements of ~~comprehensive income.~~Comprehensive Income.

Disaggregation of Revenues

The Company disaggregates revenues based on its business segment and geographical area results and believes that the same information provides a reasonable representation of how performance obligations relate to the nature, amount, timing and uncertainty of revenue and cash flows. See Note 18 for additional information.

The timing of revenue recognition may differ from the timing of payment by customers. The Company records a receivable when revenue is recognized prior to payment and there is an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred income (contract liability) until the performance obligations are satisfied.

Costs incurred in fulfilling advisory contracts with point-in-time revenue recognition are recorded as a contract asset when the costs (i) relate directly to a contract, (ii) generate or enhance resources of the Company that will be used in satisfying performance obligations, and (iii) are expected to be recovered. The Company amortizes the contract asset costs related to fulfilling a contract based on recognition of fee revenues for the corresponding contract. As the Company changed the presentation of costs incurred in fulfilling advisory contracts from a net presentation within non-compensation expenses to a gross basis in revenues, the Company records a contract liability for the reimbursable costs incurred until the fee revenue is recognized.

Costs incurred in fulfilling an advisory contract with over-time revenue recognition are expensed as incurred.

The change in the Company’s contract assets and liabilities during the period primarily reflects the timing difference between the Company’s performance and the customer’s payment. The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers:



	April 1, 2019		Increase/(Decrease)			June 30, 2019
Receivables ⁽¹⁾	$	64,797	$	(3,507	)	$	61,290
Unbilled work in process, net of allowance for doubtful accounts	71,891		106			71,997
Contract Assets ⁽¹⁾	6,033		595			6,628
Contract Liabilities ⁽²⁾	27,812		1,407			29,219

The majority of the Company’s operating expenses are related to compensation for employees, which includes the amortization of the relevant portion of the Company’s share-based incentive plans (note 14). Other examples of operating expenses include: travel, meals and entertainment; rent; depreciation and amortization; information technology and communications; professional fees; and other operating expenses, which include such items as office expenses, business license and registration fees, provision for bad debts, non-income-related taxes, legal expenses, related-party support services, and charitable contributions.

~~The reporting currency for~~

During the ~~consolidated financial statements~~quarter ended June 30, 2019, $9,040 of ~~the Company is the U.S. dollar. The assets and liabilities of subsidiaries whose functional currency is other than the U.S. dollar are~~Revenues were recognized that were included in the ~~consolidation by translating the assets and liabilities~~Deferred income balance at the reporting period-end exchange rates; however, revenues and expenses are translated using the applicable exchange rates determined on a monthly basis throughout the year. Resulting translation adjustments are reported as a separate component of accumulated other comprehensive loss, net of applicable taxes.

From time to time, we enter into transactions to hedge our exposure to certain foreign currency fluctuations through the use of derivative instruments or other methods. We had no foreign currency forward contract outstanding as of December 31, 2018. In December 2017, we entered into a foreign currency forward contract between the euro and pound sterling with an aggregate notional value of approximately EUR 10.5 million and with a fair value representing a gain included in other operating expenses of $117 during the three months ended December 31, 2017.

~~Property and equipment are stated at cost. Repair and maintenance charges are expensed as incurred and costs of renewals or improvements are capitalized at cost.~~

~~Depreciation on furniture and office equipment is provided on a straight-line basis over the estimated useful lives~~beginning of the ~~respective assets. Leasehold improvements are depreciated over the lesser of the lease term or estimated useful life.~~

Cash and cash equivalents include cash held at banks and highly liquid investments with original maturities of three months or less. As of December 31, 2018 and March 31, 2018, the Company had cash balances with banks in excess of insured limits. The Company has not experienced any losses in its cash accounts and believes it is not exposed to any significant credit risk with respect to cash and cash equivalents.period.

~~In November 2016, the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows: Restricted Cash~~. The amendments in this ASU require restricted cash and restricted cash equivalents to be included with the cash and cash equivalents balances when reconciling the beginning-of-period and end-of-period amounts shown on the statements of cash flows. ASU 2016-18 is effective for interim and annual reporting periods beginning after December 15, 2017 (fiscal year ending March 31, 2019 for the Company) with early adoption permitted. In April 2018, the Company adopted ASU No. 2016-18 and it did not have a material impact on the Company's operating results and financial position.

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HOULIHAN LOKEY, INC. AND SUBSIDIARIES

~~Notes to Consolidated Financial Statements (unaudited)~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(~~All tables and balances are in~~In thousands, except share data or as otherwise stated)

As a practical expedient, the Company does not disclose information about remaining performance obligations pertaining to (i) contracts that have an original expected duration of one year or less, and/or (ii) contracts where the variable consideration is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that is or forms part of a single performance obligation. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material at June 30, 2019.

Note 4 — Related Party Transactions

The Company provides financial advisory services to ORIX USA and its affiliates and certain other related parties, and received fees for these services totaling approximately $100 and $2,297 during the three months ended June 30, 2019 and 2018, respectively.

The Company provides certain management and administrative services for the Company's unconsolidated entities and receives fees for these services. These fees are offset with the compensation costs related to the administrative staffs. As a result, the Company received net fees of $126 and $0 during the three months ended June 30, 2019 and 2018, respectively.

On March 12, 2018, pursuant to a registered underwritten public offering, we issued and sold 2,000,000 shares of our Class A common stock and certain of our former and current employees and members of our management sold 2,000,000 shares of our Class A common stock, in each case, at a price to the public of $47.25 per share (the “March 2018 Follow-on Offering”). In connection with, and prior to, the March 2018 Follow-on Offering, on January 26, 2018, we entered into a Forward Share Purchase Agreement (the "January 2018 Forward Share Purchase Agreement"), with an indirect wholly owned subsidiary of ORIX USA pursuant to which we agreed to purchase from ORIX USA on April 5, 2018 the number of shares of our Class B common stock equal to the number of shares of our Class A common stock sold by us in the March 2018 Follow-on Offering for a purchase price per share equal to the public offering price in the March 2018 Follow-on Offering less underwriting discounts and commissions. On April 5, 2018, the Company settled the transaction provided for in the January 2018 Forward Share Purchase Agreement and acquired 2,000,000 shares of Class B common stock from ORIX USA using the net proceeds we received from the March 2018 Follow-on Offering and the shares were retired. In accordance with the terms of the January 2018 Forward Share Purchase Agreement, the purchase price per share under the January 2018 Forward Share Purchase Agreement was reduced by the per share amount of the dividend paid to ORIX USA on the shares of our Class B common stock subject to the January 2018 Forward Share Purchase Agreement prior to the settlement of the transaction.

On June 4, 2018, pursuant to a registered underwritten public offering, ORIX USA sold 1,985,983 shares of our Class A common stock and certain of our former and current employees and members of our management sold 1,014,017 shares, in each case, at a price to the public of $49.15 per share (the "June 2018 Follow-on Offering"). Concurrently with the closing of the offering, the Company repurchased from ORIX USA 697,000 shares of Class A common stock at a price per share of $49.11.

On May 30, 2019, pursuant to a registered underwritten public offering, ORIX USA sold 3,000,000 shares of our Class A common stock to the public at a price of $45.80.

In the accompanying Consolidated Balance Sheets, the Company carried accounts receivable and unbilled work in progress from related parties totaling approximately $19 and $3 as of June 30, 2019 and March 31, 2019, respectively. The Company also deferred income from related parties for service fees totaling $0 and $34 as of June 30, 2019 and March 31, 2019, respectively.

Other assets in the accompanying Consolidated Balance Sheets includes loans receivable from certain employees of $14,062 and $15,228 as of June 30, 2019, and March 31, 2019, respectively.

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HOULIHAN LOKEY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands, except share data or as otherwise stated)

Note 5 — Fair Value Measurements

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels in accordance with ASC Topic 820, Fair Value Measurement:

For level 3 investments in which pricing inputs are unobservable and limited market activity exists, management's determination of fair value is based upon the best information available and may incorporate management's own assumptions or involve a significant degree of judgment.

The following methods and assumptions were used by the Company in estimating fair value disclosures:

The following table ~~provides~~presents information about the Company's financial assets, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair values:



	June 30, 2019
	Level I		Level II		Level III		Total
Corporate debt securities	$	—	$	16,800	$	—	$	16,800
U.S. treasury securities	—		16,240		—		16,240
Total asset measured at fair value	$	—	$	33,040	$	—	$	33,040



	March 31, 2019
	Level I		Level II		Level III		Total
Corporate debt securities	$	—	$	116,577	$	—	$	116,577
U.S. treasury securities	—		8,681		—		8,681
Total asset measured at fair value	$	—	$	125,258	$	—	$	125,258

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given investment is based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a ~~reconciliation~~particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the instrument.

The Company had no transfers between fair value levels during the three months ended June 30, 2019.

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HOULIHAN LOKEY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands, except share data or as otherwise stated)

measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best information available in the circumstances, including expected cash flows and appropriately risk-adjusted discount rates, as well as available observable and unobservable inputs.

The carrying value of Cash and cash equivalents, Restricted cash, Accounts receivable, Unbilled work in process, Receivables from affiliates, Accounts payable and ~~restricted cash reported within the consolidated balance sheets that sum~~accrued expenses, and Deferred income approximates fair value due to the ~~total~~short maturity of these instruments.

The carrying value of the ~~same such amounts shown~~loans to employees included in Other assets, Loans payable to former shareholders and an unsecured loan which is included in Loan payable to non-affiliate, approximates fair value due to the ~~consolidated statements of cash flows.~~

variable interest rate borne by those instruments.

December 31, 2018 December 31, 2017
Cash and cash equivalents $ 256,401
$ 197,178
Restricted cash 368
—
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 256,769
$ 197,178

~~Restricted cash at December 31, 2018 represented a deposit in support of a letter of credit issued for our Frankfurt office.~~Note 6 — Investment Securities

Investment securities consist of corporate debt and U.S. Treasury ~~and certificates of deposit~~securities with original maturities over 90 days. As of June 30, 2018, the Company classified its investment securities as held-to-maturity. As of December 31, 2018, the Company has reclassified its investment securities from held-to-maturity to trading ~~as it may sell them with the intent to recognize short-term gains or losses~~ and ~~records~~measures them at fair ~~market value.~~value in the Consolidated Balance Sheets. Unrealized holding gains and losses for trading securities are included in Other operating expense, net in the accompanying Consolidated Statements of Comprehensive Income.

The amortized cost, gross unrealized gains (losses), and fair value of trading securities were as follows:



	June 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Corporate debt securities	$	16,488	$	314	$	(2	)	$	16,800
U.S. treasury securities	15,959		281		—			16,240
Total securities with unrealized gains	$	32,447	$	595	$	(2	)	$	33,040



	March 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value
Corporate debt securities	$	116,220	$	372	$	(15	)	$	116,577
U.S. treasury securities	8,608		73		—			8,681
Total securities with unrealized gains	$	124,828	$	445	$	(15	)	$	125,258

Scheduled maturities of the Company's debt securities within the investment securities portfolio were as follows:



	June 30, 2019				March 31, 2019
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due within one year	$	5,951	$	5,985	$	96,109	$	96,175
Due within years two through five	26,496		27,055		28,719		29,083
Total debt within the investment securities portfolio	$	32,447	$	33,040	$	124,828	$	125,258

Note 7 — Allowance for Doubtful Accounts

The allowance for doubtful accounts on receivables reflects management’s best estimate of probable inherent losses determined principally on the basis of historical experience and review of uncollected revenues and is recorded through provision for bad debts which is included in other operating expenses, net in the accompanying ~~consolidated statements~~Consolidated Statements of ~~comprehensive income.~~Comprehensive Income. Amounts deemed to be uncollectible are written off against the allowance for doubtful accounts.

Prior to the IPO, ORIX USA and its subsidiaries, including the Company, filed consolidated federal income tax returns and separate returns in state and local jurisdictions and did so for fiscal 2016 through the date of the IPO. The Company reported income tax expense as if it filed separate returns in all jurisdictions. Following the IPO, the Company files a consolidated federal income tax return separate from ORIX USA, as well as consolidated and separate returns in state and local jurisdictions, and the Company reports income tax expense on this basis.

