HOULIHAN LOKEY, INC. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read together with our historical financial statements and related notes included elsewhere in this Form 10-K. Actual results and the timing of events may differ significantly from those expressed or implied in any forward-looking statements due to a number of factors, including those set forth in the sections entitled "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" and elsewhere in this Form 10-K. For discussion related to changes in financial condition and the results of operations for fiscal year 2019-related items, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal year 2020, which was filed with theSecurities and Exchange Commission onMay 15, 2020 . Executive Overview Established in 1972,Houlihan Lokey is a leading global independent investment bank with expertise in mergers and acquisitions, capital markets, financial restructurings, and financial and valuation advisory. With officesthe United States ,Europe , theMiddle East , and theAsia-Pacific region , the Company serves a diverse set of clients including corporations, financial sponsors and government agencies worldwide.Houlihan Lokey's financial professionals deliver meaningful and differentiated advice to clients on strategy and financial decisions employing a rigorous analytical approach coupled with deep product and industry expertise. We operate in three segments: Corporate Finance ("CF"); Financial Restructuring ("FR"); and Financial and Valuation Advisory ("FVA"). In our CF business segment, we believe we are an established leader in M&A and capital markets advisory services. Through our FR business segment, we advise on some of the largest and most complex restructurings around the world. Our FVA business segment is one of the largest and most respected valuation, financial opinion and financial consulting practices inthe United States . As ofMarch 31, 2021 , we served our clients globally with 1,132 financial professionals, including 198 Managing Directors. We plan to continue to grow our firm across industry sectors, geographies and products to deliver quality advice and innovative solutions to our clients, both organically and through acquisitions. Acquisitions over the last several years include:Leonardo & Co. NV inNovember 2015 inGermany ,the Netherlands andSpain , and Leonardo's investment banking operations inItaly inJune 2019 (collectively, "Leonardo"), which enable us to provide a much greater breadth of services and coverage to our clients both in continentalEurope and across the globe;Quayle Munro Limited inApril 2018 , which expanded our capabilities in the data and analytics sector;BearTooth Advisors inMay 2018 , which provided us with a private equity fundraising advisory platform;Fidentiis Capital inNovember 2019 , an independent advisory business providing independent corporate finance advisory services relating to mergers and acquisitions, capital raising, and financing;Freeman & Co. inDecember 2019 , an independent advisory business providing mergers and acquisitions advisory, capital raising, and other investment banking advisory services for the financial services sector; and inAugust 2020 ,MVP Capital, LLC , an independent advisory firm that provides a range of financial advisory services to clients in the technology, media, and telecommunications sectors. We generate revenues primarily from providing advisory services on transactions that are subject to individually negotiated engagement letters that set forth our fees. A significant portion of our engagements include Progress Fees (as defined herein) consisting of both periodic and milestone-related payments. The occurrence and timing of milestone-related payments, such as upon the closing of a transaction, are generally not within our control. Accordingly, revenue and net income in any period may not be indicative of full year results or the results of any other period and may vary significantly from year to year and quarter to quarter. Corporate expenses represent expenses that are not allocated to individual business segments such as office of the executives, accounting, information technology, compliance and legal, marketing, human capital, including related compensation expense for corporate employees. Business Environment and Outlook Economic and global financial conditions can materially affect our operational and financial performance. See "Risk Factors" for a discussion of some of the factors that can affect our performance. Our fiscal year ends onMarch 31 of each year. For the fiscal year endedMarch 31, 2021 , we earned revenues of$1.53 billion , an increase of 32% from the$1.16 billion earned during the fiscal year endedMarch 31, 2020 . For our fiscal year endedMarch 31, 2020 , revenues increased 7% over our fiscal year endedMarch 31, 2019 revenues of$1.08 billion . For the fiscal years endedMarch 31, 2021 , 2020, and 2019, we earned revenues of$333 million ,$184 million , and$206 million , respectively, from our international operations. 