We account for income taxes in accordance with Accounting Standards Codification 740 (“ASC 740”), “Income Taxes,” which requires the recognition of tax benefits or expenses on temporary differences between the financial reporting and tax basis of our assets and liabilities. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. The measurement of the deferred items is based on enacted tax laws and applicable tax rates. A valuation allowance related to a deferred tax asset is recorded if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

The Company utilized a comprehensive model to recognize, measure, present, and disclose in its financial statements any uncertain tax positions that have been taken or are expected to be taken on a tax return. The impact of an uncertain tax position that is more likely than not to be sustained upon audit by the relevant taxing authority must be recognized at the largest amount that is more likely than not to be sustained. No portion of an uncertain tax position will be recognized if the position has less than a 50% likelihood of being sustained. Interest expense and penalties related to income taxes are included in the provision for income taxes in the accompanying consolidated statements of comprehensive income.

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HOULIHAN LOKEY, INC. AND SUBSIDIARIES

~~Notes to Consolidated Financial Statements (unaudited)~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(~~All tables and balances are in~~In thousands, except share data or as otherwise stated)

~~On December 22, 2017,~~



	Three Months Ended June 30,
	2019			2018
Beginning balance	$	5,596		$	11,391
Provision for bad debt	(21		)	384
Recovery/(write-off) of uncollectible accounts	155			(748		)
Ending balance	$	5,730		$	11,027

Note 8 — Property and Equipment

Property and equipment are stated at cost. Repair and maintenance charges are expensed as incurred and costs of renewals or improvements are capitalized at cost. Depreciation on furniture and office equipment is recognized on a straight-line basis over the ~~SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects~~estimated useful lives of the ~~Tax Cuts~~respective assets. Leasehold improvements are recorded as prepaid assets and ~~Jobs Act (the “Tax Act”). SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date~~included within fixed lease payments. See Note 16 for ~~companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects~~additional information.

Property and equipment, net of ~~those aspects~~accumulated depreciation consist of the ~~Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able~~following:



	Useful Lives	June 30, 2019			March 31, 2019
Equipment	5 Years	$	8,259		$	7,916
Furniture and fixtures	5 Years	19,738			19,445
Leasehold improvements	10 Years	39,699			34,370
Computers and software	3 Years	14,039			11,499
Other	N/A	1,115			1,117
Total cost		82,850			74,347
Less: accumulated depreciation		(46,400		)	(43,313		)
Total net book value		$	36,450		$	31,034

Additions to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

~~In accordance with SAB 118, the Company made estimates~~property and ~~recorded provisional amounts for the Tax Act~~equipment during the ~~year~~three months ended March 31, 2018, including re-measurement of deferred tax assets and liabilities as well as the one-time deemed repatriation transition tax (the “Toll Charge”) on certain un-repatriated earnings of non-U.S. subsidiaries. As of the quarter ended December 31, 2018, the Company finalized the provisional estimates made under SAB 118. In particular, we revised the provisional estimate made for the Toll Charge obligation and recognized additional taxJune 30, 2019 were primarily related to leasehold improvement costs incurred.

Depreciation expense of ~~$1,313 resulting in an insignificant impact to~~approximately $2,409 and $2,147 was recognized during the ~~effective tax rate. The Company included these adjustments within income tax expense from continuing operations. The Global~~three months ended June 30, 2019 and 2018, respectively.

Note 9 — Goodwill and Other Intangible Low-Taxed Income tax (“GILTI inclusion”) can be recognized in the financial statements through an accounting policy election by either recording a period cost (permanent item) or providing deferred income taxes stemming from certain basis differences that are expected to result in GILTI inclusion. The Company has elected to account for the tax impacts of the GILTI inclusion as a period cost. The Company's estimated tax impact as a result of the Tax Act was based upon the information and guidance available as of December 31, 2018. As the Company continues its analysis of the Tax Act, estimates may be impacted by changes in interpretations of tax law or assumptions the Company has made in conjunction with the release of additional regulatory guidance.Assets

Goodwill represents an acquired company’s acquisition cost over the fair value of acquired net tangible and intangible assets. Goodwill is the net asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Intangible assets identified and accounted for include tradenames and marks, backlog, developed technologies, and customer relationships. Those intangible assets with finite lives, including backlog and customer relationships, are amortized over their estimated useful lives.

~~When HL CA was acquired by Fram in January 2006, approximately $392,600 of goodwill and $192,210 of indefinite-lived intangible assets were generated and recognized. In accordance with ASC Topic 805,~~ ~~Business Combinations~~, since HL CA was wholly owned by Fram, this goodwill and all other purchase accounting-related adjustments were pushed down to the Company’s reporting level. Through both foreign and domestic acquisitions made directly by HL CA and the Company since 2006, additional goodwill of approximately $201,401, inclusive of foreign currency translations, has been recognized.

Goodwill is reviewed annually for impairment and more frequently if potential impairment indicators exist. Goodwill is reviewed for impairment in accordance with ~~ASU~~Accounting Standards Update ("ASU") No. 2011-08, Testing Goodwill for Impairment, which permits management to make a qualitative assessment of whether it is more likely than not that one of its reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If management concludes that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then management would not be required to perform the two-step impairment test for that reporting unit. If the assessment indicates that it is more likely than not that the reporting unit’s fair value is less than its carrying value, management must test further for impairment utilizing a two-step process. Step 1 compares the estimated fair value of the reporting unit with its carrying value, including goodwill. If the carrying value of the reporting unit exceeds the estimated fair value, an impairment exists and is measured in Step 2 as the excess of the recorded amount of goodwill over the implied fair value of goodwill resulting from the valuation of the reporting unit. Impairment testing of goodwill requires a significant amount of judgment in assessing qualitative factors and estimating the fair value of the reporting unit, if necessary. The fair value is determined using an estimated market value approach, which considers estimates of future after tax cash flows, including a terminal value based on market earnings multiples, discounted at an appropriate market rate. As of ~~December 31, 2018~~June 30, 2019 , management concluded that it was not more likely than not that the Company’s reporting units’ fair value was less than their carrying amount and no further impairment testing had been considered necessary.

Table of Contents

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

~~Notes to Consolidated Financial Statements (unaudited)~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(~~All tables and balances are in~~In thousands, except share data or as otherwise stated)

Indefinite-lived intangible assets are reviewed annually for impairment in accordance with ASU 2012-02, Testing Indefinite-lived Intangible Assets for Impairment, which provides management the option to perform a qualitative assessment. If it is more likely than not that the asset is impaired, the amount that the carrying value exceeds the fair value is recorded as an impairment expense. As of ~~December 31, 2018,~~June 30, 2019, management concluded that it was not more likely than not that the fair values were less than the carrying values.

Intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group (inclusive of other long-lived assets) be tested for possible impairment, management first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. As of ~~December 31, 2018,~~June 30, 2019, no events or changes in circumstances were identified that indicated that the carrying amount of the finite-lived intangible assets were not recoverable.

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers~~, which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity should also disclose sufficient quantitative and qualitative information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB issued ASU No. 2015-14, ~~Revenue from Contracts with Customers~~, ~~Deferral of Effective Date~~ ~~which deferred the effective date of the new standard to annual and interim periods within that reporting period beginning after December 15, 2017 (fiscal year ending March 31, 2019 for the Company).~~ The ~~Company adopted the standard effective April 1, 2018 using the modified retrospective method which requires the recognition~~following table provides a reconciliation of a cumulative-effect adjustment as of that date. Results for periods beginning after March 31, 2018 are presented under the new revenue and cost recognition guidance, while prior period amounts were not restated and continue to be reported in accordance with the Company's previous revenue and cost recognition policies. The Company applied the new standard to contracts that have not yet been completed as of the adoption date. The Company’s adoption efforts included the identification of revenue within the scope of the standard and the evaluation of revenue contracts.

Upon adoption, the Company recorded a cumulative effect adjustment that resulted in a reduction in retained earnings of $19.7 million, a reduction in deferred tax liabilities of $7.4 million and an increase to deferred income of $24.4 million. This cumulative adjustment was related to certain engagements for which revenue was being recognized over time prior to adoption which are now recognized point-in-time under the new standard. See notes 2(d) and 3 for further information.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~. The amendments in this ASU requires lessees to recognize right-of-use assets and lease liabilities in the consolidated balance sheets for all leases with terms longer than 12 months. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize a right-of-use asset and lease liability. Additionally, when measuring assets and liabilities arising from a lease, optional payments should be included only if the lessee is reasonably certain to exercise an option to extend the lease, exercise a purchase option, or not exercise an option to terminate the lease. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018 (year ending March 31, 2020 for the Company). Early application is permitted. We are in the process of identifying changes to our business processes, systems and controls to support adoption of the new guidance. This new guidance will impact our financial position and results of operations. We are evaluating the magnitude of such impact. See note 16 for a summary of our undiscounted minimum rental commitments under operating leases as of December 31, 2018.

~~Table of Contents~~

~~HOULIHAN LOKEY, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(All tables and balances are in thousands, except share data or as otherwise stated)~~

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments~~. The amendments in this ASU include eight specific guidance measures for cash flow classification issues for (1) debt prepayment or debt extinguishment costs, (2) debt instruments with coupon interest rates, (3) contingent consideration payments made after a business combination, (4) settlement proceeds from insurance claims, (5) settlement proceeds from corporate-owned life insurance policies, (6) distributions received from equity method investees, (7) beneficial interests in securitization transactions, and (8) classification of cash receipts and payments that have aspects of more than one class of cash flows. ASU 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017 (fiscal year ending March 31, 2019 for the Company). Application of this guidance resulted in some changes in classification in the consolidated statements of cash flows, but did not have a material impact on our consolidated financial position or results of operations.

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Intangible -~~ Goodwill and ~~Other: Simplifying the Test for Goodwill Impairment~~. The amendments in this ASU do not change the guidance on Step 1 of the goodwill impairment test but eliminates the requirement to calculate an implied goodwill value using Step 2. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value but should not exceed the total amount of goodwill allocated to that reporting unit. Also, an entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU No. 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019 (fiscal year ending March 31, 2021 for the Company) with early adoption permitted. The Company adopted guidance effective April 1, 2018 and its application did not have a material impactother intangibles, net reported on the ~~consolidated financial statements and related disclosures.~~Consolidated Balance Sheets.

~~In January 2017, the FASB issued ASU 2017-01~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~. The clarified guidance provides a more defined framework to use in determining when a set of assets and activities constitute a business. The clarified definition was effective for the Company on April 1, 2018 and was applied on a prospective basis. Application of this guidance did not have an effect on the consolidated financial statements and related disclosures.



	Useful Lives	June 30, 2019			March 31, 2019
Goodwill ⁽¹⁾	Indefinite	$	605,026		$	594,812
Tradename-Houlihan Lokey ⁽¹⁾	Indefinite	192,210			192,210
Other intangible assets	Varies	16,919			18,614
Total cost		814,155			805,636
Less: accumulated amortization		(10,314		)	(11,032		)
Goodwill and other intangibles, net		$	803,841		$	794,604
Deferred tax liability ⁽¹⁾		(51,676		)	(51,676		)
Total net book value, after taxes		$	752,165		$	742,928

~~In May 2017, the FASB issued ASU 2017-09~~ ~~Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting~~ which clarifies when changes to the terms or conditions of share-based payment awards require an entity to apply modification accounting. The amended guidance states an entity should account for the effects of a modification unless certain criteria are met which include that the modified award has the same fair value, vesting conditions and classification as the original award. The guidance is first effective for our fiscal year beginning April 1, 2019 on a prospective basis; however, early adoption is permitted. Given that this guidance applies to specific transactions and would only become relevant in certain circumstances, we are unable to estimate the impact, if any, this new guidance may have on our financial position.

~~(n)~~(1)

~~Reclassifications~~When HL CA was acquired by Fram in January 2006, approximately $392,600 of goodwill and $192,210 of indefinite-lived intangible assets were generated and recognized. In accordance with ASC Topic 805, Business Combinations, since HL CA was wholly owned by Fram, this goodwill and all other purchase accounting-related adjustments were pushed down to the Company’s reporting level. Through both foreign and domestic acquisitions made directly by HL CA and the Company since 2006, additional goodwill of approximately $212,426, inclusive of foreign currency translations, has been recognized.

~~Certain reclassifications have been made to conform the prior period consolidated financial statements and notes to the current period presentation.~~

~~(3) REVENUE RECOGNITION~~

The Company adopted the new revenue recognition standard effective April 1, 2018 which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company is using the modified retrospective method that results in the Company prospectively changing the presentation of reimbursements of certain out-of-pocket expenses from a net presentation within non-compensation expenses to a gross basis in revenues. This resulted in an increase in both revenues and related out-of-pocket expenses of approximately $8.9 million and $25.3 million for the three and nine months ended December 31, 2018, respectively.