28 -------------------------------------------------------------------------------- Table of Contents Based on historical experience, we believe current economic conditions (record liquidity levels and steady low interest rates) provide a healthy environment for M&A and capital markets activities. Inthe United States , our dialogue with clients who are evaluating strategic alternatives remains good, and the availability of capital in the mid-cap space continues to be strong, which has the potential to fuel continued activity in M&A. In addition, in the current economic environment, companies and financial sponsors globally are pursuing M&A in order to drive greater efficiencies by reducing costs and increasing cash flows. On a global basis, in the first quarter of calendar 2021, M&A transaction completions were up 7.7% versus the prior year period. Our Financial Restructuring activity has moderated significantly and is expected to continue to be lower than what we experienced during fiscal 2021 as a result of the pandemic. We continue to remain optimistic about the restructuring outlook over the medium and long term due to record levels of company leverage and continued dislocation from the pandemic. Key Financial Measures Revenues Revenues include fee revenues and reimbursements of expenses (see Note 2 included in Part II, Item 8 of this Form 10-K). Revenues reflect revenues from our CF, FR, and FVA business segments that substantially consist of fees for advisory services. Revenues for all three business segments are recognized upon satisfaction of the performance obligation and 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. In general, advisory fees are paid at the time an engagement letter is signed ("Retainer Fees"), during the course of the engagement ("Progress Fees"), or upon the successful completion of a transaction or engagement ("Completion Fees"). CF provides general financial advisory services in addition to advice on mergers and acquisitions and capital markets offerings. We advise public and private institutions on a wide variety of situations, including buy-side and sell-side transactions, as well as leveraged loans, private mezzanine debt, high-yield debt, initial public offerings, follow-ons, convertibles, equity private placements, private equity, and liability management transactions, and advise financial sponsors on all types of transactions. The majority of our CF revenues consists of Completion Fees. A CF transaction can fail to be completed for many reasons that are outside of our control. In these instances, our fees are generally limited to Retainer Fees and in some cases Progress Fees that may have been received. FR provides advice to debtors, creditors and other parties-in-interest in connection with recapitalization/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. As part of 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, FR transactions 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. FVA 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 FVA 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 FVA business segment provides dispute resolution services to clients where fees are usually based on the hourly rates of our financial professionals. Unlike our CF or FR segments, the fees generated in our FVA segment are generally not contingent on the successful completion of a transaction. Operating Expenses Our operating expenses are classified as employee compensation and benefits expense and non-compensation expense; revenue and headcount are the primary drivers of our operating expenses. Reimbursements of certain out-of-pocket deal expenses are recorded on a gross basis and are therefore included in both Revenues and Operating expenses on the Consolidated Statements of Comprehensive Income. Employee Compensation and Benefits Expense. Our employee compensation and benefits expense, which accounts for the majority of our operating expenses, is determined by management based on revenues earned, headcount, the competitiveness of the prevailing labor market, and anticipated compensation expectations of our employees. These factors may fluctuate, and as a result, our employee compensation and benefits expense may fluctuate materially in any particular period. Accordingly, the amount of employee compensation and benefits expense recognized in any particular period may not be consistent with prior periods or indicative of future periods. 29 -------------------------------------------------------------------------------- Table of Contents Our employee compensation and benefits expense consists of base salary, payroll taxes, benefits, annual incentive compensation payable as cash bonus awards, deferred cash bonus awards, and the amortization of equity-based bonus awards. Base salary and benefits are paid ratably throughout the year. Our annual equity-based bonus awards include fixed share compensation awards and liability classified fixed dollar awards as a component of the annual bonus awards for certain employees. These equity awards are generally subject to annual vesting requirements over a four-year period beginning at the date of grant, which occurs in the first quarter of each fiscal