~~Table of Contents~~

~~HOULIHAN LOKEY, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(All tables and balances are in thousands, except share data or as otherwise stated)~~

The following table summarizes the effects of adopting the new revenue recognition standard on the Company’s consolidated statements of comprehensive income for the three and nine months ended December 31, 2018.

Three Months Ended December 31, 2018
As reported Excluding adoption of ASC 606 Adjustments
Revenues $ 298,013
$ 284,609
$ 13,404
Operating expenses:
Employee compensation and benefits 187,180
187,163
17
Travel, meals, and entertainment 12,991
9,062
3,929
Rent 9,987
9,987
—
Depreciation and amortization 3,635
3,635
—
Information technology and communications 5,775
5,540
235
Professional fees 6,087
5,147
940
Other operating expenses 10,099
6,068
4,031
Total operating expenses 235,754
226,602
9,152
Income before provision for income taxes 62,931
58,679
4,252
Provision for income taxes 18,974
17,711
1,263
Net income $ 43,957
$ 40,968
$ 2,989

Nine Months Ended December 31, 2018
As reported Excluding adoption of ASC 606 Adjustments
Revenues $ 793,007
$ 763,353
$ 29,654
Operating expenses:
Employee compensation and benefits 501,682
501,640
42
Travel, meals, and entertainment 32,689
22,208
10,481
Rent 28,612
28,612
—
Depreciation and amortization 10,809
10,809
—
Information technology and communications 16,073
15,352
721
Professional fees 18,148
15,129
3,019
Other operating expenses 26,432
15,206
11,226
Total operating expenses 634,445
608,956
25,489
Income before provision for income taxes 161,847
157,682
4,165
Provision for income taxes 48,089
46,851
1,238
Net income $ 113,758
$ 110,831
$ 2,927

~~Disaggregation of Revenue~~

The Company disaggregates revenue based on its business segment and geographical area results and believes that the same information provides a reasonable representation of how performance obligations relate to the nature, amount, timing and uncertainty of revenue and cash flows. See note 17.

~~Contract Balances~~

~~Table of Contents~~

~~HOULIHAN LOKEY, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(All tables and balances are in thousands, except share data or as otherwise stated)~~

Costs incurred in fulfilling advisory contracts with point-in-time revenue recognition are recorded as a contract asset when the costs (i) relate directly to a contract, (ii) generate or enhance resources of the Company that will be used in satisfying performance obligations, and (iii) are expected to be recovered. The Company amortizes the contract asset costs related to fulfilling a contract based on recognition of fee revenue for the corresponding contract. As the Company is prospectively changing the presentation of costs incurred in fulfilling advisory contracts from a net presentation within non-compensation expenses to a gross basis in revenues, the Company records a contract liability for the reimbursable costs incurred until the fee revenue is recognized.

~~Costs incurred in fulfilling an advisory contract with over-time revenue recognition are expensed as incurred.~~

Balance as of
April 1, 2018 ⁽³⁾
Decrease Balance as of
December 31, 2018
Receivables ⁽¹⁾
$ 77,259
$ (16,775 ) $ 60,484
Contract Assets ⁽¹⁾
$ 4,675
$ 206
$ 4,881
Contract Liabilities ⁽²⁾
$ 31,811
$ (3,289 ) $ 28,522

~~(1) Included in Accounts receivable in the December 31, 2018 consolidated balance sheet~~

~~(2) Deferred income in the December 31, 2018 consolidated balance sheet~~

~~(3) See note 2 (m)~~

As a practical expedient, the Company does not disclose information about remaining performance obligations pertaining to (i) contracts that have an original expected duration of one year or less and/or (ii) contracts where the variable consideration is allocated entirely to a wholly unsatisfied promise to transfer a distinct service that is or forms part of a single performance obligation. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material at December 31, 2018.

~~(4) RELATED PARTY TRANSACTIONS~~

The Company provides financial advisory services to ORIX USA and its affiliates and certain other related parties, and received fees for these services totaling approximately $197 and $0 during the three months ended December 31, 2018 and 2017, respectively, and $8,692 and $2,806 during the nine months ended December 31, 2018 and 2017, respectively.

The Company provides certain management and administrative services for the Company's unconsolidated entities and receives fees for these services. These fees are offset with the compensation costs related to the administrative staffs. As a result, the Company received net fees of $51 and $78 during the three months ended December 31, 2018 and 2017, respectively, and received net fees of $275 and $212 during the nine months ended December 31, 2018 and 2017, respectively.

In November 2015, the Company entered into a joint venture arrangement with Leonardo & Co. NV, a European-based investment banking firm ("Leonardo"), in relation to Leonardo's Italian business by means of acquisition of a minority (49%) interest. In conjunction with this transaction, a subsidiary of the Company loaned the joint venture EUR 5,500 ($6,592 and $6,034 as of December 31, 2018 and March 31, 2018, respectively) which is included in receivables from affiliates and which bears interest at 1.5% and matures no later than November 2025. Interest income earned by the Company related to this receivable from affiliate was approximately $24 for each of the three months ended December 31, 2018 and 2017, and $72 for each of the nine months ended December 31, 2018 and 2017. Included in receivables from affiliates is also reimbursable third party costs incurred on behalf of Leonardo totaling approximately $435 and $2,698 as of December 31, 2018 and March 31, 2018, respectively.

~~Table of Contents~~

~~HOULIHAN LOKEY, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(All tables and balances are in thousands, except share data or as otherwise stated)~~

As described in note 1 above, in connection with, and prior to, the February 2017 Follow-on Offering, on February 6, 2017, the Company entered into the February 2017 Forward Share Purchase Agreement, pursuant to which the Company agreed to repurchase from ORIX USA on April 5, 2017 the number of shares of our Class B common stock equal to the number of shares of our Class A common stock sold by the Company in the February 2017 Follow-on Offering (including any shares sold upon the exercise by the underwriters of their option to purchase additional shares of our Class A common stock) for a purchase price per share equal to the public offering price in the February 2017 Follow-on Offering less underwriting discounts and commissions. On April 5, 2017, the Company settled the transaction provided for in the February 2017 Forward Share Purchase Agreement and acquired 6,900,000 shares of Class B common stock from ORIX USA using the net proceeds we received from the February 2017 Follow-on Offering and the shares were retired. In accordance with the terms of the February 2017 Forward Share Purchase Agreement, the purchase price per share under the February 2017 Forward Share Purchase Agreement was reduced by the per share amount of the dividend paid to ORIX USA on the shares of our Class B common stock subject to the February 2017 Forward Share Purchase Agreement prior to the settlement of the transaction.

In July 2017, the Company purchased the remaining interest of Houlihan Lokey (Australia) Pty Limited ("HL Australia"), which was historically operating as our joint venture in Australia. As part of the consideration paid, a loan receivable from certain principals of the joint venture was forgiven. In addition, as a result of the acquisition we eliminated from our consolidated financial statements as of December 31, 2018 a loan agreement entered into with HL Australia in February 2017 for AUD 2,500 ($2,001 as of July 31, 2017) which bore interest at 2.0% and was previously included in receivables from affiliates. Interest income earned by the Company related to this receivable from affiliate was approximately $0 for both three and nine months ended December 31, 2018, and $0 and $13 for the three and nine months ended December 31, 2017.

In connection with, and prior to, the March 2018 Follow-on Offering, on January 26, 2018, the Company entered into the January 2018 Forward Share Purchase Agreement, pursuant to which the Company agreed to repurchase from ORIX USA on April 5, 2018 the number of shares of our Class B common stock equal to the number of shares of our Class A common stock sold by the Company in the March 2018 Follow-on Offering for a purchase price per share equal to the public offering price in the March 2018 Follow-on Offering less underwriting discounts and commissions. On April 5, 2018, the Company settled the transaction provided for in the January 2018 Forward Share Purchase Agreement and acquired 2,000,000 shares of Class B common stock from ORIX USA using the net proceeds we received from the March 2018 Follow-on Offering and the shares were retired. In accordance with the terms of the January 2018 Forward Share Purchase Agreement, the purchase price per share under the January 2018 Forward Share Purchase Agreement was reduced by the per share amount of the dividend paid to ORIX USA on the shares of our Class B common stock subject to the January 2018 Forward Share Purchase Agreement prior to the settlement of the transaction.

As described in note 1 above, on June 4, 2018, pursuant to the June 2018 Follow-on Offering, ORIX USA sold 1,985,983 shares of our Class A common stock and certain of our former and current employees and members of our management sold 1,014,017 shares, in each case, at a price to the public of $49.15 per share. Concurrently with the closing of the offering, the Company repurchased from ORIX USA 697,000 shares of Class A Common Stock at a purchase price per share of $49.11.

In the accompanying consolidated balance sheets, the Company carried accounts receivable and unbilled work in progress from related parties totaling approximately $694 and $21 as of December 31, 2018 and March 31, 2018, respectively. The Company also deferred income from related parties for service fees totaling $0 and $25 as of December 31, 2018 and March 31, 2018, respectively.

~~Other assets in the accompanying consolidated balance sheets includes loans receivable from certain employees of $14,026 and $7,489 as of December 31, 2018, and March 31, 2018, respectively.~~

~~Table of Contents~~

~~HOULIHAN LOKEY, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(All tables and balances are in thousands, except share data or as otherwise stated)~~

~~(5) FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS~~

~~Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.~~

Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

For level 3 investments in which pricing inputs are unobservable and limited market activity exists, management's determination of fair value is based on the best information available, may incorporate management's own assumptions and involves a significant degree of judgment.

~~The following methods and assumptions were used by the Company in estimating fair value disclosures:~~

~~Certificates of deposit: Fair values for certificates of deposit are based upon a discounted cash flow approach.~~

~~Corporate debt securities: All fair value measurements are obtained from a third-party pricing service and are not adjusted by management.~~

~~U.S. Treasury Securities~~: Fair values for U.S. treasury securities are based on quoted prices from recent trading activity of identical or similar securities. All fair value measurements are obtained from a third-party pricing service and are not adjusted by management.

~~The following table presents information about the Company's financial assets, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair values:~~

December 31, 2018
Level I Level II Level III Total
Corporate debt securities $ —
$ 36,989
$ —
$ 36,989
U.S. Treasury Securities —
3,971
—
3,971
Total asset measured at fair value $ —
$ 40,960
$ —
$ 40,960

March 31, 2018
Level I Level II Level III Total
Certificates of deposit $ —
$ 10,106
$ —
$ 10,106
Corporate debt securities —
183,578
—
183,578
U.S. Treasury Securities —
15,582
—
15,582
Total asset measured at fair value $ —
$ 209,266
$ —
$ 209,266

~~Table of Contents~~

~~HOULIHAN LOKEY, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(All tables and balances are in thousands, except share data or as otherwise stated)~~

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given investment is based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the instrument.

~~The Company had no transfers between fair value levels during the nine months ended December 31, 2018.~~

The fair values of the financial instruments represent the amounts that would be received to sell assets or that would be paid to transfer liabilities in an orderly transaction between market participants as of a specified date. Fair value measurements maximize the use of observable inputs; however, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best information available in the circumstances, including expected cash flows and appropriately risk-adjusted discount rates, as well as available observable and unobservable inputs.

The carrying value of cash and cash equivalents, restricted cash, accounts receivable, unbilled work in process, receivables from affiliates, accounts payable, and deferred income approximates fair value due to the short maturity of these instruments.

The carrying value of the loans to employees included in other assets, loan payable to affiliate, loans payable to former shareholders and an unsecured loan which is included in loan payable to non-affiliates, approximates fair value due to the variable interest rate borne by those instruments.

~~(6) INVESTMENT SECURITIES~~

As of December 31, 2018, the Company has reclassified its investment securities from held-to-maturity to trading and measures them at fair value in the consolidated balance sheets. Unrealized holding gains and losses for trading securities are included in other operating expense, net in the accompanying consolidated statements of comprehensive income.

~~The amortized cost, gross unrealized gains (losses), and fair value of trading securities were as follows:~~

December 31, 2018
Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value
Corporate debt securities $ 37,012
$ 49
$ (72 ) $ 36,989
U.S. Treasury Securities 3,932
39
—
3,971
Total securities with unrealized gains $ 40,944
$ 88
$ (72 ) $ 40,960

March 31, 2018
Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Fair Value
Corporate debt securities $ 183,632
$ 13
$ (67 ) $ 183,578
Certificate of deposit 10,106
—
—
10,106
U.S. Treasury Securities 15,581
11
(10 ) 15,582
Total securities with unrealized gains $ 209,319
$ 24
$ (77 ) $ 209,266

~~Table of Contents~~

~~HOULIHAN LOKEY, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(All tables and balances are in thousands, except share data or as otherwise stated)~~

~~Scheduled maturities of the Company's debt securities within the investment securities portfolio were as follows:~~

December 31, 2018 March 31, 2018
Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value
Due within one year $ 23,145
$ 23,142
$ 209,319
$ 209,266
Due within one year through five years 17,799
17,818
—
—
Total debt within the investment securities portfolio $ 40,944
$ 40,960
$ 209,319
$ 209,266

~~(7) ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS RECEIVABLE~~

Three Months Ended December 31, Nine Months Ended December 31,
2018 2017 2018 2017
Balance-Beginning $ 11,501
$ 9,785
$ 11,391
$ 11,199
Provision for bad debt 370
534
983
1,513
(Write-off) recovery of uncollectible accounts (5,232 ) (1,671 ) (5,735 ) (4,064 )
Balance-Ending $ 6,639
$ 8,648
$ 6,639
$ 8,648

~~(8) PROPERTY AND EQUIPMENT~~

~~Property and equipment, net of accumulated depreciation consist of the following:~~

Useful Lives December 31, 2018 March 31, 2018
Equipment 5 Years $ 7,975
$ 6,653
Furniture and fixtures 5 Years 19,282
19,189
Leasehold improvements 10 Years 33,086
31,916
Computers and software 3 Years 12,304
10,346
Other N/A 1,114
1,120
Total cost 73,761
69,224
Less: accumulated depreciation (42,896 ) (37,078 )
Total net book value $ 30,865
$ 32,146

~~Additions to property and equipment during the nine months ended December 31, 2018 were primarily related to costs incurred to furnish new leased office space and refurbish existing space.~~

Depreciation expense of approximately $2,084 and $1,563 was recognized during the three months ended December 31, 2018 and 2017, respectively, and $6,348 and $4,631 was recognized during the nine months ended December 31, 2018 and 2017, respectively.

~~Table of Contents~~

~~HOULIHAN LOKEY, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(All tables and balances are in thousands, except share data or as otherwise stated)~~

~~(9) GOODWILL AND OTHER INTANGIBLE ASSETS~~

~~Goodwill and other intangibles consist of the following.~~

Useful Lives December 31, 2018 March 31, 2018
Goodwill Indefinite $ 594,001
$ 528,889
Tradename-Houlihan Lokey Indefinite 192,210
192,210
Other intangible assets Varies 18,428
15,464
Total cost 804,639
736,563
Less: accumulated amortization (9,388 ) (13,253 )
Total net book value (before taxes) $ 795,251
$ 723,310
Deferred tax liability (50,861 ) (50,541 )
Total net book value $ 744,390
$ 672,769

~~Goodwill attributable to the Company’s business segments are as follows:~~

Business Segments April 1, 2018
Changes ^(a)
December 31, 2018
Corporate Finance $ 273,812
$ 65,852
$ 339,664
Financial Restructuring 163,362
(740 ) 162,622
Financial Advisory Services 91,715
—
91,715
Total $ 528,889
$ 65,112
$ 594,001


~~(a)~~	~~Changes were related to the acquisitions and foreign currency translation adjustments.~~

Amortization expense of approximately ~~$1,551~~$1,553 and ~~$408~~$1,321 was recognized for the three months ended ~~December 31,~~June 30, 2019 and 2018, ~~and 2017, respectively, and $4,461 and $1,489 was recognized for the nine months ended December 31, 2018 and 2017,~~ respectively. The estimated future amortization for amortizable intangible assets for each of the next five years are as follows:



	Year Ended March 31,
Remainder of 2020	$	5,257
2021	776
2022	157
2023	7
2024	7

Year Ended March 31,
Remainder of 2019 $ 1,551
2020 6,201
2021 711
2022 157
2023 7

~~(10) LOANS PAYABLE~~

In August 2015, prior to the IPO the Company paid a dividend to its shareholders, a portion of which was paid to ORIX USA in the form of a $45.0 million note that bore interest at a rate of LIBOR plus 165 basis points. The loan was repaid in full in May 2017. The Company paid interest on the note of $0 for both three months ended December 31, 2018 and 2017, and $0 and $62 for the nine months ended December 31, 2018 and 2017, respectively.Note 10 — Loans Payable

In August 2015, the Company entered into a revolving line of credit with Bank of America, N.A., which allows for borrowings of up to $75.0 million and originally matured in August 2017. On July 28, 2017, the Company extended the maturity date of the revolving credit facility to August 18, 2019 (or if such date is not a business day, the immediately preceding business day). The agreement governing this facility provides that borrowings bear interest at an annual rate of LIBOR plus 1.00%, commitment fees apply to unused amounts, and contains debt covenants which require that the Company maintain certain financial ratios. As of ~~December 31, 2018,~~June 30, 2019, no principal was outstanding under the line of credit. The Company paid interest and unused commitment fees of ~~$59 and~~ $57 each for the three months ended ~~December 31, 2018~~June 30, 2019 and ~~2017, respectively, and $173 and $171 for the nine months ended December 31, 2018 and 2017, respectively, under the line of credit.~~2018.

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~~Notes to Consolidated Financial Statements (unaudited)~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(~~All tables and balances are in~~In thousands, except share data or as otherwise stated)

Prior to the IPO, Fram maintained certain loans payable to former shareholders consisting of unsecured notes payable which were transferred to the Company in conjunction with the IPO. The average interest rate on the individual notes was ~~3.69%~~3.75% and ~~2.84%~~3.49% as of ~~December 31,~~June 30, 2019 and 2018, ~~and 2017,~~ respectively, and the maturity dates range from 2019 to 2027. The Company incurred interest expense on these notes of ~~$24~~$20 and ~~$28~~$25 during the three months ended ~~December 31,~~June 30, 2019 and 2018, ~~and 2017, respectively, and $74 and $99 during the nine months ended December 31, 2018 and 2017,~~ respectively.

An acquisition made in January 2015 included non-contingent consideration with a carrying value of $226 as of each of ~~December 31, 2018~~June 30, 2019 and March 31, ~~2018,~~2019, which is included in other liabilities in the accompanying ~~consolidated balance sheets.~~Consolidated Balance Sheets.

In November 2015, the Company acquired the investment banking operations of Leonardo & Co. NV ("Leonardo") in Germany, the Netherlands, and Spain, and made a 49% investment in Leonardo's operations in Italy. Total consideration included an unsecured loan of EUR ~~14.0~~14 million payable on November 16, 2040, which is included in loan payable to non-affiliates in the accompanying consolidated balance sheets. Under certain circumstances, the note may be paid in part or in whole over a five year period in equal annual installments. This2040. The loan bears interest at an annual rate of 1.50%. In each of January 2017, December 2017 and December 2018, we paid a portion of this loan in the amount of EUR 2.9 million. The ~~Company~~company incurred interest expense on this loan of ~~$32~~$24 and ~~$44 for~~$37 during the three months ended ~~December 31,~~June 30, 2019 and 2018, respectively.

As described in Note 1, the Company acquired the remaining 51% of Leonardo's Italy operations in June 2019. This step acquisition included the assumption of the entire amount of the unsecured loan payable due November 16, 2040, and ~~2017, respectively, and $106 and $141 for~~is included in Loan payable to non-affiliate in the ~~nine months ended December 31, 2018 and 2017, respectively.~~accompanying Consolidated Balance Sheets as of June 30, 2019.

An acquisition made in January 2017 included non-contingent consideration with a carrying value of ~~$1,967~~$1,964 and ~~$1,918~~$1,983 as of ~~December 31, 2018~~June 30, 2019 and March 31, ~~2018,~~2019, respectively, which is included in ~~other~~Other liabilities in the accompanying ~~consolidated balance sheets.~~Consolidated Balance Sheets.

In April 2018, the Company acquired Quayle Munro Limited. Total consideration included non-interest bearing unsecured convertible loans totaling GBP 10.5 million payable on May 31, 2022, which is included in ~~other~~Other liabilities in the accompanying ~~consolidated balance sheets.~~Consolidated Balance Sheets. Under certain circumstances, the notes may be exchanged for Company stock over a three year period in equal annual installments starting on May 31, 2020. The Company incurred imputed interest expense on these notes of ~~$98~~$36 and ~~$299~~$108 for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2019 and 2018, respectively.

In May 2018, the Company acquired BearTooth Advisors. Total consideration included an unsecured note of $2.8 million bearing interest at an annual rate of 2.88% and payable on May 21, 2048. The Company incurred interest expense on these notes of $26 and $9 during the three months ended June 30, 2019 and 2018, respectively.

~~See note 16 for aggregated 5-year maturity table on loans payable.~~The scheduled aggregate repayments of our Loans payable to former shareholders, Other liabilities, and the Loan payable to non-affiliates in the accompanying Consolidated Balance Sheets are as follows:



	Year Ended March 31,
Remaining 2020	$	606
2021	575
2022	1,248
2023	16,241
2024	337
2025 and thereafter	20,516
Total	$	39,523

~~(11) OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE LOSS~~Note 11 — Accumulated Other Comprehensive (Loss)

~~The only component~~Other comprehensive (loss) is comprised of ~~other comprehensive income relates to~~ foreign currency translation adjustments of ~~$(2,760)~~$(3,971) and ~~$880~~$(12,583) for the three months ended ~~December 31,~~June 30, 2019 and 2018, ~~and 2017, respectively, and $(19,038) and $8,641 for the nine months ended December 31, 2018 and 2017,~~ respectively. The change in foreign currency translation was impacted by the vote in the U.K. to withdraw from the European Union. We are currently in a ~~two-year time~~ period in which the terms of withdrawal are being negotiated and there may be impacts on our European business that are unknown at this time. We believe the change in foreign currency translation will become more volatile, but we do not expect this to have a material impact on our operating results and financial position.

~~Accumulated other comprehensive loss at December 31, 2018 was comprised of the following:~~

Balance, April 1, 2018 $ (13,956 )
Foreign currency translation adjustment (19,038 )
Balance, December 31, 2018 $ (32,994 )

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~~Notes to Consolidated Financial Statements (unaudited)~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(~~All tables and balances are in~~In thousands, except share data or as otherwise stated)

~~(12) INCOME TAXES~~Accumulated other comprehensive (loss) at June 30, 2019 was comprised of the following:



	June 30, 2019
Balance, April 1, 2019	$	(30,294	)
Foreign currency translation adjustment	(3,971		)
Balance, June 30, 2019	$	(34,265	)

Note 12 — Income Taxes

Prior to the IPO, ORIX USA and its subsidiaries, including the Company, filed consolidated federal income tax returns and separate returns in state and local jurisdictions, and did so for fiscal 2016 through the date of the IPO. The Company reported income tax expense as if it filed separate returns in all jurisdictions. Following the IPO, the Company files a consolidated federal income tax return separate from ORIX USA, as well as consolidated and separate returns in state and local jurisdictions, and the Company reports income tax expense on this basis.

We account for income taxes in accordance with ASC Topic 740, Income Taxes, which requires the recognition of tax benefits or expenses on temporary differences between the financial reporting and tax basis of our assets and liabilities. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. The measurement of the deferred items is based on enacted tax laws and applicable tax rates. A valuation allowance related to a deferred tax asset is recorded if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

The Global Intangible Low-Taxed Income tax (“GILTI inclusion”) can be recognized in the financial statements through an accounting policy election by either recording a period cost (permanent item) or providing deferred income taxes stemming from certain basis differences that are expected to result in GILTI inclusion. The Company has elected to account for the tax impacts of the GILTI inclusion as a period cost.