year; accordingly, expenses are amortized over the stated vesting period. In most circumstances, the unvested portion of these awards is subject to forfeiture should the employee depart from the Company. Cash bonuses, which are accrued monthly, are discretionary and dependent upon a number of factors including the Company's performance and are generally paid in the first fiscal quarter of each fiscal year with respect to prior year performance. Generally, a portion of the cash bonus is deferred and paid in the third quarter of the fiscal year in which the bonus is awarded. We refer to the ratio of our employee compensation and benefits expenses to our revenues as our "Compensation Ratio." Non-Compensation Expense. The balance of our operating expenses includes costs for travel, meals and entertainment, rent, depreciation and amortization, information technology and communications, professional fees, and other operating expenses. We refer to all of these expenses as non-compensation expenses. A portion of our non-compensation expenses fluctuates in response to changes in headcount. Other (Income)/Expense, Net Other (income)/expense, net includes (i) interest income earned on non-marketable and investment securities, cash and cash equivalents, loans receivable from affiliates, employee loans, and commercial paper, (ii) interest expense and fees on our 2015 Line of Credit or 2019 Line of Credit (each defined herein), (iii) interest expense on the loan payable to affiliate, loans payable to former shareholders, and the loan payable to non-affiliates, (iv) equity income and/or gains or losses from funds and partnership interests where we have more than a minor ownership interest or more than minor influence over operations, but do not have a controlling interest and are not the primary beneficiary, and (v) gains and/or losses associated with the reduction/increase of earnout liabilities. Results of Consolidated Operations The following is a discussion of our results of operations for the years endedMarch 31, 2021 and 2020. For a more detailed discussion of the factors that affected the revenues and the operating expenses of our CF, FR, and FVA business segments in these periods, see "Business Segments" below. Year Ended March 31, Change ($ in thousands) 2021 2020 2019 '20-'21 '19-'20 Revenues$ 1,525,452 $ 1,159,368 $ 1,084,385 32 % 7 % Operating expenses: Employee compensation and benefits 971,195 737,762 692,073 32 % 7 % Non-compensation expenses 146,100 192,005 173,215 (24) % 11 % Total operating expenses 1,117,295 929,767 865,288 20 % 7 % Operating income 408,157 229,601 219,097 78 % 5 % Other (income)/expense, net (1,071) (6,046) (5,223) (82) % 16 % Income before provision for income taxes 409,228 235,647 224,320 74 % 5 % Provision for income taxes 96,457 51,854 65,214 86 % (20) % Net income attributable to Houlihan Lokey, Inc. 312,771 183,793 159,106 70 % 16 % 30
-------------------------------------------------------------------------------- Table of Contents Year EndedMarch 31, 2021 versusMarch 31, 2020 Revenues were$1,525 million for the year endedMarch 31, 2021 , compared with$1,159 million for the year endedMarch 31, 2020 , representing an increase of 32%. For the year endedMarch 31, 2021 , CF revenues increased 24%, FR revenues increased 52%, and FVA revenues increased 17% when compared with the year endedMarch 31, 2020 . Operating expenses were$1,117 million for the year endedMarch 31, 2021 , compared with$930 million for the year endedMarch 31, 2020 , an increase of 20%. Employee compensation and benefits expense, as a component of operating expenses, was$971 million for the year endedMarch 31, 2021 , compared with$738 million for the year endedMarch 31, 2020 , an increase of 32%. The increase in employee compensation and benefits expense was primarily due to the increase in revenues for the fiscal year. The Compensation Ratio was approximately 64% for both the years endedMarch 31, 2021 and 2020. Non-compensation expenses, as a component of operating expenses, were$146 million for the year endedMarch 31, 2021 , compared with$192 million for the year endedMarch 31, 2020 , a decrease of (24)%. The decrease in non-compensation expenses was primarily driven by lower travel, meals, and entertainment expenses and other operating expenses. The decrease in travel, meals, and entertainment expenses was primarily driven by reduced travel and entertainment activity as a result of the COVID-19 pandemic. The decrease in other operating expenses was due to a reduction in other miscellaneous costs, also driven in large part by the COVID-19 pandemic. Other (income)/expense, net was$(1.1) million for the year endedMarch 31, 2021 , compared with$(6.0) million for the year endedMarch 31, 2020 . The decrease in other (income)/expense, net was primarily a result of lower interest (income) generated by our investment securities and a gain recognized from the reduction in the fair value of earnout liabilities associated with two of our acquisitions for the year endedMarch 31, 2020 , which did not repeat in fiscal 2021. The provision for income taxes for the year endedMarch 31, 2021 was$96.5 million , which reflected an effective tax rate of 24%. The provision for income taxes for the year endedMarch 31, 2020 was$51.9 million , which reflected an effective tax rate of 22%. The increase in the Company's tax rate during the year endedMarch 31, 2021 relative to the year endedMarch 31, 2020 was primarily a result of a beneficial state true-up that occurred in the quarter endedMarch 31, 2020 that did not repeat in the quarter endedMarch 31, 2021 . 31 -------------------------------------------------------------------------------- Table of Contents Business Segments The following table presents revenues, expenses, and contributions from our continuing operations by business segment. The revenues by segment represents each segment's revenues, and the profit by segment represents profit for each segment before corporate expenses, Other (income)/expense, net, and income taxes. Year Ended March 31, Change ($ in thousands) 2021 2020 2019 20-'21 19-'20 Revenues by segment Corporate Finance$ 802,853 $ 646,788 $ 607,333 24 % 6 % Financial Restructuring 534,747 352,517 317,774 52 % 11 % Financial and Valuation Advisory 187,852 160,063 159,278 17 % - % Revenues$ 1,525,452 $ 1,159,368 $ 1,084,385 32 % 7 % Segment profit (1) Corporate Finance$ 250,513 $ 179,660 $ 177,575 39 % 1 % Financial Restructuring 224,215 107,714 73,691 108 % 46 % Financial and Valuation Advisory 46,642 35,172 26,334 33 % 34 % Total segment profit 521,370 322,546 305,986 62 % 5 % Corporate expenses (2) 113,213 92,945 86,889 22 % 7 % Other (income)/expense, net (1,071) (6,046) (5,223) (82) % 16 % Income before provision for income taxes$ 409,228 $ 235,647 $ 224,320 74 % 5 % Segment Metrics: Number of Managing Directors Corporate Finance 120 123 108 (2) % 14 % Financial Restructuring 47 45 44 4 % 2 % Financial and Valuation Advisory 31 30 33 3 % (9) % Number of closed transactions/Fee Events (3) Corporate Finance 360 309 284 17 % 9 % Financial Restructuring 138 99 81 39 % 22 % Financial and Valuation Advisory 1,540 1,385 1,377 11 % 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 revenues are accrued. Segment Profit may vary significantly between periods depending on the levels of collaboration among the different segments. (2)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. (3)Fee Events applicable to FVA only; a Fee Event includes any engagement that involves revenue activity during the measurement period with a revenue minimum ofone thousand dollars . References to closed transactions should be understood to be the same as transactions that are "effectively closed" as described in Note 2 of our Consolidated Financial Statements. Corporate Finance Year EndedMarch 31, 2021 Compared to the Year EndedMarch 31, 2020 Revenues for CF were$803 million for the year endedMarch 31, 2021 , compared with$647 million for the year endedMarch 31, 2020 , representing an increase of 24%. The increase in revenues was primarily a result of a significant increase in the number of transactions that closed and an increase in the average transaction fee on closed transactions for the year endedMarch 31, 2021 , compared with the year endedMarch 31, 2020 . Segment profit for CF was$251 million for the year endedMarch 31, 2021 , compared with$180 million for the year endedMarch 31, 2020 , representing an increase of 39%. The increase in segment profit was primarily a result of higher revenues and lower non-compensation expenses as a percentage of revenues for the year endedMarch 31, 2021 , compared with the year endedMarch 31, 2020 . 32 -------------------------------------------------------------------------------- Table of Contents Financial Restructuring Year EndedMarch 31, 2021 Compared to the Year EndedMarch 31, 2020 Revenues for FR were$535 million for the year endedMarch 31, 2021 , compared with$353 million for the year endedMarch 31, 2020 , representing an increase of 52%. The increase in revenues was primarily due to a significant increase in the number of closed transactions and average transaction fee on closed transactions for the year endedMarch 31, 2021 , compared with the year endedMarch 31, 2020 . Segment profit for FR was$224 million for the year endedMarch 31, 2021 , compared with$108 million for the year endedMarch 31, 2020 , an increase of 108%. The increase in segment profit was primarily a result of the increase in revenues and lower non-compensation expenses as a percentage of revenues for the year endedMarch 31, 2021 , compared with the year endedMarch 31, 2020 . Financial and Valuation Advisory Year EndedMarch 31, 2021 Compared to the Year EndedMarch 31, 2020 Revenues for FVA were$188 million for the year endedMarch 31, 2021 , compared with$160 million for the year endedMarch 31, 2020 , representing an increase of 17%. The increase in revenues was primarily due to an increase in the number of fee events and average fee per fee event for the year endedMarch 31, 2021 , compared with the year endedMarch 31, 2020 . Segment profit for FVA was$47 million for the year endedMarch 31, 2021 , compared with$35 million for the year endedMarch 31, 2020 , representing an increase of 33%. The