The Company’s provision ~~(benefit)~~ for income taxes was ~~$18,974~~$6,649 and ~~$48,089~~$12,052 for ~~the~~ three ~~and nine~~ months ended ~~December 31,~~June 30, 2019 and 2018, ~~respectively, and $(6,466) and $22,838 for the three and nine months ended December 31, 2017,~~ respectively. This represents effective tax rates of ~~30.2%~~13.5% and ~~29.7%~~28.9% for the three ~~and nine~~ months ended ~~December 31,~~June 30, 2019 and 2018, ~~respectively, and (11.7)% and 14.5% for the three and nine months ended December 31, 2017,~~ respectively. ~~As of the quarter ended December 31, 2018, we have finalized our provisional estimates made under SAB 118.~~

The primary drivers of the Company’s effective tax rate being higher than the statutory rate of 21.0% for the three and nine months ended December 31, 2018 were the provision for state taxes, the GILTI inclusion, limits on deductibility of executive compensation under IRC Section 162(m) and limits on the deductibility of certain meal and entertainment expense items. The increasedecrease in the Company's tax rate during the ~~three and nine month periods~~three-month period ended ~~December 31, 2018~~June 30, 2019 relative to the same ~~periods~~period in ~~2017~~2018 was primarily a result of two items that occurred during the three and nine month periods ended December 31, 2017, but did not occur during the three and nine month periods ended December 31, 2018: the Tax Act, as well as the adoption of ASU 2016-09, Compensation - Stock Compensation which resulted in a decrease to the provision for income taxes due to the vesting of ~~share awards~~stock that ~~were accelerated during the calendar year ended December 31, 2017.~~occurred in April and May 2019.

~~(13) NET INCOME PER SHARE ATTRIBUTABLE~~

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HOULIHAN LOKEY, INC. AND SUBSIDIARIES

NOTES TO ~~COMMON SHAREHOLDERS~~CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands, except share data or as otherwise stated)

Note 13 — Earnings Per Share

The calculations of basic and diluted ~~net income~~earnings per share attributable to holders of shares of common stock are presented below.



	Three Months Ended June 30,
	2019		2018
Numerator:
Net income attributable to holders of shares of common stock—basic	$	42,776	$	29,682
Net income attributable to holders of shares of common stock—diluted	$	42,776	$	29,682
Denominator:
Weighted average shares of common stock outstanding—basic	61,670,617		62,985,084
Weighted average number of incremental shares issuable from unvested restricted stock and restricted stock units, as calculated using the treasury stock method	3,950,486		3,169,128
Weighted average shares of common stock outstanding—diluted	65,621,103		66,154,212

Basic earnings per share	$	0.69	$	0.47
Diluted earnings per share	$	0.65	$	0.45

Three Months Ended December 31, Nine Months Ended December 31,
2018 2017 2018 2017
Numerator:
Net income attributable to holders of shares of common stock—basic $ 43,957
$ 61,583
$ 113,758
$ 134,184
Net income attributable to holders of shares of common stock—diluted $ 43,957
$ 61,583
$ 113,758
$ 134,184
Denominator:
Weighted average shares of common stock outstanding—basic 61,972,027
62,552,777
62,399,221
62,338,102
Weighted average number of incremental shares issuable from unvested restricted stock and restricted stock units, as calculated using the treasury stock method 3,786,652
3,570,162
3,586,439
4,129,276
Weighted average shares of common stock outstanding—diluted 65,758,679
66,122,939
65,985,660
66,467,378
Net income per share attributable to holders of shares of common stock
Basic $ 0.71
$ 0.98
$ 1.82
$ 2.15
Diluted $ 0.67
$ 0.93
$ 1.72
$ 2.02

~~Table of Contents~~Note 14 — Employee Benefit Plans

~~HOULIHAN LOKEY, INC. AND SUBSIDIARIES~~Defined Contribution Plans

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(All tables and balances are in thousands, except share data or as otherwise stated)~~

~~(14) EMPLOYEE BENEFIT PLANS~~


~~(a)~~	~~Defined Contribution Plans~~

The Company sponsors a 401(k) defined contribution savings plan for its domestic employees and defined contribution retirement plans for its international employees. The Company contributed approximately ~~$1,528~~$779 and ~~$1,293~~$768 during the three months ended ~~December 31,~~June 30, 2019 and 2018, ~~and 2017, respectively, and $2,837 and $2,305 during the nine months ended December 31, 2018 and 2017,~~ respectively, to these defined contribution plans.


~~(b)~~	Share-Based ~~Incentive Plans~~

During the period it was a subsidiary of Fram, certain employees of HL CA were granted restricted shares of Fram. Compensation expense related to these shares was recorded at the HL CA level as it was related to services provided by its employees. Under its 2006 incentive plan (the "2006 Incentive Plan"), Fram granted restricted share awards to employees of the Company as a component of annual incentive pay and occasionally in conjunction with new hire employment agreements. Under the 2006 Incentive Plan, awards typically vested after three years of service from the date of grant. Forfeitures of unvested share awards are recognized as they occur. Prior to the IPO, the grant-date fair value of each award was determined by Fram's board of directors using input from a third party, which used a combination of historical and forecasted results and market data. The methods used to estimate the fair value of Fram shares included the market approach and the income approach. For a further discussion related to the methods used, please see the Company's Annual Report on Form 10-K for the year ended March 31, 2018. In addition, the stock grants to employees of the Company in connection with the IPO (note 1) were made under the 2006 Incentive Plan.Plans

Following the IPO, additional awards of restricted shares have been and will be made under the Amended and Restated Houlihan Lokey, Inc. 2016 Incentive Award Plan (the "2016 Incentive Plan"), which became effective in August 2015 and was amended in October 2017. Under the 2016 Incentive Plan, it is anticipated that the Company will continue to grant ~~cash-~~cash and equity-based incentive awards to eligible service providers in order to attract, motivate and retain the talent necessary to operate the Company's business. Equity-based incentive awards issued under the 2016 Incentive Plan generally vest over a four-year period. An aggregate of 30,820 restricted shares of Class A common stock were granted under the 2016 Incentive Plan to (i) two independent directors in August 2015 at $21 per share, (ii) two independent directors in the first quarter of fiscal 2017 at $25.21 per share, (iii) one independent director in the first quarter of fiscal 2017 at $23.93 per share, (iv) three independent directors in the first quarters of fiscal 2018 and 2019 at $33.54 and $44.50 per share, respectively, and (v) one independent director in the third quarter of fiscal 2019 at $42.41 per share.

In March 2016, the FASB issued ASU No. 2016-09 which simplified several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification in the statement of cash flows. The Company adopted ASU 2016-09 in the first quarter of fiscal 2018. The changes that impacted the Company included a requirement thatAn excess tax ~~benefits and deficiencies be~~benefit of $7,605 was recognized as a component of provision for income taxes on the consolidated statements of comprehensive income rather than additional paid-in capital on the consolidated statements of changes in stockholders' equity as required in the previous guidance. Under the transition provisions, we have applied this new guidance prospectively with respect to excess tax benefits arising from vesting of share awards and such awards are no longer presented within financing activities in the consolidated statements of cash flows and are included the change in income taxes payable as an operating activity in the consolidated statements of cash flows during the ~~nine-month periods~~three months ended ~~December 31, 2018 and 2017. The excess tax benefits of $11 and $18,853 during the nine-month period ended December 31, 2018 and 2017, respectively, were recorded~~June 30, 2019 as a component of the provision for income taxes and an operating activity on the ~~consolidated statements~~Consolidated Statements of ~~cash flows.~~Cash Flows, with no such benefit for the three months ended June 30, 2018. The ~~adoption of ASU 2016-09 resulted~~June 30, 2019 excess tax benefit recognized is related to shares vested in ~~a decrease to~~April and May 2019. For the ~~provision for income taxes due to the~~comparable period, vesting of ~~share awards that were accelerated on February 14, 2017. The decrease~~shares scheduled to ~~the provision occurred~~vest in ~~the first quarter of fiscal~~April and May 2018 ~~because the Company’s tax deduction is delayed to its tax year that corresponds to the tax year that the employees report the taxable income. In addition, there~~ was ~~an additional decrease to the provision for the nine months ended December 31, 2017 due to the vesting of share awards that were~~ accelerated on October 21, 2017 ~~that were due to vest~~and the corresponding excess tax benefit was recognized in ~~April and May~~the fiscal year ended March 31, 2018. The Company recorded cash outflows of ~~$1,947~~$31,267 and ~~$33,353~~$1,768 related to the settlement of share-based awards in satisfaction of withholding tax requirements in financing activities on the ~~consolidated statements~~Consolidated Statements of ~~cash flows~~Cash Flows for the ~~nine-month~~three-month periods ended ~~December 31,~~June 30, 2019 and 2018, ~~and 2017,~~ respectively.

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~~Notes to Consolidated Financial Statements (unaudited)~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(~~All tables and balances are in~~In thousands, except share data or as otherwise stated)

The share awards are classified as equity awards at the time of grant unless the number of shares granted is unknown. Awards that are settleable in shares based upon a future determinable stock price are classified as ~~a liability~~liabilities until the price is established and the resulting number of shares is known, at which time they are re-classified from liabilities to equity awards. Activity in equity classified share awards which relate to the Company's 2006 Incentive Award Plan (the "2006 Incentive Plan") and the 2016 Incentive Plan during the ~~nine~~three months ended ~~December 31,~~June 30, 2019 and 2018 ~~and 2017~~ is as follows:



Unvested Share Awards	Shares		Weighted Average Grant Date Fair Value
Balance at April 1, 2018	2,854,893		$	26.39
Granted	1,055,488		49.36
Vested	(74,504	)	49.43
Forfeited/Repurchased	(28,410	)	29.97
Balance at June 30, 2018	3,807,467		$	32.28

Balance at April 1, 2019	3,763,984		$	32.29
Granted	1,358,684		47.22
Vested	(1,490,286	)	29.26
Forfeited/Repurchased	(23,727	)	36.22
Balance at June 30, 2019	3,608,655		$	39.12

Nonvested share awards Shares
Weighted average
grant date
fair value
Balance at April 1, 2017 3,626,270
$ 22.35
Granted 1,235,779
34.86
Vested (934,946 ) 24.32
Forfeited/Repurchased (928,942 ) 24.50
Balance at December 31, 2017 2,998,161
$ 26.23

Balance at April 1, 2018 2,854,893
$ 26.39
Granted 1,059,616
49.35
Vested (76,702 ) 48.78
Forfeited/Repurchased (57,797 ) 33.16
Balance at December 31, 2018 3,780,010
$ 32.28

Activity in liability classified share awards during the ~~nine~~three months ended ~~December 31,~~June 30, 2019 and 2018 ~~and 2017~~ is as follows:



Awards Settleable in Shares	Fair Value
Balance at April 1, 2018	$	15,493
Offer to grant	9,400
Share price determined-converted to cash payments	(4,796		)
Forfeited	(204		)
Balance at June 30, 2018	$	19,893

Balance at April 1, 2019	$	21,676
Offer to grant	3,155
Share price determined-converted to cash payments	(52		)
Share price determined-transferred to equity grants	(6,457		)
Forfeited	(50		)
Balance at June 30, 2019	$	18,272

Awards settleable in shares Fair value
Balance at April 1, 2017 $ 12,743
Offer to grant 5,450
Share price determined-converted to cash payments (5,920 )
Forfeited (227 )
Balance at December 31, 2017 $ 12,046

Balance at April 1, 2018 $ 15,493
Offer to grant 11,407
Share price determined-converted to cash payments (300 )
Share price determined-transferred to equity grants (4,655 )
Forfeited (476 )
Balance at December 31, 2018 $ 21,469

Compensation expenses for the Company associated with both equity and liability classified awards totaled ~~$13,781~~$12,762 and ~~$22,363~~$16,138 for the three months ended ~~December 31,~~June 30, 2019 and 2018, ~~and 2017, respectively, and $44,540 and $45,925 for the nine months ended December 31, 2018 and 2017,~~ respectively. ~~At December 31, 2018,~~As of June 30, 2019, there was ~~$122,066~~$126,430 of total unrecognized compensation cost related to unvested share awards granted under both the 2006 Incentive Plan and 2016 Incentive Plan. That cost is expected to be recognized over a weighted average period of ~~1.11~~1.69 years.

On February 14, 2017, in connection with the February 2017 Follow-on Offering discussed in notes 1 and 4, the Company accelerated the vesting of certain awards that were due to vest in April and May 2017. On October 30, 2017, in connection with the October 2017 Follow-on Offering discussed in notes 1 and 4, the Company accelerated the vesting of certain awards that were due to vest in April and May 2018. Under the terms of both the 2006 Incentive Plan and 2016 Incentive Plan, upon the vesting of awards, shares may be withheld to meet the minimum statutory tax withholding requirements. The Company satisfied such obligations upon vesting by retiring 704,528 shares upon the accelerated vesting of 1,907,890 shares and 806,248 shares upon the accelerated vesting of 1,737,461 shares in February 2017 and October 2017, respectively.