increase in segment profit was primarily a result of the increase in revenues and lower non-compensation expenses as a percentage of revenues for the year endedMarch 31, 2021 , compared with the year endedMarch 31, 2020 . Corporate Expenses Year EndedMarch 31, 2021 Compared to the Year EndedMarch 31, 2020 Corporate expenses were$113 million for the year endedMarch 31, 2021 , compared with$93 million for the year endedMarch 31, 2020 , representing an increase of 22%. The increase in corporate expenses was primarily a result of increased non-compensation expenses for the year endedMarch 31, 2021 , compared with the year endedMarch 31, 2020 . Liquidity and Capital Resources Our current assets comprise cash and cash equivalents, investment securities, receivables from affiliates, accounts receivable, and unbilled work in progress related to fees earned from providing advisory services. Our current liabilities include deferred income, accounts payable and accrued expenses, accrued salaries and bonuses, income taxes payable, and current portion of loan obligations. Our cash and cash equivalents include cash held at banks. We maintain moderate levels of cash on hand in support of regulatory requirements for our registered broker-dealer. As ofMarch 31, 2021 and 2020, we had$283 million and$174 million of cash in foreign subsidiaries, respectively. Our excess cash may be invested in short term investments, including treasury securities, commercial paper, certificates of deposit, investment grade corporate debt securities, and special purpose acquisition companies. Please refer to Note 6 for further detail. OnNovember 16, 2015 , we issued the loan payable to non-affiliates in connection with the Leonardo transaction, which is aEUR 14.0 million note bearing interest at an annual rate of 1.50% and is payable onNovember 16, 2040 . Under certain circumstances, the note may be paid in part or in whole over a five-year period in equal annual installments. In each ofJanuary 2017 ,December 2017 ,December 2018 , andDecember 2019 , we paid a portion of this loan in the amount ofEUR 2.9 million . During the quarter endedDecember 31, 2020 , the Company completed its final scheduled principal payment, extinguishing the liability. See Note 1 and Note 10 for additional information. 33 -------------------------------------------------------------------------------- Table of Contents As ofMarch 31, 2021 and 2020, our Cash and cash equivalents, Investment securities, and Restricted cash were as follows: (In thousands) March 31, 2021 March 31, 2020 Cash and cash equivalents$ 846,851 $ 380,373 Investment securities 208,618 135,389
Total unrestricted cash and cash equivalents, including investment securities
1,055,469 515,762
Restricted cash (1) 373 373
Total cash, cash equivalents, and restricted cash, including investment securities
$
1,055,842
(1)Represents a deposit in support of a letter of credit issued for our
Our liquidity is highly dependent upon cash receipts from clients that are generally dependent upon the successful completion of transactions as well as the timing of receivables collections, which typically occur within 60 days of billing. As ofMarch 31, 2021 and 2020, we had$108 million and$81 million of Accounts receivable, net of credit losses, respectively. As ofMarch 31, 2021 and 2020, we had$118 million and$40 million of Unbilled work in progress, net of credit losses, respectively. Subsequent to the end of fiscalMarch 31, 2021 , our Board of Directors declared a quarterly cash dividend of$0.43 per share of common stock, payable onJune 15, 2021 to shareholders of record as of the close of business onJune 2, 2021 . Our previously active revolving line of credit pursuant to the loan agreement, dated as ofAugust 18, 2015 , by and amongHoulihan Lokey , certain domestic subsidiaries ofHoulihan Lokey party thereto andBank of America, N.A ., amendedJuly 28, 2017 andAugust 15, 2019 (the "2015 Line of Credit"), which provided a revolving line of credit of$75.0 million , was refinanced and replaced with the 2019 Line of Credit (as defined below). OnAugust 23, 2019 , the Company entered into a new syndicated revolving line of credit with theBank of America, N.A . and certain other financial institutions party thereto, which allows for borrowings of up to$100 million (and, subject to certain conditions, provides the Company with an expansion option, which, if exercised in full, would provide for a total credit facility of$200 million ) and matures onAugust 23, 2022 (the "2019 Line of Credit"). As ofMarch 31, 2021 , no principal was outstanding under the 2019 Line of Credit. 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. The loan agreement requires compliance with certain loan covenants including but not limited to the maintenance of minimum consolidated earnings before interest, taxes, depreciation and amortization of no less than$150 million as of the end of any quarterly 12-month period and certain leverage ratios including a consolidated leverage ratio of less than 2.00 to 1.00. As ofMarch 31, 2021 , we were, and expect to continue to be, in compliance with such covenants.