~~Table of Contents~~

~~HOULIHAN LOKEY, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(All tables and balances are in thousands, except share data or as otherwise stated)~~

On October 19, 2017, our board of directors approved an amendment (the “Amendment”) to the 2016 Incentive Plan reducing the number of shares of common stock available for issuance under the 2016 Incentive Plan by approximately 12.2 million shares. Under the Amendment, the aggregate number of shares of common stock that are available for issuance under awards granted pursuant to the 2016 Incentive Plan is equal to the sum of (i) 8.0 million and (ii) any shares of our Class B common stock that are subject to awards under our 2006 Incentive Plan that terminate, expire or lapse for any reason after October 19, 2017.

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HOULIHAN LOKEY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands, except share data or as otherwise stated)

The number of shares available for issuance will be increased annually beginning on April 1, 2018 and ending on April 1, 2025, by an amount equal to the lowest of:

6,540,659 shares of our Class A common stock and Class B common stock;

Six percent of the shares of Class A common stock and Class B common stock outstanding on the final day of the immediately preceding fiscal year; and

such smaller number of shares as determined by our board of directors.

~~(15) STOCKHOLDERS' EQUITY~~Note 15 — Stockholders' Equity


~~(a)~~	~~Class A Common Stock~~

~~In conjunction with~~Immediately following the ~~Company's~~ IPO, ~~12,075,000~~there were two classes of authorized HL, Inc. common stock: Class A ~~shares were sold to the public by existing shareholders~~common stock and ~~9,524 Class A shares were issued to non-employee directors. During the nine months ended December 31, 2018, 6,570 shares were issued to non-employee directors, and 2,020,474 shares were converted from~~ Class B ~~to Class A. During~~common stock. The rights of the ~~nine months ended December 31, 2017, 5,589 shares were issued to non-employee directors, and 4,997,392 shares were converted from Class B to Class A. As of December 31, 2018, there were 609,721 shares~~holders of Class A common stock ~~held by ORIX USA.~~and Class B common stock are identical, except with respect to voting and conversion rights. Each share of Class A common stock is entitled to one vote per share, and each share of Class B common stock is entitled to ten votes per share. Each share of Class B common stock may be converted into one share of Class A common stock at the option of its holder and will be automatically converted into one share of Class A common stock upon transfer thereof, subject to certain exceptions.

As described in Note 4 above, in the March 2018 Follow-on Offering we issued and sold 2,000,000 shares of our Class A common stock and certain of our former and current employees and members of our management sold 2,000,000 shares of our Class A common stock, in each case, at a price to the public of $47.25 per share.


~~(b)~~	~~Class B Common Stock~~

In connection with, and prior to, the March 2018 Follow-on Offering, on January 26, 2018, we entered into the January 2018 Forward Share Purchase Agreement, pursuant to which we agreed to purchase from ORIX USA on April 5, 2018 the number of shares of our Class B common stock equal to the number of shares of our Class A common stock sold by us in the March 2018 Follow-on Offering for a purchase price per share equal to the public offering price in the March 2018 Follow-on Offering less underwriting discounts and commissions. The cash proceeds from the March 2018 Follow-on Offering that were used to consummate the purchase pursuant to the January 2018 Forward Share Purchase Agreement were held in an escrow account as of March 31, 2018 and presented as restricted cash as discussed in Note 2. On April 5, 2018, we settled the transaction provided for in the January 2018 Forward Share Purchase Agreement and acquired 2,000,000 shares of Class B common stock from ORIX USA using the net proceeds we received from the March 2018 Follow-on Offering. As the January 2018 Forward Share Purchase Agreement required physical settlement by purchase of a fixed number of shares in exchange for cash, the 2,000,000 shares that were purchased were excluded from the Company's calculation of basic and diluted earnings per share in the Company's financial statements for the year ended March 31, 2018. In addition, as the agreement provided for the refund of any dividends paid during the term on the underlying Class A common stock, such shares were not classified as participating securities and the Company did not apply the two-class method for calculating its earnings per share.

On May 30, 2019, pursuant to a registered underwritten public offering, ORIX USA sold 3,000,000 shares of our Class A common stock to the public at a price of $45.80.

Class A common stock

During the three months ended June 30, 2019, 7,027 shares were issued to non-employee directors, and 2,291,827 shares were converted from Class B to Class A. During the three months ended June 30, 2018, 4,212 shares were issued to non-employee directors, and 597,880 shares were converted from Class B to Class A. As of June 30, 2019, there were 37,418,661 Class A shares held by the public, 61,967 Class A shares held by non-employee directors, and 3,377,935 Class A shares held by ORIX USA.

Table of Contents

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands, except share data or as otherwise stated)

Class B common stock

Each share of Class B common stock may be converted into one share of Class A common stock at the option of its holder and will be automatically converted into one share of Class A common stock upon transfer thereof, subject to certain exceptions. In April 2017, the Company settled its $192,372 forward purchase obligation with a related party and the funds held in escrow were released and the related 6,900,000 Class B shares were retired. In April 2017, the Company repurchased from employees 71,913 shares of Class B common stock received pursuant to contractual arrangements entered into in connection with a prior acquisition. In April 2018, the Company settled ~~its $93,500 forward purchase obligation with a related party~~the transaction under the January 2018 Forward Share Purchase Agreement and the funds held in escrow were released and the related 2,000,000 Class B shares were retired. As of ~~December 31, 2018,~~June 30, 2019, there were ~~25,143,594~~25,308,293 Class B shares held by the HL Voting ~~Trust and 5,768,214~~Trust. As of June 30, 2019, ORIX USA no longer held any shares of our Class B ~~shares held by ORIX USA.~~common stock. Each share of Class B common stock is entitled to ten votes per share.


~~(c)~~	~~Dividends~~

Dividends

Previously declared dividends related to unvested shares of ~~$7,034~~$5,624 and ~~$3,530~~$5,028 were unpaid as of ~~December 31,~~June 30, 2019 and 2018, ~~and 2017,~~ respectively.


~~(d)~~	~~Stock subscriptions receivable.~~

Stock subscriptions receivable

Employees of the Company periodically issued notes receivable to the Company documenting loans made by the Company to such employees for the purchase of restricted shares of the Company.

Share repurchases

~~Table of Contents~~

~~HOULIHAN LOKEY, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(All tables and balances are in thousands, except share data or as otherwise stated)~~


~~(e)~~	~~Share repurchases~~

In February 2017, the board of directors authorized the repurchase of up to $50.0 million of the Company's Class A common stock. In May 2017, the Company entered into a stock buyback program with a third-party financial institution to purchase shares of common stock. In July 2018, the board of directors authorized the repurchase of up to an additional $100 million of the Company's common stock. ~~In addition,~~

During the three months ended June 30, 2019 and 2018, the Company repurchased 652,618 and 35,841 shares of Class B common stock, ~~were withheld from employees~~respectively, to satisfy ~~tax~~$31,267 and $1,768 of required withholding ~~obligations resulting from~~taxes in connection with the vesting of ~~certain~~ restricted ~~stock awards.~~awards, respectively. During the ~~nine~~three months ended ~~December 31,~~June 30, 2019 and 2018, ~~and 2017,~~ the Company repurchased an additional 55,164 and ~~retired 1,516,763 and 430,237~~697,000 shares of its outstanding common stock, respectively, at a weighted average price of ~~$46.77~~$47.81 and ~~$35.17~~$49.11 per share, excluding commissions, for an aggregate purchase price of ~~$71,139~~$2,502 and ~~$15,139,~~$34,230, respectively.

~~(16) COMMITMENTS~~Note 16 — Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842).We adopted the standard effective April 1, 2019, using the modified retrospective approach applied as of the beginning of the period of adoption. The Company elected to utilize transition guidance within the new standard that permits us to (i) continue to report under ASC 840 guidance for comparative periods consistent with previously issued financial statements; and (ii) carryforward our prior conclusions about lease identification, classification, and initial direct costs. The most significant impact of this adoption relates to the recognition of right-of-use ("ROU") assets and liabilities for all leases classified operating leases when the Company is the lessee in the arrangement. Currently, the Company does not have any lessor arrangements; therefore, adoption of the standard did not impact our accounting.

We assess whether an arrangement is or contains a lease at the inception of the agreement. ROU assets represent our right to use underlying assets for the lease term and lease liabilities represent our obligation to make lease payments arising from leases. ROU assets and lease liabilities are recognized at the commencement date based on the present value of future lease payments over the lease terms utilizing the discount rate implicit in the leases. If the discount rate implicit in the leases is not readily determinable, the present value of future lease payments is calculated utilizing the Company’s incremental borrowing rate, which approximates the interest that the Company would have to pay on a secured loan. The Company elected to utilize a portfolio approach and applies the rates to a portfolio of leases with similar terms and economic environments. The terms of our leases used to determine the ROU asset and lease liability account for options to extend when it is reasonably certain that we will exercise those options, if applicable. ROU assets and lease liabilities are subject to adjustment in the event of modification to lease terms, changes in probability that an option to extend or terminate a lease would be exercised and other factors. In addition, ROU assets are periodically reviewed for impairment.

Lease expense is recognized on a straight-line basis over the lease terms. Lease expense includes amortization of the ROU assets and accretion of the lease liabilities. Amortization of ROU assets is calculated as the periodic lease cost less accretion of the lease liability. The amortized period for ROU assets is limited to the expected lease term.

Table of Contents

HOULIHAN LOKEY, INC. AND ~~CONTINGENCIES~~SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands, except share data or as otherwise stated)

The Company has elected a practical expedient to combine the lease and non-lease components into a single lease component. The Company also elected the short-term lease measurement and recognition exemption and does not establish ROU assets or lease liabilities for operating leases with terms of 12 months or less.

On adoption, the Company recognized the present value of its existing minimum lease payments as a $136.9 million ROU asset and a $152.3 million lease liability. The difference between the ROU asset and the lease liability on adoption primarily arises from previously recorded deferred rent, which was effectively reclassified to the ROU asset on adoption. As a result, there was no impact to retained earnings in the Consolidated Balance Sheets.

Lessee Arrangements

Operating Leases

We lease real estate and equipment used in operations from third parties. As of June 30, 2019, the remaining term of our operating leases ranged from 1 to 17 years with various automatic extensions.

The following table outlines the maturity of our existing operating lease liabilities on a fiscal year-end basis as of June 30, 2019.



	Operating Leases
Remaining 2020	$	17,588
2021	26,385
2022	22,178
2023	18,291
2024	13,462
Thereafter	81,513
Total	179,417
Less: present value discount	(31,991		)
Operating lease liabilities	$	147,426

Lease Costs



	Three Months Ended June 30, 2019
Operating lease expense	$	6,329
Variable lease expense ⁽¹⁾	3,650
Short-term lease expense	71
Less: Sublease income	(49		)
Total lease costs	$	10,001


⁽¹⁾	^{Primarily consists of payments for property taxes, common area maintenance and usage based operating costs.}

Weighted-Average Details



	June 30, 2019
Weighted-average remaining lease term (years)	9
Weighted-average discount rate	4.1	%

Supplemental cash flow information related to leases:



	Three Months Ended June 30, 2019
Operating cash flows:
Cash paid for amounts included in the measurement of Operating lease liabilities	$	6,073

Table of Contents

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(In thousands, except share data or as otherwise stated)

Note 17 — Commitments and Contingencies

The Company has been named in various legal actions arising in the normal course of business. In the opinion of the Company, in consultation with legal counsel, the final resolutions of these matters are not expected to have a material adverse effect on the Company’s financial condition, operations and cash flows.

Our obligation under the loan payable to affiliate is subordinated to our obligations under the revolving credit facility with Bank of America, N.A. The scheduled aggregate repayments of the loan payable to affiliate included in other liabilities in the accompanying consolidated balance sheets, the loans payable to former shareholders, and the loan payable to non-affiliates are as follows:

Year ended March 31,
Remainder of 2019 $ 294
2020 654
2021 575
2022 19,541
2023 201
2024 and thereafter 10,684
Total $ 31,949

The Company also provides routine indemnifications relating to certain real estate (office) lease agreements under which it may be required to indemnify property owners for claims and other liabilities arising from the Company’s use of the applicable premises. In addition, the Company guarantees the performance of its subsidiaries under certain office lease agreements. The terms of these obligations vary, and because a maximum obligation is not explicitly stated, the Company has determined that it is not possible to make an estimate of the maximum amount that it could be obligated to pay under such contracts. Based on historical experience and evaluation of specific indemnities, management believes that judgments, if any, against the Company related to such matters are not likely to have a material effect on the consolidated financial statements. Accordingly, the Company has not recorded any liability for these obligations as of ~~December 31, 2018~~June 30, 2019 or March 31, ~~2018.~~2019.