On
The majority of the Company's payment obligations and commitments pertain to routine operating leases. The Company also has various obligations relating to notes payable and contingent consideration issued in connection with businesses previously acquired (see Note 10 included in Part II, Item 8 of this Form 10-K). In connection with certain acquisitions, certain employees may be entitled to deferred consideration, primarily in the form of retention payments, should certain service and/or performance conditions be met in the future. As a result of these conditions, such deferred consideration would be expensed as compensation in current and future periods and has been accrued as liabilities on the Consolidated Balance Sheets as ofMarch 31, 2021 and 2020. 34 -------------------------------------------------------------------------------- Table of Contents Cash Flows Our operating cash flows are primarily influenced by the amount and timing of receipt of advisory fees and the payment of operating expenses, including payments of incentive compensation to our employees. We pay a significant portion of our incentive compensation during the first and third quarters of each fiscal year. A summary of our operating, investing, and financing cash flows is as follows: Year Ended March 31, (In thousands) March 31, 2021 March 31, 2020 March 31, 2019 Operating activities: Net income$ 312,771 $ 183,793 $ 159,106 Non-cash charges 86,837 100,214 48,894 Other operating activities 180,229 3,662 29,470 Net cash provided by operating activities 579,837 287,669 224,274 Net cash provided by/(used in) investing activities (99,748) (33,144) 6,459 Net cash (used in) financing activities (26,823) (152,139) (236,138) Effects of exchange rate changes on cash and cash equivalents 13,212 (7,755) (8,703)
Net increase/(decrease) in cash, cash equivalents, and restricted cash
466,478 94,631 (14,108)
Cash, cash equivalents and restricted cash - beginning of period
380,746 286,115 300,223
Cash, cash equivalents and restricted cash - end of period
$ 380,746 $ 286,115 Year EndedMarch 31, 2021 Operating activities resulted in a net inflow of$579.8 million for fiscal 2021, which was greater than the prior year due primarily to higher net income for the year and an increase in accrued salaries and bonuses. Investing activities resulted in a net outflow of$(99.7) million for fiscal 2021, primarily due to purchases of new investment securities, partially offset by the sale or maturity of investment securities and acquisitions of property and equipment. Financing activities resulted in a net outflow of$(26.8) million primarily related to (i) dividend distributions, (ii) share repurchases, and (iii) payments to settle employee tax obligations on share-based awards, partially offset by the proceeds from the Company'sMay 2020 offering. Year EndedMarch 31, 2020 Operating activities resulted in a net inflow of$287.7 million for fiscal 2020, which was greater than the prior year due primarily to higher net income for the year and a reduction in unbilled work in progress. Investing activities resulted in a net outflow of$33.1 million primarily due to purchases of new investment securities, partially offset by an increase in the sale or maturity of existing investment securities and acquisitions of property and equipment. Financing activities resulted in a net outflow of$152.1 million primarily related to (i) dividend distributions, (ii) payments to settle employee tax obligations on share-based awards, and (iii) share repurchases. Critical Accounting Policies and Estimates We believe that the critical accounting policies and practices included below are both most important to the portrayal of the Company's financial condition and results, and require management's most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. For a discussion of these and other significant accounting policies and their impact on our consolidated financial statements, see Note 2 included in part II, Item 8 of this Form 10-K. The preparation of consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects of revisions are reflected in the period for which they are determined to be necessary. 35 -------------------------------------------------------------------------------- Table of Contents Recognition of Revenue The Company adopted ASU 2014-09, Revenue from Contracts with Customers, onApril 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 used the modified retrospective method that resulted 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. CF provides general financial advisory services in addition to advice on mergers and acquisitions and capital markets offerings. We advise public and private institutions on a wide variety of situations, including buy-side and sell-side transactions, as well as leveraged loans, private mezzanine debt, high-yield debt, initial public offerings, follow-ons, convertibles, equity private placements, private equity, and liability management transactions, and advise financial sponsors on all types of transactions. The majority of our CF revenues consists of Completion Fees. A CF transaction can fail to be completed for many reasons that are outside of our control. In these instances, our fees are generally limited to Retainer Fees and in some cases Progress Fees that may have been received. FR provides advice to debtors, creditors and other parties-in-interest in connection with recapitalization/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. As part of 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, FR transactions 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. FVA 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 FVA 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 FVA business segment provides dispute resolution services to clients where fees are usually based on the hourly rates of our financial professionals. Unlike our CF or FR segments, the fees generated in our FVA segment are generally not contingent on the successful completion of a transaction. See Note 2 included in Part II, Item 8 of this Form 10-K for additional information. Provision for Income Taxes The Company files a consolidated federal income tax return, as well as consolidated and separate returns in state and local jurisdictions, and the Company reports income tax expense on this basis. See Note 12 included in Part II, Item 8 of this Form 10-K for additional information. Recent Accounting Developments For additional information on recently issued accounting developments and their impact or potential impact on our consolidated financial statements, see Note 2 included in Part II, Item 8 of this Form 10-K. 36
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