~~An acquisition made~~There have been no material changes outside of the ordinary course of business to our known contractual obligations, which are set forth in ~~January 2017 included contingent consideration with a carrying value of $0 and $4,085 as of December 31, 2018 and March 31, 2018, respectively, which is~~the table included in ~~other liabilities~~Item 7 in ~~the accompanying consolidated balance sheets.~~

~~Table of Contents~~

~~HOULIHAN LOKEY, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements (unaudited)~~

~~(All tables and balances are in thousands, except share data or as otherwise stated)~~

Straight-line rent expense under noncancelable operating lease arrangements and the related operating expenses were approximately $9,987 and $6,955 for the three months ended December 31, 2018 and 2017, respectively, and $28,612 and $20,717 for the nine months ended December 31, 2018 and 2017, respectively. The approximate future minimum annual noncancelable rental commitments required under these agreements with initial terms in excess of one year are as follows:

Year ended March 31,
Remainder of 2019 $ 6,463
2020 23,888
2021 25,388
2022 23,152
2023 18,136
2024 and thereafter 51,774
Total $ 148,801

our 2019 Annual Report.

~~(17) SEGMENT AND GEOGRAPHICAL INFORMATION~~Note 18 — Segment and Geographical Information

The Company’s reportable segments are described in ~~note~~Note 1 and each are individually managed and provide separate services which require specialized expertise for the provision of those services. Revenues by segment represent fees earned on the various services offered within each segment. Segment profit represents each segment’s profit, which consists of segment revenues, less (1) direct expenses including compensation, ~~employee recruitment,~~ travel, meals and entertainment, professional fees, and bad debt and (2) expenses allocated by headcount such as communications, rent, depreciation and amortization, and office expense. The corporate expense category includes costs not allocated to individual segments, including charges related to incentive compensation and share-based payments to corporate employees, as well as expenses of senior management and corporate departmental functions managed on a worldwide basis, including office of the executives, accounting, human ~~resources, human~~ capital, ~~management,~~ marketing, information technology, and compliance and legal. The following tables present information about revenues, profit and assets by segment and geography.


	Three Months Ended December 31,						Nine Months Ended December 31,						Three Months Ended June 30,
	2018			2017			2018			2017			2019			2018
Revenues by segment:
Corporate Finance	$	183,965		$	129,003		$	462,893		$	398,822		$	133,589		$	132,871
Financial Restructuring	75,013			94,160			218,173			216,470			79,354			50,476
Financial Advisory Services	39,035			35,774			111,941			103,319			37,406			36,655
Total segment revenues	$	298,013		$	258,937		$	793,007		$	718,611
Segment profit
Revenues													$	250,349		$	220,002

Segment profit ⁽¹⁾
Corporate Finance	$	62,388		$	33,903		$	146,287		$	129,689		$	37,428		$	40,096
Financial Restructuring	11,129			32,777			52,932			51,352			23,977			12,354
Financial Advisory Services	6,302			5,585			20,386			20,777			8,281			7,413
Total segment profit	79,819			72,265			219,605			201,818			69,686			59,863
Corporate expenses	17,560			17,780			61,043			47,134
Other (income) expenses, net	(672		)	(632		)	(3,285		)	(2,338		)
Corporate expenses ⁽²⁾													21,744			19,735
Other (income)/expenses, net													(1,483		)	(1,606		)
Income before provision for income taxes	$	62,931		$	55,117		$	161,847		$	157,022		$	49,425		$	41,734

Corporate expenses represent expenses that are not allocated to individual business segments such as office of the executives, accounting, information technology, compliance, legal, marketing, and human capital.

Table of Contents

HOULIHAN LOKEY, INC. AND SUBSIDIARIES

~~Notes to Consolidated Financial Statements (unaudited)~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(~~All tables and balances are in~~In thousands, except share data or as otherwise stated)



	June 30, 2019		March 31, 2019
Assets by segment:
Corporate Finance	$	412,943	$	397,069
Financial Restructuring	181,160		184,364
Financial Advisory Services	121,245		127,021
Total segment assets	715,348		708,454
Corporate assets	677,552		714,604
Total assets	$	1,392,900	$	1,423,058

December 31, 2018 March 31, 2018
Assets by segment:
Corporate Finance $ 369,308
$ 337,584
Financial Restructuring 168,536
185,486
Financial Advisory Services 123,267
126,034
Total segment assets 661,111
649,104
Corporate assets 599,059
769,737
Total assets $ 1,260,170
$ 1,418,841



	Three Months Ended June 30,
	2019		2018
Revenues by geography:
United States	$	208,505	$	183,242
International	41,844		36,760
Total revenues	$	250,349	$	220,002

Three Months Ended December 31, Nine Months Ended December 31,
2018 2017 2018 2017
Revenues by geography:
United States $ 228,825
$ 228,816
$ 643,111
$ 638,839
International 69,188
30,121
149,896
79,772
Total revenues $ 298,013
$ 258,937
$ 793,007
$ 718,611



	June 30, 2019		March 31, 2019
Assets by geography:
United States	$	930,219	$	1,021,975
International	462,681		401,083
Total assets	$	1,392,900	$	1,423,058

December 31, 2018 March 31, 2018
Assets by geography:
United States $ 811,739
$ 957,897
International 448,431
460,944
Total assets $ 1,260,170
$ 1,418,841

~~(18) SUBSEQUENT EVENTS~~

The Company has evaluated subsequent events from the consolidated balance sheet date through the date at which the consolidated financial statements were available to be issued. As a result of that evaluation, we have determined that there were no subsequent events requiring disclosure in the financial statements, except as noted below.

Note 19 — Subsequent Events



	~~HOULIHAN LOKEY, INC.~~ ~~TABLE OF CONTENTS~~
	~~PART I. FINANCIAL INFORMATION~~	Page
	PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1

	Consolidated Balance Sheets ~~as of December 31, 2018 (unaudited) and March 31, 2018~~	1

	Consolidated Statements of Comprehensive Income ~~for the Three and Nine Months ended December 31, 2018 and 2017 (unaudited)~~	2

	Consolidated Statements of Changes in Stockholders' Equity ~~for the Nine Months ended December 31, 2018 and 2017 (unaudited)~~	3

	Consolidated Statements of Cash Flows ~~for the Nine Months ended December 31, 2018 and 2017 (unaudited)~~	4

	Notes to Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	30
Item 4.	Controls and Procedures	31
	PART II. OTHER INFORMATION
Item 3.1.	~~Quantitative and Qualitative Disclosures about Market Risk~~Legal Proceedings	3932
Item 1A.	Risk Factors	32
Item 4.2.	~~Controls and Procedures~~	40

	~~PART II. OTHER INFORMATION~~

~~Item 1.~~	~~Legal Proceedings~~	41

~~Item 1A.~~	~~Risk Factors~~	41

~~Item 2.~~	Unregistered Sales of Equity Securities and Use of Proceeds	4132

Item 3.	Defaults Upon Senior Securities	4132
Item 4.	Mine Safety Disclosures	32
Item 4.5.	~~Mine Safety Disclosures~~Other Information	4132
Item 6.	Exhibits	33
~~Item 5.~~Signatures	~~Other Information~~	41

~~Item 6.~~	~~Exhibits~~	42

~~SIGNATURES~~		4334


	Nine Months Ended December 31,						Three Months Ended June 30,
	2018			2017
(In thousands, except share data)							2019			2018
Cash flows from operating activities:
Net income	$	113,758		$	134,184		$	42,776		$	29,682
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred tax expense	(5,407		)	(5,277		)
Deferred income taxes							2,527			594
Provision for bad debts	983			1,513			(21		)	384
Unrealized gains on investment securities	(16		)	—			(164		)	—
Non-cash lease expense							6,106			—
Depreciation and amortization	10,809			6,120			3,963			3,468
Contingent consideration valuation	(708		)	—			—			(719		)
Compensation expenses – restricted share grants (note 14)	44,540			45,925
Compensation expenses – restricted share grants (Note 14)							12,762			17,190
Changes in operating assets and liabilities:							—			—
Accounts receivable	27,824			25,986			3,407			11,751
Unbilled work in process	15,201			16,209			247			12,972
Other assets	(11,284		)	1,211			(1,809		)	(4,626		)
Accrued salaries and bonuses	(93,206		)	(60,692		)	(171,003		)	(191,408		)
Accounts payable and accrued expenses	3,155			(7,175		)
Accounts payable and accrued expenses and other							(4,915		)	(1,087		)
Deferred income	(6,910		)	139			1,381			(4,279		)
Income taxes payable	(6,676		)	(17,429		)	(4,466		)	7,104
Net cash provided by operating activities	92,063			140,714
Net cash (used in) operating activities							(109,209		)	(118,974		)
Cash flows from investing activities:
Purchases of investment securities	(48,946		)	(132,835		)	(157,097		)	(6,418		)
Sales or maturities of investment securities	217,321			—			249,479			200,080
Acquisition of business, net of cash acquired	(71,407		)	(2,675		)	8,710			(71,407		)
Changes in receivables from affiliates	1,705			2,780
Receivables from affiliates							(170		)	(30		)
Purchase of property and equipment, net	(4,536		)	(6,181		)	(7,441		)	(1,023		)
Net cash provided by (used in) investing activities	94,137			(138,911		)
Net cash provided by investing activities							93,481			121,202
Cash flows from financing activities:
Dividends paid	(50,284		)	(39,484		)	(22,887		)	(16,843		)
Settlement of forward purchase contract	(93,500		)	(192,372		)	—			(93,500		)
Shares purchased under stock repurchase program	—			(15,139		)
Other share repurchases	(69,196		)	(1,836		)	(2,502		)	(34,230		)
Payments to settle employee tax obligations on share-based awards	(1,947		)	(33,353		)	(31,267		)	(1,768		)
Earnouts paid	(1,923		)	—			—			(1,923		)
Stock subscriptions receivable redeemed	—			124
Repayments of loans to former shareholders	(694		)	(2,060		)
Repayments of loans to affiliates	—			(15,000		)
Repayments of loans to non-affiliates	(1,535		)	(1,661		)
Other financing activities	187			187
Net cash used in financing activities	(218,892		)	(300,594		)
Loans payable to former shareholders redeemed							(90		)	(140		)
Net cash (used in) financing activities							(56,746		)	(148,404		)
Effects of exchange rate changes on cash, cash equivalents, and restricted cash	(10,762		)	3,283			(1,539		)	(9,437		)
Decrease in cash, cash equivalents, and restricted cash	(43,454		)	(295,508		)
(Decrease) in cash, cash equivalents, and restricted cash							(74,013		)	(155,613		)
Cash, cash equivalents, and restricted cash – beginning of period	300,223			492,686			286,115			300,223
Cash, cash equivalents, and restricted cash – end of period	$	256,769		$	197,178		$	212,102		$	144,610
Supplemental disclosures of noncash activities:

Supplemental disclosures of non-cash activities:
Shares issued via vesting of liability classified awards							$	6,457		$	—
Fully depreciated assets written off	$	—		$	38		—			157
Fully amortized intangibles written off	8,272			—			—			8,272
Cash acquired through acquisitions	16,141			—			$	10,506		$	16,141
Cash paid during the period:
Interest	$	706		$	509		$	193		$	249
Taxes	64,893			45,545			12,560			4,651


x	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~


¨	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~



Houlihan Lokey, Inc.
(Exact name of registrant as specified in its charter)
Delaware		95-2770395
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)


	December 31, 2018			March 31, 2018
	(unaudited)
Assets:
(In thousands, except share data and par value)							June 30, 2019			March 31, 2019
Assets
Cash and cash equivalents	$	256,401		$	206,723		$	211,731		$	285,746
Restricted cash (note 2)	368			93,500
Investment securities (fair value of $40,960 and $209,266 as of December 31, and March 31, 2018)	40,960			209,319
Accounts receivable, net of allowance for doubtful accounts of $6,639 and $11,391 as of December 31, and March 31, 2018, respectively	65,365			77,259
Unbilled work in process	30,660			45,862
Restricted cash							371			369
Investment securities							33,040			125,258
Accounts receivable, net of allowance for doubtful accounts of $3,912 and $4,255, respectively							67,918			70,830
Unbilled work in process, net of allowance for doubtful accounts of $1,818 and $1,341, respectively							71,997			71,891
Receivable from affiliates	7,027			8,732			—			8,631
Property and equipment, net of accumulated depreciation of $42,896 and $37,078 as of December 31, and March 31, 2018, respectively	30,865			32,146
Property and equipment, net							36,450			31,034
Operating right-of-use assets							131,554			—
Goodwill and other intangibles, net	795,251			723,310			803,841			794,604
Other assets	33,273			21,990			35,998			34,695
Total assets	$	1,260,170		$	1,418,841		$	1,392,900		$	1,423,058

Liabilities and Stockholders' Equity
Liabilities:
Accrued salaries and bonuses	$	291,073		$	377,901		$	232,532		$	404,717
Accounts payable and accrued expenses	45,159			40,772			41,414			55,048
Deferred income	28,522			3,620			29,219			27,812
Income taxes payable	3,457			9,967			3,410			7,759
Deferred income taxes	9,343			22,180			6,057			5,204
Forward purchase liability	—			93,500
Loans payable to former shareholders	2,342			3,036			1,958			2,047
Loan payable to non-affiliate	6,712			8,825			15,447			6,610
Operating lease liabilities							147,426			—
Other liabilities	22,895			6,227			22,118			22,532
Total liabilities	409,503			566,028			499,581			531,729

Commitments and contingencies (Note 17)

Stockholders' equity:
Class A common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 34,510,793 and 30,604,405 shares as of December 31, and March 31, 2018, respectively	35			31
Class B common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 30,911,808 and 37,187,932 shares as of December 31, and March 31, 2018, respectively	31			37
Treasury stock, at cost; 0 and 2,000,000 shares as of December 31, and March 31, 2018, respectively	—			(93,500		)
Class A common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 40,858,563 and 38,200,802 shares, respectively							41			38
Class B common stock, $0.001 par value. Authorized 1,000,000,000 shares; issued and outstanding 25,308,293 and 27,197,734 shares, respectively							25			27
Treasury stock, at cost: 55,164 and 0 shares, respectively							(2,502		)	—
Additional paid-in capital	635,005			753,077			631,189			645,090
Retained earnings	248,590			207,124			298,831			276,468
Accumulated other comprehensive loss	(32,994		)	(13,956		)
Accumulated other comprehensive (loss)							(34,265		)	(30,294		)
Total stockholders' equity	850,667			852,813			893,319			891,329
Total liabilities and stockholders' equity	$	1,260,170		$	1,418,841		$	1,392,900		$	1,423,058


~~(a)~~	including related party revenue of $197 and $0 during the three months ended December 31, 2018 and 2017, respectively, and $8,692 and $2,806 during the nine months ended December 31, 2018 and 2017, respectively.


~~(b)~~	including related party income of $51 and $78 during the three months ended December 31, 2018 and 2017, respectively, and $275 and $212 during the nine months ended December 31, 2018 and 2017, respectively.



	HLI Class A common stock				HLI Class B common stock					Treasury Stock
	Shares		$		Shares		$			Shares		$			Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Stock subscriptions receivable			Total stockholders' equity
Balances – April 1, 2017	22,026,811		$	22	50,883,299		$	51		(6,900,000	)	$	(193,572	)	$	854,750		$	87,407		$	(21,917	)	$	(124	)	$	726,617
Shares issued	—		—		1,306,704		1			—		—			1,961			—			—			—			1,962
Stock compensation vesting (note 14)	—		—		—		—			—		—			42,289			—			—			—			42,289
Dividends	—		—		—		—			—		—			—			(38,716		)	—			—			(38,716		)
Stock subscriptions receivable redeemed	—		—		—		—			—		—			—			—			—			124			124
Retired shares upon settlement of forward purchase agreement	—		—		(6,900,000	)	(7		)	6,900,000		193,572			(193,565		)	—			—			—			—
Conversion of Class B to Class A shares	4,997,392		5		(4,997,392	)	(5		)	—		—			—			—			—			—			—
Shares issued to non-employee directors (note 14)	5,589		—		—		—			—		—			—			—			—			—			—
Shares repurchase program (note 14)	(430,237	)	—		—		—			—		—			(15,139		)	—			—			—			(15,139		)
Other shares repurchased/forfeited	—		—		(1,000,855	)	(1		)	—		—			(35,188		)	—			—			—			(35,189		)
Adjustment of noncontrolling interest to redeemable value	—		—		—		—			—		—			—			(876		)	—			—			(876		)
Net income	—		—		—		—			—		—			—			134,184			—			—			134,184
Change in unrealized translation	—		—		—		—			—		—			—			—			8,641			—			8,641
Total comprehensive income	—		—		—		—			—		—			—			—			—			—			142,825
Balances - December 31, 2017	26,599,555		$	27	39,291,756		$	39		—		$	—		$	655,108		$	181,999		$	(13,276	)	$	—		$	823,897


(1)	Restricted cash as of June 30, 2019 and March 31, 2019 consisted of a cash secured letter of credit issued for our Frankfurt office.


~~(e)~~(1)	~~Operating Expenses~~Included within Accounts receivable, net of allowance for doubtful accounts in the June 30, 2019 Consolidated Balance Sheets.


~~(f)~~(2)	~~Translation of Foreign Currency Transactions~~Included within Deferred income in the June 30, 2019 Consolidated Balance Sheets.



Form	10-Q


~~(b)~~	~~Principles of Consolidation~~


~~(c)~~	~~Use of Estimates~~


~~(g)~~	~~Property and Equipment~~



	December 31, 2018		December 31, 2017
Cash and cash equivalents	$	256,401	$	197,178
Restricted cash	368		—
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows	$	256,769	$	197,178



	Three Months Ended December 31, 2018
	As reported		Excluding adoption of ASC 606		Adjustments
Revenues	$	298,013	$	284,609	$	13,404
Operating expenses:
Employee compensation and benefits	187,180		187,163		17
Travel, meals, and entertainment	12,991		9,062		3,929
Rent	9,987		9,987		—
Depreciation and amortization	3,635		3,635		—
Information technology and communications	5,775		5,540		235
Professional fees	6,087		5,147		940
Other operating expenses	10,099		6,068		4,031
Total operating expenses	235,754		226,602		9,152
Income before provision for income taxes	62,931		58,679		4,252
Provision for income taxes	18,974		17,711		1,263
Net income	$	43,957	$	40,968	$	2,989



	Nine Months Ended December 31, 2018
	As reported		Excluding adoption of ASC 606		Adjustments
Revenues	$	793,007	$	763,353	$	29,654
Operating expenses:
Employee compensation and benefits	501,682		501,640		42
Travel, meals, and entertainment	32,689		22,208		10,481
Rent	28,612		28,612		—
Depreciation and amortization	10,809		10,809		—
Information technology and communications	16,073		15,352		721
Professional fees	18,148		15,129		3,019
Other operating expenses	26,432		15,206		11,226
Total operating expenses	634,445		608,956		25,489
Income before provision for income taxes	161,847		157,682		4,165
Provision for income taxes	48,089		46,851		1,238
Net income	$	113,758	$	110,831	$	2,927



	Balance as of April 1, 2018 ⁽³⁾		Decrease			Balance as of December 31, 2018
Receivables ⁽¹⁾	$	77,259	$	(16,775	)	$	60,484
Contract Assets ⁽¹⁾	$	4,675	$	206		$	4,881
Contract Liabilities ⁽²⁾	$	31,811	$	(3,289	)	$	28,522



	March 31, 2018
	Level I		Level II		Level III		Total
Certificates of deposit	$	—	$	10,106	$	—	$	10,106
Corporate debt securities	—		183,578		—		183,578
U.S. Treasury Securities	—		15,582		—		15,582
Total asset measured at fair value	$	—	$	209,266	$	—	$	209,266



Business Segments	April 1, 2018		Changes ^(a)			December 31, 2018
Corporate Finance	$	273,812	$	65,852		$	339,664
Financial Restructuring	163,362		(740		)	162,622
Financial Advisory Services	91,715		—			91,715
Total	$	528,889	$	65,112		$	594,001



Year Ended March 31,
Remainder of 2019	$	1,551
2020	6,201
2021	711
2022	157
2023	7



Balance, April 1, 2018	$	(13,956	)
Foreign currency translation adjustment	(19,038		)
Balance, December 31, 2018	$	(32,994	)



Nonvested share awards	Shares		Weighted average grant date fair value
Balance at April 1, 2017	3,626,270		$	22.35
Granted	1,235,779		34.86
Vested	(934,946	)	24.32
Forfeited/Repurchased	(928,942	)	24.50
Balance at December 31, 2017	2,998,161		$	26.23

Balance at April 1, 2018	2,854,893		$	26.39
Granted	1,059,616		49.35
Vested	(76,702	)	48.78
Forfeited/Repurchased	(57,797	)	33.16
Balance at December 31, 2018	3,780,010		$	32.28



Year ended March 31,
Remainder of 2019	$	6,463
2020	23,888
2021	25,388
2022	23,152
2023	18,136
2024 and thereafter	51,774
Total	$	148,801


(1)	We adjust the compensation expense for a business segment in situations where an employee residing in one business segment is performing work in another business segment where the revenues are accrued. Segment profit may vary significantly between periods depending on the levels of collaboration among the different segments.



	Three Months Ended December 31,								Nine Months Ended December 31,
($ in thousands)	2018			2017			Change		2018			2017			Change
Revenues	$	298,013		$	258,937		15	%	$	793,007		$	718,611		10	%
Operating expenses:
Employee compensation and benefits	187,180			174,308			7	%	501,682			481,112			4	%
Non-compensation	48,574			30,144			61	%	132,763			82,815			60	%
Total operating expenses	235,754			204,452			15	%	634,445			563,927			13	%
Operating income	62,259			54,485			14	%	158,562			154,684			3	%
Other (income) expense, net	(672		)	(632		)	NM		(3,285		)	(2,338		)	NM
Income before provision for income taxes	62,931			55,117			14	%	161,847			157,022			3	%

Provision for income taxes	18,974			(6,466		)	(393	)%	48,089			22,838			111	%
Net income attributable to Houlihan Lokey, Inc.	$	43,957		$	61,583		(29	)%	$	113,758		$	134,184		(15	)%



	Three Months Ended June 30,
($ in thousands)	2019			2018			Change
Revenues	$	250,349		$	220,002		14	%
Operating expenses:
Employee compensation and benefits	163,311			139,181			17	%
Non-compensation	39,096			40,693			(4	)%
Total operating expenses	202,407			179,874			13	%
Operating income	47,942			40,128			19	%
Other (income)/expense, net	(1,483		)	(1,606		)	(8	)%
Income before provision for income taxes	49,425			41,734			18	%
Provision for income taxes	6,649			12,052			(45	)%
Net income attributable to Houlihan Lokey, Inc.	$	42,776		$	29,682		44	%


1.(1)	We adjust the compensation expense for a business segment in situations where an employee residing in one business segment is performing work in another business segment where the fee revenues are accrued. Segment Profit may vary significantly between periods depending on the levels of collaboration among the different segments.


2.(2)	Corporate expenses represent expenses that are not allocated to individual business segments such as ~~Office~~office of the ~~Executives, Accounting, Information Technology, Compliance, Legal, Marketing, Human Capital Management,~~executives, accounting, information technology, compliance, legal, marketing, and ~~Human Resources.~~human capital.


3.(3)	As of ~~period end.~~June 30, 2019; excludes MDs in our Milan office. The Italian JV was consolidated as of June 30, 2019, and employee metrics will be consolidated beginning in Q2 fiscal 2020.


4.(4)	Fee Events applicable to FAS only; a Fee Event includes any engagement that involves revenue activity during the measurement period with a ~~fee~~ revenue minimum of ~~$1,000 (one thousand dollars).~~$1,000.



(In thousands)	June 30, 2019		March 31, 2019
Cash and cash equivalents	$	211,731	$	285,746
Investment securities	33,040		125,258
Total unrestricted cash and cash equivalents, including investment securities	244,771		411,004
Restricted cash ⁽¹⁾	371		369
Total cash, cash equivalents, and restricted cash, including investment securities	$	245,142	$	411,373


(1)	Represents a deposit in support of a letter of credit issued for our Frankfurt office.



($ in thousands)	Payment Due by Period
	Total		Less than 1 Year		1 to 3 Years		3 to 5 Years		More than 5 Years
Operating Leases	$	148,801	$	6,463	$	49,276	$	41,288	$	51,774
Loans payable to former shareholders	2,342		294		1,229		481		338
Loan payable to non-affiliates	6,712		—		—		—		6,712
Note payables	22,895		—		—		19,261		3,634